Harford County v. Harford Mutual Insurance

Citations: 610 A.2d 286; 327 Md. 418; 1992 Md. LEXIS 133Docket: 83, September Term, 1991

Court: Court of Appeals of Maryland; August 19, 1992; Maryland; State Supreme Court

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Harford County, Maryland, sought certiorari from the Court of Appeals regarding whether standard comprehensive general liability (CGL) insurance policies are activated during the policy periods when environmental property damages occur or when they are first discovered. The County operated five sanitary landfills from 1954 to 1982 and held various CGL insurance policies during this period with three different insurers: The Insurance Company of North America (INA) from 1958 to 1964, Harford Mutual Insurance Company from 1965 to 1980, and The Home Insurance Company from 1980 to 1982. These policies covered the County's liability for property damage related to landfill operations.

The INA policies stipulated coverage for damages resulting from accidents that occurred during the policy period. Harford Mutual's later policies (1968 to 1980) similarly required that damages arise from an 'occurrence,' defined as an accident or injurious exposure to conditions resulting in unexpected and unintended property damage during the policy period. The definition of 'occurrence' varied slightly between 1968-1974 and 1974-1980, emphasizing accidents or continuous exposure leading to unintended property damage. The court's decision will clarify when insurance coverage is triggered in cases of environmental damage related to these landfills.

The 1974 to 1980 insurance policies defined 'property damage' as (1) physical injury to or destruction of tangible property occurring during the policy period, or (2) loss of use of tangible property not physically injured or destroyed if caused by an occurrence during the policy period. The Home policy covered all sums the insured was legally obligated to pay due to property damage resulting from an occurrence, with definitions consistent with the Harford Mutual policies. After the expiration of these policies in 1982, Harford County discovered pollutant contamination from its landfills but did not notify the insurers until August 8, 1990, when it sued for a declaratory judgment on coverage for property damage claims linked to landfill operations. The County's complaint detailed a 1984 preliminary environmental assessment of the Tollgate landfill, subsequent groundwater monitoring, a submitted remedial investigation plan in 1986, and the discovery in 1988 of off-site gas migration posing health risks. It noted residential development near the landfill, threats of lawsuits from adjacent property developers, and actions taken to avoid judicial proceedings through a commitment to clean up contamination. Additionally, the County invested over $1.5 million in remediation efforts at the Tollgate site. For the Scarboro landfill, monitoring wells were installed in 1982, leading to the landfill's closure and capping by 1987.

In 1986, the Maryland Department of the Environment informed the County about contaminants detected at monitoring wells near the Scarboro site and complaints of potential off-site groundwater contamination linked to the landfill. The State warned that leachate from the landfill might have contaminated a nearby resident's drinking water, leading to a lawsuit against the County, which was settled through property purchase. In 1987, additional lawsuits from neighboring residents alleged that the landfill operated as a hazardous waste facility in violation of state and federal laws, resulting in claims for nuisance, negligence, trespass, strict liability, and fraudulent concealment, most of which were either dismissed or settled. By 1989, the Scarboro site was listed for federal cleanup evaluation, prompting the County to negotiate with the Maryland Department of the Environment and undertake a remedial program, incurring costs exceeding $500,000 in litigation and settlement expenses, with total remediation costs projected to surpass $750,000.

The complaint also indicated that starting in 1985, the Federal Environmental Protection Agency investigated the Bush Valley site for remediation inclusion, directing the County to conduct an investigation and feasibility study, estimated to cost between $1,500,000 and $2,000,000. Similar but less detailed allegations were made regarding the Mullins and Abingdon sites. The County claimed a legal obligation to pay for containment of off-site pollutants and protect third parties from harm, asserting that environmental damages constitute "property damage" under its insurance policies. The County sought indemnification from insurers for incurred and future expenses related to cleanup and defense in ongoing or threatened litigation. After transferring the case to the Circuit Court for Baltimore County, Harford Mutual filed a motion for summary judgment, arguing there was no coverage for the claimed damages or obligation to defend the County.

The insurance companies contended that their policies only covered property damage to third parties, excluding costs for cleaning contamination on the County's own property. They argued that the policies only applied to damage caused by an accident and that contamination from waste dumping did not qualify as an accidental event. Additionally, they maintained that coverage was limited to damages the County was legally obligated to pay, which did not include economic costs associated with environmental law compliance. The insurers also asserted that they were only required to defend against suits, and since no suits were pending regarding the landfills, there was no obligation to provide coverage.

Harford Mutual further claimed that coverage was only for property damage occurring during the policy period and that the alleged contamination was identified only after the last policy expired, without evidence of third-party property damage during the coverage period. This argument referenced case law indicating no coverage exists under a comprehensive general liability policy until property damage is discovered within the policy period. INA and Home filed similar motions for summary judgment based on these grounds.

In response, Harford County filed a motion for partial summary judgment, claiming no genuine dispute over material facts and asserting entitlement to judgment as a matter of law. The County argued that the insurance companies were responsible for defense costs and liability related to environmental pollution, contending that cleanup costs constituted "property damage" under the policies. The County acknowledged learning about its insurance coverage for environmental claims only in summer 1990. 

The circuit court granted the insurance companies' summary judgment motions, determining that no coverage existed because the damages were not discovered until after the policies expired, relying on the precedent set in Mraz and Jacobson. The court assumed, without ruling, that evidence would show continuous contamination over the insurance coverage periods, but concluded that damage did not occur before 1985 when it was first manifested.

