Petition for Writ of Certiorari — Broderick Investment Co. v. Hartford Accident & Indemnity Co.

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JUL 13 1992

UFFICE OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

BRODERICK INVESTMENT COMPANY, a partnership and

successor to Broderick Wood Products, Inc.:

THE COLORADO NATIONAL BANK OF DENVER.

as trustee; and THE FIRST INTERSTATE BANK

OF DENVER, N.A.., as trustee,

Petitioners,

7's

THE HARTFORD ACCIDENT & INDEMNITY COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Brooke Jackson

Counsel of Record

Elizabeth A. Phelan

HOLLAND & HART

Suite 2900

555 17th Street

Post Office Box 8749

Denver, CO 80201-8749

Telephone: (303) 295-8000

Counsel for Petitioners

July 10, 1992

QUESTIONS PRESENTED

l. Can the phrase "discharge, dispersal, release or escape

of ... pollutants into or upon land ... or any water course or body of

water" in the pollution exclusion clause of the standard comprehensive

general liability insurance policy reasonably be interpreted to refer to the

seepage of chemical wastes from containment ponds into the

groundwater?

2 Does a federal appellate court have the power to direct

entry of judgment contrary to a jury verdict, where the appellee did not

renew its motion for directed verdict and did not file a motion for

judgment n.o.v.?

LIST OF PARTIES AND RULE 28.1 LIST

The parties to the proceedings below were the petitioners

Broderick Investment Company, a partnership and successor to

Broderick Wood Products, Inc., The Colorado National Bank, as

trustee, and The First Interstate Bank of Denver, N.A., as trustee, and

respondent, The Hartford Accident & Indemnity Company.

In addition, several insurance companies were parties to the case

in the district court and settled with the petitioners beforatrial. These

companies are United States Fidelity & Guaranty Co.; Truck Insurance

Exchange (The Farmers Group); The Continental Insurance Co.:

Century Indemnity Co.; Aetna Casualty & Surety Co.; The Travelers

Insurance Co.; and The Phoenix Insurance Co. Petitioners believe that

these companies no longer have an interest in the outcome of the case

and for that reason, they are not named as parties in the Petition for

Certiorari.

The parent company of petitioner The First Interstate Bank of

Denver, N.A., is First Interstate Bancorp.

LE A i TT ee

TABLE OF CONTENTS

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

oo Bs ey ie agen

sg yes ais 6 eA Keene kk we

eM ttn ete iret hw A 2

CONSTITUTIONAL AND STATUTORY PROVISIONS AND

‘TOUmmnMe MULESINVOLVED ............cc0ccuscne 2

STATEMENT OF THECASE ........... ae ee 2

A. Factual Background........... oye oa ae

l. The parties ..... ey eee aoe”

2 Broderick’s operations ) 3

3 Groundwater damage : -

B. Procedural Background ..... ron 5

l Pretrial proceedings eked 5

2 District court rulings ...... 6

ty

Tenth Circuit proceedings

4. Order on rehearing ................ 8

REASONS FOR GRANTING THE WRIT ...... ite eae

ill

ARGUMENT , 3 11

| The Court Of Appeals Violated Erie By

Truncating The Analysis Required By Colorado Law |

i] The Court Of Appeals Had No Power

To Direct Entry Ot Judgment For

Hartford As To Coverage For The Ponds 17

\

CONCLUSION .. , | 19

APPENDIX

TABLE OF AUTHORITIES

CASES

Alston v. Bowins, 733 F.2d 16!

(D.C. Cir. 1984)

American Family Mut. Ins. Co. v. Johnson,

®16 P.2d 952 (Colo. 1991)

Baltimore & Carolina Line, Inc. v. Redman

295 U.S. 654 (1935)

Bogk v. Gassert, 149 U.S. 17 (1893)

Chacon v. American Family Ins Co.,

788 P.2d 748 (Colo. 1990)

Claussen v. Aetna Cas. & Sur. Co..

865 F.2d 1217 (11th Cir. 1989)

Cone v. West Virginia Pulp & Paper Co.

330 U.S. 212 (1947)

Erie R. Co. v. Tompkins

304 U.S. 64 (1937)

Fortier v. Dona Anna Plaza Partners

747 F.2d 1324 (10th Cir. 1984

Globe Liquor Co _v. San Roman

332 U.S. 571 (1948

Haring v_ Prosise. 462 U.S. 306 (1983

[~

Hecla Min. Co _v. New Hampshire Ins Co

811 P.2d 1083 (Colo. 199]

Home Ins. Co. of New York v. Davila.

212 F.2d 731 (1st Cir. i Ee Ee ON TS 6 tt et 17

Johnson v. New York. N.H. & H.R. Co..

mG US. GEOG) os eee 17, 18

Montgomery Ward & Co. vy. Duncan,

STE US. 268 OR) a vs eee 17

National Grange Mut. Ins. Co. v.

Continental Cas. Ins. Co..

650 F. Supp. 1404 (S.D.N_Y. | ee ee dae a A 14

New Castle County v. Hartford Acc. &

Indem. Co., 933 F.2d 1162 (3d Cir. | ee 12, 13

Pepper's Steel & Alloys, Inc. v.

United States Fidelity & Guar. Co.,

668 F. Supp. 1541 (S.D. Fla. 1987) ................002- 13

Salve Regina College v. Russell,

111 S.Ct. Fives. |) nh yt yn Oe Cre aA SS 1]

Slocum v. New York Life Ins. Co.,

228 U.S. 364(1913) .6 2 17

Sylvester Bros. Dev. Co. v. Great Cent. Ins. Co..

480 N.W.2d 368 (Minn. ADD. 98 oo ee 13, 14, 15, 16

CONSTITUTIONAL PROVISIONS

U.S. Const. amend. VIE... 17

U.S. Const. amend. X 2.2.2... 1]

Vi

STATUTES

28 U.S.C.A. § 1254(1) (West. Supp. 1992) .. . .

28 U.S.C.A. § 1332(a)(1) (West Supp. 1992) ...... ah eee

oe U.S.C.A. § IGSZ (ISEB) ok nc ee ee eas 3

33 U.S.C.A. § 1362(12)(1986) .. .

RULES

Rule 50(b) Fed.R.Civ.P. (1989) .... gees eae 2,

Rule 50, Fed.R.Civ.P. (effective

Dec. 1, 1991)

OTHER AUTHORITY

Webster's Third New International

Dictionary (1971) ........... . 14,

Fed.R.Civ.P. 50 advisory committee's

note

to

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

BRODERICK INVESTMENT COMPANY, a partnership and

successor to Broderick Wood Products, Inc.:

THE COLORADO NATIONAL BANK OF DENVER.

as trustee; and THE FIRST INTERSTATE BANK

OF DENVER, N.A.., as trustee.

Petitioners,

V.

THE HARTFORD ACCIDENT & INDEMNITY COMPANY.

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioners respectfully request that a writ of certiorari issue to

review the judgment and opinion of the United States Court of Appeais

for the Tenth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals and the order on rehearing

are reported at 954 F.2d 601 (10th Cir. 1992), and included in the

Appendix at la-17a. The court of appeals order requesting certification

to the Colorado Supreme Court, and the response of the Colorado

Supreme Court, are included in the Appendix at 20a-30a. The decision

of the district court interpreting the pollution exclusion clause was oral

and is unreported; the transcript of the ruling is included in the

Appendix at 31la-36a.

JURISDICTION

The opinion and judgment of the court of appeals was entered

on January 8, 1992. A timely petition for rehearing was granted in part

and denied in part on April 15, 1992. The jurisdiction of this Court is

invoked pursuant to 28 U.S.C. § 1254(1) (West Supp. 1992).

CONSTITUTIONAL AND STATUTORY PROVISIONS AND

FEDERAL RULES INVOLVED

The texts of the Seventh and Tenth Amendments to the United

States Constitution are reproduced in the Appendix at 37a. The text of

28 U.S.C.A. § 1652 (1966) is reproduced in the Appendix at 37a. and

the text of Rule 50(b). Fed.R.Civ.P., in effect at the time of trial in

1989, is reproduced in the Appendix at 38a.

STATEMENT OF THE CASE

A. Factual Background.

1. The parties. Petitioner Broderick Investment Company

is a partnership and the successor In interest to Broderick Wood

Products, Inc. The latter company was formed in 1946 to treat wood

with preservative chemicals at a plant in Adams County, Colorado. Its

founder, William S. Broderick, placed its stock in trusts administered by

the two other petitioners, The Colorado National Bank of Denver and

what is today The First Interstate Bank of Denver, N.A. Broderick

Wood Products ceased operations in 1981 and was dissolved in 1982:

Broderick Investment Company, a partnership whose partners are the

two bank trustees, succeeded to the company’s rights and obligations.

This petition refers collectively to the petitioners as "Broderick".

In the mid-1960s and early 1970s, respondent Hartford Accident

& Indemnity Company ("Hartford") and other insurers developed a new

“pollution exclusion" clause for use in the industry's standard "Com-

prehensive General Liability" ("CGL") insurance policy. The insurers

intended, and represented to state regulators, that the policy would

provide coverage for pollution damage unless the damage was intended

or expected. Broderick purchased such policies from Hartford from

1976 through 1984, to Protect against liability to third Parties arising

from the operations of Broderick’s wood treatment facility.

+

—

2. Broderick’s operations. At the Broderick plant, wood

products such as telephone poles and railroad ties were pressure-treated

with either creosote or pentachlorophenol, the impregnated wood was

Ssteam-cleaned, and as much preservative as possible was recaptured.

The residue, which was 98 percent water and 2 percent chemicals and

oils, was piped into a containment pond, called the "main pond", on the

Broderick site. Built with the plant in 1946, the main pond represented

the state of the art in the industry. Tr. Vol. III at 352-53, 394-95.

The main pond was intended to contain the wastes. Tr. Vol. IV

at 565-73, 582. The pond was dug down to a natural clay layer, id. at

564-65, and raw cement was added. Sam Tait, then general manager

and later president, watched the construction crew place approximately

two inches of raw cement up and down the banks to prevent seepage,

but did not recall whether cement was placed on the bottom. Tr. Vol

IV at 565; Tr. Vol. V at 654. Nonetheless, Tait believed that the entire

pond was lined with raw cement and so indicated in writing before this

dispute arose. Ex. CW (“original pond was excavated during 1946

and ... was sealed off with powdered cement"). Hartford's agent,

Richard Rohrer, noted during a conversation with James Bollig, the

Broderick employee who bought the insurance: "when ponds dry out

(water) mixture will be bagged & hauled to Calif for disposal (under

seal-cement to keep it from seeping into ground No problems since

1946....D]." Ex. CO (emphasis added); Tr. Vol. II at 133-34. Later.

when Forrest Dean, a crane operator, attemptéd to dredge accumulated

Sludge off the bottom of the main pond, he encountered a hard, im-

penetrable material that was as hard as cement. Tr. Vol. VI at 859.

870-71. In 1989, Dr. Andrew Middleton, an environmental engineer,

examined chunks of material taken from the main pond, and testified

that they appeared to contain cement. Tr. Vol. V at 765-66.

The second pond, created a few years after the first, had a

larger surface area and very shallow depth. It served to Capture an\

overflow from the main pond and to prevent spills onto the land. Tr

Vol. IV at 572-73. The so-called "third pond" was actually not a

“pond” at all; it was a smal! collection area for spillage and drippage out

of the intake equipment feeding the main pond, Tr. Vol. IV at 608, and

ve)

was not identified as a source of any groundwater contamination, Tr.

Vol. V at 726.!

William Broderick, the owner, insisted that the wastes be con-

tained. Tr. Vol. IV at 567-68: Tr. Vol. VI at 841-43. His employees

walked the area around the ponds at least once a month, looking for

signs of seepage. Ex. CW. None was found after 34 years. Id.

