The Narragansett Electric Company v. American Home Assurance Company et al

Filing 124

MEMORANDUM AND ORDER: Despite the breadth of Century's arguments and the volume of its briefing, the issue of Century's duty to defend comes down to a few simple propositions. Its insured was named in the Commonwealth's 1987 Complaint which alleged liability from releases of hazardous material from the Mendon Road Site, which had been deposited by the insured's contractor. The Commonwealth, and not the insured, determined the scope of the claim which is then to be measured ag ainst the policy and its exclusion. The Commonwealth sought to impose CERCLA liability on the insured because "[w]hile conducting excavation on Lot 1 C in or about 1984, Maurice C. Brunelle caused hazardous chemicals to be released to the enviro nment." (Commonwealth Compl.l38.) A fair reading is that it alleges a release that is temporally "sudden" in that it occurred at a fixed point in 1984 and "accidental" in the sense that it was an unexpected and unintentional consequence of excavation occurring outside the insured's regular business activities and the Site's function as a sand and gravel pit. According to the Commonwealth, the hazardous material included ferric ferrocynanide which, when it " ;comes in contact with air, sunlight and/or an acidic environment, toxic hydrogen cyanide gases are formed." (Id. 27.) When the insured sought coverage for the defense of this action, it became the insurer's duty to provide the costs of tha t defense. Consistent with its obligation to the insured, it would have been appropriate to learn more about the cause and effect of the alleged 1984 release during the course of pretrial discovery in the Commonwealth Action. Perhaps the information would have supported one or more of the propositions that Century now advances. Instead, Century sat on the sidelines and the Commonwealth suit has ended. Century now owes Narragansett the costs of the defense. The motion for reconsideration (Docket No. 112) is DENIED. The motion for certification pursuant to 28 U.S.C. § 1292(b) is also DENIED. SO ORDERED. (Signed by Judge P. Kevin Castel on 4/1/2013) (rsh)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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THE NARRAGANSETT ELECTRIC
COMPANY,
Plaintiff,

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11 Civ. 8299 (PKC)
MEMORANDUM
AND ORDER

-against-

AMERICAN HOME ASSURANCE
COMPANY, et al.
Defendants.

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P. KEVIN CASTEL, District Judge:
Defendant Century Indemnity Company ("Century") moves for reconsideration of
the Court's February 1,2013 Memorandum and Order, which granted summary judgment to
plaintiff The Narragansett Electric Company ("Narragansett") as to Century's duty to defend an
environmental lawsuit brought by the Commonwealth of Massachusetts (the "Commonwealth
Action"). Narragansett Elec. Co. v. Am. Home Assur. Co., No. 11 Civ. 8299, _ F. Supp. 2d_,
2013 WL 432610 (S.D.N.Y. Feb. 1,2013). Century alternatively moves to certify the
Memorandum and Order for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b).
Narragansett's predecessor, a public utility company, contracted at some point
between 1930 and 1945 to deposit by-product waste at the Mendon Road Site (the "Site"), a sand
and gravel pit in Massachusetts. Id. at *4-5. In its Memorandum and Order, the Court
considered whether the Century Primary Policy's pollution exclusion obviated Century's duty to
defend Narragansett in the Commonwealth Action. The exclusion provides that the Policy does
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 land, the atmosphere or any
water course or body of water; but this exclusion does not apply if such discharge, dispersal,
release or escape is sudden and accidental." Id. at *13.
The Court, applying Massachusetts law, determined that "releases occurring over
extended periods of time as part of the insured's regular business activities are not sudden and
accidental, absent additional facts." Id. at *14. The Court went on to conclude, however, that
the Commonwealth Complaint, (Lechliter Decl. Ex. 2 ("Commonwealth Compl.")), was
"reasonably susceptible to the interpretation that [a co-defendant's subsequent] residential
excavation caused a separate, abrupt and unintentional release by exposing the waste products to
the elements," and thus, Century had a duty to defend. 2013 WL 432610 at * 16.
For the reasons discussed, the motion for reconsideration is denied, and the
motion to certify the Memorandum and Order for interlocutory appeal is denied.
DISCUSSION

I. Motion for Reconsideration
Local Rule 6.3 allows a party to move for reconsideration as to "matters or
controlling decisions which counsel believes the Court has overlooked." A motion for
reconsideration "will generally be denied unless the moving party can point to controlling
decisions or data that the court overlooked-matters, in other words, that might reasonably be
expected to alter the conclusion reached by the court." Shrader v. CSX Transp. Inc., 70 F.3d
255,257 (2d Cir. 1995). Reconsideration is also appropriate to "correct a clear error or prevent
manifest injustice." Virgin Atl. Airways, Ltd. v. Nat' 1 Mediation Bd., 956 F.2d 1245, 1255 (2d
Cir. 1992).

