Petition for Writ of Certiorari — El Paso Natural Gas Co. v. Hartford Accident & Indemnity Corp.

. Bpreme Court, us.

92-430 FILED

‘| SEP 8 4992

OFFICE OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

EL PASO NATURAL GAS COMPANY, a Delaware

corporation,

Petitioner,

vs.

HARTFORD ACCIDENT AND INDEMNITY CORPORATION. a

Connecticut corporation,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Alan L. Sullivan

Counsel of Record

Kathryn H. Snedaker

VAN COTT, BAGLEY,

CORNWALL & McCARTHY

50 South Main Street

Suite 1600

P. O. Box 45340

Salt Lake City, UT 84145

Telephone: 801-532-3333

Counsel for Petitioner

September 4, 1992

QUESTIONS PRESENTED

For about 15 years, standard comprehensive

general liability policies issued in every state excluded

coverage for damage from pollution, except where the

“discharge, dispersal release or escape" of pollutants was

"sudden and accidental." A rule of construction adopted in

Utah and other states requires such policies to be

construed against the insurer if a plausible interpretation

would result in coverage.

The questions presented are:

1. Does the Erie rule require the phrase

“sudden and accidental" to be interpreted without a

temporal element to mean “unexpected and unintended,"

thereby permitting insurance coverage for losses from

gradual pollution?

2. Where wastes are intentionally deposited

in a containment pond or landfill, does the Erie rule require

the phrase "discharge, dispersal, release or escape" to be

interpreted to refer to the unintended escape of pollutants

from the pond or landfill into the groundwater or

surrounding soil?

LIST OF PARTIES AND RULE 29.1 LIST

The parties to proceedings before the court

of appeals were petitioner El Paso Natural Gas Company

and respondent Hartford Accident & Indemnity Corporation.

United States Fidelity & Guaranty Company and

Commercial Union Insurance Company were parties to the

action before the district court but not to the appeal before

the court of appeals.

Petitioner is a publicly held company and has

no parent company. Petitioner has no subsidiaries that are

not wholly-owned.

TABLE OF CONTENTS

Page

eT gg eB 2 ot) i

LIST OF PARTIES AND RULE 29.1 LIST .............. i

pe ee: ae iii

pp ee ee ae Vv

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

oe’ 0. Bio ji Ee | «© | aaah 1

PET Cae ER Ee REE eee 2

eae gaa 4 sk Are Sk AA A ww Ose 8 2

CONSTITUTIONAL AND STATUTORY PROVISIONS

es or ke a AAO ERE OER OO 2

ip up oe det) 3 o'r 3

A I era alk Saks BAC eon wk eC ulN Lae A 3

B. Procedural Background ................ 8

REASONS FOR GRANTING THE WRIT............... 9

ee Pe as 60 ba ey a CA WN Oe RR 13

I. The Court of Appeals Violated Erie By

Ignoring State Law Rules of Policy

Interpretation Favoring the Insured ........... 13

ll. The Court of Appeals Violated Erie by

Ignoring the Patent Ambiguity of the

Pollution Exclusion .......... 202 eee eee eee 14

A. "Sudden and accidental" ............ 14

B. "Discharge, dispersal, release

i ee ee ee 17

oe 6 eee ie ea i oe 19

rer rere eer ete ere ee

TABLE OF AUTHORITIES

CASES

Page

Aetna Casualty & Sur. Co. v. General

Dynamics Corp., 783 F. Supp. 1199

(E.D.Mo. 1991), aff'd in pertinent

part, 1992 WL 150933 (8th Cir. 1992) ............... 17

Anderson & Middleton Lumber Co. v.

Lumbermen’s Mutual Casualty Co.,

oe FAD GO MUWONIND, NUD oi cece tec e eee secuses 6

Broderick Investment Co. v. Hartford

Acc. & Indem. Co., 954 F.2d 601

(10th Cir. 1992) petition for cert. filed,

61 U.S.L.W. 306 1 (U.S. July 13, 1992) (No. 92-92) ..... 11

Central Sec. Mut. Ins. Co. v. Depinto, :

el ae Cs PE os eG ee es cease 13

Claussen v. Aetna Casualty & Sur. Co.,

OOO SG. 20 GES CG. TOR) we cece te 7, 11, 16

CPC International, Inc. v. Northbrook

Excess & Surplus Ins. Co., 962 F.2d 77

(COR Sty COE Os oes wk eee Oe 10, 11

Crowther v. Carter, 767 P.2d 129

I FU aie ace wn be eee cea eee 13

Diamond Shamrock Chemicals Co. v. Aetna

Casualty & Sur. Co., 609 A.2d 440

Peak Ws SUE sk ees ee ee eee 9-10

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) ........ 13

Fireman's Fund Ins. Co. v. Ex-Cello-O Corp..,

O62 F.Gupp. 71 G.D.WR. VEGF) www ee eee 17, 18

Fuller v. Director of Finance, 694 P.2d 1045

ok eee ee ee yr eer ro eee rer 13

Gilbert Spruance Co. v. Pennsylvania Mfg.

Assoc. Ins. Co., 603 A.2d 61 (N.J. 1992) ........... . 10

Gridley Assoc. v. TransAmerica Ins. Co.,

G28 P.2Oe GE4 GFR ADD. TER 2. cc ew ea nace 9

Haring v. Prosise, 462 U.S. 306 (1983) .............. 11

Hartford Accident & Indem. Corp. v. United

States Fidelity & Guar. Co., 962 F.2d 1484

(VGN GID. FONE 6s 0 0 6eac ua be Pe eieeierines Bees G

Hartford Accident & Indem. Corp. v. United

States Fidelity & Guar. Co., 765 F.Supp 677

Ge. WRENN TUNED 6 co va kk wake he hear Ee Ree 8

Hecla Mining Co. v. New Hampshire Ins. Co.,

eee 8g | ee ere roe 10-11, 15

Jackson Township Mun. Util. Authority v.

Hartford Accident & Indem. Co., 451 A.2d

reer re rete 11,17

Joy Technologies, Inc. v. Liberty Mutual

Ins. Co., 1992 W.Va. LEXIS 53 (W.Va. | a At 7

Just v. Land Reclamation, Ltd., 456 N.W.2d

DFO VEE 9h bh bake ene oe 7, 11, 15-16

Kipin Industries, Inc. v. American Universal

Ins. Co., 535 N.E. 2d 334 (Ohio App. 1987) .......... 11

vi

New Castle County v. Hartford Accident &

Indem. Co., 933 F.2d 1162 (3d Cir. 1991) .... 7,10, 15,16

New England Gas & Elec. Ass'n. v. Ocean

Accident & Guar. Corp., 116 N.E.2d 671

I Ee et eee OA oo an 6

Pepper's Steel & Alloys, Inc. v. United States

Fidelity & Guar. Co., 668 F.Supp. 1541

SR WEEN, og et a ah ois 4h oa ek ae oe 17

Queen City Farms, Inc. v. Central Nat'l.

Ins. Co., 827 P.2d 1024 (Wash. App. 1992) .......... 10

Ruhlin v. New York Life Ins. Co.,

a 11-12

Stout v. Washington Fire & Marine Ins. Co.,

Joo F.20 GOS (Re TGCS) 2 wc ccc cee 14

Sylvester Brothers Dev. Co. v. Great

Central Ins. Co., 1992 W.L. 10634

(Minn. App., Jun. 28, 1992) ..............0......., 17

United States Fidelity & Guar. Co. v.

Armstrong, 479 So.2d 1164 (Ala. 1985) .......... 11,17

United States Fidelity & Guar. Co. v.

Specialty Coatings, Inc., 535 N.E.2d 1071

a. Une 11, 16

Upjohn Co. v. New Hampshire Ins. Co.,

444 N.W.2d 813 (Mich. App. 1989) .................. 7

Upjohn Co. v. New Hampshire Ins. Co.,

476 N.W.2d 392 (Mich. 1991) .................... 7-8

vii

Whitlock v. Old American Ins. Co.,

ee ee 13

CONSTITUTIONAL PROVISIONS

DR Be ee 2,13

STATUTES

15 U.S.C. §2601 (Supp.-1992) ..................... 3

28 U.S.C. §1332(a)(1) (Supp. 1992) ................. 8

28 U.S.C. §1254(1) (Supp. 1992) ................... 2

28 U.S.C. §1652 (Supp. 1992) .................. 2,13

42 U.S.C. §9601(22) (Supp. 1992) ................, 4-5

RULES

40 C.F.R. §302.4 (Supp. 1990) ..................... 3

Rule 56, Federal Rules of Civil Procedure............ 12

OTHER AUTHORITIES

Black’s Law Dictionary 1432 (6th ed. 1990) .......... 15

viii

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

EL PASO NATURAL GAS COMPANY, a Delaware

corporation,

Petitioner,

vs.

HARTFORD ACCIDENT AND INDEMNITY CORPORATION, a

Connecticut corporation,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioner respectfully requests that a writ of

certiorari issue to review the judgment and opinion of the

United States Court of Appeals for the Tenth Circuit in this

case.

OPINIONS BELOW

The Opinion of the Court of Appeals is

reported at 962 F.2d 1484 (10th Cir. 1992) and appears in

the Appendix at pages 1a to 18a. The court of appeals’

Order Denying Petition for Rehearing, which was not

reported, is included in the Appendix at pages 19a to 20a.

The decision of the district court is reported at 765 F.Supp.

677 (D. Utah 1991) and appears in the Appendix at pages

20a to 28a.

JURISDICTION

The opinion and judgment of the court of

appeals were entered on April 30, 1992. The order of the

court of appeals denying the petition for rehearing was

entered on June 9, 1992. The jurisdiction of this Court is -

invoked under 28 U.S.C. §1254(1) (Supp. 1991).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

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. § 1652 (Supp. 1991):

The laws of the several states,

except where the Constitution

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 courts of the

United States, in cases where

they apply.

