Sunflower Redevelopment, LLC v. Illinois Union Insurance Company

Filing 65

ORDER granting in part and denying in part 55 motion for summary judgment and 57 motion for partial summary judgment. Signed on 5/2/17 by Chief District Judge Greg Kays. (Strodtman, Tracy)

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 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.
At the parties’ request, the Court agreed to separate the litigation of this case into two
phases (Doc. 29). Phase I, which is the basis for the pending motions, pertains to the issue of
whether pollution conditions within certain Solid Waste Management Units (“SWMU”) and
Areas of Concern (“AOC”) are excluded from coverage under a Premise Pollution Liability
(“PPL”) insurance policy. The parties agree the insurance policies at issue are unambiguous
(Doc. 51).
Now before the Court are the parties’ cross-motions for partial summary judgment on the
Phase I issue (Docs. 551 & 57). For the reasons set forth below, the Court GRANTS IN PART
and DENIES IN PART Plaintiff’s motion (Doc. 57), and GRANTS IN PART and DENIES IN
PART Defendant’s motion (Doc. 55).

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ILU requests oral argument on its motion for partial summary judgment. Because the Court has determined oral
argument would not be helpful in resolving the issues, ILU’s request for oral argument is denied. ILU’s motion has
been decided on the parties’ written memoranda.

Undisputed Material Facts2
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
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.
Prior to the sale, on July 29, 2005, the Kansas Department of Health and Environment
(“KDHE”) issued a Consent Order obligating Sunflower to remediate all pollution conditions at
the Plant before Sunflower could develop the property.

The Consent Order also required

Sunflower to purchase PPL and Remediation Cost Containment (“RCC”) insurance.
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, secure the worksite, 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 work described in the Remediation Plan is organized
by SWMUs and AOCs, which represent defined geographical areas of the Plant property.
2

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. Additionally, ILU asks the Court to strike paragraphs 4, 5, 27, 41, 49, 51, and 52-61 of Sunflower’s Concise
Statement of Uncontroverted Facts (Doc. 60 at 9-10). The Court finds these facts are not material to the resolution
of this dispute, and therefore denies the request to strike.

2

ILU issued Sunflower PPL insurance providing coverage for unknown, and certain
known, pre-existing pollution conditions at the Plant. Relevant to this dispute, Endorsement 001
of the PPL policy excludes coverage for “‘remediation costs’ . . . with respect to those ‘pollution
conditions’ . . . related to the implementation and management of the ‘remediation plan’
identified within [the] Remediation Plan Schedule endorsement of the [RCC policy].” PPL
policy at 15 (Doc. 58-5).
ILU also issued Sunflower an RCC policy, which “affords coverage for costs in excess of
a remediation plan incurred during the policy period.” RCC policy at 2 (Doc. 58-6). Under the
RCC policy, Sunflower is entitled to “‘excess remediation costs’ [that] arise out of ‘Pollution
Conditions’ identified in the ‘remediation plan’ or are first discovered during the implementation
of the ‘remediation plan.’” RCC policy at 5.
On December 19, 2008, during the period of coverage, KDHE ordered Sunflower to
investigate and remediate contaminated soils at the Plant (Doc. 58-7).

These pollution

conditions exist both inside and outside of existing SWMUs and AOCs. Also, these pollution
conditions are not specifically listed in the RSA or the Remediation Plan. KDHE told Sunflower
it was liable for remediation costs associated with these pollution conditions at the Plant.
On February 13, 2009, Sunflower submitted a claim to ILU under the RCC policy, but
ILU did not immediately cover the claim. Instead, on April 9, 2009, ILU pointed Sunflower to
the RCC policy terms that require Sunflower to submit a revised remediation plan to ILU for
approval before Sunflower could file a claim under the RCC policy. See RCC policy at 10.
Sunflower interpreted this response as a coverage denial and then submitted a claim under the
PPL policy. On May 21, 2010, ILU denied coverage under the PPL policy because “the work

