Supplemental Brief — Triangle Industries, Inc. v. Liberty Mutual Insurance

FILED

JUL 7 1992

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No. 91-1945 |

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Setaigesssteceeiene a

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1991

TRIANGLE INDUSTRIES, INC..,

a/k/a ANC HOLDINGS, INC.;

TRIANGLE PWC, INC.,

Petitioners,

Uv.

LIBERTY MUTUAL INSURANCE Co.,

NEW JERSEY PROPERTY/LIABILITY INSURANCE

GUARANTY ASSOCIATION, on behalf of

IDEAL MUTUAL INSURANCE COMPANY, in liquidation,

Respondents.

SUPPLEMENTAL BRIEF AND APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

STEPHEN M. ORLOFSKY

New Jersey Resident Partner

Woodland Falls Corporate Park

210 Lake Drive East, Suite 200

Cherry Hill, New Jersey 08002

(609) 779-3600

Counsel for Petitioners

PACKARD PRESS / LEGAL DIVISION, 1617 JFK BOULEVARD, PHILA, PA. 19103 (215) 563-9000

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TABLE OF CONTENTS

Page

SARMR COICO nck vest cccwicsaccdaccecs i

pe OR Be ys tf) Sr il

ee REPRE So Wy ae os RR ui ca each ee knees 1

SE 5 hash 44s 4k bee eek een oaks 2

1. LIBERTY MUTUAL IS COLLATERALLY

ESTOPPED BY THIS COURT’S DECI-

SION IN PARKLANE HOSIERY, CO. INC.

v. SHORE FROM RELITIGATING AN IS-

SUE WHICH WAS RESOLVED AGAINST

IT BY THE DECISION OF THE SU-

PREME COURT OF APPEALS OF WEST

VIRGINIA IN THE RECENT CASE OF

JOY TECHNOLOGIES, INC. v. LIBERTY

MUTUAL INSURANCE COMPANY ....... 2

2. LIBERTY MUTUAL IS ESTOPPED FROM

CONTRADICTING ITS OWN INTERPRE-

TATION OF THE SUDDEN AND ACCI-

DENTAL EXCEPTION TO THE POLLU-

TION EXCLUSION CLAUSE WHICH IT

SUBMITTED TO THE COMMISSIONER

OF INSURANCE OF THE STATE OF

WEST VIRGINIA AND WHICH WAS

THEN RELIED UPON BY THE COMMIS-

SIONER IN APPROVING THE LAN-

GUAGE AT ISSUE IN THIS CASE FOR

INCLUSION IN INSURANCE POLICIES. 5

(NCTE wa ek weal wukh sions caeenwh awk 11

APPENDIX:

Joy Technologies, Inc. v. Liberty Mutual Insurance

Company, Docket No. 88-C-96-F (June 11,

Ma UN Soe cue als ee ada Mies ka vs 1-b

TABLE OF AUTHORITIES

Cases: Page

Broadwell Realty Services Inc. v. Fidelity & Casu-

alty Co., 218 N.J. Super. 516, 528 A.2d 76

(App. Div. EGBT) oso cccneee ene tee 6, 7,8

County of Cook v. MidCon Corp., 773 F.2d 892 (7th

Cit. 1965) ... <c aes cs eee nes caer eer esas 4

Falconer v. Meehan, 804 F.2d 72 (7th Cir. 1986) .. 4

Garza v. Henderson, 779 F.2d 390 (7th Cir. 1985). 4

General Dynamics Corp. v. American Tel. & Tel.

Co., 650 F.Supp 1274 (N.D. Ill. 1986) cerzif-

granted, amended, General Dynamics Corp. v.

American Tel. & Tel. Co., 658 F.Supp. 417

(N.D. ER. WT)... cca Sovaes cae eres crsae cae 3,4

Joy Technologies, Inc. v. Liberty Mutual Insurance

Company, Docket No. 88-C-96-F (June 11,

| |) +4 Perron rer ery he passim

Kunzelman v. Thompson, 799 F.2d 1172 (7th Cir.

1966)... os 300514 ose enka eee ens 4

Liberty Mut. Ins. Co. v. Triangle Industries, Inc.,

W. Va. , 390 S.E.2d 562 (1990) ans. con-

formed to Liberty Mutual Ins. Co. v. Triangle

Industries Inc., 765 F.Supp 881 (N.D. W. Va.

1991) affd Liberty Mut. Ins. Co. v. Triangle

Industries, Inc., 957 F.2d 1153 (4th Cir. 1992),

petition for cert. filed (June 1, 1992) ......... 1

Morton International Inc. v. General Accident In-

surance Co. of America, Docket No. 34,341

(certif. granted, March 2, 1992)............. 2,9

Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99

S.Ct. 645, 58 L.Bd.26 Soe C39 Te ck sccacs passim

United States v. Karlen, 645 F.2d 635 (8th Cir.

L9G] ). 05s cen cence taeeee eee 8

il

TABLE OF AUTHORITIES — (Continued)

Cases: Page

United States v. Utah Construction & Mining Co.,

384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642

aM a A ee ere are 8

The Collateral Estoppel Effect of Administrative

Agency Actions in Federal Civil Litigation, 46

Coe WHUER, Be BOY. OO CAPT) once ccccnscess 8

lil

INTRODUCTION

Petitioners, Triangle Industries, Inc. and Triangle

PWC, Inc. (collectively referred to as “Triangle” or

“Petitioners”), submit this Supplemental Brief and Ap-

pendix to invite this Court’s attention to the recent

decision of the Supreme Court of Appeals of West

Virginia in Joy Technologies, Inc. v. Liberty Mutual

Insurance Company, Docket No. 88-C-96-F (June 11,

1992), attached as an Appendix hereto at 1-b, in which

that Court, in reliance upon the statements made by

Liberty Mutual Insurance Company (“Liberty Mutual”)

in hearings conducted before the Commissioner of In-

surance of the State of West Virginia, found the “sudden

and accidental” exception language in the pollution

exclusion clause of a Comprehensive General Liability

(“CGL”) policy to mean “unexpected and unintended,”

with regard to the pollution “damage,” rather than the

pollution “release.” Jd. Hence, where the pollution dam-

age was unexpected and unintended, the sudden and

accidental exception to the pollution exclusion clause

operates to provide coverage.

