American Chemical Service Inc v. United States Fidelity & Guaranty Company et al

Filing 133

OPINION AND ORDER: The Court GRANTS Plaintiffs Partial Motion for Summary Judgment 31 and finds that Defendant had a duty to defend Plaintiff with regard to the EPA CERCLA action at Gary Developmental Landfill and breached its duty. Consequently, Defendants Cross-Motion for Summary Judgment 95 and 98 is DENIED. Defendants Motion for a Hearing 101 is DENIED as moot. Similarly, Plaintiffs Motion to Strike the Affidavit of Defendants Expert 118 is DENIED as moot with permission to refile at a later stage of theproceedings if necessary. Signed by Judge Joseph S Van Bokkelen on 4/2/2015. (rmn)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
American Chemical Service, Inc.,
Plaintiff,
v.

Case No. 2:13-CV-177 JVB

United States Fidelity & Guaranty Company
and National Union Fire Insurance Company,
Defendants.

OPINION & ORDER
Plaintiff, American Chemical Service, Inc. (ACS), brought this lawsuit against its
insurers, United States Fidelity & Guaranty Company (USF&G) and National Union Fire
Insurance Company (National Union), over an alleged breach of their duty to defend. Plaintiff
maintains that both Defendants had a duty to defend them in relation to a claim by the
Environmental Protection Agency (EPA) that alleged Plaintiff was responsible for environmental
cleanup costs at the Gary Developmental Landfill (GDL). Plaintiff filed a motion for partial
summary judgement (DE 31) seeking judgment as a matter of law on USF&G’s breach of their
duty to defend.1
Defendant, USF&G, responded to Plaintiff’s Motion for Partial Summary Judgment by
filing a Counter-Motion for Summary Judgment.2 (DE 95 and DE 98.) Defendant maintains that,
in this instance, a settlement agreement between the parties released them from a duty to defend.
Alternatively, Defendant contends that even if a duty to defend survived the settlement
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After filing their Motion for Partial Summary Judgment (DE 31), Plaintiff filed a Joint Motion to Amend (DE 85),
which modified their original motion by no longer seeking relief against National Union. Accordingly, this Opinion
and Order will focus solely on the dispute between Plaintiff and USF&G.
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Defendant filed a Motion for Oral Argument on its Counter-Motion for Summary Judgment. The Court found oral
argument unnecessary in this instance and Defendant’s Motion (DE 101) is denied as moot.

agreement, their duty to defend Plaintiff has not been triggered. Defendant reasons that its duty
to defend is only initiated by a lawsuit, and there is currently no lawsuit filed against Plaintiff
regarding its shipment of hazardous materials to GDL.