STATEMENT OF THE CASE

A. Material Facts

Beginning in the late 1950's, members of the

natural gas industry commonly used synthetic lubricants

containing polychlorinated biphenyl! (PCB) to lubricate air

compressors at gas transmission stations. From 1959 to

1974, petitioner El Paso Natural Gas Company ("El Paso")

operated a gas pipeline, known as the Northwest Division,

in the states of Washington, Oregon, Idaho, Wyoming, Utah

and Colorado. In 1974, El Paso transferred the Northwest

Division to Northwest Pipeline Corporation ("Northwest

Pipeline"). For most of the period during which it owned

the Northwest Division, El Paso used PCB-carrying

lubricants in its operations.

PCB is now classified by the Environmental

Protection Agency ("EPA") as a hazardous substance under

federal law. 40 C.F.R. § 302.4 (1990). El Paso’s use of

synthetic lubricants, however, ended years before PCB was

considered hazardous. In 1979, the EPA implemented rules

which, for the first time, prohibited certain uses of PCB

under the Toxic Substances and Control Act, 15 U.S.C.

§2601 et seq. (1992). The natural gas industry, including El

Paso, was first led to suspect the presence of PCB in air

compressor systems in 1983.

In the 1960's and early 1970's, El Paso

disposed of waste synthetic lubricants primarily by

channeling them from compressors and other machinery in

which they were used to one or more unlined earthen pits

at each compressor site. This was the normal method by

which gas transmission companies disposed of natural and

synthetic lubricants. El Paso’'s belief, and the belief of other

gas transmission companies, was that (a) the waste oil

would seal the bottom of the pit and prevent seepage of

light hydrocarbons into the soil; (6b) overflow pipes installed

near the top of the berm surrounding the containment pit

would carry water away from the pits; and (c) the water that

drained from the pit or seeped into the soil would not be

contaminated by oil or other hydrocarbons. The pits were

used as temporary disposal locations; the accumulated

lubricants were periodically pumped or dredged and then

carried away. At some of the sites, small quantities of

lubricant were occasionally sprayed into gravel “blow down

pots" with water and air from pressurized systems.

In 1987, Northwest Pipeline discovered that

15 compressor stations throughout the Northwest Division

were contaminated with PCB. Most of the PCB

contamination was associated with seepage from the

containment pits into the soil, the groundwater, and through

the overflow pipes. At several locations, investigators found

physical evidence of large scale spills of contaminated

water from containment pits during brief periods of high

water run-off. Some of the contamination was associated

with instrumentation and equipment lubricated by PCB-

carrying lubricants. Some of the contamination also

resulted from the use of blow down pots to reduce

pressure in air systems.

Northwest Pipeline notified the Environmental

Protection Agency, which concluded that PCB

contamination at the compressor sites constituted an actual

or threatened “release” of “hazardous substances" into the

environment, within the meaning of Section 101(22) of the

Comprehensive Environmental Response, Compensation

and Liability Act ("CERCLA"), 42 U.S.C. §9601(22) (1992).

Northwest Pipeline thereafter entered into consent decrees

with the EPA with respect to each of the compressor sites;

in these decrees Northwest Pipeline was directed to clean

up the PCB contamination. The EPA concluded that the

potential for migration of PCB contamination threatened the

“imminent endangerment" of off-site lands, the groundwater,

and the environment in general.

Northwest Pipeline commenced an action

against El Paso seeking damages on theories of

contribution and indemnification. El Paso settled Northwest

Pipeline’s claims for $6.6 million and then sought recovery

from its insurers under comprehensive general liability

policies issued between 1959 and 1986. El Paso settled

with some insurers, but respondent Hartford Accident &

Indemnity Corporation (hereinafter Hartford") denied

coverage and commenced this case for declaratory relief

on its policies.

From January 1, 1976 to January 1, 1986,

Hartford provided comprehensive general liability and

contractual liability insurance coverage for El Paso. The ten

policies issued by Hartford to El Paso were identical in all

material respects. Each contained a “pollution exclusion"

which provided that the insurance did not cover

bodily injury or property

damage arising out of the

discharge, dispersal, release

or escape of. . . contaminants

or pollutants into or upon the

land, the atmosphere or any

water course or body of water:

but this exclusion, except with

respect to coastal waters,

does not apply if such

SSS

discharge, dispersal, release

or escape is sudden and

accidental.

Hartford's comprehensive general liability

policies, like the policies of other insurers, consist almost

entirely of standardized terms that have been developed by

the insurance industry's major trade associations. The

pollution exclusion quoted above is such a standard

provision. lt was drafted and adopted by the insurance

industry's trade associations for mandatory use in the

Standard form comprehensive general liability policy used

throughout the nation for more than 15 years. The words

“sudden and accidental" in the proviso to the exclusion

were borrowed from the insurance industry's standard form

boiler and machinery liability policy in which the same

phrase had been used for many years. In this context, the

courts had consistently interpreted the phrase “sudden and

accidental" to mean “unexpected and unintended." See,

e.g., Anderson & Middleton Lumber Co. v. Lumbermen’s

Mutual Casualty Co., 333 P.2d 938 (Wash. 1959); New

England Gas & Elec. Ass'n. v. Ocean Accident & Guar.

Corp., 116 N.E.2d 671, 680-81 (Mass. 1953).

In efforts to gain regulatory approval for the

pollution exclusion, the insurance industry’s two major trade

organizations (the same organizations that drafted the

pollution exclusion) represented to state authorities that the

new Clause was intended to eliminate acts of willful

pollution from coverage. They asserted, however, that

pollution from unexpected and unintended events would

Still be covered. in particular, they asserted, the new

pollution exciusion was intended only to “clarify* existing

coverage for continuous or repeated exposure to

conditions resulting in injury neither expected nor intended

by the insured.' Consistent with these representations,

Hartford's sister corporation stated in a 1987 brief to the

Michigan Court of Appeals that “[t]he purpose of the

[pollution] exclusion is limited; it is aimed solely at deterring

intentional and willful pollution of the environment."

Hartford's affiliate said that "the more reasonable and

accepted view [of the exclusion’s interpretation] is that the

exclusion was designed to simply reinforce the fact that

damages expected or intended on the part of the insured

are not covered under the policy.”

' El Paso established a detailed history of the pollution

exclusion in the record before the district court. For summaries of

some of the same evidence as developed in other cases, see New

Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162,

1197-98 (3d Cir. 1991) (quoting statements made by the Insurance

Rating Board to the Pennsylvania Commissioner of Insurance); Joy

Technologies, Inc. v. Liberty Mutual ins. Co., 1992 W.Va. LEXIS 53

(W.Va. 1992) (quoting statements made by the Insurance Rating

Board and the Mutual Insurance Rating Board to the West Virginia

Insurance Commission); Just v. Land Reclamation, Ltd., 456 N.W.

2d 570, 574-75 (Wis. 1990) (quoting statements made by Mutual

Insurance Rating Bureau and the Insurance Rating Board to

regulators in West Virginia and Georgia); Claussen v. Aetna

Casualty & Sur. Co., 380 S.E. 2d 686, 689 (Ga. 1989) (quoting from

Insurance Rating Board representations to the Georgia

Commissioner of insurance).

* Hartford's affiliate, First State Insurance Company, made

these representations in a brief dated November 6, 1987, to the

Michigan Court of Appeals in Upjohn Co. v. New Hampshire Ins.

Co., Case No. 98969, at page 22. A copy of this brief was included

in the record below and appears in the appendix to El Paso’s Brief

to the court of appeals beginning at page 83. The Michigan Court

of Appeais agreed with First Interstate Insurance Company’s

arguments. See Upjohn Co. v. New Hampshire Ins. Co., 444

N.W.2d 813, 817 (Mich. App. 1989). (*[WJe believe that even a

continuous discharge of chemicals may be both accidental (ie.,

unintended) and sudden (i.e., unexpected) and, therefore, outside

7

B. Procedural Background

In September, 1988, Hartford filed this

diversity suit pursuant to 28 U.S.C. §1332(a)(1) (1992)

against El Paso and its other insurers. Hartford's complaint

sought a declaratory order that there was no coverage

under its policies with El Paso. El Paso counterclaimed for

declaratory relief and payment under the policies. After the

close of discovery, the parties filed cross-motions for

summary judgment. The parties’ motions focused on

several different exclusions in the Hartford insurance

policies, but the district court chose to confine its decision

to the “pollution exclusion.” The district court granted

Hartford's motion for summary judgment and denied E!

Paso’s motion. It held, first, that the phrase “sudden and

accidental” unambiguously means “happening without

notice and occurring by chance." Hartford Accident &

Indem. Corp. v. United States Fidelity and Guar. Co., 765

F.Supp 677, 680 (D. Utah 1991); Appendix at 25a-27a. The

court then held that this definition precluded coverage for E|

Paso's “continuous and routine" disposal of waste

lubricants into or upon the ground. 765 F.Supp. at 680;

Appendix at 25a-26a. In this connection, the court held that

the “focus of the sudden and accidental exclusion clearly

relates to the nature of the ‘discharge, dispersal, release or

escape’ of the pollution itself, not to the nature of the

damages caused." 765 F.Supp. at 681; Appendix at 26a.

On appeal by El Paso, the court of appeals

apparently rejected the district court's interpretation of

“sudden and accidental" and held that the phrase

the pollution exclusion.") In a divided opinion, the Michigan

Supreme Court reversed, see Upjohn Co. v. New Hampshire Ins.

Co., 476 N.W.2d 392, 397 (Mich. 1991), holding that the word

“sudden* unambiguously connotes a “temporal element that joins

together conceptually the immediate and the unexpected."

8

unambiguously includes the requirement of abruptness.