In finding coverage for the insured in the Joy

Technologies case, the Supreme Court of Appeals of

West Virginia adopted one of the arguments advanced

by Triangle in Liberty Mutual Insurance Company v.

Triangle Industries, Inc., W. Va. , 290 S.E.2d

562 (1990)!, as well as the findings of the Commissioner

of Insurance for the State of West Virginia. 12-b through

14-b.

1. The same argument which the Supreme Court of Appeals of

West Virginia adopted in Joy Technologies was advanced by Trian-

gle when it was before that court. The court declined to reach the

issue, however, because it determined that New Jersey law gov-

erned the interpretation of the relevant insurance policy language.

2

Thus, the Supreme Court of Appeals of West Vir-

ginia has held in Joy Technologies that Liberty Mutual,

a party both to this case and Morton International Inc.

v. General Accident Insurance Co. of America, Docket

No. 34,341 (certif. granted, March 2, 1992), currently

pending before the Supreme Court of New Jersey, is

bound by its own interpretation of the policy language in

dispute in this. case, an issue which was fully and fairly

adjudicated before the Commissioner of Insurance of

the State of West Virginia and again before the Supreme

Court of Appeals of West Virginia in Joy Technologies.

Accordingly, the doctrine of offensive collateral estoppel,

announced by this Court in Parklane Hosiery Co. v.

Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552

(1979), applies to bar Liberty Mutual from relitigating

the policy language at issue in this case in any other

adjudication in which it is a party.

ARGUMENT

POINT 1

LIBERTY MUTUAL IS COLLATERALLY ES-

TOPPED BY THIS COURT’S DECISION IN PARK-

LANE HOSIERY, CO. INC. v. SHORE FROM RELI-

TIGATING AN ISSUE WHICH WAS RESOLVED

AGAINST IT BY THE DECISION OF THE SU-

PREME COURT OF APPEALS OF WEST VIRGINIA

IN THE RECENT CASE OF JOY TECHNOLOGIES,

INC. v. LIBERTY MUTUAL INSURANCE COM-

PANY.

The seminal case of Parklane Hosiery Co. Inc. v.

Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552

(1979), involved a successful attempt by Respondents,

the stockholders of Parklane Hosiery Co. Inc.

(“Parklane”) to assert offensive collateral estoppel

against Petitioner, Parklane, to bar it from relitigating

the question of whether its proxy statement was mate-

rially false and misleading, an issue which this Court

3

determined to have been “fully and fairly” litigated in an

earlier suit by the Securities Exchange Commission

(“SEC”) against Parklane, involving the same language

in the proxy statement. Parklane, 439 U.S. at 323, 99

S.Ct. at 647, 58 L.Ed.2d at 553.2

The Court has broad discretion to determine when

offensive collateral estoppel should be applied. Parklane,

439 U.S. at 322, 99 S.Ct. at 651, 58 L.Ed.2d at 553;

General Dynamics Corp. v. American Tel. & Tel. Co.,

650 F.Supp. 1274, 1282 (N.D. Ill. 1986) Certif. granted,

amended, General Dynamics Corp. v. American Tel. &

Tel. Co., 658 F.Supp. 417 (N.D. Ill. 1987). The under-

lying purpose of this doctrine is to avoid affording a

litigant “more than one full and fair opportunity for

judicial resolution of the same issue.” Parklane, 439

U.S. at 328, 99 S.Ct. at 650, 58 L.Ed. 2d at 558

(emphasis added). In Parklane, this Court ultimately

held that:

Since [Parklane] received a “full and fair” opportu-

nity to litigate their claims in the SEC action, the

contemporary law of collateral estoppel leads ines-

capably to the conclusion that [Parklane is] collater-

ally estopped from relitigating the question of

whether the proxy statement was materially false

and misleading.

Parklane, 439 U.S. at 333, 99 S.Ct. at 652, 58 LE.D. 2d

at 563.

The United States District Court for the Northern

District of Illinois articulated a four-part test for deter-

mining whether the doctrine is applicable to a given

situation:

When a plaintiff seeks to offensively, collaterally

estop a defendant from relitigating certain issues,

the plaintiff must establish that[:] (1) the party

against whom the estoppel is asserted was a party, to

2. This Court granted certiorari in Parklane because of an

inter-circuit conflict. Jd. at 326, 649, 554.

4

the prior litigation; (2) the issues were actually

litigated and decided on the merits in the earlier

suit; (3) the resolution of the particular issues was

necessary to the court’s judgment; and (4) the

issues in the prior suit are identical to those raised in

the subsequent suit.

General Dynamics, 650 F.Supp. at 1291, citing Falconer

v. Meehan, 804 F.2d 72 (7th Cir. 1986); Kunzelman v.

Thompson, 799 F.2d 1172, 1178 (7th Cir. 1986); Garza

v. Henderson, 779 F.2d 390, 392-93 (7th Cir. 1985); and

County of Cook v. MidCon Corp., 773 F.2d 892, 898-99

(7th Cir. 1985).

Generally, in addition to reviewing the elements of a

plaintiffs proofs described above, the court should con-

sider “whether application of collateral estoppel would

be substantially unfair to the party to be estopped.”

