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United States Fire Insurance Company v. Estate of James Campbell

December 29, 2011

UNITED STATES FIRE INSURANCE COMPANY, PLAINTIFF,
v.
ESTATE OF JAMES CAMPBELL, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART THE ESTATE OF JAMES CAMPBELL'S MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING POLICY TERMS "SUIT," "DAMAGES," AND "PROPERTY DAMAGE"; DENYING THE ESTATE OF JAMES CAMPBELL'S MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING QUALIFIED POLLUTION EXCLUSION AND OCCURRENCE DEFENSES; AND DENYING UNITED STATES FIRE INSURANCE COMPANY'S COUNTER-MOTION FOR PARTIAL SUMMARY JUDGMENT RE: NO DUTY TO INDEMNIFY ESTATE OF JAMES CAMPBELL BECAUSE NO "SUIT" AND NO "DAMAGES"

Before the Court are: 1) Defendant Estate of James Campbell's ("Campbell Estate") Motion for Partial Summary Judgment Regarding Policy Terms "Suit," "Damages," and "Property Damage" ("Suit Motion"), filed on June 6, 2011; [dkt. no. 65;] 2) Campbell Estate's Motion for Partial Summary Judgment Regarding Qualified Pollution Exclusion and Occurrence Defenses ("Occurrence Motion"), filed on June 6, 2011; [dkt. no. 70;] and 3) Plaintiff United States Fire Insurance Company's ("U.S. Fire") Counter-Motion for Partial Summary Judgment Re: No Duty to Indemnify Estate of James Campbell Because No "Suit" and No "Damages" ("Counter-Motion"), filed on November 14, 2011 [dkt. no. 120]. U.S. Fire filed its memorandum in opposition to the Occurrence Motion on November 14, 2011.*fn1 [Dkt. no. 116.] On November 21, 2011, Campbell Estate filed its memorandum in opposition to the Counter-Motion and its reply in support of the Occurrence Motion. [Dkt. nos. 127, 130.] U.S. Fire filed its reply in support of the Counter-Motion on November 28, 2011. [Dkt. no. 134.]

These matters came on for hearing on December 5, 2011. Appearing on behalf of Campbell Estate were Patricia McHenry, Esq., and Amanda Jones, Esq., and appearing on behalf of U.S. Fire were Jennifer Kokes, Esq., and Patricia Wall, Esq. Also present were Wesley Ching, Esq., on behalf of Sentinel Insurance Company, Ltd. and Pacific Insurance Co. Ltd., and Kenneth Sumner, Esq., by telephone, and Tracie Kobayashi, Esq., on behalf of American Home Assurance Company. After careful consideration of the motions, supporting and opposing memoranda, and the arguments of counsel, the Court rules as follows for the reasons set forth below: Campbell Estate's Suit Motion is HEREBY GRANTED IN PART AND DENIED IN PART; Campbell Estate's Occurrence Motion is DENIED; and U.S. Fire's Counter-Motion is DENIED.

BACKGROUND

I. Factual Background

In December 1973, Campbell Estate leased the property in question, 91-476 Komohana Street in Campbell Industrial Park ("the Site"), to Griffin Forest Industries, Inc. ("Griffin"). Griffin subleased and later assigned the lease to Chem-Wood Treatment Company ("Chem-Wood").*fn2 Chem-Wood operated a wood treatment business on the Site from 1973 through October 1988. As part of its operations, Chem-Wood used copper chromated arsenic and pentachlorophenol, as well as other chemicals. [Campbell Estate Suit CSOF Nos. 1-3; U.S. Fire's Response to Campbell Estate Suit CSOF, filed 11/14/11 (dkt. no. 122) ("U.S. Fire Responsive Suit CSOF"), at ¶ 1 (admitting, inter alia, Campbell Estate Suit CSOF Nos. 1-3).] Campbell Estate asserts that, as a result of Chem-Wood's waste management practices, accidental spills, and drippage from wet, treated wood, these chemicals were released onto the Site and contaminated the Site's soil and groundwater, as well as surrounding properties. [Campbell Estate Suit CSOF Nos. 4-5.]

In a letter dated November 24, 2008, the United States Environmental Protection Agency ("EPA") notified Campbell Estate that, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), as a previous owner and/or operator of the Site, Campbell Estate was a potentially responsible party ("PRP") required to perform clean-up actions and/or to pay costs that the EPA incurred in cleaning up contamination at the Site ("PRP Letter").*fn3 [Campbell Estate Suit CSOF Nos. 6-7; U.S. Fire Responsive Suit CSOF at ¶ 1 (admitting, inter alia, Campbell Estate Suit CSOF Nos. 6-9).]