Quoting from dictum in a decision of the Utah Court of

Appeals, the Tenth Circuit held that the word "sudden"

connotes both a sense of “unexpectedness" and "a

tempcral element, specifically immediacy, abruptness, and

quickness." Hartford Accident & Indem. Corp. v. United .

States Fidelity & Guar. Co., 962 F.2d 1484, 1490 (10th Cir.

1992), quoting Gridley Assoc. v. Transamerica Ins. Co., 828

P.2d 524, 527 (Utah App. 1992); Appendix at 12a-13a. The

Tenth Circuit also held that, in the context of this case, the

phrase "sudden and accidental" focuses upon El Paso’s

intentional deposit of wastes into waste disposal pits, and

not, as El Paso argued, upon the discharge, dispersal,

release and escape of contaminants from disposal pits to

the environment. 962 F.2d at 1491; Appendix at 15a-17a.

During the course of its opinion, the Tenth

Circuit noted that both of the issues it decided were issues

of first impression in Utah. 962 F.2d at 1487; Appendix at

7a-8a. The Court of Appeals was "informed by decisions of

the Utah appellate courts and by precedent of federal

courts in this and other circuits." Id.

On May 14, 1992, El Paso petitioned for a

rehearing. On June 9, 1992 the court of appeals denied El

Paso’s petition without comment.

REASONS FOR GRANTING THE WRIT

The issue in this case is one of overwhelming

national concern to the natural gas industry and to

businesses nationwide: whether the standard form

pollution exclusion in comprehensive general liability

policies should be construed to prevent insurance coverage

for gradual pollution. State and federal courts now are

addressing this issue in hundreds of cases. One court

writing this year complained of "the litigation explosion .. .

generated by the ambiguous wording of the pollution

exclusion," and noted more than a hundred recent reported

decisions construing the same policy language. See

Diamond Shamrock Chemicals Co. v. Aetna Casualty & Sur.

Co., 609 A.2d 440, 458 (N.J. Super. 1992). The economic

consequences to policy holders are significant.

In cases throughout the nation, courts are

asked to construe precisely the same standard form

contract language in accordance with virtually identical

rules of construction. Although this case ostensibly arises

under Utah law, both the court of appeals and the district

court freely borrowed from decisions from the Tenth Circuit

and other federal circuits throughout the country. As the

court of appeals said, the narrow issues in this lawsuit are

“the subject of intense national debate" involving courts at

every level. 962 F.2d at 1487, Appendix at 7a.

Unfortunately, no coherent rule concerning the meaning of

these standardized terms is emerging.

To the contrary, there is a deep division of

authority on the questions in this case, not only among the

United States courts of appeals, but also among state

supreme courts. The Tenth Circuit's opinion in this case

conflicts with decisions of the First Circuit and the Third

Circuit with respect to both issues. See, e.g., CPC

International, Inc. v. Northbrook Excess & Surplus Ins. Co.,

962 F.2d 77 (1st Cir. 1992), and New Castle County v.

Hartford Accident & Indem. Co., 933 F.2d 1162, 1197-98

(3d Cir. 1991). The Tenth Circuit's decision also conflicts

with many decisions from federal district courts and from

State courts.’ It is significant that the district court in this

* See, e.g., Gilbert Spruance Co. v. Pennsylvania Mfg. Assoc.

Ins. Co., 603 A.2d 61, 62 (N.J. 1992); Queen City Farms, Inc. v.

Central Nat'l. Ins. Co., 827 P.2d 1024, 1050 (Wash. App. 1992);

Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1052

10

case relied upon a decision from the First Circuit which, in

another case, has now ruled squarely in favor of coverage

for gradual types of pollution, construing precisely the same

contract language that the district court construed. See

CPC International, Inc., supra, 962 F.2d at 95. It is also

significant that both the district court and the court of

appeals in this case concluded that the contract language

was unambiguous - but each reached a different conclusion

as to what it meant. (The district court concluded that the

phrase “sudden and accidental" unambiguously means

"happening without notice and occurring by chance,"

whereas the court of appeals concluded that the same

phrase unambiguously includes the concept of

abruptness.‘) This confusion is a reflection of the disarray

in which all courts find themselves concerning these critical

issues.

Petitioner is mindful that "state-law

determinations by the court of appeals will rarely constitute

an appropriate subject of this Court’s review." Haring v.

Prosise, 462 U.S. 306, 314 n.8 (1983). Petitioner is also

mindful that "[a]s to questions controlled by state law, .. .

(Colo. 1991); Just v. Land Reclamation, Ltd., 456 N.W.2d 570, 573

(Wis. 1990); Claussen v. Aetna Casualty & Sur. Co., 380 S.E. 686,

688-689 (Ga. 1989); United States Fidelity & Guar. Co. v.

Armstrong, 479 So.2d 1164, 1167 (Ala. 1985); United States Fidelity

& Guar. Co. v. Specialty Coatings, Inc., 535 N.E. 2d 1071, 1076-78

(ll. App. 1589); Kipin Industries, Inc. v. American Universal Ins. Co.,

535 N.E.2d 334, 338 (Ohio App. 1987); Jackson Township Mun.

Util. Authority v. Hartford Accident & Indem. Co., 451 A.2d 990, 994

(N.J. Super. 1982).

“In Broderick Investment Co. v. Hartford Acc. & Indem. Co., 954

F.2d 601 (10th Cir. 1992), a different panel of the Tenth Circuit,

construing Colorado law, reached a different result on this issue.

On July 13, 1992, the insured in Broderick filed a petition for

certiorari in this Court under Docket No. 92-92.

11

conflict among circuits is not of itself a reason for granting

a writ of certiorari." Ruhlin v. New York Life Ins. Co., 304

U.S. 202, 206 (1938). Nevertheless, the petitioner believes

that this is one of those rare cases, ostensibly controlled by

state law, requiring resolution by this Court for three

reasons.

First, the contract language at issue in this

case, as in hundreds of other cases like it pending in courts

around the country, was used for more than a decade in

comprehensive general liability insurance policies in every

state. The rules of construction governing these contract

provisions do not vary significantly from state to state.

Litigants deserve a consistent national standard on these

important issues. The United States courts of appeals and

district courts, however, have merely multiplied the

confusion by issuing conflicting decisions. The system, in

effect, forces policyholders and insurers to litigate these

questions repeatedly in every forum. They should be

answered once and for all by a single Court.

Second, the economic consequences of

decisions on these issues are so great that they should not

be left to arbitrary differences among federal or state court

decisions. Neither insurance companies nor insureds

should be permitted to reap windfalls by selecting a more

favorable forum, when the differences among conflicting

State rules are largely fortuitous.

Third, this case squarely presents the two

issues of greatest concern to courts construing the

pollution exclusion. Given the procedural posture of this

case under Rule 56, Federal Rules of Civil Procedure, the

Court must assume that El Paso neither expected nor

intended the discharge of PCB from the containment ponds

in which it deposited waste lubricants. These facts

Squarely present the issues (a) whether the pollution

12

exclusion permits coverage for gradual types of pollution

and (b) whether the relevant "discharge" that must be

measured against the "sudden and accidental" standard is

the migration of pollutants from containment pits into the

environment.

ARGUMENT

. The Court of Appeals Violated Erie By

Ignoring State Law Rules Favoring the

insured

The Tenth Circuit's interpretation of the

pollution exclusion violated its duty to apply state law,

including rules of contract construction established by state

law. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); U.S.

Const. amend X; 28 U.S.C. §1652 (1992). In this case, Erie

required the court of appeals to inquire whether the

pollution exclusion "may be understood to reach two or

more plausible meanings and, if so, whether one of those

meanings would result in coverage." Crowther v. Carter,

767 P.2d 129, 131 (Utah App. 1989) (quoting Central Sec.

Mut. Ins. Co. v. Depinto, 681 P.2d 15, 17 (Kan. 1984)).

_ Under Utah law, as under the law of other states, an

insured "is entitled to the broadest protection he could have

reasonably understood to be provided by the policy."

Fuller v. Director of Finance, 694 P.2d 1045, 1047 (Utah

1985); see also Whitlock v. Old American Ins. Co., 442 P.2d

26, 28 (Utah 1968).

The Tenth Circuit's approach in this case,

however, was not to determine whether other interpretations

were pieusible, but whether one interpretation was preferable.

Pursuing the inquiry in this way, the court of

appeals violated the principle adopted in Utah and every

other jurisdiction that any doubt or uncertainty about the

13

meaning or effect of an insurance policy must be construed

against the insurer who prepared the contract. Stout v.

Washington Fire & Marine Ins. Co., 385 P.2d 608, 609 (Utah

1963).

Il. The Court of Appeals Violated Erie by

Ignoring the Patent Ambiguity of the

Pollution Exclusion

The court of appeals went out of its way to

ignore the most obvious indications that the pollution

exclusion is ambiguous. It insisted that the language of the

pollution exclusion is not ambiguous merely because

dictionaries provide more than one meaning that is

plausible in context. It insisted that the pollution exclusion

is not ambiguous merely because dozens of appellate

decisions have held that its words have more than one

reasonable meaning in context. It insisted that the

language of the pollution exclusion is not ambiguous

merely because insurance companies themselves have

interpreted the same words in different ways. After reading

the court of appeals’ opinion, one wonders what could

possibly render words ambiguous.

The pollution exclusion is ambiguous

because it may reasonably be understood to reach two or

more meanings, as demonstrated by commonly accepted

definitions of the words involved, the drafting history of the

exclusion, the decisions of courts construing the same

language, and the precise context in which the terms are

applied in this case.

A. “Sudden and accidental"

lf the court of appeals had been inclined to

search for other reasonable interpretations, it would have

noticed the vast number of federal and state opinions

14

holding that the phrase “sudden and accidental" means

“unexpected and unintended" in the comprehensive general

liability policy. These courts have held that the pollution

exclusion eliminates intentional acts of pollution, but does

not eliminate unintentional pollution even where it is gradual

or occurs over a long period of time. Courts reaching this

conclusion have focused on three facts.