Judge Fader affirmed that under the indemnity policy, the time of an accident is defined by when the complaining party is actually damaged, specifically when property damage first manifests, as established in Jacobson. This conclusion was supported by case law, including United States Fidelity and Mraz, leading to the determination that coverage under CGL policies is triggered by the first manifestation of damage. The court found that no damage occurred until 1985, after the expiration of the last policy issued by the defendants. Judge Fader acknowledged the incongruity of denying coverage despite proving contamination occurred during the policy period, suggesting possible ambiguity in the policy language. He allowed Harford County to present extensive evidence regarding the interpretation of "occurrence" in relation to toxic waste leakage, although he ultimately ruled that the Jacobson precedent was conclusive and would not permit deviation from it.

In appealing the summary judgment, Harford County contended that groundwater contamination from landfills began shortly after their operation and persisted, claiming that in latent damage cases, a distinction exists between the act causing damage and its later discovery. The County argued that CGL policy coverage is triggered by any property damage resulting from an accident during the policy period, emphasizing that property damage includes physical injury to tangible property. It asserted that expert testimony could establish damage from landfill leakage independent of when the damage is discovered. The County cited various cases that have rejected the manifestation theory in favor of a continuous trigger of coverage for long-term environmental damage, asserting that ongoing leakage from landfills activates coverage for each CGL policy active during the damage period.

The County argues that the court's decision in Mitchell v. Maryland Casualty Co. supports its position that the continuous trigger of coverage should apply to environmental property damage cases. In Mitchell, a contractor's CGL policy covered bodily injury claims related to asbestos exposure occurring during the policy period, despite the claims being filed after the policy had expired. The insurer denied coverage, asserting that the injuries were not discovered until after the policy ended. The court rejected the 'manifestation' theory as the sole coverage trigger, stating that bodily injury occurs at the time of asbestos inhalation, thus triggering coverage upon exposure. The County asserts that this reasoning is applicable to environmental damage claims from landfill seepage, arguing for a reversal of summary judgment in favor of continuous coverage throughout the damage period. The County contests the relevance of the 'manifestation' trigger adopted in Jacobson and argues against the Fourth Circuit's decision in Mraz, claiming these cases misrepresent the majority view. Conversely, the insurers support Judge Fader's reliance on Jacobson and Mraz, arguing these cases reflect the prevailing opinion that coverage requires actual manifestation of damage during the policy period, which they assert did not occur.

Mraz is an environmental contamination case that centers on the trigger of coverage issue under a standard general liability insurance (CGL) policy. The case involved a solvent recycling plant where chemical wastes were buried in 1969. In 1981, leakage from these drums contaminated the soil and groundwater. The plant owners, covered by a CGL policy from 1969 to 1970, sued their insurer for a duty to defend and indemnify them against property damage due to this leakage. 

The CGL policy specified that the insurer must cover damages resulting from an "occurrence," defined in alignment with other policies from 1968 to 1974. The court ruled that a release of hazardous substances does not constitute an occurrence unless the resulting damage happens within the policy period. It established that the time of occurrence for indemnity purposes is when the damage is actually manifested, not when the wrongful act occurred. This ruling emphasizes that in cases involving hazardous waste, the occurrence is recognized at the time the damage is first discovered. 

Furthermore, the court referenced a "general rule" regarding the manifestation or discovery as the sole trigger of coverage, citing several other cases that supported this interpretation under standard CGL policies.

Insurers argue that the manifestation trigger of coverage is appropriate for environmental property damage claims, asserting that property damage is not recognized until a decrease in property value is identified. They contend that without the discovery of contamination, no property damage, defined as economic loss or impairment of use, can occur. The insurers distinguish their case from the Mitchell decision, which involved immediate bodily injury from asbestos exposure, by stating that the contamination from landfills only results in property damage upon market value decline upon discovery. They emphasize that the language of the insurance policies must be interpreted according to their terms, which require the insurer to cover damages resulting from an "occurrence" causing "property damage" during the policy period. The policies define “occurrence” as an accident that leads to property damage, which may not necessarily be discovered within the policy period. The distinction is made between occurrence policies, which cover events during the policy term regardless of claim timing, and claims made policies. The complexities in pinpointing the timing of the tortious occurrence in environmental cases are acknowledged, referencing relevant case law that highlights the challenges of identifying causal events in cases of latent damage.

Coverage for environmental pollution claims is not restricted solely to the moment property damage becomes evident. Instead, the court asserts that insurance policies may provide coverage during the policy period prior to the discovery of damage. This perspective aligns with the reasoning in Montrose Chemical Corp. v. Admiral Ins. Co., which criticized limiting coverage to when damage is manifest, effectively reducing the value of occurrence policies to that of claims-made policies. The insured bears the burden of proving that property damage occurred within the policy's coverage. Determining whether the discharge of contaminants constituted detectable property damage may require expert testimony. The court found that Judge Fader erred by restricting coverage to the timeframe of damage manifestation. Consequently, the summary judgment favoring insurers is vacated, and the case is remanded for further proceedings. Additionally, issues raised by both the County and insurers regarding policy exclusions and limitations remain unaddressed by the lower court, and the insurers seek to affirm the summary judgment based on these separate grounds.

Harford County presented its interpretation of the interactions with insurance companies, referencing industry customs and the drafting history of standard form policies to argue that the policies are activated by damage occurring during overlapping policy periods. The court explicitly refrained from taking a position on the merits of these claims. The summary judgment was vacated, and the case was remanded to the Circuit Court for Baltimore County for additional proceedings consistent with the opinion. Costs are to be shared equally among the respondent insurance companies. 

Additional notes highlight that Harford Mutual's earlier policy used "accident" instead of "occurrence" and reference various cases that support the County's argument regarding coverage triggers. The excerpt also mentions a specific case where a policy did not cover an injury discovered before the policy took effect, establishing that coverage is contingent on the timing of the claim relative to policy activation. The document emphasizes that insurers are obligated to defend their insured if there is a potential for liability based on the information available at the time of the defense request.