2

For purposes of Narragansett's duty to defend claim, the allegations in the
Commonwealth Complaint must be "'reasonably susceptible' of an interpretation that they state
or adumbrate a claim covered by the policy terms ...." Herbert A. Sullivan, Inc. v. Utica Mut.
Ins. Co., 788 N.E.2d 522,530 (Mass. 2003) (quoting Continental Cas. Co. v. Gilbane Bldg. Co.,
461 N.E.2d 209 (Mass. 1984)). The facts alleged in the underlying complaint and those facts
known to the insurer determine the scope of the insurer's duty to defend. Id. The
Commonwealth Complaint alleges, inter alia, that:
• "In or about 1984, Maurice C. Brunelle excavated a portion of Lot 1C for the
purpose of constructing a house foundation. During this excavation, Maurice C.
Brunelle uncovered blue sludge that was contaminated with chemical substances."
(Commonwealth Compl. ~ 37.)
• "While conducting excavation on Lot 1C in or about 1984, Maurice C. Brunelle
caused hazardous chemicals to be released to the environment." (Id. ~ 38.)
The Court concluded that the Commonwealth Complaint was "reasonably susceptible of an
interpretation that" that a release occurred, due to the 1984 residential excavation, which was
both temporally sudden and accidental in nature. I
Century urges that this Court should have employed the teachings of Highlands
Ins. Co. v. Aerovox, Inc., 676 N.E.2d 801 (Mass. 1997), in determining its duty to defend.
Aerovox addressed a duty to indemnify claim and held that once an insurer proves the pollution
exclusion applies, the burden shifts to the insured to show 1) contamination was caused by a
"sudden and accidental" release and 2) contamination from the purported release was an
"appreciable and compensable proportion" of the damages for which it is liable. Id. at 805-07.

I The Court finds unavailing Century's contention that the alleged residential excavation does not constitute an
"accident" because "earth moving activities in 1984 were entirely consistent with the site's prior use as a sand and
gravel pit" (also mentioned in the underlying complaint) and therefore, the residential excavation "cannot fall
outside the pale of any reasonable long-range expectation." (Def. Mem. at 13.) In order to prove a defendant's duty
to defend, the underlying complaint must allege facts which raise a plausible theory for coverage; the insured need
not prove that it will ultimately prevail on an indemnity claim.

3

Notably, Aerovox did not address the duty to defend, which historically has been assessed on the
pleadings and not on the actual proof, which, at the pleadings stage, may lie beyond the control
of the insured or insurer.
Relying upon Aerovox, Century argues that Narragansett has not met its burden
of proving the exception because the Commonwealth Complaint's allegations make plain
Narragansett's liability stems principally from decades of depositing its by-product waste at the
Site. 2 Thus, liability based on residential excavation is de minimis as a matter oflaw. (Def.
Mem. at 23.) True, the appreciable and compensable requirement may be fatal to an indemnity
claim. However, the alleged excavation release is explicitly mentioned in the Commonwealth
Complaint. Further, the Commonwealth Complaint explains that when one of the waste byproducts, ferric ferrocyanide, "comes into contact with air, sunlight and/or an acidic
environment, toxic hydrogen cyanide gases are formed." (Commonwealth Compi.

~

27.) Thus,

the Court concluded that a person of ordinary intelligence could reasonably read the
Commonwealth Complaint as alleging a "sudden and accidental" release adequate to qualify for
indemnity coverage under Massachusetts law. The duty to defend analysis does not require
further inquiry or speculation regarding the veracity of the underlying complaint's factual
allegations.
Century also maintains that, as a matter of law, the only relevant release for
purposes of examining the exception to the pollution exclusion is the initial release of waste into
the land. In its Memorandum and Order, the Court concluded that Millipore Corp. v. Travelers
Indemnity Co., 115 F.3d 21 (l st Cir. 1997), the only case which appeared to address this issue

Century relies primarily on out-of-state case law in asserting the requirements set out in Aerovox also apply in the
duty to defend context. (Def. Mem. at 22-23; Def. Reply at 6-7.)