3. Groundwater damage. Yet seepage of wastes into the

groundwater did occur. Chemicals seeped from the main pond and the

overflow pond, as well as from plant equipment in the plant process

area. Tr. Vol. V at 735-39. See also Jury Instr. 2; Verdict, ¢4 1, 2:

Answer Brief of Appellees at 8 (filed in 10th Cir. July 27, 1990):

Appellees’ Supplemental Brief at 20 (filed in 10th Cir. Oct. 18, 1991).

Groundwater contamination was discovered in late 1982, when a landfill

north of the Broderick site detected pentachloropheno! in one of its

monitoring wells. The discovery was reported to the State of Colorado,

which notified the EPA; the EPA informed Broderick in early 1983.

Tr. Vol. III at 475-77; Vol. VI at 985-86. At that point, the source of

the pentachlorophenol was unknown; it may have Originated from

Broderick, from another wood treatment plant immediately east of the

Broderick plant, or from the landfill. Tr. Vol. III at 476-77: Vol. VI at

986-87.

The Broderick trustees immediately commissioned a hydrogeo-

logic study, which involved the drilling of multiple groundwater wells.

By mid-1983 the study concluded that chemicals leaking out of one or

more of the Broderick ponds had seeped through the soils and entered

groundwater. Tr. Vol. III at 478-83: Vol. VI at 986-87. Subsequent

investigation showed that chemicals had been entering the groundwater

during each of the years when liability insurance had been purchased

‘Beneath the ponds was a natural clay layer. Clay is a com-

mon liner material, Tr. Vol. VIII at 1300. and is part of today’s

EPA standard, Tr. Vol. V at 741. In the context of Broderick’s

effort to build ponds to contain the wastes, the clay layer was

considered part of the containment System. This was not an in-

stance of wanton dumping of waste onto the ground, which is

the type of activity the pollution exclusion was intended to

exclude.

from Hartford, 1976-1984, which was an undisputed fact at trial. Tr.

Vol. V at 735-37; Vol. VI at 889.

The plant process area was not discovered as a source of con-

tamination until 1989. The plant source was caused by leakage from

underground pipes and valves, from tanks, pumps, and other machinery

(collectively, the "plant equipment"), and from above-ground drip tracks

used to dry treated wood. Tr. Vol. V at 736-39. Undisputed expert

testimony was that approximately 30 percent of the groundwater con-

tamination could be attributed to ‘eakage from the plant process area

Id. at 755-566. The jury found that the groundwater contamination

from the ponds and from the plant area constituted one occurrence.

Verdict, $1 at 1.’

B. Procedural Background.

l. Pretrial proceedings. In February, 1986, the Environ-

mental Protection Agency ("EPA") sued Broderick Investment Company

and the two trustees of the Broderick Wood Products’ trusts. seeking

recovery of the environmental response costs that had been and would

be incurred in cleaning up the facility. Shortly thereafter, United States

Fidelity & Guaranty Company, the insurer of one of the trustees of the

Broderick trusts, filed this diversity suit pursuant to 28 U.S.C.A.

§ 1332(a)(1) (West Supp. 1992) against Broderick, the trustees.

Hartford, and other insurers for the trustees, seeking a declaration of the

parties’ rights and obligations. Before trial, Broderick settled with all of

"The court of appeals erred in Stating that “the jury verdict

form focused only on the seepage of the toxic chemicals from

the holding ponds into the groundwater." Pet. App. at 10a

The first question on the verdict form expressly directed the jury

to consider the plant source of contamination in determining

whether there had been one or two occurrences. Verdict. € |:

see also id. ¢ 2(A) through (1)(directing jury to answer as to

“plant, ponds or both"). The other questions did not specify a

source of groundwater contamination, thereby leaving the jury

free to consider both the ponds and the plant process area. See

id. § 2 (A) through (1) (asking the jury to make findings con-

cerning “damage to the groundwater or offsite properties" and to

‘the release or escape of the chemicals into the ground water.")

5

a

designating Broderick the plaintiff and assigning to Broderick the burden

of proving coverage.

Before trial, the district court interpreted in accordance with

Colorado law two key provisions of the CGL policies, the occurrence

definition and the pollution exclusion clause. The district court’s

interpretation of the occurrence definition and the jury’s finding of an

occurrence were affirmed by the court of appeals, Pet. App. at 9a. and

are not at issue here.

2 District court rulings. The “pollution exclusion” clause

excludes the following:

property damage arising out of the discharge, dispersal,

release or escape of smoke. vapors, soot, fumes, acids.

alkalies, 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.

In essence, the clause excludes coverage for a “discharge. dispersal,

release or escape" of poliutants "into or upon land ... or any water

course or body of water" and preserves coverage if "such discharge,

dispersal, release or escape is sudden and accidental."

The district court recognized that as to the containment ponds,

there were two events to which the phrase ‘discharge, dispersal. release

Or escape” could apply: (1) the initial placement of wastes in the ponds.

Or (2) the seepage of wastes out of the ponds into the groundwater. Pet

App. at 34a-36a. Consistent with well-established principles of

insurance law, both generally and in Colorado, the district court chose

the interpretation that favored coverage and held that the operative

“discharge, dispersal, release or escape” was the seepage from the ponds

into the groundwater. Id. The district court also predicted that the

Colorado Supreme Court would interpret the phrase "sudden and acci-

dental", in the exception to the exclusion, to mean "unexpected and

unintended". Id. at 34a-35a.

The jury was instructed accordingly and was asked. inter alia,

for each of the years Hartford insurance was in effect (1976 - 1984),

whether the discharge, dispersal, release or escape of chemicals into the

groundwater was unexpected and unintended by Broderick. The jury

decided this question in favor of Broderick for years 1976 through 1983,

and the district court entered judgment accordingly. Hartford neither

renewed its motion for directed verdict at the close of the evidence nor

filed a motion for judgment n.o.v

3 Tenth Circuit proceedings. On appeal, Hartford argued

that the district court's interpretation of the pollution exclusion clause

was erroneous. After oral argument, the Tenth Circuit attempted to

certify to the Colorado Supreme Court the interpretation of the phrases

“discharge, dispersal, release or escape" and “arising out of" as used in

the pollution exclusion clause. Pet. App. at 20a-27a. The Colorado

Supreme Court denied the request. Id. at 28a.

In the Certification Order, the court of appeals had expressly

recognized that the phrase “discharge, dispersal, release or escape’

could reasonably apply to either (1) the placement of wastes in the

ponds, or (2) the seepage of wastes out of the ponds into the ground-

water. Pet. App. at 23a, 25a-26a. By the time this Order was issued.

the Colorado Supreme Court had confirmed the district court’s

Prediction that “sudden and accidental" meant "unexpected and

unintended." See Hecla Min. Co. v. New Hampshire Ins Co.. 81]

P.2d 1083, 1090-92 (Colo. 1991) Accordingly, the choice of the initia!

placement would mean that there was no coverage because that

placement was not “unexpected and unintended": choice of the seepage

would confirm coverage because the jury had found that the seepage was

unexpected and unintended. Under this analysis, controlling Colorado

principles of insurance law required affirmance: if there are two

reasonable interpretations of a clause, a court must adopt the

interpretation that provides coverage. Chacon v. American Family Ins

Co.. 788 P.2d 748, 750 (Colo. 1990); Hecia. 811 P.2d at 1090

Yet in its final decision, the Tenth Circuit abandoned this

analysis. It addressed only the pond source. not the plant source. of

groundwater contamination. The panel reasoned that because the phrase

“discharge, dispersal, release or escape" was in the disjunctive. "the

exclusion is triggered if even one of the four words unambiguously

describes [Broderick’s] placement of waste into the ponds.” Pet. App

at lla. The panel then concluded that “applying any reasonable inter-

pretation, the phrase ‘discharge into or upon the land’

describes [the] placement of waste into the ponds." Id. The panel

rejected Broderick’s argument that “discharge” means “to let go",

“Telease from confinement", or "to give outlet to", none of which fits

the placement of wastes in ponds built to confine. contain, and store the

waste. Id

Applying Colorado case law interpreting “arising out of” in automo

bile insurance policies, the panel ruled that the phrase embodies a “but

lor” analysis and concluded that the "contamination of the groundwater

could not have occurred but for [Broderick’s] discharge into the holding

ponds.” Id. at 12a-13a. Because the deposit of wastes into the ponds

was not sudden or accidental, the panel held that Broderick’s claim for

coverage was barred by the pollution exclusion clause. Id. at 13a. The

panel reversed and remanded with directions to enter tudgment for

Hartford. Id

4 Order on rehearing. In its petition for rehearing,

Broderick argued that the court of appeals had no power to direct entry

of judgment for ..* «ford, because Hartford had not renewed its motion .

for directed verdict and had not filed a motion for judgment n.o.v

Broderick also argued that even under the court of appeals interpretation

of the exclusion, the record supported the finding of coverage for

contamination arising trom the main pond and the plant equipment

As to the main pond, Broderick asserted that the panel had

erroneously assessed the sufficiency of the evidence and mistakenly

concluded that the pond was not lined with cement. Because the panel

was required to accept the evidence of cement as true. Broderick

argued, the deposit of wastes into the main pond, even if characterized

as a discharge, dispersal, release. or escape,” was into or upon cement

not land, rendering the pollution exclusion clause inapplicable to that

event

As to the plant equipment, Broderick noted that the placement of

chemicals in pipes and machinery in the course of operations also could

not be characterized as a “discharge, dispersal, release or escape” "into

or upon land." Thus, the pollution exclusion clause was inapplicable to

that event as well

Noting that the court of appeals could affirm on any ground sup-

ported in the record, Broderick argued that, at a minimum, the court

should affirm the finding of coverage as to the main pond and the plant

equipment. Broderick also challenged the panel's interpretation of the

pollution exclusion clause, asserting that the pane! had not adhered to

Colorado law concerning interpretation of exclusions and had thereby

violated Erie R. Co. v. Tompkins, 304 U.S. 64 (1937) Broderick re-

quested in the alternative that the court of appeals renew its request to

the Colorado Supreme Court for certification

The panel granted rehearing in part and denied it in part. The

panel clarified its holding concerning the main pond and “reempha-

size[d] that [the court] adopted all of [Broderick’s] characterizations of

the evidence as true.” Pet. App. at 16a. This statement required the

conclusion that the main pond was lined with cement and was not

“land”, thereby rendering the phrase “discharge, dispersal, release or

escape’ inapplicable to the initial placement of wastes in the ponds

Nonetheless, the panel! held that Broderick had “discharged waste into

the land and is not entitled to coverage for any damage that emanated

trom its discharge of waste into the main pond or any of the other

ponds.” Jd.