First, the word "sudden" is not invariably

used to mean "quick" or "abrupt," but is used frequently to

mean "unexpected" or "occurring without notice." Most

dictionaries say that the word "sudden" may mean either

"unexpected" or "instantaneous." In fact, "unexpected" is

usually listed as the primary meaning of the word. See,

e.g., Black’s Law Dictionary 1432 (6th ed. 1990).

Consistent with these definitions, courts construing the

words "sudden and accidental" in the standard form boiler

and machinery policy (from which the drafters borrowed the

phrase for the pollution exclusion) uniformly held that it

meant "unexpected and unintended." See New Castle

County v. Hartford Accident & Indem. Co., 933 F.2d 1162,

1197-98 (3rd Cir. 1991) ("For many years [the phrase

‘sudden and accidental’] had been used in the standard

boiler and machinery policy and the courts uniformly had

construed [it] to mean unexpected and unintended.").

These usages of the word "sudden" have persuaded courts

that it is ambiguous in the context of the pollution

exclusion.°

° See, e.g., New Castle County, supra, 933 F.2d at 1194

("[T]hat the word ‘sudden’ is defined in a universally respected

dictionary as meaning both ‘happening without previous notice’ and

‘occurring unexpectedly’ undermines [the insurer's] assertion that

the word cannot be defined without a temporal component."); Hecla

Mining Co., supra, 811 P.2d at 1092 (reviewing definitions of

“sudden” in standard American dictionaries and concluding that the

word may “reasonably be defined to mean unexpected and

15

Second, the history of the pollution exclusion

has persuaded courts that the insurance industry did not

Originally intend it to eliminate Coverage for accidental

pollution, regardiess whether it was gradual, continuous, or

instantaneous. The trade associations that promoted the

exclusion on behalf of Hartford and the rest of the industry

represented that it would only exclude claims of intentional!

polluters. On the basis of this evidence, which was

presented to the district court in the present case, courts

have held that the insurance industry's original

interpretation of the clause is at least plausibie.'

Third, the profound disagreement among so

many thoughtful courts as to the meaning of “sudden and

accidental" is compelling proof of the ambiguity of the

phrase. As the Wisconsin Supreme Court wrote, “Although

we acknowledge that the mere controversy concerning the

meaning of a contract term does not itself establish an

ambiguity, this type of comprehensive debate dispels the

insurers’ contention that the exclusionary language is clear."

Just, 456 N.W.2d at 578. In the same vein the Third Circuit

wrote, “[W]e cannot help but view such a division [of

unintended."); Just, supra, 456 N.W. 2d at 572-73 (‘The very fact

that recognized dictionaries differ on the primary definition of

‘sudden’ is evidence in and of itself that the term is ambiguous.").

* See, e.g., New Castle County, supra, 933 F.2d at 1198 (‘[T]he

evidence concerning the origin of the pollution exclusion clause,

though far from conclusive, implies that the [insured’s]

interpretation of the clause is at least plausible, if not piainty

correct."); Claussen, supra, 380 S.E.2d at 689 ("[T]he clause was

intended to exclude only intentional poliuters."); United States

Fidelity & Guar. Co. v. Specialty Coatings, Inc., 535 N.E. 1071, 1078

(lll. App. 1989)("[T]he policy language, and the historical

background of the . . . clause [lead to the conclusion that] the

ambiguities identified by defendants must be construed against the

[insurer].").

16

authority] as at least suggesting that the term ‘sudden’ is

susceptible of more than one reasonable definition." New

Castle County, supra, 933 F.2d at 1196.

B. “Discharge, dispersal, release or

escape"

The courts below held that since El Paso

intended to dispose of waste lubricants in earthen

containment pits, the "discharge, dispersal, release, or

escape" of pollutants was not “accidental." The district

court and the court of appeals refused to acknowledge the

possibility that the phrase “discharge, dispersal, release or

escape" could reasonably be interpreted to refer to the

unintended escape of PCB from the disposal sites into the

environment rather than El Paso’s deliberate deposit of

wastes into the pits. The opinions beiow of the courts in

this case would virtually assure that insurance policies

would never cover the unintended and unexpected escape

of pollution from landfills, contrary to the weight of authority

on the issue.’

In this respect, the pollution exclusion is

ambiguous for three related reasons. First, it was not the

placement of waste lubricants into the pits that caused

environmental harm. If the waste had remained in the pits,

” See, e.g., Aetna Casualty & Sur. Co. v. General Dynamics

Corp., 783 F.Supp. 1199 (E.D.Mo. 1991), aff'd in pertinent part,

1992 WL 150933 (8th Cir. 1992); Pepper’s Steel & Alloys, Inc. v.

United States Fidelity & Guar. Co., 668 F.Supp. 1541, 1549 (S.D.Fla.

1787); Fireman's Fund Ins. Co. v. Ex-Cello-O Corp., 662 F.Supp. 71,

75-76 (E.D.Mich. 1987); Sylvester Brothers Dev. Co. v. Great Central

Ins. Co., 480 N.W.2d 368, 373-74 (Minn.App. 1992); United States

Fidelity & Guar. Co. v. Armstrong, 479 So.2d 1164, 1167 (Ala.

1985); Jackson Township Mun. Util. Authority v. Hartford Acc. &

Indem. Co., 451 A.2d 990, 994 (N.J. Super. 1982).

17

Nl

as intended, there would have been no “pollution” and no

cleanup. It was rather the escape of PCB from the pits into

the groundwater and surrounding soil that caused

environmental harm.

Second, the EPA did not issue remediation

orders to Northwest Pipeline because lubricants were

stored in containment pits, but because PCB, a CERCLA

hazardous substance, had been released from the pits into

the environment and threatened to do so in the future. And

finally, Northwest Pipeline did not sue El Paso in the

underlying action because El Paso (like Northwest Pipeline

itself} stored waste in pits, but because it incurred expenses

in preventing PCB releases from the pits into the

environment.

In short, the “pollution” in this case was not

the storage of waste lubricants in containment pits but the

actual and threatened escape of PCB from the pits to

surrounding soil and groundwater. As one court has said,

“Application of the pollution exclusion depends exclusively

upon the process by which pollutants entered the

environment .. .. The decisive inquiry is not whether the

policyholders anticipated property damage, or whether they

regularly disposed of hazardous waste, but whether the

pollutants entered the environment unexpectedly and

unintentionally." Firemen’s Fund Ins. Co. v. Ex-Cell-O

Corp., supra, 662 F.Supp. at 75-76. At the very least, El

Paso's interpretation of the phrase “discharge, dispersal,

release or escape" is reasonable in the context of these

facts.

18

CONCLUSION

The writ of certiorari should be granted.

Respectfully submitted,

{ Ug» ox J pth. A) a

Alan L. Sullivan*

Kathryn H. Snedaker

VAN COTT, BAGLEY,

CORNWALL & McCARTHY

50 South Main, Suite 1600

P. O. Box 45340

Salt Lake City, Utah 84145

Telephone: (801) 532-3333

Counsel for Petitioner

E/ Paso Natural Gas Company

* Counsel of Record

September 4, 1992

19

— i

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

EL PASO NATURAL GAS COMPANY, a Delaware

corporation,

Petitioner,

vs.

HARTFORD ACCIDENT AND INDEMNITY CORPORATION, a

Connecticut corporation,

Respondent.

APPENDIX TO PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE TENTH CIRCUIT

Alan L. Sullivan

Counsel of Record

Kathryn H. Snedaker

VAN COTT, BAGLEY,

CORNWALL & McCARTHY

50 South Main Street Suite 1600

P. O. Box 45340

Salt Lake City, UT 84145

Telephone: 801-532-3333

September 4, 1992 Counsel for Petitioner

TABLE OF CONTENTS

FOR THE APPENDIX

Page

Opinion of the United States Court

of Appeals for the Tenth Circuit,

April 30, 1992, 962 F.2d 1484

ka eee ee eee eee eee la

Order Denying Petition for

Rehearing, June 9, 1992 ............ cece een eeee 18a

Memorandum Opinion and Order of

the United States District Court

for the District of Utah,

February 28, 1992, 765 F.Supp.

EN fg ccs nck act eve avavswe vas 20a

la

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

HARTFORD ACCIDENT & INDEMNITY

COMPANY, a Connecticut corporation,

Plaintiff/Counter-Claim

Defendant/Appellee,

V.

U.S. FIDELITY AND GUARANTY

COMPANY, a Maryland corporation;

COMMERCIAL UNION INSURANCE

COMPANIES, a Massachusetts

corporation,

Defendants,

and

EL PASO NATURAL GAS COMPANY,

a Delaware corporation,

Defendant/Counter-

Claimant/Appellant.

INTERSTATE NATURAL GAS

ASSOCIATION OF AMERICA;

INSURANCE ENVIRONMENTAL

LITIGATION ASSOCIATION;

JOHN RICHARD LUDBROOKE YOUELL,

Amici Curiae.

mm ee ee ee eee eee fa ee ee eee OS Oe eer er

No. 91-4057

2a

APPEAL FROM THE UNITED STATES DISTRICT

_ COURT

For the District of Utah

D.C. No. 88-C-1051J

Alan L. Sullivan (R. Stephen Marshall and William R.

Richards, with him on the briefs), of Van Cott, Bagley,

Cornwall & McCarthy, Salt Lake City, Utah for

Defendant/Counter-Ciaimant/Appellant.

Joy L. Clegg (Paul C. Droz, Snow, Christensen & Martineau,

Salt Lake City, Utah; and James C. Martin, Crosby, Heafey,

Roach & May, Oakland, California, with her on the briefs),

of Snow Christensen & Martineau, Salt Lake City, Utah, for

Plaintiff/Counter-Claim-Defendant/Appellee.

