Sunflower Redevelopment, LLC v. Illinois Union Insurance Company

Filing 223

ORDER granting 205 motion for partial summary judgment; denying 211 motion for partial summary judgment. Signed on 6/25/2018 by Chief District Judge Greg Kays. (Law Clerk)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
SUNFLOWER REDEVELOPMENT, LLC,
Plaintiff,
v.
ILLINOIS UNION INSURANCE CO.,
Defendant.

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No. 4:15-CV-00577-DGK

ORDER ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT
This case arises out of an insurance coverage dispute. After insurer Defendant Illinois
Union Insurance Co. (“ILU”) refused to indemnify Plaintiff Sunflower Redevelopment, LLC
(“Sunflower”), Sunflower sued for declaratory judgment and breach of contract.
The parties previously filed cross motions for summary judgment, which the Court
granted in part and denied in part (Doc. 168). Subsequently, the trial was reset because of a
scheduling conflict with the Court. The parties took this additional time to file another round of
partial summary judgment motions (Docs. 205 & 211). Having reviewed the parties’ arguments
and the operative insurance policies, the Court GRANTS Plaintiff’s motion (Doc. 205) and
DENIES Defendant’s motion (Doc. 211).
Undisputed Material Facts1
At the heart of this dispute is the former Sunflower Army Ammunition Plant (“Plant”),
consisting of approximately 9,035 acres in Johnson County, Kansas. The Army manufactured
power and propellant munitions, and nitric and sulfuric acids at the Plant. During its operation,
spills and releases of propellant, heavy metals, nitrate compounds, and other pollutants
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The Court excluded asserted facts that were immaterial to the resolution of the pending motion, asserted facts that
were not properly supported by admissible evidence, legal conclusions, and argument presented as an assertion of
fact.

contaminated various parts of the Plant property. Due to these activities, numerous areas of the
property were determined to be heavily polluted. In 1998, the Army determined it no longer
needed the Plant. Sunflower sought to purchase the property with a vision to clean up the
pollutants and develop the land.
On August 3, 2005, Sunflower entered into an agreement with the Army to purchase the
Plant.

The conveyance was made subject to the pollution conditions.

On the same day,

Sunflower entered into a Remediation Services Agreement (“RSA”) with the United States,
which obligated Sunflower to purchase environmental insurance and perform certain remediation
work. In exchange, the Army would pay Sunflower for the outlined remediation work. The
Army and Sunflower codified the specific remediation work covered by the RSA into the
“Remediation Plan.” The Remediation Plan categorized work by defined locations within the
Plant, identified as Solid Waste Management Units (“SWMU”) and Areas of Concern (“AOC”).
Also on August 3, 2005, the Kansas Department of Health and Environment (“KDHE”)
issued a Consent Order obligating Sunflower to remediate certain pollution conditions at the
Plant before Sunflower could develop the property.
In accordance with the requirements of the Consent Order, Sunflower purchased two
custom insurance policies from ILU.2 The Remediation Cost Containment (“RCC”) policy
affords coverage for costs that exceed the Remediation Plan. The RCC Policy’s Endorsement
002 defines the scope of the Remediation Plan as the RSA and the other items listed within the
endorsement.

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Sunflower initially purchased insurance from Quanta, but in 2008, Quanta went out of business. Subsequently,
Sunflower purchased insurance from ILU.

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The Premises Pollution Liability (“PPL”) policy is a “claims-made” policy and was
effective from March 20, 2008 to August 4, 2015.3 It provides coverage for unknown and
certain known, pre-existing pollution conditions at the Plant.

Specifically, the insuring

agreement, as modified by Endorsement 014, grants coverage for “‘[c]laims’, ‘remediation
costs’, and associated ‘legal defense expenses’ . . . arising out of a ‘pollution condition’ . . .
provided the ‘claim’ is first made during the ‘policy period’.” PPL policy (Doc. 206-1 at 135,
159).
The policy defines a claim as “the assertion of a legal right, including but not limited to a
‘government action(s)’, suits or other actions alleging responsibility or liability on the part of the
‘insured’ for ‘bodily injury’, ‘property damage’, or ‘remediation costs’ arising out of ‘pollution
conditions’ to which this insurance applies.” Id. at 137. Remediation costs are defined as:
expenses incurred to investigate, quantify, monitor, mitigate, abate,
remove, dispose, treat, neutralize, or immobilize “pollution
conditions”: a) to the extent required by “environmental law”; b) in
response to an imminent and substantial endangerment to the
public health or welfare, or to the environment; c) that have been
actually incurred by a government agency or body acting under the
authority of “environmental law”; or d) to satisfy the requirement
of a voluntary cleanup program.
Id. at 138.
Relevant to this dispute, there are four exclusions to the PPL policy. First, claims made
prior to the policy’s inception date. Id. at 139. Second, known conditions, defined as pollution
conditions that existed prior to the policy period. Id. at 140. However, known conditions do not
include conditions listed in Endorsement 008, Schedule of Known Conditions, and any pollution
condition specifically referenced or identified in documents listed in Endorsement 008. Id.
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However, the Court notes the policy period listed on each page of the endorsements is March 30, 2008 to August 4,
2015.