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involved [is] related to the SWMUs or AOCs included within the scope of the RCC Policy.”
(Doc. 58 ¶ 53).
The specific pollution conditions at issue here are those referenced in the December letter
from KDHE that are within the existing SWMUs and AOCs and that are not excluded from
coverage by the enumerated list of SWMUs and AOCs in Endorsement 018 of the PPL policy
(“New Pollution Conditions”). The parties do not dispute the New Pollution Conditions fall
within the scope of the insuring agreement of the PPL policy, in that they are pollution
conditions at the Plant as defined in the policy. The only issue in Phase I of this litigation is to
determine whether a policy endorsement excludes the New Pollution Conditions from coverage.
For the reasons outlined below, the Court finds an exclusion to coverage does not apply.
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).
Applicable Law
The Court previously decided Kansas law applies in this case. See Order Den. Remand
and Transfer (Doc. 22). Additionally, endorsements attached to both the PPL and the RCC
policies dictate Kansas law applies to questions relating to the interpretation of the policies. See
(Docs. 58-5 at 21 & 58-6 at 25). The parties do not dispute Kansas law applies.

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Discussion
The essence of this case is ILU’s refusal to provide coverage for the New Pollution
Conditions under the PPL policy. ILU supports its refusal to cover these expenses by arguing
the costs could be covered under the RCC policy and that Endorsement 001 of the PPL policy is
meant to exclude costs eligible for coverage by the RCC policy.3 Sunflower argues Endorsement
001 does not exclude coverage and what could be covered by the RCC policy is irrelevant in
determining what is covered by the PPL policy. Thus, the parties’ dispute turns on the effect to
be given to the PPL policy’s Endorsement 001.
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).
To resolve this dispute, the Court must first determine whether the policies are
ambiguous. Then the Court must determine whether the undisputed material facts and the
language of Endorsement 001 exclude coverage.
I.

The policies are unambiguous.

The first question is whether the PPL policy or the RCC policy is ambiguous. The court
should not strain to create an ambiguity where, in common sense, none exists. Am. Family Mut.
Ins. Co. v. Wilkins, 179 P.3d 1104, 1110 (Kan. 2008). “To be ambiguous, a contract must
contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and
reasonable interpretation of its language.” Patrons Mut. Ins. Ass’n v. Harmon, 732 P.2d 741,
745 (Kan. 1987).
3

In its initial briefing, ILU argued Endorsement 018 also excluded coverage but dropped that argument in its reply
brief. Compare (Doc. 56 at 20) with (Doc. 61 at 15).

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The parties agree the policies are unambiguous, and the Court concurs. After examining
the PPL and RCC policies and the undisputed facts, the Court concludes there are no provisions
that could have conflicting meaning given a natural and reasonable interpretation of the language
used in the contracts. Thus, the policies are unambiguous.
II.

Endorsement 001 of the PPL policy does not exclude the New Pollution
Conditions.

As previously noted, the crux of this dispute is the meaning of the PPL policy’s
Endorsement 001, a limitation of coverage. ILU argues the endorsement applies because: (1) the
New Pollution Conditions are covered by the RCC policy; and (2) the endorsement excludes all
pollution conditions discovered during the implementation of the Remediation Plan.
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. 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.

American Media, Inc. v. Home Indem. Co., 658 P.2d 1015, 1019 (Kan. 1983).
The court interprets the policy terms based on how a reasonably prudent insured would
understand them. O’Bryan v. Columbia Ins. Grp., 56 P.3d 789, 793 (Kan. 2002). Under Kansas
law, the court narrowly construes restrictions or limitations of coverage. Baugher v. Hartford
Fire Ins. Co., 522 P.2d 401, 409 (Kan. 1974). If an insurer intends to restrict or limit the
coverage it extends in the contract, it must do so in clear and unambiguous language. Goforth,
449 P.2d at 481. The underlying rationale is that “the insurer, having affirmatively expressed