The EPA directed Campbell Estate to undertake clean-up operations to address Site contamination that occurred during Chem-Wood's operations. The EPA's clean-up requirements are set forth in its December 2009 Final Remedy Decision ("FRD").*fn4 The FRD required, inter alia: clean-up of soil contamination at the Site and at surrounding properties; testing, analysis, and monitoring of groundwater at and around the Site; removal of contaminants from the groundwater; and implementation of land use controls. [Campbell Estate Suit CSOF Nos. 8-9; U.S. Fire Responsive Suit CSOF at ¶ 1.] In August 2010, Campbell Estate, Weston Solutions, Inc. (the current owner of the Site), and the EPA entered into an Administrative Order on Consent for Final Corrective Measures ("AOC"), which implemented the remedies ordered in the FRD.*fn5 [Campbell Estate Suit CSOF No. 10; U.S. Fire Responsive Suit CSOF at ¶ 3 (admitting portions of Campbell Estate Suit CSOF No. 10).]

Industrial Indemnity Company and Industrial Insurance of Hawaii, Ltd. (collectively "Industrial Indemnity") issued several insurance policies to Campbell Estate covering the period from May 1979 to April 1987 ("the Policies"). U.S. Fire is the successor by novation to the Policies. [Campbell Estate Suit CSOF Nos. 11-12; U.S. Fire Responsive Suit CSOF at ¶ 1 (admitting, inter alia, Campbell Estate Suit CSOF Nos. 11-12).] Campbell Estate states that it tendered the defense of the EPA Actions*fn6 to U.S. Fire under the Policies. [Campbell Estate Suit CSOF No. 17; U.S. Fire Responsive Suit CSOF at ¶ 4 (admitting certain facts in Campbell Estate Suit CSOF No. 17).] U.S. Fire "agree[d] to participate in the defense of the Estate under Policy Nos. LV806-9513, LV812-0551, MP817-7108 and SV859-2335, subject to a complete reservation of all rights and defenses[.]"

[Campbell Estate Suit CSOF, Decl. of Patricia J. McHenry ("McHenry Suit Decl."), Exh. K (letter dated 10/13/09 to Campbell Estate's counsel from U.S. Fire's counsel, Latent/CD Claims Unit).] U.S. Fire also denied the request for a defense: under "alleged Policy No. LC806-9720" because U.S. Fire could not locate any evidence of that alleged policy, and Campbell Estate did not provide any evidence or information about it; under Policy No. SV877-2416 pursuant to that policy's total pollution exclusion; and under Policy Nos. LC812-0429 and LC817-7271 because those were umbrella policies where U.S. Fire would provide a defense under primary polices. [Id.]

U.S. Fire filed the instant action on January 4, 2011, primarily seeking a declaratory judgment that it has no duty to defend or indemnify Campbell Estate for the costs related to the environmental contamination at the Site. The principle arguments U.S. Fire presents in support of its position that there is no duty to defend or indemnify in this matter ("the coverage defenses") are set forth in paragraphs 30.(a) through (h) of the Complaint. [Complaint at pgs. 9-10.] If the Court ultimately determines that U.S. Fire is liable to Campbell Estate for any amount, U.S. Fire seeks contribution from Campbell Estate's other insurers, which U.S. Fire has named as co-defendants. Jurisdiction in this case is based on diversity. [Id. at ¶ 2.]

Campbell Estate's Suit Motion addresses the following coverage defenses:

(a) The costs incurred and paid or to be incurred by [Campbell] Estate do not constitute "sums which the Insured shall become legally obligated to pay as damages . . . .";

(b) The costs incurred and paid or to be incurred by [Campbell] Estate do not constitute "damages because of bodily injury or property damage";

(f) The costs incurred and paid or to be incurred by [Campbell] Estate do not result from or involve a "suit against the insured[.]" [Complaint at ¶ 30.] The Counter-Motion seeks a finding in favor of U.S. Fire on those coverage defenses. [Counter-Motion at 2.] It seeks "summary judgment that it owes no duty to indemnify Campbell [Estate] for the clean-up costs paid pursuant to the EPA Orders because no 'suit' was filed and/or there are no 'damages' that Campbell was 'legally obligated to pay' because of 'property damage.'" [Id. at 12.]