General Dynamics, 650 F.Supp. at 1282 (emphasis

added). According to the district court in General Dy-

namics, the “fairness” considerations include the follow-

ing: (a) the ability of the party asserting collateral

estoppel to join in the prior action; (2) incentive to

litigate in the prior action; (3) any indication that the

first court, at least in patent cases, failed to grasp the

issues fully; (4) the existence of judgments inconsistent

with the prior judgment; and (5) whether the party to be

estopped had a “full and fair opportunity to litigate the

issue in the prior action.” Jd. at 1282, citing, among

others, Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99

S.Ct. 645, 650-51, 58 L.Ed.2d 552 (1979).

5

POINT 2

LIBERTY MUTUAL IS ESTOPPED FROM CON-

TRADICTING ITS OWN INTERPRETATION OF

THE SUDDEN AND ACCIDENTAL EXCEPTION TO

THE POLLUTION EXCLUSION CLAUSE WHICH

IT SUBMITTED TO THE COMMISSIONER OF IN-

SURANCE OF THE STATE OF WEST VIRGINIA

AND WHICH WAS THEN RELIED UPON BY THE

COMMISSIONER IN APPROVING THE LAN-

GUAGE AT ISSUE IN THIS CASE FOR INCLUSION

IN INSURANCE POLICIES.

In the instant case, Petitioner is seeking to estop

Respondent, Liberty Mutual, from relitigating an issue

which Liberty Mutual previously litigated and _ lost.

There is virtually no difference between the language of

the Liberty Mutual policy discussed by the Court in Joy

Technologies, 5-b, and the language of Liberty Mutual’s

policy in this case. See Triangle’s Petition for Writ of

Certiorari at 4-5. The issue in both cases is whether the

sudden and accidental exception to the pollution exclu-

sion clause applies when the pollution “damage” is

neither expected nor intended, or when the “release” of

the pollution is neither expected nor intended.

In Joy Technologies, the Court relied on Liberty

Mutual’s interpretation of the policy language, as ad-

duced from its own internal records and the position it

asserted before the Commissioner of Insurance for the

State of West Virginia. 12-b.

In one of its own interoffice memoranda, Liberty

Mutual described the policy language at issue as follows:

Coverage for gradual BI [bodily injury] or gradual

PD [property damage] resulting over a period of time

from exposure to the insured’s waste disposal. Ex-

amples would be gradual adverse effect of smoke,

fumes, air or stream pollution, contamination of

water supply or vegetation. We are all aware of cases

such as contamination of oyster beds, lint in the

6

water intake of down stream industrial sites, the

Denora Pa. atmospheric contamination, and the

like.

11-b (emphasis and brackets in original).

In addition, before the exclusion clause could be

legally incorporated into the standard form CGL policy

in West Virginia, it had to be approved by the West

Virginia Insurance Commissioner. 12-b. In the resulting

hearings before the Commissioner of Insurance, Liberty

Mutual expressly relied upon the following language of

the Insurance Rating Board of the Insurance Service

Office of which Liberty Mutual is a member:

Coverage for pollution or contamination is not pro-

vided in most cases under present policies because

the damages can be said to be expected or intended

and thus are excluded by the definition of occur-

rence. The above exclusion [the exclusion which is

in issue in the present case] clarifies this situation so

as to avoid any question of intent. Coverage is

continued for pollution or contamination caused

injuries when the pollution or contamination results

from an accident...

12-b through 13-b (emphasis added, brackets in origi-

nal). The landmark New Jersey case of Broadwell Realty

Services, Inc. v. Fidelity & Casualty Co., 218 N.J. Super

516, 534, 528 A.2d 76 (App. Div. 1987) quoted and

relied on the very same language in holding that unex-

pected and unintended pollution damage was covered

under an identical CGL policy. Jd. at 534 (quoted in

footnote 1). Based upon this language from the Insur-

ance Rating Board and the extensively cited decisional

law, the New Jersey Appellate Division in Broadwell

held:

In our view, the pollution exclusion focuses upon

the intention, expectation and foresight of the in-

sured. If an insured knows that liability incurred by

a foreseeable polluting event is covered by his policy,

~

/

he is tempted to diminish his precautions and relax

his vigilance. Conversely, we perceive no sound

basis anchored in the policy language which re-

quires prescience or clairvoyance on the part of the

insured. Where the insured has taken reasonable

precautions against contaminating the environment

and the dispersal of pollutants is both accidental and

unforeseen, we are of the view that the “sudden and

accidental” exception to the exclusion is applicable

and the loss is thereby covered by the policy.

Id. at 535.

In Joy Technologies, the Court also relied on sub-

missions from the Commissioner of Insurance who

presided over the hearings in which Liberty Mutual

participated:

The insurers stated in pre-hearing submissions, at

the hearing, and in post-hearing submissions that

the proposed endorsement forms did not limit or

narrow coverage and were not intended to do so.

Based upon those representations, I concluded that

the pollution endorsement forms did not narrow or

limit coverage and, instead, were mere clarifications

of existing coverage as defined and limited by the

definition of the term “occurrence.” Accordingly, I

approved the endorsement forms IRB 335 and

MIRB MB GO008 submitted respectively by the In-

surance Rating Board and the Mutual Insurance

Rating Bureau.

13-b (emphasis added).

In the written Order of the Commissioner approving

the identical pollution exclusion language at issue in

this case, an Order from which no appeal was taken, he

Stated:

(1) The said companies and rating organizations

have represented to the Insurance Commissioner,

orally and in writing, that the proposed exclusions

... are merely clarifications of existing coverage as

el

8

defined and limited in the definitions of the term

“occurrence”, contained in the respective policies to

which said exclusions would be attached;

(2) To the extent that said exclusions are mere

clarifications of existing coverages, the Insurance

Commissioner finds that there is no objection to the

approval of such exclusions.

14-b. Although this Order is from an administrative

agency and not the result of a judicial proceeding, this

court has ruled that such an Order is entitled to be

accorded preclusive effect. United States v. Utah Con-

struction & Mining Co., 384 U.S. 394, 421-22, 86 S.Ct.