Turning to the plant equipment, the panel held that the jury had

been incorrectly instructed regarding the pollution exclusion. Id. The

cour vacated its earlier direction to the district court to enter judgment

for Hartford, and remanded for a new trial "to determine whether cover-

age exists for the contamination caused by waste that emanated from the

‘plant equipment’ and for further proceedings consistent with this

opinion.” Id. The court denied all other aspects of the petition for

‘ehearing. Id. at 17a

REASONS FOR GRANTING THE WRIT

Petitioners are aware that 'state-law determinations by the coun

Of appeals will rarely constitute an appropriate subject of this Coun

review.” Haring v. Prosise, 462 U.S 306, 314 n.8 (1983) However

the features of this case make it one of the exceptional! cases to whict

Haring refers

First. the decision resolved an issue of tremendous national sig

nificance. the scope and meaning of the pollution exclusion clause ir

a ay

the standard CGL policy. The clause is the Subject of scores of cases all

over the country, a byproduct of the federal environmental laws that im-

pose widespread liability for the cost of cleaning up environmental

damage. Although numerous cases have been brought, this case is one

ot the very few in which a full factual record has been developed and,

even more uniquely, in which a jury has found that the insured neither

intended nor expected the environmental! damage. The complete factual

record will facilitate this Court’s resolution of the significant legal issues

in an area in which lower courts throughout the nation are greatly in

need of guidance

Second, although the meaning of the pollution exclusion is gov-

erned by state law, "the same contract language is at issue in nearly all

insurance litigation pertaining to the years 1971 to 1986." Pet. App. at

3a (emphasis added). Yet that language has been interpreted in diamet-

rically opposite ways by the Third and Tenth Circuits, as well as by

tederal district courts -- differences that cannot be attributed to dif-

ferences in state laws because the applicable contract interpretation

Principles do not vary significantly from state to state. Some insureds

therefore may have coverage and others may not, due solely to the

accident -- or fortuity -- of the federal district or circuit in which the site

's located and either party’s decision to seek a federal forum

These considerations make the Tenth Circuit's failure to adhere

to Erie exceptionally significant and therefore worthy of this Court's

review. The sheer magnitude of environmental contamination and the

Staggering cost of remediation give both insureds and insurers an irre-

sistible incentive to shop for the most favorable forum available. Be-

Cause diversity jurisdiction can often be established, Erie serves as the

only protection against making federal courts unwitting players in such a

strategy. Absent strict compliance with Erie, the coverage decision

could well be different depending on whether the case is brought in state

or federal court

The court of appeals decision also violated a principle of federal

Procedural law. Under this Court's longstanding precedent, rooted in

the Seventh Amendment, the federal appellate courts have no power to

direct the entry of judgment for the loser of a jury verdict, in the

absence of a renewed motion for directed verdict at the close of the

evidence and a timely-filed motion for judgment n.o.v. The Tenth Cir-

Cuit's decision directing entry of judgment for Hartford on the issue of

10

coverage for groundwater contamination arising from the retaining

ponds directly conflicts with this rule. At a minimum, the Court should

grant certiorari, reverse the court of appeals decision summarily, and

remand for reconsideration in light of the Court's precedent

ARGUMENT

I. The Court Of Appeals Violated Erie By

Truncating The Analysis Required By Colorado Law.

The Tenth Circuit's interpretation of the pollution

exclusion violated the court's duty to apply state law. Erie R. Co. v

Tompkins, 304 U.S. 64 (1938): U.S. Const. amend. X: 28 U.S.C.A

§ 1652 (1966). Here, that duty required the Tenth Circuit, before

denying coverage on the basis of the pollution exclusion, to ask whether

Hartford had shown that (1) the exclusion applied and (2) the exclusion

was not subject to any other reasonable interpretation. Hecla Min.

Co. v. New Hampshire Ins_Co., 811 P.2d 1083, 1090 (Colo. 1991):

American Family Mut. Ins. Co. v. Johnson, 816 P.2d 952, 953 (Colo.

1991). The Tenth Circuit, however, conducted only the first of these

inquiries: it held that Broderick’s placement of waste in the containment

ponds constituted a "discharge ... into or upon the land," for which

there was no coverage. Pet. App. at lla. Assuming for the sake of

argument that this was a reasonable interpretation, it was only the

beginning of the controlling analysis. The Tenth Circuit's failure even

to address, much less to resolve, the second component led to a decision

that conflicts in principle with a decision of the Coldrado Supreme

Court, as well as with decisions of other courts, including the Third Cir-

cult. See infra at 11-13. These conflicts surely encourage the forum

shopping that Erie was intended to prevent and therefore warrant this

Court's review

2 The case also permits the Court to clarify that de novo

review under Salve Regina College v. Russell, 11! S.Ct. 1217 (1991).

leaves ample room for the state rule of decision to inform the appellate

court's inquiry. Here. the substantive issue before the Tenth Circuit

was not whether the district court's interpretation of the pollution

exclusion was correct in the abstract, but rather, whether the district

court had correctly found that the pollution exclusion was subject to

more than one reasonable interpretation. Hecla, 811 P.2d at 1090.

Johnson, 816 P.2d at 953. If so, then the interpretation favoring cover-

age was proper as a matter of law, without regard to whether the court

of appeals would have chosen that interpretation had the court of appeals

decided the issue in the first instance.

3. Had the Tenth Circuit undertaken the second Step for

analyzing the applicability of an exclusion, the court would have found

abundant evidence of both the existence and the reasonableness of

another interpretation.

a. Decisions Of Other Courts. The decisions of

other courts, most notably the Colorado Supreme Court and the Third

Circuit, confirm that Broderick’s interpretation is reasonable. In Hecla,

the Colorado Supreme Court addressed other issues arising under the

pollution exclusion clause, i.e., the duty to defend and the meaning of

the phrase "sudden and accidental" in the pollution exclusion clause.

Yet the court’s analysis plainly focused not on the initial placement of

wastes in the Yak Tunnel -- an unlined, manmade, underground tunnel

that was as much the “land” as the unlined Broderick secondary pond,

see 81] P.2d at 1085 n.2 -- but rather. on the unexpected and unin-

tended release of wastes from the tunnel into the California Gulch. Id.

at 1092. Hence, the Tenth Circuit’s holding conflicts in principle with

Hecla’s focus: had the Colorado Supreme Court adopted the Tenth Cir-

Cuit’s view, coverage would have been denied because the initial

deposits of wastes in the tunnel were neither sudden nor accidental. At

a minimum, Hecla’s focus on the secondary "discharge, dispersal,

release or escape" certainly confirms the reasonableness of Broderick’s

interpretation.

In New Castle County v_ Hartford Acc. & Indem. Co..

933 F.2d 1162 (3d Cir. 1991) (Delaware law). the Third Circuit focused

its analysis of the pollution exclusion clause on the "discharge, dis-

persal, release or escape" of pollutants from the landfill. Id. at 1169,

1199-1203. If this was not a reasonable interpretation, then the Third

Circuit's exhaustive opinion was wholly unnecessary -- coverage would

have been denied at the outset because the initial disposal of wastes in

the landfill was both expected and intended. See also Claussen v. Aetna

Cas. & Sur. Co., 865 F.2d 1217, 1220 (11th Cir. 1989)(in certifying to

Georgia Supreme Court the interpretation of "sudden and accidental" in

the exception to the pollution exclusion, Eleventh Circuit asked whether

there was coverage "for the discharge of pollutants from a landfill over

an extended period of time" )(emphasis added).

no

Although the Tenth Circuit's conflict with New Castle is not an

intercircuit conflict concerning either federal law or the law of a single

State, the conflict is nonetheless significant. Conflicting decisions of

federal circuit courts concerning the meaning of identical policy

language under uniform state law principles of interpretation Surely

encourages the forum shopping that Erie was designed to prevent

In addition, the very fact that the circuit courts decided the issue

differently -- not the correctness of either view -- is highly significant

under Colorado law and demonstrates the Tenth Circuit's error in this

case. See Hecla, 811 P.2d at 1092 n.13 (conflicting judicial authority

“dispels the ... contention that the exclusionary language is clear’")

(quoting Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d

570, 578 (1990)). This principle may well explain the Colorado

Supreme Court's decision to deny the panel's certification request. In

the Certification Order, the panel itself confirmed that there is another

reasonable interpretation of the clause. See Pet. App. at 25a-26a (noting

that "discharge" could reasonably be read to mean "a final relinquish-

ment of wastes” and that record "adequately supports the Jury's implicit

finding" that Broderick viewed its activities as “storage”, not as a final

relinquishment of wastes). The Colorado Supreme Court may have con-

cluded that certification was unnecessary because Hecla provided the

panel with ample guidance once the panel recognized the reasonableness -

of the interpretation that leads to a finding of coverage. See Hecla,

811 P.2d at 1090.°

See also Sylvester Bros. Dev. Co. v. Great Cent. Ins. Co .

480 N.W'.2d 368, 373-74 (Minn. App. 1992) (seepage of wastes from a

landfill, not the initial deposit of wastes in a landfill. triggered the pollu-

tion exclusion clause); Pepper's Steel & Alloys, Inc. v. United States

Fidelity & Guar. Co., 668 F. Supp. 1541, 1549 (S.D. Fla. 1987)(insur-

er had duty to defend because even though insured intentionally caused

the dumping of oil, insured did not expect or intend the release of PCBs

‘The panel rejected Broderick’s request, made in the petition

for rehearing, to renew the certification request. Pet. App. at

17a. Thus, this Court is the court of last resort for Broderick --

the insured who did not select the federal forum -- to obtain a

ruling enforcing the pollution exclusion clause in accordance

with the controlling law.

13

er

from the oil into the aquifer); National Grange Mut. Ins. Co. v. Con-

tinental Cas. Ins. Co., 650 F. Supp. 1404, 1410-12 (S.D.N_Y. 1986)(in-

surer had duty to defend insured who had intentionally dumped ash on

site because subsequent release of chemicals into environment was

sudden and accidental).

b. Language Of The Clause. Broderick’s

interpretation finds ample support in the language of the pollution exclu

sion. While the panel limited its analysis to the words "discharge ...

into or upon land," the clause is not so limited. It refers to “discharge,

dispersal, release or escape of ... pollutants into or upon land, the

atmosphere, or any water course or body of water." When the full text

is considered, the clause can reasonably be read to refer to the seepage

of wastes from the ponds through the subsoil and into the groundwater.

The clause refers to a "discharge, dispersal, release or escape"

“Into or upon land ... or any body of water or water course." (Empha-

sis added.) The issue in this case is coverage for damage to ground-

water, not damage to land.* Thus, it is certainly reasonable to focus

the inquiry on the discharge into the groundwater, which is a "body of

water or water course."

In addition, the fact that "discharge" is used with "dispersal,

release or escape" makes reasonable the conclusion that "discharge" was

used in the sense that the other words convey, Le., a letting go, freeing

or releasing from confinement or storage, not a placement into confine-

ment or storage. See Webster's Third New International Dictionary

644, 653, 1917, 774 (1971)(defining "discharge", “dispersal”, "release",

and “escape”, respectively). See also Sylvester Bros.. 480 N.W.2d at

374. Accord Pet. App. at 25a-26a. For instance, in common parlance,

we refer to a "discharge" from military service. Similarly, under the

Clean Water Act, there is no "discharge of a pollutant" unless and unti!

the pollutant is released "from ... a point source" into a “water of the

United States." 33 U.S.C.A. § 1362(12)(1986)(emphasis added).

“The policy contains a separate exclusion, the "owned

Property” exclusion, which prevents recovery for damages to the

insured’s land, except where clean-up of the land is essential to

the clean-up of the groundwater. See Pet. App. at 34a.

14

The panel reasoned that if any one of the words "discharge. dis-

persal, release or escape’ leads to a finding of no coverage, then there

Is no coverage. Pet. App. at lla. However, Colorado law requires the

insurer to prove that its interpretation is the only reasonable one. See

Hecla, 811 P.2d at 1090; Johnson, 816 P.2d at 953. Thus. if any one

of the terms "discharge, dispersal, release or escape" results in cover-

age, then coverage should be found, even if one of the other terms

might lead to a finding of no coverage. “Release” and "escape" and

even dispersal” can be read to refer to the seepage of wastes from the

ponds. See, e.g., Pet. App. at 25a-26a; Webster's Third New Inter-

national Dictionary at 1917, 774, 653. Because the jury found that the

leakage of wastes was unexpected and unintended, these words lead to a

finding of coverage, and Hartford's interpretation is not the only

reasonable one.

$ Purpose Of Liability Insurance. Broderick’s in-

terpretation 1s most consistent with the basic purpose of the CGL policy

at Issue, further confirming its reasonableness. Liability insurance

Protects the insured against liability for injury to the person or property

of another. Thus, the policy should be construed by reference to the

third-party injury or damage that triggers the claim for coverage.

