Bell Lumber and Pole Co. v. US Fire Ins. Co.

Citations: 847 F. Supp. 738; 24 Envtl. L. Rep. (Envtl. Law Inst.) 21401; 1994 U.S. Dist. LEXIS 3484; 1994 WL 96753Docket: Civ. 4-89-931

Court: District Court, D. Minnesota; March 21, 1994; Federal District Court

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Bell Lumber and Pole Company (plaintiff) filed a lawsuit against several insurance companies (defendants) to recover costs associated with pollution damage resulting from its wood treatment operations. The defendants, Continental Casualty Company and Centennial Insurance Company, sought summary judgment, arguing that their liability policies do not cover the pollution-related claims. The court granted the defendants' motion for summary judgment.

Background details reveal that Bell Lumber has operated a wood treatment facility in New Brighton, Minnesota, since 1920, initially using creosote and later pentachlorophenol (penta) as wood preservatives. The treatment process generated significant amounts of sludge, including creosote and penta waste, which were disposed of on-site in a low-lying wetland area from 1952 to 1974.

Safety measures were implemented to protect workers from exposure to penta, including the use of warning labels, the provision of face masks, and protective gear for employees handling sludge. The disposal practices and treatment processes contributed to the pollution claims that are now at issue in the lawsuit.

Prior to 1960, the wood preserving industry recognized that penta, when introduced into aquatic environments, was harmful to fish. Bell Lumber experienced numerous spills involving oil mixed with penta and creosote due to various operational failures, such as open valves and overfilled tanks. Over a 40-year period, employees recalled 15 significant incidents, including a notable release in 1963 of 25,000 gallons of penta solution caused by tank overfill. Additional spills in the 1970s resulted from tank failures and boilovers, with one incident in 1974 contaminating Pike Lake and killing fish.

Despite regular inspections and repairs of tanks, pipes, and pumps, leaks persisted, particularly from tank No. 16, which was partially underground. A treating engineer noted multiple cracks in this tank, leading to major renovations in the 1970s and further repairs in the 1980s. The Minnesota Pollution Control Agency (MPCA) intervened in 1974 following the fish kill, directing Bell Lumber to clean up the contamination and prohibiting the dumping of penta sludge in a nearby wetland. Groundwater tests in 1979 and 1981 revealed penta and creosote contamination beneath the property, prompting Bell Lumber to excavate contaminated soil in 1983 from both the disposal and process areas.

Over 200,000 gallons of penta were detected in the groundwater beneath Bell Lumber's process area. Daryle Thingvold, the environmental manager, initially testified that leaks from treatment tanks were the primary cause of this contamination but later stated that such leaks were not a major factor. He noted that while small leaks occasionally occurred at valves or pipe joints, they were promptly repaired. In February 1984, the Minnesota Pollution Control Agency (MPCA) requested cleanup actions from Bell Lumber regarding surface and subsurface contamination. In May 1985, Bell Lumber agreed to remedial measures and clean-up under a Consent Order. In 1989, the Environmental Protection Agency (EPA) informed Bell Lumber of a claim for investigation and remediation costs related to the contamination.

Bell Lumber is now seeking to hold various insurers, including Centennial and CCC, liable for these costs. It is established that Centennial provided umbrella excess liability insurance from December 19, 1971, to January 1, 1975, which includes a qualified pollution exclusion. Bell Lumber argues that this exclusion is void because Centennial did not file the required form endorsement with the Minnesota Insurance Commissioner. Bell Lumber also claims to have purchased primary comprehensive general liability (CGL) insurance from CCC, effective from May 19, 1972, to May 19, 1975, although the policy document cannot be located. A declarations page indicates the policy's existence.

Centennial and CCC seek summary judgment, arguing that the contamination does not constitute an "occurrence" under the policies and that coverage is barred by the qualified pollution exclusions, which only cover sudden and accidental releases of pollutants. CCC additionally claims that Bell Lumber has not proven the existence or terms of the CGL policy. In response, Bell Lumber contends that the insurers have not established that their policies included such exclusions and asserts that the contamination resulted from unexpected and unintentional events, specifically sudden and accidental boilovers and overfills from treatment tanks.

The court's standard for granting summary judgment requires no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The evidence must be viewed in favor of the nonmoving party, who cannot rely solely on allegations in pleadings or expect to develop facts at trial.

The nonmoving party in a legal case must present specific facts, through affidavits or other means, to raise a genuine issue for trial, as established in *Celotex Corp. v. Catrett*. Summary judgment should not be granted if reasonable minds could differ on the evidence's interpretation. However, if a plaintiff fails to support an essential claim element, summary judgment is warranted, as a lack of proof on any essential element renders other facts irrelevant. The interpretation of insurance policies is a legal question suitable for summary judgment. Under Minnesota law, the insured must initially prove coverage, after which the insurer must demonstrate the applicability of an exclusion. The insured then must show an exception that restores coverage. 

In the case involving Bell Lumber, it must demonstrate an occurrence to trigger coverage, while the defendants must show the pollution exclusion's applicability, and Bell Lumber must prove the sudden and accidental exception to this exclusion. Regarding the CCC Policy, CCC argues that Bell Lumber has not proven the existence or terms of a lost policy claiming CGL coverage from May 19, 1972, to May 19, 1975. However, Bell Lumber has presented sufficient circumstantial evidence to establish the policy's existence and details, leading the court to conclude that this evidence is adequate to survive summary judgment.

Concerning the Centennial Policy, Bell Lumber acknowledges the existence of a qualified pollution exclusion but contends that Centennial has not proven it filed the necessary form endorsement with the Minnesota Insurance Commissioner, rendering the exclusion void. Centennial has provided evidence of its compliance with filing requirements and the approval of its pollution exclusion terms by the Commissioner. Since Bell Lumber has not refuted this evidence, the court finds that the Centennial policy's qualified pollution exclusion is enforceable.

