Source: http://www.lexology.com, February 26, 2015
By: Amy B. Briggs, Donna M. Carlton, David B. Killalea , Stephen T. Raptis, Robert H. Shulman and Susan P. White, Manatt Phelps & Phillips LLP
strong>Why it matters: The Western District of Michigan court held that an insurer was required to indemnify its insured for cleanup costs at a Michigan landfill-turned-Superfund site. The insurer’s primary defense against coverage was that a pollution exclusion in its policies barred coverage. Under the pollution exclusion, there was no coverage for property damage stemming from “any discharge of waste that was expected or intended” from the insured’s standpoint. The court disagreed with the insurer that the relevant “discharge” was the moment the insured transferred its waste into the landfill. Rather, the court agreed with the policyholder that the discharge occurred later when contamination seeped into the groundwater, accepting the company’s argument that it believed the landfill was safe and secure when it deposited the waste there.
Detailed discussion: Beginning in 1966, Decker Manufacturing Company disposed of its waste materials at the Albion Sheridan Township Landfill until the landfill closed in 1981. The waste included oil, paper, magazines, broken wood pallets, and sludge—consisting of oil residue, lime soap, and metal shavings—that could be pumped.
After the landfill was closed, the Environmental Protection Agency (“EPA”) designated it a Superfund site. In 1988, the EPA issued its first request for information from Decker pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”); a supplemental response came in 1992, followed by a notice of liability in 1995 asserting that Decker was a potentially responsible party for remediation costs connected with cleanup of the landfill and an administrative order mandating the company undertake certain actions.
During the four-year period of 1973 through 1977, Decker was insured under comprehensive general liability policies issued by Travelers Indemnity Company. Decker notified Travelers when it received the administrative order, but the insurer responded that it had no duty to defend or indemnify the company.
Decker later entered into a consent decree with the EPA, expressly denying liability but promising to reimburse the agency for past and future response costs and to finance and perform remediation activities for a 30-year period.
The policyholder then filed a declaratory action seeking reimbursement for defense and indemnity costs related to the landfill, including past and future costs arising out of its obligations under the consent decree. Both parties filed for summary judgment.
Travelers argued that a pollution exclusion found in each of the policies operated to preclude coverage. The exclusion at issue denied coverage for property damage arising out of any discharge of any waste or pollutant that is “either expected or intended from the standpoint of any insured or any person or organization for whose acts or omissions any insured is liable.”
Because Decker intentionally discharged its waste into the landfill, the pollution exclusion was triggered, the insurer argued. Alternatively, Decker took the position that the exclusion should not apply as the company placed its waste in what it believed was a safe and secure location—it never expected or intended for the waste to leave the landfill.
“There is no factual dispute that this landfill … conformed to then-contemporary standards when it was built. There is also no dispute that it was licensed by the State throughout the time it was used by Decker. The Court is satisfied that Decker’s placement of its waste in the landfill is equivalent to the placement of waste in a container.” The court concluded that the relevant discharge is the discharge from the landfill into the environment rather than the placement of waste into the landfill.
Travelers failed to meet its burden of showing the exclusion applied, the court added, as “there is no evidence to suggest that Decker was on notice of any problems at the landfill or that Decker ‘intended or expected’ that its wastes would be discharged from the landfill into the environment.”
Therefore, the court held that Travelers owed Decker a duty to defend and indemnify with respect to all of the landfill claims.
To read the decision in Decker Manufacturing Corp. v. The Travelers Indemnity Co., click here.