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These items are deemed to be first discovered during the policy period. Id. One document listed
in Endorsement 008 is called 200-5a Pest Management Files. Id. at 152. Third, “remediation
costs” for “‘pollution conditions’ related to the implementation and management of the
‘[R]emediation [P]lan’ identified within [the] Remediation Plan Schedule endorsement of the
[RCC policy]” as provided for in Endorsement 001. Id. at 145. Fourth, “any ‘remediation costs’
associated with: The approved ‘Remediation Plan’ . . . as defined by [the] Remedia[tion] Plan
Endorsement of the [RCC policy]” defined by Endorsement 018. Id. at 163.
On December 19, 2008, KDHE sent a letter to Sunflower requesting that Sunflower
submit a work plan “to investigate pesticide, lead based paint (LBP) contaminated soils, or other
contaminants for buildings” located within certain areas of the Plant. KDHE December Letter
(Doc. 206-1 at 174). The letter further states “As discussed with [Sunflower] on multiple
occasions, pesticide and LBP contaminated soils outside of existing SWMU and AOC
boundaries require investigation and remediation.” Id. The letter comments that in August 2008
KDHE requested Sunflower “perform an intrusive investigation for LBP soil contamination and
visually insect for pesticide application holes and other apparent contamination for buildings in
and around SWMU 63,” but that Sunflower declined that request. Id. On February 13, 2009,
KDHE sent another letter to Sunflower stating that the work plan requested in the December
letter was “past due.”

KDHE February Letter (Doc. 206-1 at 179).

The February letter

concludes with a second demand for a work plan.
Sunflower construed the December and February letters as a third-party claim against it
for a work plan to investigate pesticides, lead based paint, and asbestos in soil. In response,
Sunflower requested that ILU provide coverage for the claim. After this submission, Sunflower
and ILU sent a series of letters back and forth clarifying their respective position as to insurance

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coverage. Ultimately, ILU never denied Sunflower’s claim, rather, it claimed Sunflower had not
reported a matter that triggered the PPL policy so it could not determine whether coverage
existed.
Sunflower filed a two-count lawsuit seeking declaratory judgment that the pollution
conditions at issue are covered by the PPL policy and for damages for breach of contract.
At the parties’ request, the Court agreed to separate the litigation into two phases (Doc.
29). The issue in Phase I was whether certain pollution conditions within particular areas of the
Plant were excluded from coverage of the PPL policy.

The Court found none of the

endorsements to the PPL policy excluded coverage for these particular costs. See (Doc. 65).
Phase II concerns all other issues in order to determine whether ILU has a duty to indemnify
Sunflower under the PPL policy. At this juncture, Sunflower seeks partial summary judgment on
four issues attacking some of ILU’s coverage defenses and ILU seeks summary judgment on
whether a claim was made.
Summary Judgment Standard
A moving party is entitled to summary judgment “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed R. Civ. P. 56(a). A party who moves for summary judgment bears the burden of
showing there is no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 256 (1986). A court must view the facts in light most favorable to the nonmoving party and
allow the nonmoving party to benefit from all reasonable inferences to be drawn from the
evidence. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 588-89 (1986).