Policies provide coverage for property damage resulting from an "occurrence," defined as an accident or repeated exposure leading to unintended personal injury, property damage, or advertising liability. Both the Centennial and CCC policies assert that the contamination of soil and groundwater does not qualify as an occurrence. Minnesota law indicates that "expected" implies the actor had knowledge or should have had knowledge of a substantial probability of harm, requiring a higher certainty than mere foreseeability. An objective standard evaluates whether a reasonable insured would have anticipated the damage.

In the case of Bell Lumber's disposal of penta sludge, the court determined that deliberate disposal precludes coverage for cleanup costs. Evidence showed that Bell Lumber knowingly released penta sludge through routine dumping over two decades, with thousands of gallons disposed of annually. Despite Bell Lumber's claims of ignorance regarding the environmental hazards of penta, the court found that it should have recognized the substantial probability of property damage, given warning labels on the penta packages and safety precautions taken by employees.

Regarding contamination from spills and leaks, Bell Lumber argued that these incidents were accidental and that it operated a clean facility. However, Centennial and CCC argued that the frequency of spills—approximately 15 over 40 years—indicates a pattern that negates the possibility of an occurrence. The court noted that the evidence does not support that Bell Lumber knew or should have known that property damage would result from these spills.

Bell Lumber took prompt action to manage and mitigate spills to prevent property damage and was not aware of any significant leaks leading to contamination. The defendants claim that undetected leaks from pipes and an underground tank were the primary contamination sources but fail to show that Bell Lumber intended or expected property damage from these leaks. Although Centennial and CCC argue that spills were foreseeable and thus not accidental, the court finds that the spills occurred sporadically and align with the conventional understanding of accidental events. There is no evidence that Bell Lumber intended to cause spills of penta solution from treatment tanks, suggesting a reasonable jury could conclude the contamination was neither expected nor intended by the insured.

Regarding the Qualified Pollution Exclusion, the insurance policies do not cover damages from polluting activities unless the release of pollutants is sudden and accidental. The Minnesota Court of Appeals has identified specific factors characterizing typical pollution cases, such as deliberate disposal of hazardous waste and widespread pollution. However, the absence of these factors does not automatically invoke the pollution exclusion. Bell Lumber contends that the exclusion should not apply based on the unique facts in prior cases, but the court disagrees, noting that the precedents consistently deny coverage under similar circumstances. The court emphasizes that the pollution exclusion can apply even when the insured is unaware of polluting activities, aligning with previous rulings.

The court identifies this case as a typical pollution case, noting that it contains several of the five factors from Grinnell. Bell Lumber acknowledges that it deliberately disposed of penta waste in a designated area for years, leading to damages from hazardous substances discovered long after the disposal activities. The court concludes that the pollution exclusion applies, as the contamination was a result of continuous actions over an extended period.

Under Minnesota law, the sudden and accidental pollution exclusion is clearly defined, requiring that incidents be abrupt rather than gradual. Bell Lumber's claims of contamination due to sudden boilovers and overfills must demonstrate an abrupt release of pollutants. The court emphasizes that the term "release" in this context refers to the entry of contaminants into groundwater, which in Bell Lumber's case occurred gradually over many years, thus disqualifying it from coverage under the pollution exclusion.

Additionally, the court discusses contamination from MacGillis, a neighboring wood treatment facility that has a history of significant spills and waste disposal practices affecting Bell Lumber's property. MacGillis's operations introduced contaminants, including CCA and penta, into the environment. Bell Lumber argues that these sudden and accidental spills from MacGillis contributed to the contamination on its site. Insurance policies may cover damage from third-party actions if those actions were unintended from the insured's perspective, and the evidence suggests that MacGillis contributed to the contamination present under Bell Lumber's property.

There is no evidence that contaminants were released suddenly from the MacGillis site. The court grants the summary judgment motion from defendants Continental Casualty Company (CCC) and Centennial Insurance Company, and denies CCC's appeal regarding earlier orders as moot. Key points include:

1. Bell Lumber employees referred to the disposal area as "the dump."
2. Treatment tanks 8 and 9 and storage tanks were above ground with minimal leakage.
3. Creosote contamination is concentrated at the north end of the process area near three butt tanks.
4. The disposal area measures 100 by 75 feet and is 7 to 18 feet deep, with an estimated 200,000 to 755,000 gallons of recoverable contaminants from soil and groundwater, including penta and creosote.
5. Minnesota law lacks clarity on proof required for a prima facie claim of coverage for a lost insurance policy; CCC argues that Bell Lumber must provide clear and convincing evidence of the policy's existence and terms, but fails to support this standard with legal authority.
6. Bell Lumber contends that its CGL policy did not have a pollution exclusion due to the absence of a relevant form number on the declarations page. CCC claims that all CGL policies issued after June 1970 included a pollution exclusion unless pollutants were released suddenly and accidentally, and asserts that a qualified pollution exclusion was attached to Bell Lumber's policy.
7. The CCC policy defines "occurrence" as an accident resulting in unintended bodily injury or property damage during the policy period.
8. Although Bell Lumber argues it was unaware of an underlying aquifer and the contamination risks of spilling penta solution, the court finds that Bell Lumber did not intend to pollute but must be assessed on whether it knowingly disposed of penta in a manner likely to cause property damage.
9. The "sudden and accidental" clause is deemed unambiguous, making the drafting history of the pollution exclusion irrelevant.
10. MacGillis filed for Chapter 11 reorganization in October 1982.