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coverage through broad promises, assumes a duty to define any limitations on that coverage in
clear and explicit terms.” Westchester Fire Ins. Co. v. City of Pittsburg, Kan., 768 F. Supp.
1463, 1467 (D. Kan. 1991) (applying Kansas law).
An insurer has the burden of proving the applicability of an exclusionary clause.
Westchester Fire Ins. Co., 768 F. Supp. at 1469. Thus, ILU has the burden of proving the New
Pollution Conditions fall under the Endorsement 001 exclusion.
Endorsement states “remediation costs . . . with respect to those . . . [p]ollution conditions
related to the implementation and management of the remediation plan identified within [the
RCC policy]” are not afforded coverage. PPL policy at 15 (emphasis added).
ILU’s primary argument is that the purpose of Endorsement 001 is to exclude costs
covered by the RCC Policy. ILU unequivocally states the New Pollution Conditions are covered
by the RCC policy, and therefore, excluded by the PPL policy. ILU’s premise is that the PPL
and RCC polices provide “complementary rather than overlapping coverage” and that “what is
covered under the remediation cost containment policy cannot be covered under the premises
pollution liability policy and vice versa.” Def.’s Sugg. in Supp. at 7 (Doc. 57).
To support this argument, ILU points to the insuring language of the RCC policy and the
language of Endorsement 001 to demonstrate they are “virtually identical.” The RCC insuring
agreement states the policy will pay for “‘excess remediation costs’ . . . provided such ‘excess
remediation costs’ arise out of ‘Pollution Conditions’ identified in the ‘remediation plan’ or are
first discovered during the implementation of the ‘remediation plan.’” RCC policy at 5
(emphasis added). The language in Endorsement 001 states “[p]ollution conditions related to
the implementation and management of the remediation plan . . .” are not afforded coverage
under the PPL policy. PPL policy at 15 (emphasis added). ILU explains “[t]his exclusionary

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language mirrors the coverage provided under the RCC Policy. . . .” Def.’s Sugg. in Opp. at 14
(Doc. 60).
ILU’s preoccupation with the RCC policy is misplaced. ILU devotes many pages of its
briefs explaining why the New Pollution Conditions are covered by the RCC policy, and
therefore, excluded by the PPL policy. It is clear the language of the RCC insuring agreement
and Endorsement 001 of the PPL policy do not include “mirroring” language. The RCC policy
covers pollution conditions that are “first discovered” during the implementation of the
remediation plan and Endorsement 001 excludes coverage for pollution conditions “related to”
the implementation and management of the remediation plan. Both policies use the word
“implementation” to describe an activity, but one policy includes pollution conditions that are
“first discovered” during this activity and the other excludes pollution conditions “related to”
that activity. Also, Endorsement 001 includes pollution conditions related to the management of
the Remediation Plan, language that is completely absent from the RCC policy.
The Court finds both policies are “custom” policies that were the result of negotiations
between the parties. See PPL policy at 5 (title of policy is Custom Premises Pollution Liability II
Insurance Policy (emphasis added)); RCC policy at 5 (title of policy is Custom Remediation Cost
Containment Insurance Policy (emphasis added)); Def.’s Sugg. in Supp. at 5 (describing the
policies as heavily negotiated). The parties could have used “mirroring” language to structure
Endorsement 001 as a pure carve-out for losses that fall within the coverage of the RCC policy,
but they did not.4 Thus, ILU’s argument that costs associated with pollution conditions covered
by one policy are necessarily excluded by the other is rejected.5

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The “mirroring” language argument also fails because the policies don’t even define “pollution conditions” the
same way. Compare PPL policy at 7 (pollution conditions include pollutants and fungi, which is not listed in the
RCC policy definition) with RCC policy at 7 (pollution conditions includes the presence of certain substances,

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Next, ILU argues the plain language of Endorsement 001 excludes coverage for the New
Pollution Conditions.