Here, the placement of wastes in the ponds did not cause an\

third-party damage or create any liability for Broderick. If the ponds

had worked as intended, they would have contained the wastes and pre-

vented any third-party damage. Only the failure of the ponds, an“ the

seepage of wastes from the ponds through the subsoil and into the

groundwater created liability and triggered the policy. See Sylvester

Bros., 480 N.W.2d at 373-74. By focusing on that event. Broderick’s

interpretation gives the exclusion meaning in the context in which it was

intended to apply. The panel's interpretation, by contrast. excludes

pollution before it even occurs -- surely an untenable result

aa The court of appeals erred in stating that Broderick’s

interpretation “attempts to graft an intent requirement related to damages

onto the unambiguous language of the policy's exclusion clause.” Pet

App. at 12a. The court's confusion relates to the distinction between

the insured’s intent to cause damage (which is pertinent to the threshold

requirement of an “occurrence” to trigger coverage) and the insured’s

State of mind concerning the “discharge. dispersal. release. or escape

(which is pertinent to the "sudden and accidental" exception to the pollu-

15

tion exclusion). Here, the jury was asked both whether Broderick

expected or intended the property damage and whether the release or

escape of pollutants was sudden and accidental (correctly defined by the

instructions as unexpected and unintended, see Hecla, 811 P.2d at

1092). Verdict, 4 1,2. The first question related to whether there had

been an occurrence. See Pet. App. at 7a-9a. The second question

related to application of the pollution exclusion clause. Broderick’s

argument rested on the jury's answer to the second question, not to the

Tirst.

Broderick’s intent with respect to the exit of wastes from the

ponds or plant equipment -- the "discharge, dispersal, release or

escape” -- was an issue separate and distinct from Broderick’s intent

with respect to the subsequent groundwater contamination -- the

“damage.” For example, an insured who knows his ponds are leaking

or who discharges directly into a stream, but honestly believes the

wastes are harmless, would establish an "occurrence" (did not expect

damage) tut not coverage (discharge was expected or intended, not

“sudden and accidental"). That was not this case or Broderick’s argu-

ment. In relying on the jury’s finding that the "release or escape of the

chemicals into the ground water" was unexpected and unintended. Ver-

dict { 2A(ii), Broderick was addressing the issue as it related to the

discharge and was not “attemp|ting] to graft an intent requirement

related to damages" onto the pollution exclusion. Pet. App. at 12a

(emphasis in original).*

*Broderick’s expectations and intent concerning, in the

panel's words, the "second discharge" or the “subsequent release

or escape”, Pet. App. at 12a, are pertinent to applying the

everyday meaning of “discharge, dispersal, release or escape. "

The jury's finding that the release or escape into the ground-

water was sudden and accidental shows that the ponds were used

to contain the wastes, supporting the conclusion that the place-

ment of wastes in the ponds was not a "discharge, dispersal,

release or escape" in the first place. See Sylvester Bros..

480 N.W.2d at 373.

16

Il. The Court Of Appeals Had No Power

To Direct Entry Of Judgment For

Hartford As To Coverage For The Ponds.

The Tenth Circuit's choice of remedy plainly warrants this

Court’s review. The panel’s direction of entry of judgment for Hartford

on the issue of coverage for the containment ponds conflicts directly

with this Court’s precedent, and with that of the circuit courts.

l. The Seventh Amendment bars federal courts from re-

examining facts found by a jury except as permitted at common law.

U.S. Const. amend. VII. The procedure for seeking judgment n.o.v.,

codified in Rule 50(b), Fed.R.Civ.P., is constitutional because it is

consistent with the procedures established at common law. Montgomery

Ward & Co. v. Duncan, 311 U.S. 243, 250 (1940). See also Balti-

more & Carolina Line, Inc. v. Redman, 295 U.S. 654, 657-61 (1935):

Slocum v. New York Life Ins_Co., 228 U.S. 364, 377-400 (1913).

Those procedures require a party who seeks to overturn a jury verdict to

renew its motion for directed verdict at the close of all the evidence and

to file a timely motion for judgment n.o.v.° Absent these motions.

federal appellate courts have no power to direct the entry of judgment

for the party that loses a jury verdict. Bogk v. Gassert, 149 U.S. 17.

23 (1893); Alston v. Bowins, 733 F.2d 161, 163-64 (D.C. Cir.

1984)(renewal of motion for directed verdict). Cone v. West Virginia

Pulp & Paper Co., 330 U.S. 212, 217-18 (1947): Globe Liquor Co. \

San Roman, 332 U.S. 571, 573-74 (1948): Johnson v. New York, N.H

& H.R. Co., 344 U.S. 48, 54 (1952); Home Ins. Co. of New York \

Davila, 212 F.2d 731, 733 (1st Cir. 1954)(judgment n.o.v.)

Rule 50, Fed.R.Civ.P., was amended effective Decem-

ber 1, 1991. The amendment deleted references to a motion for

directed verdict and motion for judgment n.o.v., and adopted

instead the phrase "motion for judgment as a matter of law.”

Fed.R.Civ.P. 50 (effective Dec. 1, 1991). The amendment did

not alter the conceptual underpinnings of former Rule 50(b). in

part to avoid any Seventh Amendment issue. Fed.R.Civ.P. 50

advisory committee's note, 1991 amendment, Subdivision (b).

Because this case was tried in 1989, the terms "motion for

directed verdict" and "motion for judgment n.o.v." then found

in Rule 50(b) are applicable.

17

2. The court of appeals decision on rehearing concerning

the main pond was a wholly impermissible attempt to sidestep these

restrictions On its remedial powers. Apparently recognizing that it had

no power to assess the sufficiency of the evidence concerning the cement

lining in the main pond, the panel stated that it had not done so and that

it had accepted the evidence as true. Pet. App. at 16a. The panel then

held, without explanation, that "as a matter of law ---... when

[Broderick] placed waste into the main pond, it discharged waste ‘into

or upon the land.’" Pet. App. at 16a.

The court’s attempt to convert a factual issue (cement lining)

into a legal one (interpretation of the exclusion) does not withstand

scrutiny. If the court of appeals had accepted as true the evidence that

the main pond was lined with cement, then as a matter of fact. the

wastes were deposited "upon cement," not "upon land." This analysis

would lead, as Broderick argued in its petition for rehearing, to

affirmance, not reversal, of the verdict as to the main pond.’

Even if the panel was not persuaded that Broderick was entitled

to affirmance, the most that Hartford could receive was a new trial; the

panel had no power to direct entry of judgment for Hartford. Globe

Liquor, 332 U.S. at 574; Johnson, 344 U.S. at 54. Accord Fortier v.

Dona Anna Plaza Partners, 747 F.2d 1324, 1334 (10th Cir. 1984).

In sum, at a minimum, this Court should grant certiorari, re-

verse summarily the court of appeals direction of entry of judgment as

to the ponds, and remand with directions that the new trial should

include the issue of the application of the pollution exclusion to the

containment ponds.

In the petition for rehearing, Broderick noted that the court

had the power to affirm on any ground supported in the record

and argued that even if the panel's interpretation of the exclusion

were not changed, the panel should affirm the finding of cover-

age as to the main pond and the plant equipment. Although the

Tenth Circuit may not have been persuaded, that fact did not ex-

pand its remedial powers -- the most that it could grant Hartford

was a new trial; it could not direct entry of judgment in

Hartford’s favor.

18

CONCLUSION

The petition for writ of certiorari should be granted

” Counsel of Record

July 10, 1992

Respectfully submitted,

Brooke Jackson®

Elizabeth A. Phelan

HOLLAND & HART

Suite 2900

555 17th Street

Post Office Box 8749

Denver, CO 80201-8749

Telephone: (303) 295-8000

Counsel for Petitioners

Broderick Investment Company,

The Colorado National Bank of

Denver, as trustee, and The First

Interstate Bank of Denver, N.A..

as trustee

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

BRODERICK INVESTMENT COMPANY. a partnership and

Successor to Broderick Wood Products. Inc.:

THE COLORADO NATIONAL BANK OF DENVER

as trustee; and THE FIRST INTERSTATE BANK

OF DENVER, N.A.., as trustee.

Petitioners

THE HARTFORD ACCIDENT & INDEMNITY COMPANY

Respondent

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Brooke Jackson

Counsel of Record

Elizabeth A. Phelan

HOLLAND & HART

Suite 2900

555 17th Street

Post Office Box 8749

Denver. CO 80201-8749

Telephone: (303) 295-8000

Counsel for Petitioners

July 10, 1992

TABLE OF CONTENTS

Opinions Of The Tenth Circuit

A

Opinion of the United States Court of

Appeals for the Tenth Circuit,

January 8, 1992 (954 F.2d 601 (10th

- SS GAPS eee

Order on Rehearing by the United States

Court of Appeals for the Tenth Circuit,

April 15, 1992 (954 F.2d 601 (10th Cir.

a

Judgment of the United States Court of

Appeals for the Tenth Circuit,

he

Pertinent Orders And Rulings By The Courts Below

A.

Certification of Question of State

Law by the United States Court of

Appeals for the Tenth Circuit,

os Ga eee

Order of Court by the Colorado Supreme

Court, September 12, 1991 .........

Oral Ruling by the United States District

Court for the District of Colorado,

October 4, 1989 ...............-.

Constitutional, Statutory And Rule Provisions Involved

RE Ee ee:

ee ee ee ee

0 ee

Fed.R.Civ.P. 50(b) (1989) .........-.----:-

la

14a

18a

20a

31a

37a

37a

37a

38a

la

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

BRODERICK INVESTMENT COMPANY, _ )

a partnership and successor )

to Broderick Wood Products, )

Inc.; THE COLORADO NATIONAL )

BANK OF DENVER as trustee; )

and THE FIRST INTERSTATE )

BANK OF DENVER, N.A., as )

trustee, )

)

Plaintiffs-Appellees, )

)

v. )

) No. 90-1112

)

)

)

THE HARTFORD ACCIDENT &

INDEMNITY COMPANY,

Defendant-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

(D.C. No. 86-Z-1033)

[Filed January 8, 1992]

Thomas L. Roberts (Susan T. Smith and Joanne M. Zboyan, of Pryor,

Carney & Johnson, P.C., Englewood, Colorado, with him on the

briefs), of Pryor, Carney & Johnson, P.C., Englewood, Colorado, for

the Defendant-Appelliant.

Brooke Jackson (Camron R. Kuelthau, of Holland & Hart, Denver,

Colorado, and Elizabeth A. Phelan, Dubofsky & Phelan, Boulder,

Colorado, with him on the briefs), of Holland & Hart, Denver,

Colorado, for the Plaintiffs-Appellees

Thomas W. Brunner, James M. Johnstone, and Daniel E. 1 roy, of

Wiley, Rein & Fielding, Washington, D.C., on the brief for Insurance

Environmental Litigation Association, amicus curiae

Gale A. Norton, Attorney General; Raymond T. Slaughter, Chief

Deputy Attorney General; Timothy M. Tymkovich, Solicitor General;

Patricia S. Bangert, Deputy Attorney General; Daniel S. Miller, First

Assistant Attorney General; and Charlotte Robinson, Assistant Attorney

General, Natural Resources Section, on the brief for the State of

Colorado, amicus curiae

William H. Allen and William F Greaney, of Covington & Burling,

Washington, D.C., on the brief for The American Fiber Manufacturers

Associauion, The American Petroleum Institute, The Chemical Manu-

facturers Association, The Cojorado Mining Association, Allied-Signal,

Inc., International Business Machines Corporation, and Olin

Corporation, amici curiae

Before TACHA and SETH, Circuit Judges, and BRATTON, District

Judge

TACHA, Circuit Judge

’ The Honorable Howard C. Bratton, Senior District Judge for the

United States District Court for the District of New Mexico, sitting by

designation

————————

3a

I. Introduction

This diversity action presents several questions concerning the

availability of coverage under the Comprehensive General Liability

(CGL) insurance policy for environmental response costs sought by the

Environmental Protection Agency (EPA) pursuant to the Resource

Conservation Recovery Act (RCRA), 42 U.S.C. § 6901 et seg., and the

Comprehensive Environmental Response Compensation and Liability

Act (CERCLA), 42 U.S.C. § 9601 et seg.'

On appeal, appellants challenge the district court’s legal rulings

on the following issues: (1) the interpretation of the term “occurrence”

in the CGL policy; (2) the interpretation of the phrase "sudden and acci-

dental” in the pollution exclusion clause; (3) the applicability of the

pollution exclusion; (4) the interpretation of the term “damages”; (5) the

interpretation of the "owned property” exclusion; and (6) the award of

attorneys’ fees in favor of the insured.