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Applicable Law
The Court previously decided Kansas law applies in this case. See Order Den. Remand
and Transfer (Doc. 22). Additionally, an endorsement attached to the PPL policy dictates
Kansas law applies to questions relating to the interpretation of the policies. See (Doc. 206-1 at
151). The parties do not dispute Kansas law applies.
Discussion
The essence of this case is ILU’s refusal to provide coverage for certain pollution
conditions Sunflower believes fall within the scope of the PPL policy. Sunflower maintains the
PPL policy covers the pollution conditions and moves for partial summary judgment on four
issues: (1) whether the PPL policy provides coverage for remediation costs in absence of a
claim; (2) whether letters from KDHE to Sunflower constitute a claim; (3) whether the claim was
first made within the policy period; and (4) whether Endorsements 001 and 018 exclude
remediation costs for applied pesticides. ILU seeks summary judgment that no claim was made
during the policy period.
Under Kansas law, an insurance policy constitutes a contract and the interpretation of a
contract is a question of law. AMCO Ins. Co. v. Beck, 929 P.2d 162, 165 (Kan. 1996). If the
relevant facts are admitted, the court may decide whether they come within the terms of the
contract. Goforth v. Franklin Life Ins. Co., 449 P.2d 477, 481 (Kan. 1969).
The parties agree the insurance policies at issue are unambiguous (Doc. 51) and the Court
concluded the same in its Order on Phase I summary judgment (Doc. 65). When an insurance
contract is unambiguous, a court may not rewrite the contract for the parties; “[i]ts function is to
enforce the contract as made.” Catholic Diocese of Dodge City v. Raymer, 840 P.2d 456, 459
(Kan. 1992). The court must take unambiguous language in its plain and ordinary sense.

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Warner v. Stover, 153 P.3d 1245, 1247 (Kan. 2007). Thus, “[i]f the terms of the contract are
clear, there is no room for rules of construction, and the intent of the parties is determined from
the contract itself.” Liggatt v. Emp’rs Mut. Cas. Co., 46 P.3d 1120, 1125 (Kan. 2002). That is,
the court must enforce an unambiguous contract according to its terms. Am. Media, Inc. v. Home
Indem. Co., 658 P.2d 1015, 1019 (Kan. 1983).
I.

The PPL policy provides coverage for remediation costs in absence of a
claim.

First, Sunflower argues that the PPL policy provides coverage for remediation costs
absent a claim. In reviewing the plain language of the insuring agreement and viewing the
policy as a whole, the Court finds coverage for remediation costs does not require a claim.
Here, the insuring agreement covers three perils: (1) claims; (2) remediation costs; and
(3) legal defense expenses associated with either claims or remediation costs. See generally,
Louisiana Generating L.L.C. v. Illinois Union Ins. Co., 719 F.3d 328, 334-35 (5th Cir. 2013)
(analyzing a substantially similar insuring agreement and policy definitions, and finding claims
and remediation costs were two bases for coverage, and that remediation costs are covered
whether they are the relief sought by a claim or independent of a claim).
The issue is whether the phrase “provided the ‘claim’ is first made during the ‘policy
period’” applies to all three perils or just claims. ILU argues a claim is a prerequisite for
coverage because it interprets the operative phrase as applying broadly to all three perils listed
earlier in the sentence: claims, remediation costs, and associated legal defense expenses. Under
this interpretation, ILU argues coverage for any peril is limited to instances where there is a
claim.
Reading the insuring agreement as a whole, the Court does not agree with ILU’s
interpretation. First, use of the definite article “the” ties the clause “provided the ‘claim’” to the

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peril claims listed earlier in the sentence. See ASARCO, Inc. v. F.E.R.C., 777 F.2d 764, 773
(D.C. Cir. 1985) (“Use of the definite article in the last quoted sentence (‘in the application for
rehearing,’ instead of ‘in an application for rehearing’) makes it plain that what is referred to is
the same application for rehearing mentioned earlier in subsection (b)[.]”) (emphasis in original).
ILU’s interpretation of the insuring agreement requires the operative phrase to read “a claim”
meaning that remediation costs are covered provided a claim is first made during the policy
period. The use of the definite article “the” defeats ILU’s argument that the limiting phrase
“provided the ‘claim’ is first made” applies to remediation costs.
Second, the insuring agreement lists claims and remediation costs. Claims is defined to
include remediation costs. If a claim was required for coverage of remediation costs, there
would be no reason to list remediation costs as a separate peril in the insuring agreement because
claims-based remediation costs is included within the definition of claims. Under Kansas law,
nonsensical contract interpretations are rejected as unreasonable. See, e.g., Layne Christensen
Co. v. Bro-Tech Corp., 836 F. Supp. 2d 1203, 1237 (D. Kan. 2011). It is nonsensical to list
remediation costs separately from a claim but also require a claim for coverage of remediation
costs when a claim includes remediation costs.
Third, reading the definition of claims and remediation costs together, it is clear
remediation costs are not limited to only those incurred in connection with a claim. A claim is
defined as “the assertion of a legal right” including government actions, suits, or other actions
alleging responsibility or liability.