ILU’s interpretation of Endorsement 001 is that it encompasses

“[pollution] conditions previously identified in [the Remediation Plan,] as well as any
subsequent pollution conditions discovered during the implementation of the work.” Def.’s
Reply at 19 (Doc. 61). Based on this interpretation, ILU argues the New Pollution Conditions
are excluded by Endorsement 001 even though they are not specifically listed in the Remediation
Plan. ILU explains the Consent Order requires Sunflower to remediate all pollution conditions
at the Plant. In turn, the RSA was developed to address the Consent Order. Finally, the
Remediation Plan is a byproduct of the RSA. Therefore, ILU concludes, the New Pollution
Conditions are incorporated into the Remediation Plan because the Remediation Plan relates
back to the all-encompassing Consent Order.
This is an overbroad reading of the endorsement language. If ILU’s interpretation were
true, Endorsement 001 would exclude all remediation work, because any work could relate back
to the broad “all pollution conditions” language of the Consent Order. This interpretation
renders the PPL policy useless. Thus, the Court rejects ILU’s theory that Endorsement 001
excludes the New Pollution Conditions because the Remediation Plan is a byproduct of the
Consent Order.
Ultimately, to resolve this issue, the Court must look at the policy terms as a reasonable
prudent insured would understand them and take the endorsement language in its “plain and
ordinary sense.” The word “related” means “connected by reason.” Webster’s Third New
which is missing from the PPL policy). Based on the differing language used and definition of key terms, it cannot
be said all costs covered by the RCC policy are excluded from the PPL policy by the language of Endorsement 001.
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The Court expresses no opinion whether the PPL and RCC policies provide overlapping or complementary
coverage or whether Endorsement 001 excludes any costs that are covered by the RCC policy. Additionally, the
Court expresses no opinion on whether the New Pollution Conditions are covered by the RCC policy. All of these
issues are outside the scope of Phase I.

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International Dictionary 1916 (2002). “Implement” means “to carry out, accomplish, fulfill.” Id.
at 1134. “Manage” means to “control” or “direct.” Id. at 1371. Therefore, Endorsement 001
excludes costs for pollution conditions connected with carrying out and directing the
Remediation Plan.
Here, there are no facts establishing any sort of relationship between Sunflower’s
execution of the Remediation Plan and the New Pollution Conditions. The origin of the New
Pollution Conditions was the December KDHE letter requesting Sunflower to investigate and
remediate the New Pollution Conditions. The undisputed facts do not suggest that Sunflower’s
work on the Remediation Plan prompted the KDHE letter or that the New Pollution Conditions
were discovered as a result of executing the Remediation Plan. Likewise, the undisputed facts
do not support a claim that Sunflower’s management activities to direct the execution of the
Remediation Plan initiated the KDHE December letter. Therefore, ILU has not carried their
burden to demonstrate Endorsement 001 applies. The Court finds the New Pollution Conditions
are not connected with carrying out or directing the Remediation Plan and Endorsement 001 does
not exclude the New Pollution Conditions.
III.

Whether Sunflower submitted a valid claim and has met all of the policy’s
requirements is beyond the scope of Phase I.

Sunflower asserts it made a proper claim under the PPL policy because the letter from
KDHE was a “claim,” as defined in the policy, which triggers the policy’s coverage. This issue
is beyond the scope of Phase I. The parties limited Phase I to “the issue of whether pollution
conditions within the [SWMUs and AOCs] are excluded from coverage under the PPL Policy.”
(Doc. 29). On this issue, Sunflower’s motion is DENIED and ILU’s motion is GRANTED.

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Conclusion
Plaintiff’s motion for partial summary judgment (Doc. 57) is GRANTED IN PART and
the Defendant’s motion (Doc. 55) is DENIED IN PART because the Court finds the pollution
conditions subject to Phase I are not excluded by an endorsement to the PPL policy.
Additionally, both parties’ motions are DENIED WITHOUT PREJUDICE as to whether:
(1) the PPL and RCC policies provide overlapping or complementary coverage; (2) Endorsement
001 of the PPL policy excludes any costs covered by the RCC policy; (3) the New Pollution
Conditions are covered by the RCC policy; or (4) Sunflower submitted a valid claim under the
PPL policy or met the policy preconditions; because these issues are outside the scope of Phase I.
IT IS SO ORDERED.
Date: May 2, 2017

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

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