2

4

under Massachusetts law, was "a good predictor of how the Massachusetts Supreme Judicial
Court would rule ...." 2013 WL 432610 at *15.
This conclusion, Century asserts, is contrary to Massachusetts state case law as
well as opinions nationwide, including those applying New York law. 3 (Def. Mem. at 1.) The
deficiency in Century's argument remains the same: it does not point to sources of comparable
authoritative weight to Millipore that adequately address this issue under Massachusetts law.
In anticipation of oral argument, the Court ordered the parties to be prepared to
address "whether Massachusetts case law addresses an insurer's duty to defend based on a
'sudden and accidental' release allegedly caused by the insured's co-defendant in the third-party
action." (Docket No. 105.) At oral argument, the Court asked both parties to provide the "best
cases" for their respective positions on this issue. Century now asserts, for the first time, that
Employers Ins. of Wausau v. George, 673 N.E.2d 572 (Mass. App. Ct. 1996), is "the only
Massachusetts appellate decision that directly analyzes" this question. (Def. Mem. at 11.)
Neither party cited George in its briefing. George states the question now before the Court but
does not answer it.
The trial court in George determined the insurer did not have a duty to defend
because two intervening events, a fire and spill, "arose out of' earlier nonsudden and
nonaccidental waste deposits into a landfill. 673 N.E.2d at 576-77. While the intermediate
appellate court noted "considerable support" for this position in the case law of other
jurisdictions, in the next sentence it observed "[t]here is also authority to the contrary." Id. at
Century apparently argues for the application of New York law, asserting that New York and Massachusetts's
interpretations of the "sudden and accidental" pollution exclusion are in accord in all material respects, and "[iJfno
conflict exists, the Court is free to apply the law of the forum." (Oef. Mem. at 6.) The Court thoroughly considered
the choice-of-law issue in its February 1,2013 Memorandum and Order, which noted that Century did not press its
argument that New York law applies. 2013 WL 432610, at *7 n.6. Application of New York law at this juncture
would require a threshold conclusion that the states' laws do not conflict. This necessitates consideration of the
parties' arguments regarding the Massachusetts case law.

3

5

577 (collecting cases). Importantly, George acknowledged the lack of "Massachusetts appellate
decision[s] directly on point" and that the "scope of Nashua [was] not yet clear." Id. Rather than
rendering an "on point" decision, the appellate court affirmed the trial court because the releases
at issue were not accidental. 4 Id. Adopting the trial court's position would have obviated the
need to consider whether such releases were indeed "sudden" and "accidental," because the
releases could not qualify for coverage under any set of facts. Century argues George "does not
lose its binding effect because ... it is arguably dicta." (Def. Mem. at 13.) The problem with
George is not that its teachings are dicta. Rather, the problem is that George does not
foreshadow how the Massachusetts Supreme Judicial Court will rule: George's teachings are
indeterminate. Furthermore, Millipore, decided the year after George, does not cite George in its
analysis of a similar issue. 5
Problematically, several of the cases Century cites consider a subsequent
"discharge, dispersal, release or escape" of contaminants indistinct from the resulting property
damage (e.g., the gradual migration of waste from a landfill into surrounding areas). For
instance, Century cites a 2002 Massachusetts district court opinion for the proposition that "the

The release resulting from a "huge volume of water used to extinguish [a] fire" was not accidental because the
deputy fire chief was aware the water "would cause contaminants to be leached back to underground water
supplies." Id. at 577-78. Likewise, a 1983 leachate spill was caused by an intentional act. rd. at 578. The court in
George relied on extrinsic evidence in determining the insurer's duty to defend because the insured claimed these
incidents, while not mentioned in the complaint, were known or readily knowable to its insurers. See id. at 575.

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5 Century also annexes an unpublished Massachusetts district court opinion, in which the court concluded the
exclusion's "arising out of' language was unambiguous. Therefore, the court precluded coverage for releases
caused by a fire because such releases still "arose out of' the initial discharge into the landfill. Hussey Plastics Co.,
Inc. v. Continental Cas. Co., No. 90-13104-WD, slip. op. at 5-8 (D. Mass. June 17, I 993)("[T]hose courts that have
interpreted the phrase 'arising out of' in the private insurance context have generally been satisfied that X 'arises out
of' Y whenever there exists some significant causal connection between X and Y."). The court reasoned "[u]nder the
most natural reading ofthe pollution exclusion clause together with its exception, the polluting event that
purportedly triggers the 'sudden and accidental' exception must be the same event that triggers the exclusion in the
first instance, not some later event in the causal chain leading to the property damage for which coverage is sought."
at 10. The First Circuit was no doubt aware of this opinion when it decided Millipore, which cites Hussey
Plastics in a passing remark that a particular environmental site had been the subject of "a great deal of
environmental litigation." Millipore, 115 F.3d at 26 n.6. Notably, the First Circuit did not reference nor endorse
Hussey Plastics's analysis.