Mark D. Colley, M. Roy Goldberg, and Richard P. Holme, of

Davis, Graham & Stubbs, Washington, D.C.; and John H.

Cheatham, Ill and Jean E. Sonneman, of Interstate Natural

Gas Association of America, Washington, D.C., on the brief

for Amicus Curiae Interstate Natural Gas Association of

America.

Thomas W. Brunner, Marilyn E. Kerst, and Sharon Rau

Dissinger, of Wiley, Rein & Fielding, Washington, D.C., on

the brief for Amicus Curiae Insurance Environmental

Litigation Association.

David J. Richman of Coghill & Goodspeed, Denver,

Colorado, on the brief for Amicus Curiae John Richard

Ludbrooke Youell.

Before MOORE and MCWILLIAMS, Circuit Judges, and

HUNTER, District Judge.*

3a

MOORE, Circuit Judge.

*The Honorable Elmo B. Hunter, Senior Judge for the

United States District Court for the Western District of

Missouri, sitting by designation.

4a

This insurance dispute between El! Paso

Natural Gas Company and Hartford Accident & Indemnity

Corporation involves liability for the cleanup of El Paso's

gas transmission system. Hartford brought an action for

declaratory relief, and subsequently Hartford and El Paso

both moved for summary judgment to determine whether

Hartford's comprehensive general liability insurance

excluded coverage of continuous pollution. The District

Court for the District of Utah found the pollution exclusion

clause precluded coverage for pollution except when

discharges were both sudden and accidental. Hartford

Accident & Indem. Corp. v. United States Fidelity & Guar.

Co., 765 F. Supp. 677 (D. Utah 1991) (Hartford v. USF&G).

The court awarded summary judgment to Hartford, finding

“sudden and accidental" was unambiguous and meant

occurring without notice and happening by chance. Id. at

680. El Paso appeals the court's grant of summary

judgment to Hari.ord and denial of El Paso’s summary

judgment motion.' We construe “sudden and accidental"

under Utah law to mean temporally abrupt and unexpected

or unintended, and affirm the district court's judgment that

continuous or routine discharges of pollutants are not

covered.

I. Facts

From 1959 to 1974, El Paso operated a gas

transmission system traversing Washington, Oregon, Idaho,

Wyoming, Utah, Colorado, and New Mexico. While

operating the system, El Paso used an air compressor

lubricating oil later found to have contained a

polychlorinated bipheny! (PCB). El Paso dumped

condensed liquid wastes containing PCBs into unlined

' United States Fidelity and Guaranty Company and

Commercial Union Insurance Company, the two other named

defendants in Hartford's suit against El Paso, insured El Paso prior

to 1976. Hartford v. USF&G, 765 F. Supp. at 679 n.4. El Paso is

the only appellant.

5a

earthen pits, and directly onto the ground. Lubricant

containing PCBs was deposited in the same way. Some of

the pits had overflow pipes which carried the contaminated

wastes into the surrounding environment.

Hartford insured El Paso under a general

liability policy from January 1, 1976 to January 1, 1986. E

Paso sold the pipeline system to Northwest Pipeline

Corporation in 1974, agreeing to indemnify Northwest for

any liability arising from El Paso’s activities prior to the

transfer. In 1987, Northwest discovered the PCB

contamination and reported it to the Environmental

Protection Agency. Northwest cleaned the contaminated

sites pursuant to consent orders with the EPA, sued El

Paso, and settled for $6.6 million. El Paso then demanded

indemnification from Hartford under its comprehensive

general liability policy. Hartford refused and brought this

declaratory judgment action against El Paso on the

grounds the policy's pollution exclusion precluded

coverage of contamination that was not both sudden and

accidental.’

ll. Jurisdiction and Standard of Review

We have diversity jurisdiction, 28 U.S.C.

§1332(a)(1), and we apply Utah substantive law. See Erie

Ry. v. Tompkins, 304 U.S. 64 (1938). We review the district

court’s construction of the contract as an issue of law de

novo. Salve Regina College v. Russell, 111 S.Ct. 1217

(1991). See also Adams-Arapahoe Joint Sch. Dist. No. 28-J

v. Continental Ins. Co., 891 F.2d 772, 774 (10th Cir. 1989).

When an insurance policy is equivocal, it must be

interpreted in favor of the insured. In the absence of

ambiguity, however, “an unambiguous insurance contract,

2 Hartford also moved for summary judgment on the basis that

the policy's ‘alienated premises" clause precluded coverage. The

district court did not reach this issue, and it is not before us on

appeal.

ee

6a

like any other contract, should be enforced as written."

Young v. Fidelity Union Life Ins. Co., 597 F.2d 705, 707

(10th Cir. 1979). Whether ambiguity exists is a question of

law. Crowther v. Carter, 767 P.2d 129 (Utah App. 1989).

We accord insurance terms their ordinary usage and

connotations, being “obliged to assume that language

included therein was put there for a purpose, and to give it

effect where its meaning is clear and unambiguous."

Marriot v. Pacific Nat'l Life Assurance Co., 467 P.2d 981,

983 (Utah 1970).

ill. The Policies

Hartford's general liability policies provided

Hartford would pay “on behalf of the insured all sums which

the insured shall become legally obligated to pay as

damages because of bodily injury or property damage to

which the insurance applies, caused by an occurrence .. ."

“Occurrence” was defined 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."

(emphasis added).

The policies each contained a “pollution

exclusion” providing insurance would not cover:

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 the land, the

atmosphere or any watercourse or body of

water; but this exclusion, except with respect

to coastal waters, does not apply if such

discharge, dispersal, release or escape is

sudden and accidental.

(emphasis added).

7a

The parties agree El Paso was unaware its

lubricating oil contained PCB contaminants. El Paso

intentionally discharged oil and water into disposal pits; it

did not expect or iritend that water in or leaving the pits

would contain PCBs. The parties dispute the construction

of the contract, and specifically how to apply “sudden and

accidental" to a "discharge, dispersal, release or escape" of

pollutants.

El Paso argues (1) “sudden and accidental"

is ambiguous, and ambiguities in insurance contracts are

construed in favor of the insured; (2) "sudden and

accidental" means “unexpected or unintended," and since it

did not expect or intend PCB contaminants to migrate into

the environment the damage is insured; and (3) "sudden

and accidental" relates not to the initial and continuous

discharges of its waste material but to the resulting

unintended PCB damage. El Paso also contends the

history of comprehensive general liability policies

demonstrates only intentional polluters were to be excluded

from coverage.

Hartford answers “sudden and accidental" (1)

is unambiguous and necessarily implies temporality, and (2)

relates to El Paso’s routine discharges and not to the

damage caused by the discharged waste. Hartford argues

El Paso’s intentions and knowledge of PCB contamination

are immaterial, and the discharge itself must be both

unexpected or unintended (accidental) and abrupt or

immediate (sudden). Hartford further argues El Paso’s

documentation through extrinsic evidence of the intentions

of the insurance industry in drafting the pollution exclusion

is irrelevant because the policy is clear on its face.

A. Sudden and Accidental

Liability for continuous polluting events is the

subject of intense national debate, and there is a wide

range of authority to which both parties have cited. The

Utah Supreme Court has not yet considered the meaning of

8a

“sudden and accidental" in the context of the pollution

exclusion. In such a case of first impression, our

responsibility is to give the clause the interpretation we

believe the Utah court would. We are informed by decision

of the Utah appellate courts and by precedent of federal

courts in this and other circuits.” We review the district

court's interpretation of Utah law de novo. Salve Regina,

111 S.Ct. at 1221.

Most courts agree “accidental” means

unexpected or unintended. In American Motorists Ins. Co.

v. General Host Corp., 946 F.2d 1482 (10th Cir. 1991),

construing Kansas law, we noted "[t]here is a sharp division

of authority on the issue of whether pollution that occurs

over an extended period of time is 'sudden’ within the

meaning of the pollution exclusion. . . However, we have

found no similar division of authority concerning the

meaning of the term ‘accidental.’ The courts have

interpreted ‘accidental’ to refer to pollution which is not

expected or intended by the insured. Id. at 1486.‘

* See Adams-Arapahoe Schoo! Dist., 891 F.2d at 774. ("With

respect to issues which the Colorado Supreme Court has not

addressed, we may consider all available resources, including

Colorado appellate court decisions, other state and federal

decisions, and the genera! trend of authority, to determine how the

Colorado Supreme Court would construe the law in this case.")

(citations omitted).

* American Motorists Ins. Co. v. General Host Corp., 946 F.2d

1482 (10th Cir. 1991), was vacated and remanded at 946 F.2d

1489. The panel on rehearing vacated that portion of the first

opinion that held American Motorists had no duty to defend

because the pollution was found not to be accidental. The court

concluded the undertying action was ‘arguably and potentialty*

within the “sudden and accidental’ exception of the insurance

contract and remanded for further proceedings on the duty to

defend issue. American Motorists, 946 F.2d at 1492. The first

Panel's description of the case law defining ‘accidental in pollution

exclusion clauses is still instructive.

9a ,

Similarly, in EAD Metallurgical, Inc. v. Aetna Casualty & Sur.

Co., 905 F.2d 8 (2d Cir. 1990), where EAD continuously

deposited radioactive substances into sewer lines in a New

York town, the court stated pollution damage "resulting from

purposeful conduct, cannot be considered ‘accidental. Id.

at 11 (citing Powers Chemco, Inc. v. Federal Ins. Co., 74

N.Y.2d 910, 549 N.Y.S.2d 650, 548 N.E. 2d 1301 (1989)).

See also Great Lakes Container Corp. v. National Union

Fire Ins. Co., 727 F.2d 30, 33-34 (ist Cir. 1984) (coverage

excluded where pollution and contamination of the soil,

surface, and subsurface waters allegedly occurred as a

concomitant of regular business activity).