We review the district court’s rulings on these questions of

Colorado contract and insurance law de novo. Salve Regina College v.

Russell, 111 S. Ct. 1217, 1221 (1991). We must interpret the insurance

contract as a Colorado court would. See Erie R. Co. v. Tompkins, 304

U.S. 64 (1937).

II]. Factual Background

Broderick Wood Products, Inc. (BWP) was formed in 1946. Its

founder, William Broderick, placed the stock in trusts administered by

the Colorado National Bank of Denver and what is now the First Inter-

state Bank of Denver (collectively, the trustees). The company ceased

operations in 198] and was dissolved in 1982. Broderick Investment

Company (BIC), a limited partnership whose general partners are the

two bank trustees, succeeded to the company’s rights and obligations.

Between 1971 and 1986, virtually all insurance companies issued

an identical standard-form CGL insurance contract produced by the

National Bureau of Casualty Underwriters and the Mutual Insurance

Rating Bureau. Thus, the same contract language is at issue in nearly

all insurance litigation pertaining to the years 197! to 1986

4a

BWP’s business involved pressure-treating wood products such

as telephone poles and railroad ties with either creosote or penta-

chlorophenol; steam-cleaning the impregnated wood; and disposing of

the residue chemicals, oils, and water. BWP disposed of these waste

materials into what today would be considered unlined pits located on

the plant property. The waste materials were ninety-eight percent water,

which was expected to evaporate and leave a sludge on the pit bottom.

By mid-1983, it was conclusively determined that contaminants

from the pits were seeping into the soil and groundwater. The BWP

facility was eventually added to the National Priorities List of hazardous

waste sites under CERCLA. 49 Fed. Reg. 37070, 37085 (Sept. 21,

1984).

In April 1985, the EPA threatened to file a lawsuit against BIC

and the trustees under CERCLA and RCRA unless the parties could

agree to a consent decree. After several months of negotiations, the

EPA and BIC agreed to a partial consent decree whereby BIC would

pay for a study to investigate the contamination and possible solutions.

On February 28, 1986, the EPA filed suit against BIC and the trustees,

seeking recovery of environmental response costs incurred and to be

incurred in association with the cleanup of the BWP facility.’

CERCLA identifies the owner or operator of a facility as a party

potentially responsible for environmental response Costs associated with

the cleanup of that facility. 42 U.S.C. § 9607(a)(1). A facility's prior

Owner or Operator may also be held liable if hazardous substances were

disposed at the facility during that person's ownership or operation of

the facility. 42 U.S.C. § 9607(a)(2). The EPA therefore sought recov-

ery from BIC because it was both the current owner of the BWP facill-

ty and also the corporate successor to the facility’s prior owner, BWP.

See United States v. Carolina Transformer Co., Inc., 739 F. Supp

1030, 1039 (E.D.N.C. 1989) (successor corporation liable under

CERCLA if "substantial continuity" test satisfied).

CERCLA does not clearly define who may qualify as an owner

Or operator of a facility. See 42 U.S.C. § 9601(20)(A) (definition of

“owner or operator"). Courts have held that a derson who is directly

(continued...) -

eee

Sa

On June 6, 1986, one of the trustees’ general liability carriers,

United States Fidelity & Guaranty, filed this diversity action in the

United States District Court for the District of Colorado, seeking a

declaration that the CGL policies it had issued to the trustees provided

no coverage for response costs sought by the EPA. The named defen-

dants included BIC, the trustees, and other general liability carriers,

including Hartford Accident & Indemnity Company. Hartford provided

BWP with CGL policy coverage from 1976 until 1982 and insured BIC

from 1982 until 1984. BWP’S prior insurers were either insolvent or

unidentifiable. BIC cross-claimed against Hartford for coverage. Hart-

ford counterclaimed for a declaration of no coverage and cross-claimed

against the other carriers for contribution. BIC settled with the trustees’

insurers prior to trial. The court then realigned the parties, naming BIC

and the trustees as plaintiffs and Hartford as defendant.’

Prior to trial, the district court interpreted disputed terms of the

CGL policy after receiving briefs, argument, and short evidentiary

presentations concerning the intent of the policy drafters. The jury

instructions and special verdict form reflected these legal rulings. The

jury returned a verdict in favor of BIC based on the responses to the

questions in the special verdict form.

Following the trial, the court awarded BIC attorneys’ fees under

the policy provision stating the insurer would pay ‘reasonable expenses

incurred by the insured at the company’s request in assisting the com-

pany in the investigation or defense of any claim or suit." The court

*(...continued )

involved in the management of a facility may be liable as an owner or

operator. See, ¢.g., New York v. Shore Realty Corp., 759 F.2d 1032,

1052-53 (2d Cir. 1985). Based on this construction, the EPA sought

recovery against the trustees because they had served on BWP’s board

of directors, continually monitored BWP’s performance, and made or

reviewed the company’s management decisions. The issue of BIC’s

successor liability is not before us.

, For the sake of clarity, the plaintiffs-appellees shall be

collectively referred to as "BIC" throughout the remainder of this

opinion.

6a

also interpreted the 1983 policy to provide coverage of $3 million per

occurrence and the other policies to provide coverage of $1 million per

occurrence

The CGL policy provides coverage for legal liability for

damages imposed upon the insured as a result of an "occurrence." The

policy defines an occurrence as an “accident, including continuous or

repeated exposure to conditions, which results in bodily injury or

property damage neither expected nor intended from the standpoint of

the insured." Assuming the insured’s loss resulted from an occurrence.

the insurer may avoid paying out on the policy if the event falls within

the policy’s pollution exclusion. This provision excludes coverage for

damages “arising out of the discharge, dispersal, release or escape

of. . . pollutants into or upon land." Coverage is restored, however, if

“such discharge, dispersal, release or escape is sudden and accidental."

Because our decision necessarily would implicate unique matters

of Colorado law and because the Colorado Supreme Court was in the

process of addressing the CGL exclusion clause in a case before it. we

waited to decide our case until the Colorado Supreme Court announced

its decision. In Hecla Mining Co. v. New Hampshire Ins. Co.,

811 P.2d 1083 (Colo. 1991), the Colorado Supreme Court addressed the

meaning of the phrase “property damage neither expected nor intended

from the standpoint of the insured," which is part of the policy's defi-

nition of the term "occurrence." The court interpreted that phrase to

exclude only property damages that "the insured knew would flow

directly and immediately from its intentional act." Id. at 1088. The

Colorado Supreme Court then addressed the meaning of the phrase

“sudden and accidental." It construed "sudden and accidental" to mean

unexpected and unintended. Id. at 1092.

Although the Hecla decision resolved some issues before this

court, it left unresolved two critical issues that we must address --

namely, whether the placement of waste materials into containment

ponds constituted a “discharge, dispersal, release or escape" and, if so,

whether property damage could be said to arise out of this “discharge,

dispersal, release or escape." Realizing that the resolution of these

issues depended entirely on highly specific and complex matters of

contract interpretation under Colorado law, we certified the following

question to the Colorado Supreme Court:

7a

For purposes of interpreting a pollution ex-

clusion in a comprehensive general liability policy, does

the placement of industrial wastes into unlined storage

pits when the insured did not intend third party damage

to result constitute a "discharge, dispersal, release, or

escape" within the meaning of the exclusion such that

the damage can be said to “arise out of" the disposition

of wastes in the pits?

The Colorado Supreme Court refused to answer the question.

Therefore, we now must proceed to resolve these

two unique and dispositive questions of state law as we

believe the Colorado Supreme Court would. We

exercise jurisdiction pursuant to 28 U.S.C. § 1291 and

reverse.

III. The Interpretation of the Term "Occurrence"

in the CGL Policy

Before addressing issues related to the pollution exclusion

clause, we first examine the district court’s jury instructions regarding

whether there was an “occurrence.” When reviewing a challenge to

jury instructions, "we review the record as a whole to determine

whether the instructions ‘state the law which governs and provided the

jury with an ample understanding of the issues and the standards

applicable.’" Big Horn Coal Co. v. Commonwealth Edison Co., 852

F.2d 1259, 1271 (10th Cir. 1988) (quoting Ramsey v. Culpepper, 738

F.2d 1092, 1098 (10th Cir. 1984)). The CGL policy provides coverage

for legal liability for damages imposed upon the insured as a result of an

"occurrence." The policy defines "occurrence" as an "accident,

including continuous or repeated exposure to conditions, which results in

bodily injury or property damage neither expected nor intended from the

standpoint of the insured."

To determine whether BIC is entitled to coverage for response

costs, the jury was required to first determine-whether there had been an

occurrence. The district judge instructed the jury in the following

manner:

8a

In order to establish that there is no coverage under its

policies, defendant has the burden of proving by a

preponderance of the evidence that plaintiffs expected

or intended property damage, i.e. that plaintiffs

expected or intended to contaminate groundwater or

adjoining property. For purposes of this determination,

it does not matter what another person might have

expected or intended in similar circumstances. You

must decide what plaintiffs actually expected or

intended.

One cannot, however, avoid the consequences of

conduct from being expected or intended merely by

choosing to ignore that which is obvious.

Based on the evidence at trial, the jury determined that BIC did not

expect or intend the resulting contamination when it deposited the waste

materials in the pits. It concluded there had been an occurrence within

the meaning of the policy.

The instruction directing the jury to apply a subjective standard

in determining whether BIC expected or intended the contamination

resulting from its disposal practices is consistent with the Colorado

Supreme Court's recent ruling in Hecla. In Hecla, the State of

Colorado filed suit under CERCLA against Asarco, Inc., Resurrection

Mining Company, and the Res-Asarco Joint Venture for response costs

associated with damages resulting from the contamination of the

California Gulch. This contamination occurred when Asarco employees

removed shoring timbers and accumulated debris from a drainage

tunnel, causing a surge of contaminated water. Id. at 1085.

The defendants filed a third-party complaint against Hecla

Mining Company, a prior owner of a one-third interest in Resurrection.

Hecla asked its insurance carriers to provide a defense. The insurance

companies filed a declaratory judgment action and claimed they had no

duty to defend or indemnify Hecla. They contended the contamination

was a reasonably foreseeable result of the use of the drainage tunnel and

therefore was not an "occurrence" under the terms of the CGL policy.

Id. at 1087.

9a

The Colorado Supreme Court rejected this argument. The court

held that "the phrase ‘neither expected nor intended’ should be read only

to exclude those damages that the insured knew would flow directly and

immediately from its intentional act." Id. at 1088 (emphasis added)

(citing City of Johnstown y. Bankers Standard Ins. Co., 877 F.2d 1146,

1150 (2d Cir. 1989)); see also Brooklyn Law Sch. v. Aetna Casualty &

Sur, Co., 849 F.2d 788, 789 (2d Cir. 1988)). Because there was no

evidence Hecla actually knew impounding water in the drainage tunnel

would cause environmental damage, the court concluded the contamina-

tion "must be deemed an occurrence under the terms of the CGL

policies.” Id.

Based on this holding, we reject Hartford's argument that the

district court erred in instructing the jury to apply a purely subjective

standard in determining whether BIC expected or intended the contami-

nation resulting from its disposal practices. Under Colorado law,

environmental contamination constitutes an occurrence unless the

evidence proves the insured in fact knew at the time that its practices

would result in such damage. The district court properly assigned

Hartford the burden of proving BIC knew its disposal practices would

cause environmental damage. Because the district court properly

instructed the jury, we do not disturb the jurv’s determination that there

was an "occurrence."

IV. The Applicability of the Pollution Exclusion Clause

We must follow Colorado law when interpreting the CGL policy

at issue in this case. See Erie R. Co. v. Tompkins, 304 U.S. 64

(1937); City of Aurora v. Bechtel, 599 F.2d 382, 386 (10th Cir. 1979).

Under Colorado law, the plain language of the contract controls, and a

court cannot torture the plain language in order to create ambiguities.

Chacon v, American Family Mut. Ins. Co., 788 P.2d 748 (Colo. 1990);

Northern Ins. Co. v. Ekstrom, 784 P.2d 320, 322 (Colo. 1989). The

Colorado Supreme Court has held that "[a] provision in a policy is

ambiguous when it is reasonably susceptible to more than one meaning."