6

First Circuit has held in cases involving chemical leakages from landfills that a 'dispersal,
release, or escape' occurred when chemicals were first poured into a landfill rather than when
they escaped the landfill and into the surrounding environment-that is to say, when the
chemicals were free and uncontained and not merely when they crossed a particular property
boundary." Rev-Lyn Contracting Co. v. Am. Home Assur. Co., No. Civ. A. 01-11961-RWZ,
2002 WL 31427000, at * 1 (D. Mass. Oct. 28, 2002) (citing Millipore, 115 F.3d at 32-33 & n.18).
However, the district court explained in the next sentence, "[t]o hold otherwise 'would eviscerate
the important distinction established between ... damages and ... discharges.'" Id. (quoting St.
Paul Fire & Marine Ins. Co. v. Warwick Dyeing Corp., 26 F.3d 1195, 1204 (1st Cir. 1994)). The
present case does not implicate this important concern. The Commonwealth Complaint alleges a
separate intervening release - the 1984 excavation

distinct from the property damage it

purportedly caused.
In this round of briefing, the parties also include a helpful survey of national
"sudden and accidental" case law, from which Century concludes no state's highest court has
applied the "sudden and accidental" exception to a release occurring after the initial discharge of
waste without finding the "sudden and accidental" language is ambiguous. 6 Assuming this is an
accurate characterization of the case law in other states, it does not speak to how the
Massachusetts Supreme Judicial Court would rule.
Further, it appears that several state appellate courts that conclude the exception is
unambiguous have then acknowledged the possibility of "sudden and accidental" releases after
the initial depositing of waste. For instance, the court in George, when noting there was also
According to Century, courts deeming the exception unambiguous have ascribed a temporal element to the word
"sudden," while courts deeming the exception ambiguous have generally construed the phrase "sudden and
accidental" more broadly to incorporate "unexpected or unintended" consequences, including subsequent migration
of contaminants. The Massachusetts case law considers the pollution exclusion unambiguous and ascribes a
temporal meaning to the term "sudden."

6

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authority to the contrary, cited a Minnesota appellate court, which concluded the "[t]he
triggering event for purposes of determining the applicability of the pollution exclusion clause is
the escape of the contaminants from the ... landfill into the groundwater." Sylvester Bros. Dev.
Co. v. Great Cent. Ins. Co., 480 N.W.2d 368,377 (Minn. Ct. App. 1992). Likewise, a California
appellate court, observing the exception was unambiguous, acknowledged the possibility of
successive "sudden and accidental" releases. Travelers Cas. & Sur. Co. v. Superior Court, 75
Cal. Rptr. 2d 54, 66 (Cal. Ct. App. 1998) ("This is not to say that environmental contamination
damages connected with industrial dumping are automatically barred from coverage under the
sudden and accidental exception to the pollution exclusion. An intervening event may occur
between the initial 'disposal of waste on the landfill and the actual damage that eventually
resulted,' and that intervening event may have been sudden and accidental." (citing Warwick, 26
F.3d at 1204)).7
Finally, Century suggests that the Court's Memorandum and Order may reflect a
misreading or misunderstanding of the Millipore opinion. (Def. Mem. at 18-19.) The First
Circuit's opinion, however cursory, based its conclusion that the insurers had a duty to defenda "corollary" to its analysis on the duty to indemnify

on an alleged intervening release event at

a landfill site. s Millipore, 115 F.3d at 35. For the reasons discussed herein and the February 1,
2013 Memorandum and Order, the Court adheres to its prior decision that the First Circuit's
decision in Millipore is a good predictor of how the Massachusetts Supreme Judicial Court
would rule on this issue.
7

The Court acknowledges that other authorities in these states are open to interpretations that suggest the contrary.
State v. Allstate Ins. Co., 201 P.3d 1147 (Cal. 2009).

The Court also disagrees with Century's assertion that no other court has interpreted Millipore this way. (Def.
Mem. at 16,19.) For instance, Standun, Inc. v. Fireman's Fund Ins. Co., 73 Cal. Rptr. 2d 116 (Cal. Ct. App. 1998),
considering which discharge is relevant in a case involving a landfill, cites Millipore in a string cite with the
explanatory parenthetical: "applying Massachusetts law; coverage for subsequent unexpected and abrupt release of a
significant amount of pollutants into environment." Id. at 121 (emphasis added).