A. Background
Plaintiff, headquartered in Griffith, Indiana, is a chemical manufacturing company that
supplies oil and chemicals to various industries. (DE 1, Compl. at 1.) From 1976–1981, Plaintiff
focused its business on solvent reclamation and chemical processing. (Id.) Plaintiff’s solvent
reclamation operation was a four-step process. First, clients would ship used solvents to
Plaintiff’s headquarters for reclamation or disposal. (DE 102-3, Tarpo Dep. at 42–44.) Next,
Plaintiff would distill these spent solvents to reclaim usable solvents that would then be shipped
back to their client. (Id. at 44.) Third, Plaintiff would sell excess reclaimed solvent, which the
original client did not have capacity to utilize, to third-parties. (Id. at 44–45.) Lastly, Plaintiff
would send any unusable byproduct produced by the reclamation process to a landfill. (Id.)
Until the mid-1970s, Plaintiff would landfill the unusable byproduct on its property,
which was collocated with its headquarters. (Id. at 60, 77–79.) After complaints from local
officials regarding the effects of this practice, Plaintiff began shipping its waste to off-site
landfills, including the Gary Developmental Landfill (GDL), Calumet Containers sites in Indiana
and Illinois, and at a Thermo Chem landfill site located in Muskegon, Michigan. (Id. at 177–179;
DE 102-13, Aug. 22, 1990 Compl. at 3, 7.)
Defendant provided insurance coverage to Plaintiff from 1955 to 1984. (DE 1, Compl. at
6; DE 99, Def.’s Br. at 10.) The policies in question here were issued by Defendant in 1980 and
1981. (DE 116, Pl.’s Resp. at 3.) Between 1987 and 1990, Plaintiff was notified by the EPA that
it may be liable for environmental cleanup costs at three locations: (1) the ACS site in Griffith,
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Indiana; (2) the Thermo Chem site in Muskegon, Illinois; and (3) the Calumet Container sites,
which were located in both Indiana and Illinois. The alleged environmental damage took place as
a result of Plaintiff using their own land as a landfill for hazardous materials, as well as shipping
hazardous materials to the Thermo Chem and Calumet Container sites where they were
improperly disposed of. (DE 102-13, Aug. 22, 1990 Compl. at 2–6.) These lawsuits and
accompanying regulatory actions led to a dispute over Defendant’s coverage of Plaintiff. (DE
116, Pl.’s Resp. at 3.)
In 1990, as a result of the coverage dispute, Defendant filed a declaratory judgment
action against Plaintiff. Defendant asked the court to find, among other things, that their
insurance policies provided no coverage for Plaintiff’s environmental violations, that Defendant
had no duty to defend Plaintiff or its employees against these allegations, and that Defendant did
not have a duty to pay any monetary judgement as a result of Plaintiff’s actions at these three
sites. (DE 102-13, Aug. 22, 1990 Compl. at 14–17.)
This dispute was eventually resolved in 1993 through a settlement agreement (1993
Agreement). Defendant provided Plaintiff with substantial settlement sum to “exhaust the
property damage aggregate” under the policies issued. (DE 100, Settlement Agreement at 6–7.)
In return for the monetary settlement, ACS agreed to:
release and forever discharge USF&G . . . from and against any and all claims,
demands costs, losses or damages relating to property damage that it has or may
have against USF&G which were or could have been raised in the litigation and
which in any way relate to the Policies . . . and which arise from or relate to the
ACS, Thermo Chem, and Calumet Container sites.
(Id.at 8–9.)
Turning to the EPA enforcement action at GDL, Plaintiff concedes that it sent solvent
reclamation byproducts to GDL from 1980 to 1981. (DE 1 Compl. at 1.) In fact, Plantiff claims
that it sent 37 separate, manifested loads of waste byproducts from its facility in Griffith,
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Indiana, to GDL during this time period. While Defendant contends that Plaintiff shipped waste
byproducts to GDL outside of this time period and in excessive amounts, this dispute is not
material. (DE 99, Def.’s Br. at 5–7.) In November 1981, GDL notified Plaintiff that it would no
longer accept its waste byproducts due to a fire at their facility caused by one of the earlier
shipments. (DE 102-3, Tarpo Dep. at 226.)
Plaintiff was aware of the EPA and Indiana Department of Environmental Management
(IDEM) investigation of GDL since its inception. On July 1, 1985, Plaintiff received a letter from
IDEM requesting manifest of shipments of hazardous materials from Plaintiff to GDL in 1981.
(DE 102-14, Ltr. at 1.) This information was requested to assist in the closure of GDL as a
hazardous waste disposal facility. (Id.) Then, on September 24, 1986, the EPA sent Plaintiff a
similar request for information on their shipments to GDL based on the enforcement powers
under the Resource Conservation and Recovery Act (RCRA). (DE 102-15, Ltr. at 1.) Lastly, in
August 1987, the president of ACS was subpoenaed to testify before the EPA regarding
Plaintiff’s shipments to GDL and provided the requested testimony on September 10, 1987. (DE
102-17, Subpoena; DE 102-19; ACS President’s Testimony.) This would be the last contact
between the EPA, IDEM, and Plaintiff regarding GDL until 2011.
On November 7, 2011, Plaintiff received a General Notice Letter from the EPA, which
stated that ACS may be liable under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) for the cleanup of improperly released hazardous
materials at GDL. (DE 102-22, Ltr. at 1.) On February 2, 2012, Plaintiff notified Defendant in
writing of the EPA claim against them regarding their shipment of hazardous waste to GDL. (DE
1, Compl. at 4.) On February 25, 2013, Plaintiff received a Special Notice Letter from the EPA
again identifying them as a Potentially Responsible Party (PRP) for the improper release of
hazardous materials at GDL, which included a formal demand for reimbursement of $628,813.29
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for costs already incurred by the EPA at GDL. (DE 102-23, Ltr. at 1.) Plaintiff sent this Special
Notice Letter to Defendant on March 15, 2013. (DE 1, Compl. at 5.) Plaintiff also maintains that
from when it first notified Defendant of the EPA claim until May 15, 2013, Defendant attempted
to negotiate an extra-contractual agreement that would govern their representation of Plaintiff in
this matter. (Id. at 4–5.) Plaintiff asserts that this extra-contractual proposal by Defendant was
heavily slanted in Defendant’s favor and did not reflect the parties’ original agreement. (Id.)