Ekstrom, 784 P.2¢ at 323. Any ambiguities in a policy must be con-

Strued against the insurer. Further, when there are two or more

reasonable interpretations of a clause, a court must adopt an inter-

pretation that provides coverage. Chacon, 788 P.2d at 750; Republic

Ins. Co. v. Jernigan, 753 P.2d 229, 232 (Colo. 1988). In summary,

10a

"[t]o benefit from an exclusionary provision in a particular cortract of

insurance the insurer must establish that the exemption claimed applies

in the particular case and that the exclusions are not subject to any other

reasonable interpretations." American Family Mut. Ins. Co. v. John-

son, 816 P.2d 952, 953 (Colo. 1991) (citing Hecla, 811 P.2d at 1090).

On appeal, we must determine whether the pollution exclusion

clause contained in the CGL policy relieves Hartford of its coverage

obligations. The exclusion provision states,

This insurance does not apply . . . to bodily injury or

property damage arising out of the discharge, dispersal,

release or escape of smoke, vapors, soot, fumes, acids,

alkalis, toxic chemicals, liquids or gases, waste

materials or other irritants, contaminants or pollutants

into or upon land, the atmosphere or any water course

or body of water; but this exclusion does not apply if

such discharge, dispersal, release or escape is sudden

and accidental.

On October 4, 1990, the district court ruled that the phrase "discharge,

dispersal, release or escape” applied only to the seepage of chemicals

from the holding pond into the groundwater, and not to the placement of

wastes into the holding pond. Further, the jury instructions --

immediately after quoting the language of the exclusion -- provided that

"[y]ou are instructed that the phrase ‘discharge, dispersal, release or

escape’ applies to the entry of the chemicals into the groundwater."

Finally, the jury verdict form focused only on the seepage of the toxic

chemicals from the holding ponds into the groundwater.

We must determine whether the district court committed reversi-

ble error by instructing the jury to focus on the seepage from the

holding ponds into the groundwater and by holding that the exclusion

clause found in the CGL policy did not apply to the initial discharge.

To make this determination, we must decide whether the initial place-

ment of toxic chemicals into the holding ponds constituted a "discharge,

dispersal, release or escape" into the land. Under Colorado law, we

must construe these words according to their plain and ordinary mean-

ing. “When determining the plain and ordinary meaning of words, defi-

lla

nitions in a recognized dictionary may be considered." Hecla, 811 P.2d

at 1091.

Relying on dictionary definitions, BIC contends tuat these four

words generally imply liberation or freedom from confinement or re-

straint. BIC then argues that it intended to contain the wastes in the

containment ponds, not to allow the wastes to seep into the ground-

water. Because the pollution exclusion clause utilizes the word “or” to

connect these four words, the exclusion is triggered if even one of the

four words unambiguously describes BIC’s placement of waste into the

ponds. We conclude that, applying any reasonable interpretation, the

phrase “discharge . . . into or upon the land" describes BIC’s placement

of waste into the ponds.

BIC urges that the term “discharge” may be interpreted reason-

ably to mean "to let go," “release from confinement" or “to give outlet

to."* The term "discharge" does not stand alone in the policy and must

be read in the context of the remainder of the language of the clause;

most significantly, the term "discharge" precedes the phrase "into or

upon the land." Even when we employ BIC’s definitions in place of the

word "discharge," we conclude that BIC discharged -- or "let go" or

“released from confinement" -- the waste "into or upon the land."*

4

We note that, among many possible definitions, “discharge” may

also be interpreted to mean "to send forth" or “to emit." See Compact

Edition of the Oxford English Dictionary 740-41 (1985). These two

definitions also support our interpretation of the exclusion clause.

: On appeal, BIC indirectly suggests that the phrase “into or on

the land" does not describe their disposition of waste because one of the

three containment ponds might have been lined with raw cement. As

characterized by BIC, the evidence at trial indicated the following: that

the pits were dug down to a natural clay layer; that the first pond was

lined with two inches of raw cement; that although no one could testify

with certainty that cement was placed in the bottom of the first pit,

Forrest Dean testified that "he encountered a hard, impenetrable

material on the bottom that was as hard as cement"; and that two of the

three ponds were not lined with cement. BIC admitted that the pond

(continued...)

Because the containment ponds are land. any other interpretation of the

phrase "discharge . . . into or upon the land" runs counter to common

sense, plain meaning, and ordinary usage.

BIC argues that it intended to contain the waste in the ponds and

that the subsequent release or escape that contaminated the groundwater

was not intended or expected. With this argument, BIC tries to shift the

focus to the second discharge and attempts to graft an intent requirement

related to damages onto the unambiguous language of the policy’s exclu-

sion Clause. However, whether BIC intended the waste to seep into

groundwater and cause damage after the initial discharges into the land

is not relevant. "[T]he pollution exclusion clause focuses on whether

the discharge of pollution was unexpected and unintended." Hecla, 811

P.2d at 1088 n.7 (emphasis added). We cannot torture the unambiguous

language of the exclusion provision in order to Create an intent re-

quirement that applies to the damage caused by the pollutants.

Because we conclude that BIC discharged its waste into the land.

we must decide whether the Property damage arose out of that dis-

charge. In Azar v. Employers Casualty Co., 495 P.2d 554, 555 (Colo.

1972), the Colorado Supreme Court defined "arising out of" to mean

“originate from," "grow out of” or "flow from." The Colorado

Supreme Court has stated that “[w]e see no reason to give ‘arising out

of’ a different meaning in the context of a policy exclusion." Northern

Ins. Co. v. Ekstrom, 784 P.2d 320, 323 (Colo. 1989). Whether the

phrase “arising out of" in an insurance exclusion clause bars coverage is

determined under a “but for" analysis. See Titan Constr. Co. v. Nolf,

S15 P.2d 1123, 1126 (Colo. 1973). Given the facts in this case, we

conclude that the contamination of the groundwater could not have

occurred but for BIC’s discharge into the holding ponds. Without the

discharge into the holding ponds, the resulting groundwater contamina-

*(...continued)

was unlined as measured by today’s EPA standards. In its supplemental!

brief, BIC asserted that "[t}he main pond was at best partially, and

probably entirely, lined with raw cement." Even when we view the evi-

dence in a light most favorable to BIC and adopt BIC’s characterizations

as true, we nevertheless conclude that the disposition of the waste was

"into or upon the land."

13a

tion simply would not have developed. Thus, the property damage

originated from, grew out of, and flowed from BIC’s discharge of toxic

chemicals into the holding ponds.

Under the exclusion clause, coverage is restored if the discharge

was "sudden and accidental." The Colorado Supreme Court recently

stated that the term "sudden and accidental" is ambiguous and must be

construed in favor of the insured to mean "unexpected and unintended."

See Hecla, 811 P.2d at 1092. Employing this construction, we conclude

that the record shows that the initial discharge into the ponds was not

"sudden and accidental." BIC admits that it intended to discharge the

toxic chemicals into the ponds and that such a discharge was not unex-

pected. Therefore, we conclude that the pollution exclusion clause

applies and the property damage arising out of BIC’s discharge into the

land is not covered under the unambiguous terms of the CGL policy.

This conclusion makes it unnecessary for us to reach the remainder of

Hartford's contentions on appeal.

In making this determination, we emphasize that our reasoning

and interpretation are governed by Colorado law. We can only analyze

the CGL policy as we think the Colorado Supreme Court would have

done had they accepted our certification. The parties and the amicus

curiae briefs raise extremely important policy concerns regarding the

interpretation of the CGL exclusion clause. However, under Colorado

law, we must confine our analysis of the exclusion clause to the plain

language of the contract. We conclude that the language is clear and

unambiguous.

Accordingly, we REVERSE the judgment of the district court

and REMAND to the district court with the direction that judgment be

entered in favor of Hartford.

l4a

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

BRODERICK INVESTMENT COMPANY,

a partnership and successor

to Broderick Wood Products.

Inc.; THE COLORADO NATIONAL

BANK OF DENVER as trustee:

and THE FIRST INTERSTATE

BANK OF DENVER, N.A.. as

trustee,

Plaintiffs-Appellees,

)

)

)

)

)

)

)

)

)

)

)

V )

) No. 90-1112

THE HARTFORD ACCIDENT & )

INDEMNITY COMPANY. )

)

)

Defendant-Appellant.

ORDER ON REHEARING

[Filed April 15, 1992)

Before TACHA and SETH, Circuit Judges, and BRATTON, District

Judge.*

. The Honorable Howard C. Bratton. Senior District Judge for the

United States District Court for the District of New Mexico, sitting by

designation.

15a

Plaintiffs-Appellees’ petition for rehearing is granted by the

panel of judges who decided this appeal on the merits. On rehearing,

we consider only the issue of whether Broderick Investment Company

(BIC) is entitled to coverage for two sources of pollution, the "main

pond" and the "plant equipment." In its petition for rehearing, BIC

contends that "[t]he proper course -- if the panel’s opinion is not

otherwise modified -- is to affirm the finding of coverage as to those

two sources and remand for a determination of this allocation" (footnote

omitted). We disagree.

With regard to the "main pond," we stated in footnote five of

Our opinion that:

BIC indirectly suggests that the phrase "into or upon the

land” does not describe their disposition of waste be-

cause one of the three containment ponds might have

been lined with raw cement. As characterized by BIC,

the evidence at trial indicated the following: that the

pits were dug down to a natural clay layer; that the first

pond was lined with two inches of raw cement; that

although no one could testify with certainty that cement

was placed in the bottom of the first pit, Forrest Dean

testified that "he encountered a hard, impenetrable

material on the bottom that was as hard as cement"; and

that two of the three ponds were not lined with cement.

BIC admitted that the pond was unlined as measured by

today’s EPA standards. In its supplemental brief, BIC

asserted that "[t]he main pond was at best partially, and

-

The Honorable Howard C. Bratton, Senior District Judge for the

United States District Court for the District of New Mexico, sitting by

designation.

l6a

probably entirely, lined with raw cement."* Even when

we view the evidence in a light most favorable to BIC

and adopt BIC’s characterizations as true, we neverthe-

less conclude that the disposition of the waste was "into

or upon the land."

BIC contends that when we made this statement, we were reviewing the

“sufficiency of the evidence concerning the cement lining of the main

pond." This simply is incorrect. We reemphasize that we adopted all

of BIC’s characterizations of the evidence as true. We then concluded

~- as a matter of law -- that when BIC placed waste into the main pond,

it discharged waste "into or upon the land." We recognize that BIC

argues that it intended to contain the waste in the pond. This argument

misses the point: BIC still intended to contain the waste in the land.

Thus, BIC discharged waste into the land and is not entitled to coverage

for any damage that emanated from its discharge of waste into the main

pond or any of the other ponds.

Turning to whether BIC is entitled to coverage for the "plant

equipment,” we begin by examining the district court's instruction

regarding the exclusion clause. After quoting the exclusion clause, the

district court's instruction stated that "[yJou are instructed that the

phrase ‘discharge, dispersal, release or escape’ applies to the entry of

the chemicals into the groundwater." The jury verdict form also

incorrectly focused on the release of toxic chemicals into the ground-

water. As we concluded in our earlier opinion, the instruction and the

Jury verdict form were improper. We cannot accept the Jury's finding

of coverage with regard to the "plant equipment.” Instead, we must

remand to the district court for a new trial to determine whether

coverage exists for the contamination caused by waste that emanated

from the "plant equipment" and for further proceedings consistent with

this opinion.

6

BIC subsequently corrected this sentence to read "[t]he main

pond was at least partially, and probably entirely, lined with raw

cement.” This change in no way affects our analysis because, for pur-

poses of resolving this appeal, we accepted BIC’s version of the evi-

dence as true.

17a

Therefore, we now vacate the last sentence of our earlier

opinion and substitute the following: "Accordingly, we REVERSE the

judgment of the district court and REMAND for further proceedings

consistent with this opinion."