Remediation costs is defined more broadly to include

expenses required by environmental laws, or in response to a danger to public health or the
environment. There is no mention of a claim within the definition of remediation costs. Also,
remediation costs includes expenses required by environmental law or in response to a danger to

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public health or the environment, whether or not there was an assertion of a legal right, as
required to have a claim.
Reading the policy as a whole and applying the plain meaning of its terms, the Court
finds that remediation costs are a basis for coverage in absence of a claim. The operative phrase
limits the peril claims to only those that are first made during the policy period. In other words,
under the PPL policy, remediation costs are covered and claims are covered “provided the claim
is first made during the policy period.” Sunflower’s motion for summary judgment on this issue
is granted.
II.

The KDHE Letters meet the definition of a claim under the PPL Policy.

Next, Sunflower argues that the December and February letters from KDHE (collectively
the “KDHE Letters”) constitute a claim, as defined by the PPL policy. Previously on summary
judgment, the Court denied ILU’s motion that the KDHE Letters did not assert a claim. Now the
Court must decide the affirmative, whether the letters meet the definition of a claim. ILU again
seeks a declaration that the KDHE Letters are not a claim.
To determine whether the KDHE Letters constitute a claim, the Court must first decide
what the policy requires of a claim and then whether the KDHE Letters meet those requirements.
In determining what the policy requires for a claim, ILU argues there must be an
allegation of responsibility or liability on the part of Sunflower. ILU reads the definition of
claim as “the assertion of a legal right . . . alleging responsibility or liability[.]” However, the
Court reads the operative portion as “the assertion of a legal right[.]”

As explained by

Sunflower:
Everything after “including but not limited to” is examples of an
“assertion of a legal right”, but the examples are not exclusive.
There is no comma between “actions” and “alleging” which would
separate the “including but not limited to” clause from the rest of

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the sentence. Thus, the “alleging responsibility” clause modifies
“other actions”, not “assertion of a legal right”, and any assertion
of a legal right meets the definition, even if it does not allege
responsibility or liability on the part of the “insured” for “bodily
injury”, “property damage”, or “remediation costs”.
(Doc. 206 at 14 n.1). Accordingly, the Court finds a claim need not allege responsibility or
liability.4
Next, the Court must decide if the KDHE Letters assert a legal right. Determining
whether the KDHE Letters meet the definition of a claim is a legal question for the Court. See
Goforth, 449 P.2d at 481 (when the relevant facts are admitted, the court decides whether they
come within the terms of the contract). The definition of claim gives examples of an assertion of
legal right including “other actions alleging responsibility or liability” on the part of Sunflower
for remediation costs arising out of pollution conditions at the Plant.
Here, KDHE alleged Sunflower was responsible to submit a work plan to investigate
pesticide, lead based paint (LBP) contaminated soils, or other contaminants at the Plant. The
parties don’t dispute pesticide and lead based paint are pollution conditions and that costs to
investigate these conditions are remediation costs. Rather, the dispute is whether KDHE’s
demand for a work plan is an assertion of a legal right.
ILU argues the KDHE Letters were sent in the ordinary course of the project and were
not intended to assert a legal right. ILU also argues that a claim must demand money or
damages or threaten legal action. ILU attaches affidavits from the authors of the KDHE Letters
to support these arguments. One affidavit states “KDHE was not seeking damages,” and the

In the Court’s previous Order on summary judgment, the Court found that a claim had four elements: (1) “the
assertion of a legal right, including but not limited to a ‘government action’ . . .”; (2) an allegation of “responsibility
or liability on the part of the ‘insured’”; (3) “for ‘bodily injury’, ‘property damage’, or ‘remediation costs’”; and (4)
“arising out of ‘pollution conditions’ to which this insurance applies.” See (Doc. 168 at 15). Upon reconsideration
of the policy’s construction of the term claim, the Court modifies its position as to the elements of a claim.
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KDHE Letters “did not assert a legal right, threaten legal action, or allege that Sunflower was in
violation or breach of the Consent Order.” (Doc. 212-1 at 2). The affidavit further states that the
KDHE Letters “required certain work that Sunflower was required to perform pursuant to the
Consent Order” and “KDHE always expected Sunflower to fulfill its obligations under the
Consent Order.” (Doc. 212-1 at 2). ILU concludes that because the authors stated they were not
asserting a legal right nor seeking damages, the letters do not constitute a claim.
The Court finds the KDHE Letters’ demand for a work plan alleges a responsibility on
the part of Sunflower, namely, that Sunflower was responsible to submit a work plan. Further,
the work plan was to address investigating pesticides, lead-based paint, and asbestos. As defined
by the policy, expenses to investigate pollution conditions are a remediation cost. Thus, the
Court finds KDHE asserted a legal right when it sent the letters to Sunflower by directing
Sunflower to submit a work plan to investigate for pesticides and lead based paint. Sunflower’s
motion for summary judgment on this issue is granted. ILU’s motion for summary judgment that
the letters were not a claim, is denied.
III.