El Paso argues most cases where coverage

is excluded involve not only gradual or long-term pollution

but also intentional polluting acts. While this is true in

cases which have failed the "accidental" requirement,” the

argument assumes we will read sudden synonymously with

accidental or unintentional. El Paso no doubt believes

"[t]he central inquiry should not be whether the pollution

occurred over a long period of time, but whether the

insured knew about it or intended it." (Brief of Defendant-

Appellant El Paso Natural Gas Company at 35). The

contract, however, treats "sudden" and "accidental" as

coextensive requirements, which we weigh equally.

The principal authority on which El Paso

relies is New Castle County v. Hartford Accident & indem.

Co., 933 F.2d 1162 (3d Cir. 1991). The New Castle County

court found authority for the interpretation of "sudden and

accidental" split eveniy between those courts barring

coverage and holding "sudden" means abrupt or brief, and

those holding in favor of the insured on the grounds

"sudden and accidental" is ambiguous and means

unexpected or unintended. New Castle County, 933 F.2d

* See, e.g., EAD Metallurgical, Inc. v. Aetna Casualty & Sur.

Co., 905 F.2d at 11 (appellants alleged to have “continuously and

intentionally polluted.").

10a

at 1195 n.60, n.61. The court stated because “'sudden’.. .

[is] Capable of two reasonable interpretations, (‘abrupt’ and

‘unexpected’) .. . the term is ambiguous under Delaware

law," and must be construed in favor of the County of New

Castle. Id. at 1198-99. The court reasoned:

Simply put, sudden means unexpected, and

accidental means unintended... Insurance

policies routinely use words that, while not

strictly redundant, are somewhat

synonymous... We think that the words

“sudden” and “accidental,” when read

together, serve the same purpose as

“discharge, dispersal, release or escape":

they each connote the same general concept

— namely fortuity — with a small variation.

Neither do we think that annexing the word

“sudden” to the word “accidental” with the

conjunctive “and" necessarily injects a

temporal element, such as brevity or

abruptness, into the exception to the

pollution exclusion clause.

Id. at 1194-95.

We disagree. We think the “annexation” of

“sudden” to “accidental is precisely the issue: reading

“sudden” without a temporal component renders

“accidental” redundant. While both conditions might

include “unexpected" or “unintended," “sudden” cannot

mean “gradual,” “routine” or “continuous.” Since Utah law

dictates each contract provision be given effect, Marriot,

467 P.2d at 983, the conjunctive association of “sudden”

with “accidental” is exactly the point on which our

interpretation turns. Dictionaries may indicate each word

has several overlapping meanings. We cannot use only the

redundant definitions, however. Giving effect to every

provision obliges us to construe “sudden” and “accidental”

as separate, conditional requirements for coverage. This

11a

interpretative rule thus removes any ambiguity created by

common usage.

It is worth noting the New Castle County

court did not claim either the split of judicial authority on

this issue or the existence of numerous dictionary

definitions required a finding of ambiguity.’ The court

stated "[b]y their very nature, dictionaries define words in

the abstract, whereas here, we must ascertain whether the

word ‘sudden’ is ambiguous in the context of a specific

insurance policy." 933 F.2d at 1194. The court also noted

conflicting precedent, while relevant, did not "automatically

mandate a finding of ambiguity." Id. at 1196.

We are in accord with numerous other

federal court decisions which have found "sudden and

accidental" precludes coverage of damage from continuous

or routine business practices. In United States Fidelity and

Guar. Co. v. Star Fire Coals, Inc., 856 F.2d 31 (6th Cir.

1988), the Sixth Circuit held where Star Fire had discharged

excessive amounts of coal dust in the course of its routine

operations, it was not possible “to define 'sudden’ without

reference to a temporal element that joins together

conceptually the immediate and the unexpected." Id. at 34.

In Ogden Corp. v. Travelers Indem. Co., 924 F.2d 39 (2d

Cir. 1991), the Second Circuit found a "sudden" release or

discharge of hazardous heavy metals had to "’occur[] over

a short period of time™ under New York law. Id. at 42

(citing Technicon Elecs. Corp. v. American Home

Assurance Co., 141 A.D.2d 124, 137, 533 N.Y.S.2d 91, 99

(2d Dep't 1988), aff'd, 74 N.Y.2d 66, 542 N.E.2d 1048, 544

* "(W]e agree .. . that the existence of more than one

dictionary definition is not the sine qua non of ambiguity. If it were,

few words would be unambiguous." 933 F.2d at 1193 (citing

Fireman's Fund Ins. Cos. v. Ex-Cell-O Corp., 702 F. Supp. 1317,

1324 (E.D. Mich. 1988) ("[I]f merely applying a definition in the

dictionary suffices to create ambiguity, no term would be

unambiguous. The interpretation of contractual language is not

mechanical.").

: |

12e

N.Y.S.2d 531 (1989)). Similarly, the First Circuit recently

Stated "[w]e agree . . .’[i]f the word ‘sudden’ is to have any

meaning or value in the exception to the pollution exclusion

clause, only an abrupt discharge or release of pollutants

falls within the exception.” A. Johnson & Co. v. Aetna

Casualty and Sur. Co., 933 F.2d 66, 73 (1st Cir. 1991).

Since its decision in this case, the Utah

district court again has construed Utah law to require

“sudden” be given its common temporal meaning.

Anaconda Minerals Co. v. Stoller Chem. Co., 773 F. Supp.

1498 (D. Utah 1991). In Anaconda Minerals, a

manufacturing operation continuously produced open

waste piles of flue dust and mineral products containing

hazardous materials. Holding routine discharges of

pollutants or contaminants over a lengthy period are not

sudden, the court stated:

[t]o strip “sudden of its temporal element

and define it as meaning “unexpected” as

insureds suggests, would render “accidental”

mere surplusage in the sudden and

accidental exception. This would be contrary

to Utah contract law, which requires the court

to assume all language in a contract has a

purpose and must be given effect. See

Marriot v. Pacific Nat'l Assurance Co., 24

Utah 2d 182, 467 P.2d 981, 983 (1970).

Anaconda Minerals, 773 F.Supp. at 1505.

While the Utah Supreme Court has not yet

addressed the pollution exclusion, we believe the Utah trial

and appeliate courts have indicated the Utah Supreme

Court would accord “sudden” its temporal meaning in the

context of these contracts. in Gridley Assocs., Ltd. v.

Transamerica Ins.Co.,__—~P.2d__, No. 910121-CA, 1992

WL 52380 (Utah App. Mar. 18, 1992), the Utah court of

Appeals held the pollution exclusion applied to a gasoline

spill which occurred because of a “clean break" in the

13a

gasoline line. Gridley, 1992 WL 52380, at *3-4. Noting it

was a Case Of first impression in Utah, id. at *2-3, the court

found "sudden" was unambiguous in the language of the

pollution clause. "While the word connotes a sense of

unexpectedness, 'sudden’ within the 'sudden and

accidental’ clause cannot be defined without reference to a

temporal element, specifically immediacy, abruptness, and

quickness." Id. at *3.’ We thus are persuaded the

temporal element of "sudden" when joined with "accidental"

is unambiguous.

B. The Damage/Discharge Distinction

El Paso also argues the policy defines its

coverage on the basis of “occurrences,” which are "neither

expected nor intended," and includes continuous or

repeated events like the discharges at issue here. That

contention, however, does not speak to the language of the

pollution exclusion, which says insurance shall not be

provided for any "property damage arising out of the

discharge, dispersal, release or escape of. . . waste

materials . . . contaminants or pollutants into or upon the

land," except if "such discharge . . . is sudden and

accidental." (emphasis added). It is clear to us the

“occurrence” and pollution exclusion provisions speak to

different eventualities. While an accidental “occurrence”

may be gradual, the discharge of pollution has more

precise requirements for coverage.

” In an unpublished opinion, the trial court for the third district

of Utah came to a similar conclusion. See Anaconda Minerals, 773

F.Supp. at 1505 n.9 (citing Sharon Steel v. Aetna Casualty & Sur.

Co., Nos. C-87-2306 & C-87-2311 at 28 (3d Dist. Utah, July 20,

1988)) (‘without referring to dictionaries, case law or parol evidence,

reasonably prudent person wouid interpret ‘sudden’ as including

‘temporal condition of being instantaneous and abrupt”).

14a

We explained the relationship of these

provisions in Broderick Inv. Co. v. Hartford Accident &

Indem. Co., 954 F.2d 601 (10th Cir. 1992):

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 [the] land."

Coverage is restored, however, if “such

discharge, dispersal, release or escape is

sudden and accidental."

Broderick, 954 F.2d at 605. If the ioss “arises out of" the

. discharge of pollution, the pollution exclusion, not the more

generous coverage of the "occurrence" provision, governs.'

° See Star Fire Coals, 856 F.2d at 34:

We have no difficulty reconciling the two

provisions. We believe the ‘occurrence’ definition

results in a policy that provides coverage for

continuous or repeated exposure to conditions

Causing damages in all cases except those

involving pollution, where coverage is limited to

those situations where the discharge was "sudden

and accidental."

See also New Castle County, 933 F.2d at 1200:

[The insured] misreads and contuses the policy

provisions. The fact that the damage was not

intended means that there was an “occurrence”

within the policy definition. That fact has nothing to

do with whether the discharge was “sudden and

accidental’ for the purpose of applying the

exception to the exclusion.

15a

As the district court noted, "[t]he occurrence definition and

the pollution exclusion serve distinct purposes. No

ambiguity is created merely because an exclusion

eliminates coverage from an insuring agreement." Hartford

v. USF&G, 765 F.Supp. at 681. See also Anaconda

Minerals, 773 F.Supp. at 1503 n.7 (""Occurrences’ are

covered unless the occurrences arise out of polluting

events; those are not covered unless the polluting events

are sudden and accidental..." (citing American Motorists

Ins. Co. v. General Host Corp., 667 F.Supp. 1423, 1429 (D.