In accordance with Rule 35(b), Federal Rules of Appellate

Procedure, the suggestion for rehearing en banc was transmitted to all of

the judges of the court who are in regular active service. No member

of the panel and no judge in regular active service on the court having

requested that the court be polled on rehearing en banc, Rule 35,

Federal Rules of Appellate Procedure, the suggestion for rehearing en

banc 1s denied.

BIC’s motion for recertification to the Colorado Supreme Court

also 1s denied

ENTERED FOR THE COURT

Deanell Reece Tacha

Circuit Judge

18a

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRODERICK INVESTMENT COMPANY, a

partnership and successor to

Broderick Wood Products, Inc.:

FIRST INTERSTATE BANK N.A..,

as trustee,

COLORADO NATIONAL BANK.

as trustee

Plaintiffs - Appellees,

No. 90-1112

(D.C. No. 86-Z-1033)

v..

HARTFORD ACCIDENT & INDEMNITY

COMPANY,

Defendant - Appellant,

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

INSURANCE ENVIRONMENTAL )

LITIGATION )

ASSOCIATION; STATE OF COLORADO: _ )

AMERICAN FIBER MANUFACTURERS )

ASSOCIATION; AMERICAN PETROLEUM )

INSTITUTE; THE CHEMICAL )

MANUFACTURERS ASSOCIATION: )

COLORADO MINING ASSOCIATION: )

ALLIED-SIGNAL, INC.: )

INTERNATIONAL BUSINESS MACHINES )

CORPORATION; OLIN CORPORATION, _ )

)

)

Amici Curiae.

JUDGMENT

Entered January 8, 1992

Before TACHA and SETH, Circuit Judges, and BRATTON™%, District

Judge.

*The Honorable Howard C. Bratton, Senior District Judge for the

United States District Court for the District of New Mexico, sitting by

designation.

This cause came on to be heard on the record on appeal from

the United States District Court for the District of Colorado, and was

argued by counsel.

Upon consideration whereof, it is ordered that the judgment of

that court is reversed. The case is remanded to the United States Dis-

trict Court for the District of Colorado for further proceedings in

accordance with the opinion of this court.

Entered for the Court

ROBERT L. HOECKER, Clerk

By:

Patrick Fisher

Chief Deputy Clerk

20a

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

BRODERICK INVESTMENT COMPANY, _)

a partnership and successor )

to Broderick Wood Products. )

Inc.; THE COLORADO NATIONAL

BANK OF DENVER, as trustee:

and THE FIRST INTERSTATE BANK

OF DENVER, N.A.., as trustee. )

)

)

Plaintiffs-Appellees,

No. 90-1112

¥.

)

)

THE HARTFORD ACCIDENT &

INDEMNITY COMPANY.

)

)

Defendant-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

(D.C. No. 86-Z-1033)

[Filed August 13, 1991]

Before TACHA and SETH, Circuit Judges. and BRATTON, District

Judge.*

CERTIFICATION OF QUESTION OF STATE LAW

The United States Court of Appeals for the Tenth Circuit.

pursuant to Colo. App. R. 21.1, hereby certifies to the Supreme Court

of the State of Colorado the following question of Colorado law which

may be determinative of the above-captioned matter now pending before

the Tenth Circuit Court of Appeals but does not appear to be answered

in the decisions of the Supreme Court of Colorado:

For purposes of interpreting a pollution exclusion in a com-

prehensive general liability policy, does the placement of industrial

wastes into unlined storage pits when the insured did not intend third

party damage to result constitute a "discharge, dispersal, release, or

escape" within the meaning of the exclusion such that the damage can be

said to “arise out of” the disposition of wastes in the pits?

I. Factual Background

Broderick Wood Products, Inc. (BIC) was formed in 1946. Its

founder, William Broderick, placed the company’s stock in trusts

administered by the Colorado National Bank of Denver and what is now

the First Interstate Bank of Denver (collectively, the Trustees). BIC’s

business involved pressure-treating wood products such as telephone

poles and railroad ties with either creosote or pentachlorophenol;

steam-cleaning the impregnated wood; and disposing of the residue

chemicals, oils, and water. BIC disposed of these waste materials into

what would today be considered unlined pits located on the plant

property. The waste materials were ninety-eight percent water, which

was expected to evaporate, leaving a sludge on the pit bottom.

The company ceased operations in 1981 and was dissolved in

1982. Broderick Investment Company (BIC), a limited partnership

whose general partners are the two bank Trustees, immediately

succeeded to the company’s rights and obligations.

By mid-1983, it was conclusively determined that contaminants

from the pits were seeping into the soil and groundwater. The BIC

facility eventually was added to the National Priorities List of hazardous

waste sites. 49 Fed. Reg. 3707u, 37085 (Sept. 21, 1984). In April

1985, the Environmental Protection Agency (EPA) threatened to file a

. Howard C. Bratton, Senior District Judge of the United States

District Court for the District of New Mexico, sitting by designation.

22a

lawsuit against BIC and the Trustees under the Comprehensive Environ-

mental Response Compensation and Liability Act (CERCLA), 42

U.S.C. §§ 9601 et seg., and the Resource Conservation Recovery Act

(RCRA), 42 U.S.C. §§ 6901 et Seq., unless the parties could agree to a

consent decree. After several months of negotiations, the EPA, BIC,

and the Trustees agreed to a partial consent decree whereby BIC and the

Trustees would pay for a Study to investigate the contamination and

possible solutions. On February 28, 1986, the EPA filed suit against

BIC and the Trustees, seeking recovery of environmental response costs

incurred and to be incurred in association with the BIC facility.

On June 6, 1986, one of the Trustees’ general liability carriers,

United States Fidelity & Guaranty, filed this diversity action in the

United States District Court for the District of Colorado, seeking a

declaration that the Comprehensive General Liability (CGL) policies it

had issued to the Trustees provided no coverage for response costs

sought by the EPA. The named defendants included BIC, the Trustees,

and other general liability carriers, including Hartford Accident &

Indemnity Company. Hartford provided BIC with CGL policy coverage

from 1976 until 1982 and insured BIC from 1982 until 1984. BIC’s

prior insurers were either insolvent or unidentifiable. BIC cross-claimed

against Hartford for coverage. Hartford counterclaimed for a declara-

tion of no coverage and cross-claimed against the other carriers for

contribution. The Trustees’ insurers settled prior to trial. The court

then realigned the parties, naming BIC and the Trustees as plaintiffs and

Hartford as defendant.’

Prior to trial, the district court interpreted disputed terms of the

CGL policy after receiving briefs, argument, and short evidentiary

presentations concerning the intent of the policy drafters. The jury

instructions and special verdict form reflected these legal rulings. The

jury returned a verdict in favor of BIC based on the responses to the

questions in the special verdict form.

7

For the sake of clarity, the plaintiffs-appellants and BIC shall be

collectively referred to as "BIC" throughout the remainder of this certifi-

Cation.

23a

Hartford filed a timely notice of appeal with the Tenth Circuit

Court of Appeals challenging several legal rulings by the district court,

including: (1) the interpretation of the term "occurrence" in the CGL

policy, (2) the interpretation of the phrase “sudden and accidental" in

the pollution exclusion clause, (3) the applicability of the pollution

exclusion Clause, (4) the interpretation of the term "damages," (5) the

interpretation of the "owned property" exclusion, and (6) the award of

attorneys’ fees. We are unable to discern from Colorado law the proper

resolution of the question whether the pollution exclusion clause

precludes coverage. Controlling decisions of the Colorado courts on

related questions do not provide sufficient guidance.

Il. Applicability Of the Pollution Exclusion Clause

The CGL policy provides coverage for legal liability for

damages imposed upon the insured as a result of an “occurrence.” The

policy defines an occurrence as an “accident, including continuous or

repeated exposure to conditions, which results in bodily injury or

property damage neither expected nor intended from the standpoint of

the insured." Assuming the insured’s loss resulted from an occurrence,

the insurer may avoid paying out on the policy if the event falls within

the policy's pollution exclusion. This provision excludes coverage for

damages “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 poliutants into

or upon land, the atmosphere or any water course or body of water.”

Coverage is available, however, "if such discharge, dispersal, release or

escape is sudden and accidental."

There are two events in this case to which the “arising out of”

phrase in the exclusion might apply: the initial, intentional placement of

wastes into the pits and the later, unexpected and unintended seepage of

wastes into the groundwater. If the damage arose out of the initial

placement, the pollution exclusion bars coverage for such intentional

acts. If the damage arose from the seepage, however, the exclusion

would not bar coverage because the seepage was sudden and accidental

and therefore falls within the exclusion’s exception. In the present case,

the district court ruled the pollution exclusion applied to the seepage of

wastes.

24a

Hartford contends the property damage arose out of BIC’s initial

placement of wastes. This argument is supported by a line of Colorado

Supreme Court decisions construing the phrase "arising out of" in a

policy exclusion to mean "originate from," "grow out of," or "flow

from." See, e.g., Northern Ins. Co. v. Ekstrom, 784 P.2d 320 (Colo.

1989): Titan Constr. Co. v. Nolf, 515 P.2d 1123 (Colo. 1973). The

test for whether damages arose out of an incident asks whether the loss

would have occurred but for that incident. Ekstrom, 784 P.2d at 323.

In Titan, the court explained this "but for" test does not contain a strict

concept of proximate causation. 515 P.2d at 1126. Rather, the court

held “the sufficiency of the causative relationship must be . . .

[determined] on an ad hoc basis." Id.

Neither Titan nor Ekstrom provide adequate factual analogs to

guide our determination of whether the damages arose out of the initial

placement of wastes into the pits or the later seepage. In Titan, the

driver of a truck who was offloading wet grout into a hopper injured an

insured. Because the capacity of the hopper was substantially less than

that of the truck, the driver had to wait until the hopper was empty and

then refill it. 515 P.2d at 1124. While waiting for the hopper to

empty, the driver dislodged a brick that fell and struck the insured. The

policy covered injuries arising out of the use, including loading and

unloading, of any automobile. Id. The court decided the unloading was

ongoing, though intermittent, and that the accident arose out of the

unloading. Id. at 1125. In this context. the court held the injury was

covered because it would not have occurred but for the unloading.

In Ekstrom, the court held a CGL policy exclusion for injuries

arising Out of use or ownership of an automobile barred coverage for

injuries due to negligent entrustment of a truck. 784 P.2d at 323. The

plaintiff claimed the truck’s owner was responsible for injuries sustained

when the driver, an employee of the owner, struck her vehicle. She

argued both the negligent operation and negligent entrustment of the

truck caused her injuries, and that the negligence of the owner was a

separate and independent cause of her injuries not excluded by the poli-

cy. Id. The court held that "[w]here multiple causes of injury are

alleged, a claim is barred by the automobile exclusion unless it arises

from non-automobile related conduct and is independent of any owner-

ship, operation, or use of an automobile." Id. The court found that

negligent entrustment of an automobile entails Ownership, operation, or

25a

use of an automobile, so there was no coverage under the CGL policy.

Id. at 324.

Hartford argues that but for BIC’s placement of wastes in the

containment pits, the contamination would not have occurred. Hartford’s

position would have us analogize the initial placement to the negligent

entrustment in Ekstrom and the later seepage to the negligent driving.

Relying on Titan to support its argument, Hartford would have us

discount the proximate cause of seepage from the pits and look to the

disposal in the pits as the ultimate cause of damage. Because the

damage can be traced to this intentional act, Hartford argues, there is no

coverage.

BIC argues the damage arose out of the seepage. BIC apparent-

ly would distinguish its disposal practices from the negligent entrustment

of the vehicle in Ekstrom and have us hold the initial placement in no

sense caused third party damage. BIC asserts only the seepage can

unambiguously be characterized as the type of "discharge, dispersal,

release or escape" barred by the pollution exclusion. If the pollution

exclusion reference to a “discharge, dispersal, release or escape" does

not unambiguously describe BIC’s placement of wastes into the pits, the

pollution exclusion arguably would not bar coverage. See, e.g., Lister

v. American United Life Ins. Co., 797 P.2d 832, 733 (Colo. App.