A claim for applied pesticides was first made during the policy period.

Sunflower next seeks summary judgment that the claim for applied pesticides was first
made during the policy period. Previously, the Court denied ILU’s motion that the claim as to
applied pesticides was made prior to the policy inception date. Now the Court must decide the
affirmative, whether the claim was made during the policy period. ILU again seeks summary
judgment that the claim for applied pesticides was made before the policy period and renews its
prior arguments.
The PPL policy excludes claims made prior to the policy inception date. However,
Endorsement 008 provides that pollution conditions referenced or identified in the documents

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listed on the Schedule of Known Conditions are deemed to be first discovered during the policy
period. One document is the Pest Management Files which references applied pesticides.
ILU argues any claim for applied pesticides was made in November 2007 when KDHE
sent a letter to Sunflower requesting Sunflower investigate and remediate soils. This argument
overlooks the language of Endorsement 008 which states that conditions referenced in the
provided list of documents are deemed first discovered during the policy period.
The Court finds a claim for applied pesticides was first made during the policy period
because the applied pesticides condition is within the Pest Management files document listed in
Endorsement 008 and the exclusion for known conditions states that pollution conditions
referenced in Endorsement 008 are deemed first discovered during the policy period. Summary
judgment on this issue is granted for Sunflower and denied for ILU.
IV.

Applied pesticides are not excluded by Endorsements 001 or 018.

Finally, Sunflower seeks summary judgment that Endorsements 001 and 018 do not
exclude applied pesticides. ILU argues there is a dispute of material fact that prevents summary
judgment on this issue.
Although stated slightly differently, Endorsements 001 and 018 of the PPL Policy point
to Endorsement 002 of the RCC policy to exclude certain work items that are within the
Remediation Plan, as defined by the RCC Policy. Previously, the Court denied ILU’s motion
that the RSA incorporated applied pesticides, thus excluding that pollution condition from the
PPL policy through Endorsements 001 and/or 018.
The issue is whether remediation costs for a pollution condition not included within the
RSA is nonetheless related to the implementation and management of the Remediation Plan, as
excluded by Endorsement 001, or associated with the Remediation Plan, as excluded by

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Endorsement 018.

Sunflower argues that given the Court’s previous ruling that applied

pesticides exceed the scope of the RSA, they cannot be excluded by Endorsements 001 or 018
because they cannot be “related to” the implementation and management of the Remediation
Plan or “associated with” the Remediation Plan.
ILU asserts that there is overlap between costs for applied pesticides, which is outside the
scope of the RSA, and costs for other pollution conditions that are within the scope of the RSA.
In other words, costs to remediate a particular area of the Plant cannot be attributed exclusively
to the remediation of applied pesticides, and thus there is an issue of fact precluding summary
judgment on whether those costs could be excluded by Endorsements 001 and/or 018.
The Court finds remediation costs for applied pesticides are not excluded by either
Endorsement 001 or 018. First, there are no facts supporting ILU’s assertion that there is a cost
overlap to remediate certain areas of the Plant contaminated by both applied pesticides and
another pollution condition. Second, because applied pesticides are not within the RSA, costs to
remediate that pollution condition cannot be related to or associated with the Remediation Plan.
Consequently, Sunflower’s motion for summary judgment on this issue is granted.
Conclusion
Plaintiff’s motion for partial summary judgment (Doc. 205) is GRANTED and
Defendant’s motion (Doc. 211) is DENIED.
IT IS SO ORDERED.
Date: June 25, 2018

/s/ Greg Kays
GREG KAYS, CHIEF JUDGE
UNITED STATES DISTRICT COURT

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