1545, 1559-1560, 16 L.Ed.2d 642 (1966); United States

v. Karlen, 645 F.2d 635, 638 (8th Cir. 1981); and The

Collateral Estoppel Effect of Administrative Agency

Actions in Federal Civil Litigation, 46 Geo. Wash. L.

Rev. 65 (1977). In addition, the decision in Joy Technol-

ogtes is Clearly appropriate for the application of offen-

sive collateral estoppel under the Parklane doctrine

since it was a full adversarial proceeding.

The Court in Joy Technologies ultimately deter-

mined:

In view of the fact that in the present case the

insurance group representing Liberty Mutual un-

ambiguously and officially represented to the West

Virginia Insurance Commission that the exclusion

in question did not alter coverage under the policies

involved, coverage which included the injuries in

the present case, this Court must conclude that the

policies issued by Liberty Mutual covered pollution

damage, even if it resulted over a period of time and

was gradual, so long as it was not expected or

intended. -

15-b (emphasis added) (citing, among other cases,

Broadwell Realty Services Inc. v. Fidelity & Casualty

Co., 218 N.J. Super. 516 (App. Div. 1987)).

G

Liberty Mutual has had ample opportunity to fairly

and fully adjudicate the interpretation of the policy

language at issue in these cases. It should now be bound

by those adjudications. Triangle could not have been

made a party to the decision in Joy Technologies, so it

- must endeavor to prevent Liberty Mutual from making a

contrary argument in the instant case; Liberty Mutual is

also attempting to make a contrary argument in Morton

International Inc. v. General Accident Insurance Co. of

America, Docket No. 34,341 (certif. granted, March 2,

1992). It is likely that petitioners in Morton, who are also

“insureds” of Liberty Mutual, will also endeavor to

offensively collaterally estop Liberty Mutual from suc-

ceeding on that issue. Hence, if this Court chooses not to

reverse the Fourth Circuit in this matter, it must at least

Stay the proceedings pending the New Jersey Supreme

Court’s ruling.

The doctrine of offensive collateral estoppel, as

enunciated in Parklane, is clearly applicable to Liberty

Mutual in this case. When one compares this case with

Parklane for the purpose of applying the doctrine of

offensive collateral, it is evident that: (1) Liberty Mutual

stands in the shoes of Parklane; (2) the Commissioner of

Insurance for the State of West Virginia stands in the

shoes of the SEC; and (3) Triangle stands in the shoes of

Shore and the other stockholders. Liberty Mutual is in

the same position occupied by Parklane, in that it has

had opportunities to litigate the “sudden and accidental”

language at issue, both before the Commissioner of

Insurance of West Virginia and before the Supreme

Court of Appeals of West Virginia in Joy Technologies. In

addition, the issue is again being litigated, both in this

case and before the Supreme Court of New Jersey in

Morton International, Inc. v. General Accident Insur-

ance Co. of America, Docket No. 34,341 (certif. granted,

March 2, 1992).

In order to avoid the inequity of allowing Liberty

Mutual to relitigate the “sudden and accidental” lan-

guage of the pollution exclusion clause, which Liberty

——————

10

Mutual previously affirmatively stated to the West Vir-

ginia Commissioner of Insurance, was to be interpreted

to provide coverage in circumstances identical to those

presented in this case, this Court should accept jurisdic-

tion over this matter and issue a Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

reversing the Circuit Court’s ruling under the offensive

collateral estoppel doctrine. In the alternative, this Court

should issue the Writ and then stay the proceedings

pending the decision of the New Jersey Supreme Court

in Morton, a decision which will finally and ultimately

decide the meaning of “sudden and accidental” under

the law of the State of New Jersey, the law which the

Supreme Court of Appeals of the State of West Virginia

determined should apply in this case.

11

CONCLUSION

For the reasons set forth above in this Supplemental

Brief filed pursuant to Sup. Ct. R. 15.7, Petitioners

respectfully request this Court to issue a Writ of Certio-

rari to the United States Court of Appeals for the Fourth

Circuit in this matter, and to stay the proceedings,

pending the decision in Morton.

In the alternative, the Writ should be issued and the

decision of the Fourth Circuit reversed because the

doctrine of Offensive Collateral Estoppel, as enunciated

in Parklane, serves to bar Liberty Mutual from relitigat-

ing the CGL policy language at issue in this case which

has previously been fully and fairly adjudicated before

the Commissioner of Insurance of West Virginia and

again before the Supreme Court of Appeals of West

Virginia in the Joy Technologies case.

Respectfully submitted,

STEPHEN M. ORLOFSKY

New Jersey Resident Partner

BLANK, ROME, COMISKY &

McCAULEY

Woodland Falls Corporate Park

210 Lake Drive East, Suite 200

Cherry Hill, New Jersey 08002

(609) 779-3600

Attorneys for Petitioners,

Triangle Industries, Inc. (now

Trian Holdings, Inc.) and

Triangle PWC, Inc.

Dated: July 6, 1992

APPENDIX

IN THE SUPREME COURT OF APPEALS

OF WEST VIRGINIA

January 1992 Term

No. 20153

JOY TECHNOLOGIES, INC.,

Plaintiff Below, Appellant,

Ve

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants Below, Appellee

Appeal from the Circuit Court of Mercer County

Honorable John R. Frazier, Judge

Civil Action No. 88-C-96-F

REVERSED AND REMANDED WITH DIRECTIONS

Submitted: January 21, 1992

Filed: June 11, 1992

J. W. Montgomery, III

Michael H. Ginsberg

Curt Vazquez

Nancy L. Heilman

Cohen & Grigsby

Bluefield, West Virginia

Attorneys for the Appellant

James M. Brown

Lee H. Glickenhaus

Martha J. Koster

Pittsburgh, Pennsylvania

Attorneys for the Appellee

JUSTICE BROTHERTON delivered the Opinion of the

Court.