1990) (ambiguities in limitations of coverage must be construed in favor

of coverage); State Compensation Ins. Fund v. Wangerin, 736 P.2d

1246, 1248 (Colo. App. 1986) (same).

The jury found BIC did not intend any property damage when it

placed its wastes in the pits.* The jury’s finding implicitly supports

BIC’s contention that BIC did not intend the wastes to migrate. This, in

turn, indicates BIC’s intentional placement of wastes into the pit was not

necessarily the activity contemplated by the pollution exclusion. That

clause speaks of a “discharge” in the context of a “dispersal, release, or

, We recognize this finding is distinct from the question whether

the pollution exclusion analysis should focus on BIC’s placement of the

wastes into the ponds or the waste’s later seepage from the ponds. See

Hecla Mining Co. v. New Hampshire Ins. Co., No. 89SC646, slip op.

at 13 n.7 (Colo. May 13, 1991) (en banc).

26a

escape,” thus reasonably signifying a final relinquishment of the wastes.

Cf. Ekstrom, 784 P.2d at 323 ("A Provision in a policy is ambiguous

when it is reasonably susceptible to more than one meaning."). The

record adequately supports the jury's implicit finding that BIC did not

view its disposal practices as this sort of final relinquishment or

abandonment of responsibility for the wastes, but rather as storage.

Hence, BIC may reasonably have expected the disposal/storage method

was not a “discharge, dispersal, release. or escape" for purposes of the

pollution exclusion. BIC insists Colorado law prescribes coverage in

this situation.’ See, e.g., Chacon y. American Family Mut. Ins. Co..

788 P.2d 748, 750 (Colo. 1990) (any ambiguities in policy must be

construed against insurer; when two reasonable interpretations of

Provision possible, court must adopt interpretation that provides

coverage), Republic ‘Ins. Co. vy. Jernigan, 753 P.2d 229, 232 (Colo

1988) (same).

III. Certification

Because Colorado case law does not indicate the proper inter-

pretation of the phrases “arising out of” and "discharge, dispersal,

release or escape" in the pollution exclusion of the CGL policy and

because of the importance of this issue, we respectfully request the

Colorado Supreme Court to address the aforementioned question of

Colorado law.

The clerk of this court will transmit copies of this certification

order to counsel for all parties to the Proceedings in this court. The

clerk will also submit to the Supreme Court of the State of Colorado a

certified copy of this order. together with copies of the briefs filed with

this court and either the Original or a copy of the district court record

~

The jury's finding of no intent to harm third party property also

indicates the seepage was an unexpected and unintended "discharge, dis-

persal, release or escape." In addressing the meaning of the phrase

“sudden and accidental" in the pollution exclusion, the Colorado

Supreme Court has held damages from such pollution is not barred from

coverage. Hecla, No. 89SC646. slip op. at 21.

27a

filed with this court. Pursuant to Colo. App. R. 21.i(e), the fees and

costs of this certification shall be divided equally among the parties.

Dated this 13th day of August, 1991

/s/ Deanell Reece Tacha

Deanell Reece Tacha

Circuit Judge

28a

SUPREME COURT, STATE OF COLORADO

CASE NO. 91SA314

CERTIFICATION OF QUESTION OF LAW

U.S. COURT OF APPEALS FOR THE TENTH CIRCUIT NO. 90-

1112

ORDER OF COURT

BRODERICK INVESTMENT COMPANY. a partnership and successor

to Broderick Wood Products, Inc.: THE COLORADO NATIONAL

BANK OF DENVER, as trustee: and THE FIRST INTERSTATE

BANK OF DENVER, N.A., as trustee.

Plaintiffs-Appellants,

Vv.

THE HARTFORD ACCIDENT & INDEMNITY COMPANY,

Defendant-Appellee.

Upon consideration of the Certification of Question of State

Law filed in the above cause, and now being sufficiently advised in the

premises,

The Supreme Court DECLINES to answer the Question

BY THE COURT, EN BANC, SEPTEMBER 12. 199}

CC:

Cameron R. Kuelthau

Anne C. Stark

Brooke Jackson

HOLLAND & HART

555 17th St., #2900

P. O. Box 8749

Denver, CO 80201

29a

JoAnne M. Zboyan

Thomas L. Roberts

Susan T. Smith

PRYOR, CARNEY & JOHNSON

6200 S. Syracuse Way, #400

P. O. Box 6559

Englewood, CO 80155-6559

Honorable Deanel!l Reece Tacha

Circuit Judge

U.S. Court of Appeals

Tenth Circuit

1929 Stout Street

Denver, CO 80294

Robert L. Hoecker

Clerk, U.S. Court of Appeals

Tenth Circuit

1929 Stout Street

Denver, CO 80294

Thomas W. Brunner

James M. Johnstone

Daniel E. Troy

WILEY, REIN & FIELDING

1776 K Street, N.W.

Washington, DC 20006

Gale A. Norton

Attorney General

Charlotte R. Robinson

1525 Sherman St., 3rd Floor

Denver, CO 80203

30a

William Francis Greaney

William H. Allen

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W

P.O. Box 7566

Washington, D.C. 20044

31a

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 86-Z-1033

BRODERICK INVESTMENT COMPANY, et al.,

Plaintiffs,

VS.

THE HARTFORD ACCIDENT AND INDEMNITY COMPANY,

Defendant.

REPORTER’S TRANSCRIPT

(Motions Hearing: Bench Ruling)

Proceedings before the HONORABLE ZITA L. WEINSHIENK.

Judge, United States District Court for the District of Colorado.

commencing at 4:50 p.m., on the 4th day of October, 1989, in

Courtroom C-502, United States Courthouse, Denver, Colorado.

APPEARANCES

HOLLAND AND HART, by R. BROOKE JACKSON and ANNE

STARK, Attorneys at Law, Suite 2900, 555 17th Street, Denver,

Colorado, 80202, and EUGENE ANDERSON and NICHOLAS K.

ZOOGMAN, Anderson, Kill, Olick, Oshinsky, 666 3d Avenue, New

York, New York, 10017, appearing for the plaintiffs

32a

PRYOR, CARNEY AND JOHNSON, by THOMAS L. ROBERTS,

SUSAN T. SMITH, AND JOANNE M. ZBOYAN; Attorneys at Law.

6200 South Proceedings Recorded by Mechanical Stenography,

Transcription Produced via Computer by Paul Zuckerman, 1929 Stout

Street, P.O. Box 3563, Denver. Colorado 80294, (303) 629-9285

Syracuse Way, Suite 400. Englewood, Colorado, 80111. appearing for

the defendant.

(The following Proceedings were had and entered of record after the

Court heard evidence and the arguments of Counsel on October 2. 3.

and 4, 1989:)

RULING

THE COURT: Actually, I think the pollution exclusion issue for

me is one of the easiest things to do decide (sic) at this point, so let me

take that first.

Yes, it is ambiguous. Yes, it must be resolved for the insured.

Yes, there are lots of statements at the time that really didn’t change

anything, and that was because as Stated in the letter just referred to, the

drafters were saying that most pollution wasn’t covered because most

33a

pollution was intended or expected and thus was not covered under the

occurrence paragraph.

It is clear that the word "sudden" has different meanings besides

quick or besides a temporal meaning; and the meanings that have been

evident in these various documents and in letters and briefs and

depositions and in the dictionary are meanings such as unforeseen,

unexpected, unprepared for, without prior warning: the unexpected,

unintended, unforeseen sort of trilogy. And if the exclusion provision

must be interpreted and is ambiguous, as | think it Clearly is, and must

be interpreted favorably for the insured, then it will not be given its

temporal meaning. It will be given the broader meaning of unintended,

unexpected, unforeseen, without warning, the various things that we've

seen in the documents, which also goes along with the documents that

indicate to West Virginia and New York and some of the other

jurisdictions that this was no great change in the policy; that really this

was just making clear what was previously stated by way of intent, and

that was that expected and intended pollution would not be covered

under the occurrence clause.

So my ruling on pollution exclusion, on the exception, is now much

more specific then just denying a motion for Summary judgment and

34a

Saying that there is--are factual issues My ruling is that because the

clause is ambiguous, because it must be construed and resolved for the

insured, that it will be interpreted in the broader way for the jury; and

that is that it was not meant to be a whole new ballgame but it was

meant to cover discharge, dispersal, release. escape which is sudden and

accidental, meaning unintended. unforeseen, unexpected discharge. And

we're talking about the discharge from the holding pond into the ground

water. We're talking about the discharge from the plant, if there was

some, into the ground water, which would affect third parties, which

would affect the ground water. wildlife, and other third parties on other

property.

And indeed, this leads us into the Owned property exclusion. It’s

very clear if it’s necessary to cleari up the owner's property in order to

protect others and protect the ground water and protect the wildlife. then

that latter protection is primary and the fact that you have to clean up

the owner's property in order to protect others--that's sorts of a

byproduct or secondary. And indeed, if it is necessary clean up of the

Owner's property which has nothing to do with protection of others,

with protection of other property Owners or ground water or wildlife.

then that is not covered. And if the facts show that there is some of that

35a

in the case, that certainly is not within the policy and the Court is not

going to-I think that could probably be ruled on an a matter of law,

unless there is a factual dispute and the fact-finder has to decide that.

MR. ROBERTS: I just wanted to ask for a clarification,

Judge, on the second part of your pollution exclusion ruling. I think

I got the sense of it, but it was a little unclear to me when you Stated it

about the release or the discharge.

THE COURT: Well, I think that’s just a question of looking at the

words in the contract. We are talking about discharge, dispersal,

release, Or escape to third parties in this case. We're not talking about

dispersal into a pond. We're talking about whether dispersal or escape

from the pond-or I think someone for the plaintiff, maybe Mr. Jackson,

Said it came from the plant, too. | really wasn’t aware of that--to third

parties through ground water or through damage to wildlife or through

injury to other people, maybe neighbors--whether that dispersal, release,

escape, is sudden and accidental. That’s what we're talking about.

MR. ROBERTS: Okay.

36a

THE COURT: SoI’m agreeing with the plaintiff on what we’re

talking about when you mean discharge, dispersal, release or escape. It

has to be that.

MR. ROBERTS: That's what | thought you said but I just wanted

to be clear.

THE COURT: Okay I think that’s the only

logical way to go.

37a

U.S. Const. amend. VII

In Suits at common law, where the value in controversy

shall exceed twenty dollars, the right of trial by jury

shall be preserved, and no fact tried by a jury, shall be

otherwise reexamined in any Court of the United States,

than according to the rules of the common law.

U.S. Const. amend. X

The powers not delegated to the United States by the

Constitution, nor prohibited by it to the States, are

reserved to the States respectively, or to the people.

28 U.S.C.A. § 1652 (1966)

The laws of the several states, except where the Con-

stitution or treaties of the United States or Acts of

Congress otherwise require or provide, shall be regarded

as rules of decision in civil actions in the courts of the

United States, in cases where they apply.

er

38a

Fed.R.Civ.P. 50(b) (1989)

Motion for Judgment Notwithstanding the Verdict.

Whenever a motion for a directed verdict made at the

close of all the evidence is denied or for any reason is

not granted, the court is deemed to have submitted the

action to the jury subject to a later determination of the

legal questions raised by the motion. Not later than 10

days after entry of judgment, a party who has moved for

a directed verdict may move to have the verdict and any

judgment entered thereon set aside and to have judgment

entered in accordance with the party's motion for a

directed verdict; or if a verdict was not returned such

party, within 10 days after the jury has been discharged,

may move for judgment in accordance with the party's

motion for a directed verdict. A motion for a new trial

may be joined with this motion, or a new trial may be

prayed for in the alternative. If a verdict was returned

the court may allow the judgment to stand or may

reopen the judgment and either order a new trial or

direct the entry of judgment as if the requested verdict

had been directed. If no verdict was returned the court

may direct the entry of judgment as if the requested

verdict had been directed or may order a new trial.