B. Procedural History
Plaintiff filed a Complaint for Declaratory Relief and Damages that alleges that
Defendant had a duty to defend and indemnify Plaintiff against the EPA enforcement action at
GDL. Plaintiff contends that Defendant’s inaction was a breach of the insurance contract.
Plaintiff also maintains that Defendant’s refusal to defend and indemnify was undertaken in bad
faith and constitutes a breach of an insurer’s duty of good faith and fair dealing. (DE 1, Compl.
at 8–19.) Plaintiff filed a partial motion for summary judgment requesting the court to find, as a
matter of law, that Defendant had a duty to defend Plaintiff and breached that duty. (DE 31, Mot.
Summ. J. at 1.)
As a Response, Defendant filed a Cross-Motion for Summary Judgment that maintains it
has no duty to defend Plaintiff in this matter. Defendant’s brief in support of its motion outlines
two justifications for why there was no duty to defend Plaintiff in its dispute with the EPA. First,
Defendant contends that the 1993 Agreement between the parties released it from any duty to
defend Plaintiff in this matter. Alternatively, Defendant maintains that it is inconsequential if the
1993 Agreement did not extinguish its duty to defend Plaintiff, because this dispute is not
covered under its policies. Defendant maintains that their insurance policies only require a
defense to “any suit against the Insured seeking damages on account of . . . property damae” and
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the EPA has not filed a lawsuit against Plaintiff. Instead, the EPA has only initiated
administrative proceedings against Plaintiff pursuant to §§ 106 and 107 of CERCLA.

C. Legal Standard
1. Summary Judgment
A motion for summary judgment must be granted “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(c). Rule 56(c) further requires the entry of summary judgment,
after adequate time for discovery, against a party “who fails to make a showing sufficient to
establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A party seeking summary judgment bears the initial responsibility of informing a court of
the basis for its motion and identifying those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. If the
moving party supports its motion for summary judgment with affidavits or other materials, it
thereby shifts to the non-moving party the burden of showing that an issue of material fact exists.
Keri v. Bd. of Trust. of Purdue Univ., 458 F.3d 620, 628 (7th Cir. 2006).
Rule 56(e) specifies that once a properly supported motion for summary judgment is
made, “the adverse party’s response, by affidavits or as otherwise provided in this rule, must set
forth specific facts to establish that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e).
In viewing the facts presented on a motion for summary judgment, a court must construe
all facts in a light most favorable to the non-moving party and draw all legitimate inferences and
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resolve all doubts in favor of that party. Keri, 458 F.3d at 628. A court’s role is not to evaluate
the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the
matter, but instead to determine whether there is a genuine issue of triable fact. Anderson v.
Liberty Lobby, 477 U.S. 242, 249–50 (1986).
As described above, summary judgment is only appropriate by the terms of Rule 56(c)
where there exists “no genuine issue as to any material facts and . . . the moving party is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56. This notion applies equally where, as here,
opposing parties each move for summary judgment in their favor pursuant to Rule 56. I.A.E., Inc.
v. Shaver, 74 F.3d 768, 774 (7th Cir. 1996). Indeed, the existence of cross-motions for summary
judgment does not necessarily mean that there are no genuine issues of material fact. R.J.
Corman Derailment Serv., Inc. v. Int’l Union of Operating Eng’rs., 335 F.3d 643, 647 (7th Cir.
2003). Rather, the process of taking the facts in the light most favorable to the nonmovant, first
for one side and then for the other, may reveal that neither side has enough to prevail without a
trial. Id. at 648. Mindful of these standards, the court now turns to the substance of the parties’
motions.