1-b

2-b

SYLLABUS BY THE COURT

1. “In a case involving the interpretation of an

insurance policy, made in one State to be performed in

another, the law of the state of the formation of the

contract shall govern, unless another state has a more

significant relationship to the transaction and the par-

ties, or the law of the other state is contrary to the public

policy of this state.” Syllabus, Liberty Mutual Insurance

Company v. Triangle Industries, Inc., __.. W.Va.

390 S.E.2d 562 (1990).

2. The public policy of the State of West Virginia is

that the law of the State should be administered in such

a way as to insure that corporations which seek to do

business in West Virginia act in a manner consistent

with their studied, unambiguous, official, affirmative

representations to the State, its subdivisions, or its

regulatory bodies.

>

Brotherton, Justice:

This is an appeal by Joy Technologies, Inc.,! from an

order entered by the Circuit Court of Mercer County on

June 26, 1990. That order granted Liberty Mutual

Insurance Company? partial summary judgment in an

action brought by Joy Technologies for indemnification

for certain pollution claims which had been paid by Joy

Technologies. Liberty Mutual had issued commercial

general liability policies to Joy Technologies which had

obligated it to defend and indemnify Joy for liability

claims for personal injury and property damage. It,

however, refused to indemnify Joy on the pollution

claims involved in the present case on the ground that

an exclusion clause contained in certain of its policies

excluded coverage for such claims. The circuit court, in

1. Hereinafter variously also referred to as “Joy Technologies”

or “Joy”.

2. Also referred to as “Liberty Mutual”.

3-b

granting Liberty Mutual summary judgment, in es-

sence, found that the exclusion clause precluded cover-

age for pollution damage unless the pollution was

“sudden and accidental.” In reaching that conclusion, it

appears that the circuit court, relying upon the holding

of this Court in Liberty Mutual Insurance Company v.

Triangle Industries, Inc., W. Va. , 390 S.E.2d

562 (1990), applied the law of Pennsylvania, which

indicates that the exclusion clause in question relieves

an insurer of liability unless the pollution was “sudden

and accidental.”

On appeal, Joy Technologies claims that West Vir-

ginia had a more significant relationship with the parties

in this case than Pennsylvania and that, under the

circumstances, and under the holding in Liberty Mutual

Insurance Company v. Triangle Industries, Inc., Id., the

law of West Virginia rather than the law of Pennsylvania

should have been applied in resolving the issues raised.

It also claims that under West Virginia law the exclusion

clause should be construed to preclude liability of the

insurer only when pollution damage was expected or

intended by the insured.

After reviewing the questions presented and the

record, this Court agrees with Joy Technologies’ asser-

tions. Accordingly, the judgment of the Circuit Court of

Mercer County is reversed.

The facts in this case show that Joy Technologies,

Inc., is a successor of Joy Manufacturing Company. Joy

Manufacturing Company was a Pennsylvania corpora-

tion with executive offices in Pennsylvania and with a

facility in West Virginia.

In 1968, Joy Technologies, Inc., purchased a man-

ufacturing plant in Bluefield, West Virginia. Joy utilized

the facility for cleaning and rebuilding mining machin-

ery. Joy sold the plant in 1980 and moved its operations

to Bluefield, Virginia. Joy continues to employ a number

of West Virginia residents in its Bluefield, Virginia,

operations.

4-b

In cleaning and repairing mining machinery at its

West Virginia facility, Joy utilized oil containing poly-

chlorinated biphenyls or “PCBs.” The same type of oil

had been utilized at the facility before Joy purchased it.

In the 1970’s, concerns arose over the potential

environmental hazards of PCBs, and in the mid-1970’s

the United States Environmental Protection Agency

advised Joy Technologies, Inc., of the concerns. Subse-

quently, Joy adopted measures to prevent pollution from

the PCBs.

In spite of its efforts, in 1985 Joy discovered PCB

contamination at the Bluefield, West Virginia, site and

on neighboring property. Joy notified the Environmental

Protection Agency and negotiated an order with the

Agency to remediate the contamination. Pursuant to the

order, Joy eliminated the pollution at a cost of over

$6,000,000.

Additionally, after the pollution was discovered,

owners of property adjoining the Bluefield site filed suit

against Joy for property damage, and the individual who

had purchased the Bluefield site from Joy, Elwin Aliff,

brought an action claiming that the PCB contamination

had diminished the value of the property. Personal

injury claims were also asserted by employees, former

employees, and their spouses who alleged that they had

suffered bodily injuries as a result of exposure to PCBs

and other substances.

From 1944 until January 1, 1978, Liberty Mutual

Insurance Company, a Massachusetts corporation with

its principal place of business in Massachusetts, issued

commercial general liability policies to Joy. The policies

obligated Liberty Mutual to defend and indemnify Joy

for liability claims based on personal injury or property

damage arising out of an “occurrence.” The policies

defined “occurrence” as “an accident, including contin-

uous or repeated exposure to conditions, which results

in bodily injury or property damage neither expected nor

intended from the standpoint of the insured.”

5-b

The policies which Liberty Mutual issued to Joy

Technologies beginning in 1972 contained an exclusion

clause. The exclusion clause provided that coverage did

not extend:

[T]o bodily injury or property damage arising out of

the discharge, dispersal, release or escape of smoke,

vapors, soot, fumes, acids, alkalis, toxic chemicals,

liquids or gases, waste materials or other irritants,

contaminants or pollutants into or upon land, the

atmosphere or any water course or body of water;

but this exclusion does not apply if such discharge,

dispersal, release or escape is sudden and

accidental.