Campbell Estate's Occurrence Motion addresses coverage defense (c) - "The costs incurred and paid or to be incurred by [Campbell] Estate were not caused by an 'occurrence' within the meaning of The U.S. Fire Policies;" - and defense (d) - "The costs incurred and paid or to be incurred by [Campbell] Estate were not caused by an 'occurrence' taking place during the policy periods of The U.S. Fire Policies[.]" [Complaint at ¶ 30.] The Occurrence Motion also seeks a finding regarding U.S. Fire's claim that the qualified pollution exclusion negates coverage.*fn7

[Mem. in Supp. of Occurrence Motion at 9.] Campbell Estate notes that U.S. Fire contends that the Policies contain an absolute or total pollution exclusion, but the Occurrence Motion does not seek a finding on the absolute or total pollution exclusion. [Id. at 11 n.3.]

DISCUSSION

I. Applicable Law Regarding Insurance Contract Interpretation

Federal jurisdiction in this case is based on diversity. [Complaint at ¶ 2.] This district court has recognized that:

Federal courts sitting in diversity apply state substantive law and federal procedural law. See Mason & Dixon Intermodal, Inc. v. Lapmaster Int'l LLC, 632 F.3d 1056, 1060 (9th Cir. 2011) ("When a district court sits in diversity, or hears state law claims based on supplemental jurisdiction, the court applies state substantive law to the state law claims."); Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir. 2007) ("Federal courts sitting in diversity jurisdiction apply state substantive law and federal procedural law." (quotations omitted)). When interpreting state law, a federal court is bound by the decisions of a state's highest court. Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011). In the absence of a governing state decision, a federal court attempts to predict how the highest state court would decide the issue, using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance. Id.; see also Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir. 2004) ("To the extent this case raises issues of first impression, our court, sitting in diversity, must use its best judgment to predict how the Hawaii Supreme Court would decide the issue." (quotation and brackets omitted)).

Estate of Rogers v. Am. Reliable Ins. Co., Civil No. 10--00482 SOM/RLP, 2011 WL 2693355, at *3 (D. Hawai`i July 8, 2011). This Court therefore looks to Hawai`i state law for the applicable principles of insurance contract interpretation.

A. General Principles under Hawai`i Law

The Hawai`i Supreme Court has set forth the following principles applicable in the interpretation of insurance contracts:

[I]nsurers have the same rights as individuals to limit their liability and to impose whatever conditions they please on their obligation, provided they are not in contravention of statutory inhibitions or public policy. As such, insurance policies are subject to the general rules of contract construction; the terms of the policy should be interpreted according to their plain, ordinary, and accepted sense in common speech unless it appears from the policy that a different meaning is intended. Moreover, every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy.

Nevertheless, adherence to the plain language and literal meaning of insurance contract provisions is not without limitation. We have acknowledged that because insurance policies are contracts of adhesion and are premised on standard forms prepared by the insurer's attorneys, we have long subscribed to the principle that they must be construed liberally in favor of the insured and any ambiguities must be resolved against the insurer. Put another way, the rule is that policies are to be construed in accord with the reasonable expectations of a layperson.

Guajardo v. AIG Hawai`i Ins. Co., Inc., 118 Hawai`i 196, 201-02, 187 P.3d 580, 585-86 (2008) (alteration in Guajardo) (quoting Dairy Rd. Partners v. Island Ins. Co., 92 Hawai`i 398, 411--12, 992 P.2d 93, 106--07 (2000)). The Hawai`i Supreme Court has also stated: "[t]he objectively reasonable expectations of [policyholders] and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations. These 'reasonable expectations' are derived from the insurance policy itself . . . ." Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Hawai`i 357, 368, 183 P.3d 734, 745 (2007) (citations and some quotation marks omitted) (some alterations in original).

Under the principles of general contract interpretation, "[a] contract is ambiguous when the terms of the contract are reasonably susceptible to more than one meaning." Airgo, Inc. v. Horizon Cargo Transport Inc., 66 Haw. 590, 594, 670 P.2d 1277, 1280 (1983).

It is well settled that courts should not draw inferences from a contract regarding the parties' intent when the contract is definite and unambiguous. In fact, contractual terms should be interpreted according to their plain, ordinary meaning and accepted use in common speech. The court should look no further than the four corners of the document to determine whether an ambiguity exists. Consequently, the parties' disagreement as to the meaning of a contract or its terms does not render clear language ambiguous.

State Farm Fire & Cas. Co. v. Pac. Rent--All, Inc., 90 Hawai`i 315, 324, 978 P.2d 753, 762 ...


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