2. Contract Interpretation Under Indiana Law
The goal of contract interpretation is to give effect to the parties’ intent. The construction
of a written contract is a pure question of law. S.C. Nestel, Inc. v. Future Constr., Inc., 836
N.E.2d 445, 449 (Ind. Ct. App. 2005). A settlement agreement, since it is contractual in nature, is
likewise “interpreted according to the general rules for contract construction.” Bailey v. Mann,
895 N.E.2d 1215, 1217 (Ind. 2008). The unambiguous language of a contract is conclusive and
binding on the parties and the court; the parties’ intent is determined from the four corners of the
document. Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494, 501 (Ind. Ct. App.
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2007). However, if there is an ambiguity, the Court “may consider extrinsic (parol) evidence to
resolve it, with the aim of carrying out the parties’ likely intent. Pohl v. Pohl, 15 N.E.3d 1006,
1009 (Ind. 2014).
When trying to ascertain the parties’ intent the Court must read the contract as a whole
and will make every effort to construe its language so as not to render any words, phrases, or
terms ineffective or meaningless. Four Seasons, 870 N.E.2d at 501. In discerning the meaning of
a contract term, a court must also apply its general knowledge of how the business world
operates. Beanstalk Group, Inc., v. AM Gen. Corp., 283 F.3d 856, 862 (7th Cir. 2002). Notably,
courts construe contracts “in a way that gives each term independent meaning, rather than
rendering one surplusage.” Pohl, 15 N.E.3d at 1014.

D. Analysis
The Court must first address Defendant’s motion as it presents two threshold questions
that must be answered before the Court can determine if Defendant still has a duty to defend
Plaintiff. First, the Court must determine whether the 1993 Agreement served to release
Defendant’s from its duty to defend Plaintiff. If the 1993 Agreement is inapplicable to this
dispute, the Court then must determine whether the dispute between Plaintiff and the EPA is a
“suit” as described in the insurance policies issued by Defendant to Plaintiff. If the 1993
Agreement is inapplicable to the GDL dispute and Plaintiff’s clash with the EPA is a suit, the
Court will then address Plaintiff’s Motion for Partial Summary Judgment. Once at this point, the
analysis is simple; Defendant’s admitted refusal to defend Plaintiff necessarily means that
Plaintiff’s Partial Motion for Summary Judgment must be granted.

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1. Effect of the Settlement Agreement
Plaintiff and Defendant both agree that the 1993 Agreement contains four operative
clauses that must be satisfied to release Defendant from its duty to defend. (DE 116, Pl.’s Resp.
at 8; DE 99, Def.’s Mot. Summ. J. at 1.) First, the 1993 Agreement releases Defendant from any
and all claims relating to property damage. There is no dispute that the alleged environmental
damage satisfies this element. Second, the 1993 Agreement applies to claims that Plaintiff had or
may have had against Defendant, which were or could have been raised in the 1990 declaratory
judgment action.3 Third, the 1993 Agreement applies to the policies issued to Plaintiff by
Defendant; this element is also undisputed. Lastly, the 1993 Agreement covers only those claims
that arise from or relate to the ACS, Thermo Chem, and Calumet Container sites. In this case, the
latter clause is dispositive of the matter.
Defendant contends that since the hazardous materials that Plaintiff shipped to GDL
originated at Plaintiff’s headquarters, the 1993 Agreement relieves it from its duty to defend and
indemnify Plaintiff. Defendant argues that the phrase “arise from or relate to” the ACS Site
should be interpreted to cover the shipment of materials from ACS to GDL. Plaintiff counters
that “arise from or relate to” references the landfills at these three sites themselves and not
Plaintiff’s entire solvent reclamation operation and shipping of unusable solvent byproducts to
landfills for disposal. Plaintiff also contends that Defendant’s desired interpretation would render
the reference to the Thermo Chem, and Calumet Container sites surplasage, which is counter to
the canons of Indiana contract law. Plaintiff is correct in both respects.