After the various claims mentioned above arose

against Joy Technologies as a result of the pollution of

the Bluefield, West Virginia, facility, Liberty Mutual

Insurance Company, taking the position that the exclu-

sion clause contained in the policies issued after 1971

relieved it of liability, refused to indemnify and defend

Joy as was generally required on the policies which it

had issued to Joy. Joy, therefore, instituted this action for

3. In the record of the present appeal a copy of only one policy

has been submitted to this Court. That policy bore an expiration

dated of October 1, 1974. In addition to the language quoted in the

body of the opinion, the 1974 policy submitted to the Court contains

another “Contamination or Pollution Exclusion” which has some-

what different language. The page containing that additional clause

does not state an effective date or an expiration date, and it is not

clear to the Court whether it was actually a part of the policy issued

to Joy Technologies.

Both Joy Technologies and Liberty Mutual, in their briefs,

identify the language quoted in the opinion as constituting the

exclusion in issue in this case. The same language was also

submitted to the West Virginia Insurance Commissioner in 1970 for

his consideration and approved as hereinafter discussed.

Given the nature of the record and the representations of the

parties in their briefs, this Court has based its conclusions on the

clause quoted in the body of the opinion rather than on the

additional “Contamination or Poilution Exclusion” submitted in the

record.

6-b

breach of contract and for a declaratory judgment that it

is entitled to defense and idemnity for personal injury

and property liability arising out of the pollution at the

Bluefield facility.

After the filing of Joy’s complaint, Liberty Mutual

moved for summary judgment on the claims arising

after 1971 at the Bluefield, West Virginia, facility on the

basis of the exclusion clause contained in the policies

issued to Joy after 1971. Liberty Mutual took the position

that since the pollution was not “sudden and acciden-

tal,” the exclusion clause barred it of liability for the

years that its policies contained the clause. In support of

the motion, Liberty Mutual introduced depositions taken

in an underlying personal injury and property damage

case brought against Joy Technologies, Inc. The evi-

dence from that case showed that Joy rebuilt motors

used in mining equipment at the Bluefield, West Vir-

ginia, facility. The rebuilding of the motors required the

emptying of PCB contaminated oil. In emptying the

motors, the oil was drained into five-gallon buckets.

From 1968 until 1972 or 1973, Joy’s employees regularly

disposed of the oil by dumping it down a storm drain

outside the AC motor room at the facility, by dumping it

into a gravel parking lot, or by dumping it on a hill or

bank at the site. There was also evidence that PCB-

contaminated oil was routinely spattered inside the

building where the motors were rebuilt, that the oil was

everywhere, and that there were puddles of it on the

floor. At times, buckets of the oil were knocked over by

forklifts and spilled. The testimony also indicated that

spills occurred on a regular basis. Liberty Mutual essen-

tially argued that this evidence showed that the pollution

was not “sudden and accidental” and that coverage for it

was excluded by the exclusion clause.

At the submission of briefs and oral arguments, the

Circuit Court of Mercer County granted Liberty Mut-

ual’s motion for summary judgment. In so doing, the

Court apparently concluded that under Liberty Mutual

Insurance Company v. Triangle Industries, Inc., Id.,

7-b

Pennsylvania law governed the interpretation of the

exclusion clause in the policies issued by Liberty Mutual

in 1972 and the following years. Further, under Penn- -

sylvania law the exclusion clause precluded coverage for

claims arising out of pollution at the Bluefield facility for

the period Liberty Mutual’s policies contained the

clause. On June 26, 1990, the circuit court issued a

written order formally embodying its conclusions. It is

from that order that Joy Technologies, Inc., now appeals.

On appeal, Joy Technologies first asserts that West

Virginia had a more significant relationship with the

parties in the case than Pennsylvania and that, under

the circumstances, the circuit court should have applied

the law of West Virginia rather than the law of Pennsyl-

vania in resolving the issues presented.

The question of whether West Virginia law of Penn-

sylvania law applies in this case is somewhat critical

since Pennsylvania has carefully examined the exclu-

sion clause in issue in the present case and has con-

cluded that it is unambiguous and that its clear and

plain meaning is to exclude coverage for intentional

pollution and for unintentional pollution resulting from a

release or dispersal that occurs gradually over time.

Lower Paxton Township v. United States Fidelity &

Guaranty Company, 383 Pa.Super. 558, 557 A.2d 393

(1989). See also, United States Fidelity & Guaranty

Company v. The Korman Corp., 693 F.Supp. 253

(E.D.Pa. 1988), Fisher & Porter Company v. Liberty

Mutual Insurance Company, 656 F.Supp. 132, (E.D.Pa.

1986); Techalloy Company, Inc. v. Reliance Insurance

Company, 338 Pa. Super. 1, 487 A.2d 820 (1984).

In Liberty Mutual Insurance Company v. Triangle

Industries, Inc., Supra, this Court addressed the ques-

tion of what law should be applied in interpreting an

insurance policy. In the sole syllabus in that case, the

Court ruled that:

In a case involving the interpretation of an insur-

ance policy, made in one state to be performed in

—————___aeeeeeeeEe

8-b

another, the law of the state of the formation of the

contract shall govern, unless another state has a

more significant relationship to the transaction and

the parties, or the law of the other state is contrary to

the public policy of this state.

In adopting the rule in the Triangle Industries case

which favors_the application of the law of the forum in

which formation of the contract occurs, the Court rec-

ognized that “certainly, predictability and uniformity of

result” were desirable in contract negotiations and ap-

plication. The Court did not, however, preclude the

application of the law of another state where the other

state has a more significant-retationship to the transac-

tion and the parties, or where the law of the state of

formation is contrary to the public policy of the other

State.