Kan. 1987), aff'd, 946 F.2d 1482 (10th Cir. 1991), vacated in

part and remanded, 946 F.2d 1489 (10th Cir. 1991)).

Utah law holds "arising out of’ is a phrase of

much broader significance than ‘caused by.” National

Farmers Union Property & Casualty Co. v. Western

Casualty & Sur. Co., 577 P.2d 961, 963 (Utah 1978). In an

insurance policy the phrase means “originating from,

growing out of, or flowing from, and require[s] only that

there be some causal relationship between the injury and

the risk for which coverage is provided." Id. The causal

connection in this case between El Paso’s continuous

discharges of waste and PCB contamination is undisputed.

Though unwitting, PCB contamination was inherent in every

discharge.

We have found almost universal agreement

among federal courts applying the pollution exclusion that it

is the discharge which must be sudden and accidental to

qualify for coverage, not the pollution damage. In

Broderick, we reversed the district court for Colorado which

held “discharge, dispersal, release or escape” applied only

to the seepage of wood treatment chemicals from the

holding pond into the groundwater, not to the initial deposit

of waste chemicals into the ponds. Broderick, 954 F.2d at

Citing Transamerica Ins. Co. v. Sunnes, 77 Or. App. 136, 140, 711

P.2d 212, 214 (1985), review denied, 301 Or. 76, 717 P.2d 631

(1986) (emphasis in original).

16a

607. We reasoned “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." Id. We concluded “discharge into or upon the

land" described Broderick's placement of waste into the

disposal ponds. In our opinion, El Paso’s arguments

concerning the unintended damage from its discharges

parallel those we dismissed in Broderick. Whether El Paso

intended to cause damage after the initial discharge is

irrelevant. Id. at 608.

We note Broderick construed “sudden and

accidental" in favor of the insured to mean unexpected and

unintended, following the decision of the Colorado

Supreme Court in Hecla Mining Co. v. New Hampshire Ins.

Co., 811 P.2d 1083, 1092 (Colo. 1991). Broderick, 954 F.2d

at 608. Even with Colorado's generous definition of

“sudden and accidental," however, the Broderick court

denied coverage because the initial wood treatment

discharges into containment ponds were not unexpected

and unintended. Id. New Castle County, a case on which

EI Paso relies for its definition of “sudden and accidental,"

withheld coverage for the same reason: “whatever the

meaning of ‘sudden,’ the plain language of the 'sudden and

accidental’ exception to the pollution exclusion focuses on

the nature of the discharge, not on the resulting

environmental damage." 933 F.2d at 1202.

As in the construction of “sudden and

accidental," we believe the Utah Supreme Court would

Support our conclusion the pollution exclusion restores

coverage only for polluting discharges which are sudden

and accidental. The federal district court for Utah has

construed Utah law twice to exclude damage from the

focus of the pollution exclusion. In Anaconda Minerals the

court stated “under the pollution exclusion clause, the court

need only inquire whether the insured intended the

discharge of the pollutants ... The court need not

consider whether the insured intended or expected the

17a

pollution damage caused by the discharge." Anaconda

Minerals, 773 F.Supp. at 1506.

Treating the issue on first impression, the

Utah Court of Appeals held in Gridley "the explicit language

of Gridley’s policy only requires that the discharge itself be

‘sudden’ in order to be covered under the policy." 1992 WL

52380, at *4. In El Paso’s case, the disposal of liquid

wastes into the pits was neither abrupt nor unexpected but

a continuous and routine operating practice over many

years. The PCB contamination which was concomitant with

this discharge was unintended and unexpected but not

sudden. Even were we to apply the pollution exclusion to

the damage, in contradiction to our interpretation of Utah

and general contract law, the PCB damage was not abrupt

or quick, only unintentional.

IV. Summary

We agree with Hartford. Because we think

"sudden" includes a temporal element, and is joined

conjunctively with "accidental," El Paso’s intentions or

ignorance of the PCBs are not sufficient to satisfy the

pollution exclusion. The more relevant fact is El Paso’s

regular and continuous business practice of discharging

waste products directly into the environment. While the

meaning of "sudden and accidental" may include the

unexpected, it plainly cannot comprehend unexpected,

unintended and gradual. Because we think the contract is

unambiguous, we do not reach El Paso’s arguments

concerning the drafting history of the pollution exclusion.

We hold "sudden and accidental" in the

pollution exclusion means abrupt or quick and unexpected

or unintended in the context of Utah law. We conclude the

pollution exclusion restores coverage to those polluting

occurrences in which the discharge of the contaminant is

both sudden and accidental. We thus AFFIRM the holding

of the district court.

18a

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

HARTFORD ACCIDENT &

INDEMNITY COMPANY, a

Connecticut corporation,

Plaintiff/Counter-Ciaim

Defendant/Appeliee,

V.

No. 91-4057

EL PASO NATURAL GAS

COMPANY, a Delaware

corporation,

Defendant/Counter-

Claimant/Appellant.

——eer ee me ee ee ee a ee aes wee we

ORDER

Entered June 9, 1992

Before, MCKAY, Chief Judge, LOGAN, SEYMOUR,

MOORE, ANDERSON, TACHA, BALDOCK, BRORBY,

EBEL, MCWILLIAMS, Circuit Judges, and HUNTER’,

District Judge.

19a

* The Honorable ELMO B. HUNTER, Senior District

Judge for the United States District Court for the Western

District of Missouri, sitting by designation.

This matter comes on for consideration of

appellant’s petition for rehearing and suggestion for

rehearing en banc in the captioned case.

Upon consideration whereof, the petition for

rehearing is denied by the panel that rendered the decision

sought to be reheard.

In accordance with Rule 35(b) of the Federal

Rules of Appellate Procedure, the suggestion for rehearing

en banc was transmitted to all the judges of the court 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 is denied.

Entered for the Court

ROBERT L. HOECKER, Clerk

By: Patrick Fisher

Chief Deputy Clerk

eee a

20a

IN THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF UTAH

CENTRAL DIVISION

HARTFORD ACCIDENT &

INDEMNITY COMPANY,

a Connecticut corporation,

MEMORANDUM

OPINION AND

ORDER

Plaintiff,

V.

UNITED STATES FIDELITY

AND GUARANTY COMPANY,

a Maryland corporation;

EL PASO NATURAL GAS, a

Delaware corporation;

COMMERCIAL UNION

INSURANCE COMPANY, a

Massachusetts corporation,

Civil No. 88-C-1051J

Defendants.

ee ee ee ee ee ee ee ee ee ee Se” ee Se Se ee ee et ee ee

l. INTRODUCTION

On December 20, 1989, the court heard argument

on two pending motions. The motions included: a Motion

for Summary Judgment brought by plaintiff Hartford

Accident and Indemnity Corporation ("Hartford") with

respect to the “alienated premises exclusion" contained in

an insurance policy (the “Liability Policy") issued by Hartford

to defendant Ei Paso Natural Gas ("El Paso"); and a Motion

to Compel brought by E! Paso. The court took the Motions

under advisement.

21a

On September 19, 1990, and October 10, 1990, the

court heard argument on cross Motions for Summary

Judgment filed by Hartford and El Paso with respect to the

"pollution exclusion" of the Liability Policy. The court also

heard argument on two Motions for Summary Judgment

brought by defendants United States Fidelity and

Guarantee Company ("USFG") and Commercial Union

Insurance Company ("Commercial"). USFG and

Commercial claim that no controversy exists between

Hartford and USFG, or Hartford and Commercial. The court

took all Motions under advisement.

Having carefully considered the memoranda and

arguments of counsel, and for the reasons set forth below,

the court hereby issues its rulings:

1. Hartford's Motion for Summary Judgment with

respect to the pollution exclusion in

GRANTED; and

2. El Paso’s Motion for Summary Judgment with

respect to the pollution exclusion is DENIED.

Having based its ruling on the pollution exclusion, the court

finds that it need not reach the questions presented by the

parties’ other pending motions.

ll. FACTS

Northwest Pipeline Corporation ("Northwest") owns

and operates a natural gas transmission system which

traverses the states of Washington, Oregon, Idaho,

Wyoming, Utah, Colorado and New Mexico (the "System").

The System, which was constructed and placed in

operation during the mid-1950's was acquired by El Paso in

1959. In 1974, El Paso sold the System to Northwest. El

Paso agreed in the terms of the sale to indemnify

Northwest for any liability or expenses arising from El

Paso's activities prior to transferring the System.

22a

During the 15 years El Paso owned the System,

the company used an air compressor lubricating oil,

Pydraul AC, at 15 of the System's compressor sites.

Pydraul AC contains the toxic substance aroclor 1254, a

polychlorinated biphenyl ("PCB").' El Paso disposed of the

used PCBs by routinely draining the contaminants directly

into the ground, or periodically draining them into concrete

sumps, which were later pumped out into dirt pits. Some

pits contained pipes designed to discharge any waste

overflow directly into the surrounding ground.’

In 1987, Northwest discovered the PCB

contamination. Northwest reported the contamination to

several government agencies, including the Environmental

Protection Agency (the "EPA"). Pursuant to consent orders

entered into with the EPA, Northwest cleaned up the

contaminated equipment, drains, sumps, pits and

surrounding ground.’

' Beginning in the late 1950's members of the natural gas

industry commonly used synthetic lubricants containing PCBs to

lubricate air Compressors. The principle advantage of such

lubricants was that they were fire resistant. Manufacturers ceased

to make Pydraul AC in 1972. Using up inventories on hand, EI

Paso continued to use Pydraul AC until 1974.

* El Paso claims that their methods of disposing of waste

lubricants into dirt pits was in conformity with industry standards.