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II. Interlocutory Appeal
Century, in the alternative, requests that the Court certify its decision for
interlocutory appeal, pursuant to 28 U.S.C. § I 292(b). Section I 292(b) states:
When a district judge, in making in a civil action an order not
otherwise appealable under this section, shall be of the opinion that
such order involves a controlling question of law as to which there
is substantial ground for difference of opinion and that an
immediate appeal from the order may materially advance the
ultimate termination of the litigation, he shall so state in writing in
such order. The Court of Appeals ... may thereupon, in its
discretion, permit an appeal to be taken from such order ....
Section 1292(b) "is a rare exception to the final judgment rule that generally
prohibits piecemeal appeals." Koehler v. Bank of Bermuda Ltd., 101 F.3d 863, 865 (2d Cir.
1996). "The question of law certified for interlocutory appeal must refer to a pure question of
law that the reviewing court could decide quickly and cleanly without having to study the
record." Stone v. Patchett, No. 08 Civ. 5171,2009 WL 1544650, at *2 (S.D.N.Y. June 3, 2009)
(quotation marks omitted; citing Century Pac. Inc. v. Hilton Hotels Corp., 574 F. Supp. 2d 369
(S.D.N.Y. 2008), aff'd, 354 Fed. Appx. 496 (2d Cir. 2009»; accord Gottwald v. Jones, No. 11
Civ. 1432,2011 WL 5289471, at *2 (S.D.N.Y. Nov. 3,2011).
Because "[i]t is a basic tenet of federal law to delay appellate review until a final
judgment has been entered," certification under section 1292(b) is only "reserved for those cases
where an intermediate appeal may avoid protracted litigation." Koehler, 101 F.3d at 865-66.
Certification under section 1292(b) is to be granted sparingly. Id. at 866 (discussing limited
number of section 1292(b) certifications); see also Westwood Pharms., Inc. v. Nat'l Fuel Gas
Distribution Corp., 964 F.2d 85, 88-89 (2d Cir. 1992) ("urg[ing] the district courts to exercise
great care in making a § 1292(b) certification" while observing that few interlocutory appeals
materially advanced litigation). "The institutional efficiency of the federal court system is a

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chief concern underlying § 1292(b), and the Court of Appeals has repeatedly emphasized that a
district court is to exercise great care in making a § 1292(b) certification." In re Adelphia
Commc'ns Com., 2008 WL 5453738, at *1 (S.D.N.Y. Dec. 31, 2008) (Koeltl, 1.) (quotation
marks and internal citations omitted).
The Court is of the opinion that an interlocutory appeal would not materially
advance the termination of this particular litigation. The threshold choice-of-Iaw issue, which is
addressed in the same February 1, 2013 Memorandum and Order, is fact-bound and therefore
requires the Circuit's consideration of the underlying record. There is no compelling reason why
the Court of Appeals could not effectively consider all of Century's argument on an appeal from
a final judgment as to all parties.
For these reasons, certification for interlocutory appeal would be an imprudent
exercise of the Court's discretion.
CONCLUSION
Despite the breadth of Century's arguments and the volume of its briefing, the
issue of Century's duty to defend comes down to a few simple propositions. Its insured was
named in the Commonwealth's 1987 Complaint which alleged liability from releases of
hazardous material from the Mendon Road Site, which had been deposited by the insured's
contractor. The Commonwealth, and not the insured, determined the scope of the claim which is
then to be measured against the policy and its exclusion. The Commonwealth sought to impose
CERCLA liability on the insured because "[w]hile conducting excavation on Lot 1C in or about
1984, Maurice C. Brunelle caused hazardous chemicals to be released to the environment."
(Commonwealth Compi. 'il38.) A fair reading is that it alleges a release that is temporally
"sudden" in that it occurred at a fixed point in 1984 and "accidental" in the sense that it was an

10

unexpected and unintentional consequence of excavation occurring outside the insured's regular
business activities and the Site's function as a sand and gravel pit. According to the
Commonwealth, the hazardous material included ferric ferrocynanide which, when it "comes in
contact with air, sunlight and/or an acidic environment, toxic hydrogen cyanide gases are
formed." (Id.

~

27.) When the insured sought coverage for the defense of this action, it became

the insurer's duty to provide the costs of that defense. Consistent with its obligation to the
insured, it would have been appropriate to learn more about the cause and effect of the alleged
1984 release during the course of pretrial discovery in the Commonwealth Action. Perhaps the
information would have supported one or more of the propositions that Century now advances.
Instead, Century sat on the sidelines and the Commonwealth suit has ended. Century now owes
Narragansett the costs of the defense.
The motion for reconsideration (Docket No. 112) is DENIED. The motion for
certification pursuant to 28 U,S,C, § 1292(b) is also DENIED.
SO ORDERED,

United States District Judge
Dated: New York, New York
April 1,2013

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