The action 4n-the-present case arises out of the

expenditures of monies for remediating damage caused

by pollution to property in West Virginia, and it is rather

clear that the pollution arose from operations which

were conducted in West Virginia and involved a facility

located in West Virginia. Thus, the injury occurred in

West Virginia, the instrumentality of injury was located

in West Virginia, and the forum selected to try the issues

was West Virginia. These factors suggest that West

Virginia has had a very significant relationship to the

transaction and the parties. In fact, the relationship

would appear to be more substantial than that of Penn-

sylvania, where the contract was formed.

In a very recent case, similar to the one now before

the Court, the New Jersey Superior Court, Appellate

Division, concluded that contacts similar to those in the

present case were alone sufficient to justify the applica-

tion of the law of the forum rather than the law of the

jurisdiction where the contract was entered into. In that

case, Gilbert Spruance Co. v. Pennsylvania Manufactur-

ers’ Assn Ins. Co., No. A-1975-90TS (N.J.Super.

App.Div. Feb. 14, 1992), the New Jersey Court stated:

9-b

We hold that New Jersey courts should interpret

according to New Jersey law a pollution exclusion

clause contained in a comprehensive general liabil-

ity insurance policy, wherever written, which was

purchased to cover an operation or activity, wher-

ever its principal location, which generates toxic

wastes that predictably come to rest in New Jersey

and impose legal liabilities there on the insured. In

such a case, New Jersey has the dominant and

significant relationship with the parties, the trans-

action, and the outcome of the controversy.

slip op. at 10.

However, as indicated in Liberty Mutual Insurance

Company v. Triangle Industries, supra, a further sub-

stantial factor which might militate against the applica-

tion of the law of the state of contract formation is the

public policy of the state of litigation.

Certainly, in this Court’s view, an essential part of

the public policy of the State of West Virginia is that the

law of the State should be administered in such a way as

to insure that foreign corporations which seek to do

business in West Virginia act in a manner consistent

with their studied, unambiguous, official, affirmative

representations to the State, its subdivisions, or its

regulatory bodies.

As will hereinafter be discussed, this Court believes

that Liberty Mutual Insurance Company, in studied,-

affirmative and official communications with a regula-

tory authority of the State of West Virginia, prior to the

institution of this action, took the position that the

exclusion in question in the present case would have a

meaning and effect different from that attributed to it by

the State of Pennsylvania. In view of this, if this Court

held that Pennsylvania law applied to the questions in

issue, it would allow Liberty Mutual Insurance Com-

pany to take a position, and act in a manner, inconsistent

with Liberty Mutual’s studied, unambiguous, official

and affirmative representations. Such, in this Court’s

10-b

view, would be inconsistent with, and contrary to, the

public policy of this State.

Under the circumstances, the Court believes that in

spite of the general policy of the law favoring the

application of the law of a state where a contract is

formed, the Court, in line with the overall holding in the

syllabus of Liberty Mutual Insurance Company v. Tri-

angle Industries, Inc., supra, believes that the law of

West Virginia, rather than the law of Pennsylvania,

should govern the resolution of the questions involved in

the present case.

The question which the Court must now address is

what is the legal effect in West Virginia of the exclusion

in question in the policies issued by Liberty Mutual

Insurance Company. Before this question is addressed,

however, certain observations should be made regarding

the basic coverage language of the general commercial

liability policy.

The basic language of the policy states:

The company will pay on behalf of the insured all

sums which the insured shall become legally obli-

gated to pay as damages because of

Coverage A. bodily injury or

Coverage B. property damage

to which this policy applies, caused by an occur-

Fence ...

An occurrence is defined as:

“occurrence” means an accident, including contin-

uous or repeated exposure to conditions, which

results in bodily injury or property damage neither

expected nor intended from the standpoint of the

insured;

Thus, under the basic policy issued by Liberty

Mutual Insurance Company, Liberty Mutual obligated

itself to defend and indemnify Joy Technologies for

liability claims based on personal injury or property

11-b

damage arising out of a “occurrence,” and an “occur-

rence” was defined as “an accident, including continu-

ous or repeated exposure to conditions, which results in

bodily injury or property damage neither expected nor

intended from the standpoint of the insured.”

The record shows at the time Liberty Mutual

adopted this standard form for the commercial general

liability policy, a memorandum entitled “Summary of

Broadened Coverage Under New GL Policies With Nec-

essary Limitations to Make This Broadening Possible,”

was circulated internally within the company. That

memorandum indicated that the policies covered liabil-

ities including:

Coverage for gradual BI [bodily injury] or gradual

PD [property damage] resulting over a period of time

from exposure to the insured’s waste disposal. Ex-

amples would be gradual adverse effect of smoke,

fumes, air or stream pollution, contamination of

water supply or vegetation. We are all aware of cases

such as contamination of oyster beds, lint in the

water intake of down stream industrial sites, the

Donora Pa. atmospheric contamination, and the

like.

In interpreting the basic policy, courts have uni-

formly indicated that the language generally covers

claims arising from pollution. However, because of the

“expected” and “intended” language, intentional pollu-

tion claims are not covered. The fact that pollution has

occurred over a period of time, in the absence of an

element of intention or expectation, has not been held to

preclude coverage under the basic language. See Liberty

Mutual Insurance Company v. SCA Service, Inc., No.

88-6575 (Mass.Super., October 12, 1989); Kipin Indus-

tries, Inc. v. American Universal Insurance Company,

41 Ohio App.3d 228, 535 N.E.2d 334 (1987).

In the present case there were no facts elicited

which demonstrate that Joy Technologies at any level

intended at any time to harm property, persons, or

12-b

environment in conducting its business. In fact, certain

depositions indicate that the disposal practices used by

Joy, and which were ultimately found to have caused

pollution, were commonly accepted in the industry at

the time. When Joy acquired knowledge of possible

harm from the practices, it changes those practices.

In this Court’s view, the evidence adduced does not

support the conclusion that Joy Technologies expected

or intended to do harm when it dumped and negligently

allowed the spilling of oils contains PCBs at the Bluefield

site.