EI Paso believed that (i) the waste oil would seal the bottom of the

pit and prevent seepage of other hydrocarbons; (ii) overflow pipes

would Carry uncontaminated water away from the pits; and (iii)

water that was drained out of the pit or which seeped into the

ground at the bottom of the pit would be uncontaminated with

hydrocarbons.

* The EPA found that the PCB contamination presented an

imminent and substantial endangerment to the public health, or

welfare of the environment. Accordingly, the EPA concluded that

its clean-up orders were necessary to avoid such danger.

23a

Relying on the sales agreement indemnification

provision between Northwest and El Paso, Northwest filed a

lawsuit against El Paso to recover the contamination clean

up costs. El Paso agreed to pay Northwest $6.6 million

dollars to settle that action. In turn, El Paso sought

indemnification from Hartford, its insurance carrier, for the

$6.6 million dollar settlement.‘

On October 6, 1989, Hartford denied coverage of

El Paso’s claims. Hartford then instigated this action

seeking a declaratory judgment that the Liability Policy

excluded coverage of the PCB contamination. The narrow

issue before the court, as presented in the parties’ cross

Motions for Summary Judgment, is whether the Liability

Policy’s pollution exclusion excludes coverage of such

contamination.

lll. DISCUSSION

The construction of an insurance contract is a -

matter of law that the court can resolve in the context of a

motion for summary judgment. Adams-Arapahoe Joint

School District v. Continental Ins. Co., 891 F.2d 772, 774

(10th Cir. 1989). Contract construction remains a question

of law even though the parties may disagree about the

meaning of the contract, or even though one party may

claim that the contract is ambiguous. Gomez v. American

Electrical Power Service Corp., 726 F.2d 649, 651-52 (10th

Cir. 1984).

* From January 1, 1976, to January 1, 1986, Hartford insured

El Paso under a general liability policy. Over the years, Hartford

issued a total of ten liability policies to El Paso. Each of the policies

was identical in all material respects.

USFG and Commercial, the two other named defendants

in this case, insured El Paso prior to 1976.

24a

The issue before the court concerns the meaning

of the pollution exclusion set forth in the Liability Policy

issued by Hartford to its insured, El Paso. The exclusion

provides in pertinent part:

This insurance does not apply:

(f) To bodily injury or property damage arising

out of the discharge, dispersal, release or escape

of . . . toxic chemicals . . . waste materials or other

. . . pollutants into or upon land, the atmosphere or

any watercourse or body of water: but this

exclusion

... does not apply if such discharge, dispersal,

release or escape is sudden and accidental __.

(Emphasis in original).

The exclusion expressly states that unless the

discharge of toxic chemicals is sudden and accidental,

there is no coverage under the policy. The parties disagree

as to the meaning of the phrase sudden and accidental.

The parties also disagree as to whether the phrase

concerns the nature of the discharge, or the nature of the

damages caused by the discharge.

El Paso argues that the sudden and accidental

language excludes coverage only if the damage caused by

the contamination was unexpected and unintended from

the standpoint of the insured. El Paso Claims that the

history of the insurance industry shows a clear intent to

provide coverage, even from gradual pollution damages, if

the damage was not intentionally caused by the policy

holder. In the alternative, El Paso argues that the pollution

exclusion is ambiguous, and therefore should be construed

against the drafter, Hartford, and in favor of El Paso.

25a

In contrast, it is Hartford's position that the court

should look at the plain meaning of the terms sudden and

accidental. Hartford claims that the phrase sudden and

accidentai excludes coverage if the discharge of the

pollutants occurred without notice and such discharge was

by chance. Accordingly, Hartford argues that El Paso’s

regular and repeated discharge of waste chemicals over a

period of several years was not sudden and accidental

because they did not occur without notice and by chance.

A. The Phrase Sudden and Accidental

Means Happening Without Notice and

Occurring by Chance

The courts are divided as to the proper

interpretation of the terms sudden and accidental in the

context of liability insurance. Some courts interpret the

phrase to mean “unexpected and unintended." See, e.g.,

Anderson & Middleton Lumber Co. v. Lumbermen’s Mutual

Casualty Co., 53 Wash. 2d 404, 333 P.2d 938 (1959); New

England Gas & Electric Ass’n v. Ocean Accident &

Guarantee Corp., 330 Mass. 640, 116 N.E.2d 671, 680-81

(1953). Other courts find that the terms sudden and

accidental mean “happening without notice and occurring

by chance." See, e.g., U.S. Fidelity & Guaranty v. Star Fire

Coals, Inc., 856 F.2d 31 (6th Cir. 1988); Great Lakes

Container Corp. v. National Union Fire Ins. Co., 727 F.2d 30

(ist Cir. 1984). This court finds that the more well

reasoned case law gives the phrase sudden and accidental

its plain and simple meaning. Accordingly, the court is

persuaded to adopt the current line of decisions which

exclude coverage unless the contamination occurs without

notice and such events happen by chance.

The courts adopting the plain and simple definition

of sudden and accidental have uniformly found the regular

and repeated discharge of waste to be excluded from

coverage by the pollution exclusion. For example, in Great

Lakes Container, the insured was alleged to have routinely

discharged waste chemicals onto the site of its barrel-

ry =

COO eee

26a

reconditioning facility as ar aspect of its business

operations. The court held that the insured’s clean up cost

recovery claim against its carrier fell “squarely” within the

exclusion, and that no coverage existed. 727 F.2d at 33-34.

Similarly, in U.S. Fidelity, the court found that coal dust

waste generated by the normal operation of the insured,

wnich was discharged on a routine, continuing basis, was

excluded from coverage. 856 F.2d 31 at 32. In both Great

Lakes and U.S. Fidelity, the court found that such routine

and repeated discharges were not sudden and accidental.

Likewise, this court finds that El Paso's continuous

and routine discharge of pollutants upon or into the ground

cannot be construed as sudden and accidental. It is

undisputed that the alleged property damage arose from E|

Paso's discharge of toxic chemicals onto its land. If the

used PCBs were not dumped directly into the ground, the

waste was discharged into dirt pits. Such discharges were

the result of the continuous and deliberate business

practices engaged in by El Paso for 15 years.

Further, the court emphasizes that the focus of the

sudden and accidental exclusion clearly relates to the

nature of the “discharge, dispersal, release or escape" of

the pollution itself, not to the nature of the damages

caused. E! Paso's claim that the damages were sudden

and accidental mischaracterizes the relevant question

before the court. The focus of the pollution exclusion, by

its plain terms, is on the polluting discharges. If the

discharge is not sudden and accidental, the exclusion is

applicable and the resultant injury or damage is not within

policy coverage. Accordingly, the contamination that

resulted from El Paso’s continuous dumping of toxic

chemicals is not sudden, even if one could argue that the

seepage was accidental or the resulting damage

unexpected. See Fischer & Porter Co. v. Liberty Mutual Ins.

Co., 656 F. Supp. 132, 140 (E.D. Pa. 1986).

27a

B. The Phrase Sudden and Accidental is

Unambiguous

The court rejects El Paso’s alternative contention

that the pollution exclusion is ambiguous. The court finds

that the words sudden and accidental have plain, discrete

and readily ascertainable meanings. Such language cannot

give rise to any reasonable expectation of coverage for

claims arising from repeated and continuous polluting

events. A casual reading of the policy as a whole by the

ordinary insured should negate any expectation of

coverage with respect to such claims. Great Lakes, 727

F.2d at 34. As persuasively noted by the Sixth Circuit, the

sudden and accidental "language is clear and plan,

something only a lawyer's ingenuity could make ambiguous

... It's strange logic to perceive ambiguity in this clause."

U.S. Fidelity, 856 F.2d at 34 (citations omitted).

The court also rejects El Paso’s argument that a

reading of the "occurrence" definition of the Liability Policy

renders the pollution exclusion ambiguous. Under the

terms of the policy, Hartford must indemnify El Paso if the

property damages is caused by an occurrence, such as

repeated exposure to conditions which results in property

damage, that is not intended by the insured. The court

finds that El Paso’s theory evidences a basic

misunderstanding of the construction and operation of

insurance contracts. The occurrence definition and the

pollution exclusion serve distinct purposes. No ambiguity is

created merely because an exclusion eliminates coverage

from an insuring agreement. See Occidental Fire and

Casualty Co. v. Lumbermen’s Mutual Casualty Co., 667 F.

Supp. 679, 683 (N.D. Cal. 1987). Policies are generally

written to first define the scope of the agreement, and then

to exclude the specific risks which the insurer does not

cover. Id. See also Crawford v. Ranger Ins. Co., 653 F.2d

1248, 1250-51 (9th Cir. 1981) (insuring agreement's

preconditions to coverage may be narrowed by other policy

terms).

LL IIIEEEEODSS S'S rrr

28a

The broad sweep of the occurrence definition is

restricted by the pollution exclusion. Specifically, the

exclusion provides that the policy does not apply to injuries

or damage arising from the discharge or release of

pollutants. Accordingly, the exclusion relieves Hartford of

any obligation to provide coverage in cases where the

damage is caused by the continuous and repeated

discharge of PCBs. The Liability Policy should not be

viewed as ambiguous merely because the pollution

exclusion excludes coverage for certain risks that the

occurrence definition potentially includes.

IV. CONCLUSION

Any property damage arising trom El Paso’s

routine and deliberate discharges upon the land is

excluded by the terms of Hartford's policy. Because there

is no ambiguity in the language of the exclusion the

exclusion should be enforced according to its plain terms.

Accordingly, as a matter of law, the recurrent nature of the

discharges do not render them sudden and accidental.

Hartford's Motion for Summary Judgment must therefore be

granted.

IT IS SO ORDERED.

Dated this 28th day of February, 1991

BY THE COURT:

Bruce S. Jenkins, Chief Judge

United States District Court