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Defendant provided an Affidavit from Daniel Sullivan that offered expert testimony regarding this element.
Plaintiff filed a Motion to Strike this affidavit. The Court did not rely on Mr. Sullivan’s Affidavit in reaching its
decision so the Motion to Strike (DE 118) is denied as moot.
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The Thermo Chem, Calumet Container, and GDL sites all received shipments of
hazardous materials from Plaintiff’s headquarters. Nevertheless, the 1993 Agreement fails to
mention, in any way, the GDL site or shipments of hazardous materials from Plaintiff to any
other location. Instead, the 1993 Agreement only references the ACS, Thermo Chem, and
Calumet Container sites. While materials from Plaintiff’s solvent reclamation operation polluted
all three sites listed in the 1993 Agreement, they also share another, more significant
characteristic: each had landfills that were the subject of litigation at the time the 1993
Agreement was negotiated. The 1993 Agreement addressed these three landfills, or sites, not the
entirety of Plaintiff’s operations as the Defendant suggests. This shared characteristic convinces
the Court that the language in 1993 Agreement was referencing any property damage that arose
from or related to the landfills on these three sites.
The Court’s interpretation is also supported by the incongruity of the 1993 Agreement if
Defendant’s interpretation is adopted. Thermo Chem and Calumet Container served the same
role for Plaintiff as GDL. If the 1993 Agreement was truly designed to release Defendant from
any liability created by Plaintiff’s solvent reclamation operations, why are these additional sites
listed? Moreover, why wouldn’t the language of the 1993 Agreement just state that Defendant is
released from any property damage claims that reference these policies and occurred as a result
of Plaintiff’s solvent reclamation? In this case, the answer is simple. The 1993 Agreement was
only designed to serve as a release for claims arising from the landfills at these three sites.
Accordingly, the Court finds that Defendant’s duty to defend Plaintiff, with regards to the
property damage at GDL, was not released by the 1993 Agreement.