Given all these circumstances, the question in the

present case is ultimately whether the exclusion clause

contained in the policies issued by Liberty Mutual to Joy

Technologies in 1972, and on later dates, effectively

excluded indemnification for the damage which resulted

at the Bluefield facility.

Before the exclusion clause could be legally incor-

porated into the commercial general liability policy in

West Virginia, it was necessary that Liberty Mutual

obtain the approval of the West Virginia Insurance

Commissioner. Before incorporating the exclusion

clause, in accordance with West Virginia law, Liberty

Mutual submitted the exclusion language to the West

Virginia Insurance Commissioner for his approval.

The West Virginia Insurance Commissioner held

hearings to consider the proposed exclusionary lan-

guage. The record shows that, in conjunction with the

submissions, the Insurance Rating Board and appar-

ently also the Mutual Insurance Rating Board, acting on

behalf of their members and subscribers, including

Liberty Mutual, included with their submission of the

proposed exclusion language an explanation which

stated:

Coverage for pollution or contamination is not pro-

vided in most cases under present policies because

the damages can be said to be expected or intended

eV

13-b

and thus are excluded by the definition of occur-

rence. The above exclusion [the exclusion which is

in issue in the present case] clarifies this situation so

as to avoid any question of intent. Coverage is

continued for pollution or contamination caused

injuries when the pollution or contamination results

from an accident...

In this Court’s view, the insurance industry thus

represented to the State of West Virginia, acting through

the West Virginia Commissioner of Insurance, that the

exclusion which is in issue in the present case merely

clarified the pre-existing “occurrence” clause.

This conclusion is further supported by an affidavit

submitted by the former West Virginia Insurance Com-

missioner, who officially authorized the inclusion of the

exclusion in West Virginia policies. That affidavit stated

that “in preliminary submissions on the matter, the

insurers represented that the proposed forms did not

limit and were not intended to limit the coverage.” The

Commissioner also said in the affidavit that:

The insurers stated in pre-hearing submissions, at

the hearing, and in post-hearing submissions that

the proposed endorsement forms did not limit or

narrow coverage and were not ‘intended to do so.

Based upon those representations. I concluded that

the pollution endorsement forms did not narrow or

limit coverage and, instead, were mere clarifications

of existing coverage as defined and limited by the

definition of the term “occurrence.” Accordingly, I

approved the endorsement forms IRB 335 and

MIRB MB GO008 submitted respectively by the In-

surance Rating Board and the Mutual Insurance

Rating Bureau.

In the written order approving the pollution exclu-

sion, the West Virginia Insurance Commissioner stated:

14-b

(1) The said companies and rating organiza-

tions have represented to the Insurance Commis-

sioner, orally and in writing, that the proposed

exclusions ... are merely clarifications of existing

coverage as defined and limited in the definitions of

the term “occurrence”, contained in the respective

policies to which said exclusions would be attached:

(2) To the extent that said exclusions are mere

clarifications of existing coverages, the Insurance

Commissioner finds that there is no objection to the

approval of such exclusicns;

In this Court’s view, it appears clear from the

foregoing discussion that the 1966 commercial general

liability insurance policies, as originally issued, covered

gradual bodily injury and gradual property damage

resulting over a period of time from exposure to the

insured’s waste disposal, as was suggested by Mr. Bean

in the memorandum issued’in conjunction with the

drafting of the policies. They, however, as originally

issued, excluded damage resulting from expected and

intended pollution, as indicated by the Insurance Rating

Board and the Mutual Insurance Rating Board in their

1970 filings with the West Virginia State Insurance

Commissioner. Further, from the filings it is clear that in

seeking approval of the exclusion provision, the insur-

ance companies did not represent that they intended to

exclude any risk which was not excluded in the original

policies, but that they merely intended to clarify what

had been excluded in the original policies. In approving

the new policy language, the West Virginia Insurance

Commissioner specifically stated that the companies

and rating organizations had represented that the pro-

posed exclusions were mere clarifications of existing

coverage, and in approving the language the Insurance

Commissioner approved it only “to the extent that said

exclusions are mere clarifieations of existing coverages.”

This Court has recognized that where a definite

meaning has been ascribed to language used in an

ee

15-b

insurance policy, that meaning should be given to the

language by the courts. Christopher v. United States -

Life Insurance Company in City of New York, 145

W.Va. 707, 116 S.E.2d 864 (1960). In view of this, and

in view of the fact that in the present case the insurance

group representing Liberty Mutual unambiguously and

officially represented to the West Virginia Insurance

Commission that the exclusion in question did not alter

coverage under the policies involved, coverage which

included the injuries in the present case, this Court

must conclude that the policies issued by Liberty Mu-

tual covered pollution damage, even if it resulted over a

period of time and was gradual, so long as it was not

expected or intended.*

The evidence in the present case shows that Joy

Technologies neither expected nor intended the pollu-

tion damage which occurred in the present case.

The judgment of the Circuit Court of Mercer

County is, therefore, reversed, and this case is remanded

for determination of the amount of damages to which

Joy Technologies, Inc., is entitled.

Reversed and remanded with

directions.

4. The Court notes that a number of other courts have con-

cluded that the so-called “exclusion policy” involved in the present

case merely clarified the coverage provided under the definition of

insurance in the 1966 commercial general liability policy. See

Claussen v. Aetna Casualty & Surety Co., 259 Ga. 333, 380 S.E.2d

686 (1989); United States Fidelity & Guaraity Co. v. Specialty

Coatings Co., 188 Ill.App.3d 378, 129 Ill.Dec. 306, 535 N.E.2d 1071

(1989); Broadwell Realty Services, Inc. v. Fidelity &-Casualty Co.,

218 N.J.Super. 516, 528 A.2d 76 (1987).

erie