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2. Duty to Defend
Defendant also asserts that it did not breach its duty to defend even if the 1993
Agreement is inapplicable to the current dispute between Plaintiff and the EPA over GDL.
Defendant contends that its policies only create a duty to defend against a lawsuit and no lawsuit
exists in this case. Plaintiff counters that Indiana law clearly articulates that when the EPA labels
a company a Potentially Responsible Party (PRP) the insurer’s duty to defend is triggered.
Again, Plaintiff is correct.
The Indiana Court of Appeals addressed the issue of whether a PRP letter is a suit in
Hartford Accident & Indem. Co. v. Dana Corp., 690 N.E.2d 285 (Ind. Ct. App. 1997). In Dana,
the Court analyzed whether an insurer’s duty to defend was triggered by EPA enforcement
actions taken pursuant to CERCLA. Id. at 288. The insurance policy in Dana, like the policy
here, required the insurer to defend “any suit against the insured.” Id. at 289. The Court first
determined that the term “suit” was ambiguous and was partly convinced by the “division of
authority on this [issue] . . . [which] is evidence that more than one reasonable interpretation of
the term ‘suit’ is possible.” Id. at 295 (citing Indiana Ins. Co. v. O.K. Transport, Inc., 587 N.E.2d
129, 132 (Ind. Ct. App. 1992). The Court eventually found that “coercive and adversarial
administrative proceedings” were suits under the policy and specifically referenced demands
made pursuant to § 107 of CERCLA as an example. Id. at 296. The Court concluded by noting
that “mere notification or investigation when no enforcement action is contemplated” is
insufficient to trigger the duty to defend. Id. at 296–297.
Defendant counters the precedential value of Dana by citing six decisions of the Indiana
Supreme Court. All six decisions stand for the general proposition that if the terms of a contract
are unambiguous they should be given their plain and ordinary meaning. Defendant maintains
that these six cases should persuade this Court to overlook Dana.
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Defendant’s argument is unavailing because Dana and the cases cited by Defendant are
easily distinguishable. In Dana, the Indiana Court of Appeals made a deliberate and specific
finding that the term ‘suit’ was ambiguous. The Court based this finding on the disparity of
treatment the term has received in different jurisdictions. For instance, the Court referenced
decisions that found: “1) that the term ‘suit’ is unambiguous and includes administrative
proceedings; 2) that the term ‘suit’ is unambiguous and includes only courthouse lawsuits; and 3)
that the term ‘suit’ is ambiguous and is therefore to be construed against the insurer.” Dana, 690
N.E.2d at 295. This finding of ambiguity led the Court to use a broader definition of the term suit
that includes EPA administrative proceedings, so long as there was a showing of “coerciveness
or adversariness.” Id. at 296. All of the cases cited by Defendant are examples of the Indiana
Supreme Court, when examining different contractual language than what is at issue here,
making the opposite finding regarding ambiguity. This arbitrary comparison is not useful in
predicting how the Indiana Supreme Court would handle this case. Moreover, “unless we have a
good reason to believe that the state’s highest court would reject a decision by an intermediate
court we treat that decision as authoritatively stating the law of the state.” Tippecanoe Beverages,
Inc. v. S.A. El Aguila Brewing Co., 833 F.2d 633, 638-639 (7th Cir. 1987). Thus, Defendant’s
argument is insufficient to convince this Court to disregard Dana.
Plaintiff’s dispute with the EPA is directly comparable to those described in Dana as
being properly defined as a suit. The EPA notified Plaintiff of its potential liability under §§ 106
and 107 of CERCLA. (DE 103-22, Ltr. at 1–2; DE 103-23, Ltr. at 1–2.) The EPA then made a
formal demand to Plaintiff for reimbursement for costs already incurred at GDL, which totaled
$628,813.29. (DE 103-23, Ltr. at 4.) The correspondence from the EPA then explains how
Plaintiff can negotiate a settlement and cooperate with the EPA and the potential penalties if they
fail to do so. (Id. at 2.) This correspondence shows that the EPA is engaging in more than mere
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notification or investigation. Accordingly, consistent with Dana, the Court finds that Defendant’s
duty to defend was triggered by the General Notice and Special Notice letters (DE 103-22 & DE
103-23) from the EPA to Plaintiff. Consequently, Defendant’s admitted inaction in response to
these letters is sufficient evidence for the Court to find that Defendant breached its duty to
defend Plaintiff.

E. Conclusion
As a result, the Court GRANTS Plaintiff’s Partial Motion for Summary Judgment (DE
31) and finds that Defendant had a duty to defend Plaintiff with regard to the EPA CERCLA
action at Gary Developmental Landfill and breached its duty. Consequently, Defendant’s CrossMotion for Summary Judgment (DE 95 and 98) is DENIED. Defendant’s Motion for a Hearing
(DE 101) is DENIED as moot. Similarly, Plaintiff’s Motion to Strike the Affidavit of
Defendant’s Expert (DE 118) is DENIED as moot with permission to refile at a later stage of the
proceedings if necessary.

SO ORDERED on April 2, 2015.
s/ Joseph S. Van Bokkelen
JOSEPH S. VAN BOKKELEN
UNITED STATES DISTRICT JUDGE

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