Century Indemnity Company v. Liberty Mutual Insurance Company
Docket: CA 09-285 S
Court: District Court, D. Rhode Island; April 27, 2010; Federal District Court
In the case Century Indemnity Company v. Liberty Mutual Insurance Company, Century seeks contribution from Liberty Mutual for a $6 million judgment incurred after Century was obligated to defend Emhart Industries, Inc. in a Superfund cleanup case, despite Liberty Mutual having settled with Emhart. Century argues that equitable contribution mandates Liberty Mutual to share in the defense costs. The U.S. District Court for Rhode Island determined that Liberty Mutual had a duty to defend Emhart in the Environmental Protection Agency (EPA) action under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The dispute originates from EPA's identification of Emhart as a "potentially responsible party" for hazardous waste cleanup at the Centredale Manor Superfund Site, where Emhart and its predecessors operated from 1943 to 1971, leading to the release of hazardous substances. The court has allowed Liberty Mutual to proceed with discovery regarding the equitable contribution claim while affirming its duty to defend Emhart.
In March 2001, the EPA's second Administrative Order indicated that a significant fire in the early 1970s destroyed most structures at the contaminated Site. Emhart incurred substantial legal defense costs while responding to EPA charges. Emhart's predecessors had purchased insurance from several companies, including Century and Liberty Mutual. Liberty Mutual's policy included a "pollution exclusion," which generally denied coverage for damage from pollutants unless the incident was sudden and accidental. Century's policy had a narrower exclusion, only denying coverage for intentional or willful pollution.
In January 2002, Emhart sued Century and Liberty Mutual, arguing they were obligated to cover its costs related to the Site contamination. Emhart claimed the policies required both a defense in the EPA proceedings and indemnification for cleanup expenses under CERCLA. Liberty Mutual sought summary judgment, asserting it had no obligation due to the pollution exclusion. However, a Magistrate Judge recommended denying the motion, citing the fire's potential role in contaminant spread. This issue was deemed a fact question unsuitable for summary judgment.
Before the objection to the recommendation was ruled on, Liberty Mutual settled with Emhart's parent company for $250,000. Century opted for a trial, where a jury found it had no duty to indemnify Emhart. However, the Court later ruled in favor of Emhart regarding the duty to defend, determining that the pollution exclusion did not apply since the EPA documents did not indicate that the discharge was intentional or willful. Consequently, the Court entered a judgment against Century, which subsequently paid over $6 million in principal and interest. Century had previously asserted cross-claims against other insurers, including Liberty Mutual, for cost allocation, but these claims were dismissed after the ruling in Emhart's favor.
Century has renewed its claims against Liberty Mutual from a prior lawsuit, seeking reimbursement for part of the judgment it paid to Emhart. Century's argument consists of two main points: first, that Liberty Mutual had a legal obligation to defend Emhart against EPA charges as mandated by Massachusetts law governing Emhart's insurance policies; second, that this obligation renders Liberty Mutual liable to Century under Rhode Island law through the doctrine of equitable contribution, requiring Liberty Mutual to cover its share of Emhart's defense costs.
The determination of Liberty Mutual's duty to defend hinges on the allegations in the EPA charges and the specific language of its policies, with Massachusetts law governing these policies. The parties agree that Liberty Mutual's settlement with Emhart is irrelevant to this duty. Under Massachusetts law, an insurer must provide a defense if any allegations in a complaint can be interpreted as covered by the policy. The underlying complaint needs only to suggest a possibility of coverage, as the duty to defend is broader than the duty to indemnify. Insurers are not required to investigate claims if the allegations fall outside the policy's coverage. The duty to defend is triggered when a complaint that may fall under coverage is filed and continues until a definitive judgment on coverage is made.
The timeframe for this duty began with the issuance of the EPA charges in February 2000 and ended with the jury's verdict in the Emhart trial on October 19, 2006. Additionally, Liberty Mutual contends that Century is collaterally estopped from asserting that it had a duty to defend Emhart.
Liberty Mutual contends that a jury verdict in the Emhart lawsuit resolves the current dispute in its favor, claiming that it establishes North River Insurance Company's lack of duty to indemnify Emhart due to a finding that contamination was not "sudden and accidental." However, the Court points out that the jury's decision was related to indemnification, not the broader duty to defend that Liberty Mutual is now asserting. Collateral estoppel, which prevents re-litigation of issues already decided, does not apply here because Liberty Mutual cannot demonstrate an "identity of issues"—the duty to indemnify differs from the duty to defend, which is broader and can exist even if indemnification is not required. The Court emphasizes that an insurer's obligation to defend remains until it conclusively establishes no coverage for liability, regardless of a prior indemnification ruling. Therefore, the crucial question for the Court is whether the EPA charges are "reasonably susceptible" to coverage under the "sudden and accidental" clause, as prior determinations do not negate the duty to defend that may have existed prior to the jury's verdict.
The Court determined that the charging documents against Emhart activate Liberty Mutual's obligation to defend the company under Massachusetts law's liberal standards. The Environmental Protection Agency (EPA) documents are deemed "reasonably susceptible" to the interpretation that some pollution may have stemmed from a "sudden and accidental" event, particularly a 1970s fire that destroyed chemical facilities at the site.
The allegations within the charging documents do not categorically rule out the possibility of sudden or accidental damage. They are vague regarding the timing of pollution events and do not assert that all environmental damage was intentional or gradual. While some allegations focus on the waste disposal practices of Emhart's predecessors, the Court noted that the documents do not claim intentional waste introduction. Furthermore, not all charges relate to disposal; some reference general chemical manufacturing operations, indicating ambiguity regarding the nature of contamination.
Past case law supports the conclusion that such ambiguity should mandate defense coverage. For instance, in In re Acushnet River, the court found that allegations of discharges did not definitively rule out the possibility of accidental pollution, thus requiring the insurers to defend unless they could prove all releases were non-sudden and non-accidental. Similarly, the First Circuit in Millipore Corp. v. Travelers Indemnity Co. reached a comparable conclusion regarding the duty to defend based on the nature of the allegations.
The term "spillage" and references to "releases" in the case documentation were deemed ambiguous, lacking clarity on the specific circumstances or causes of the spills. However, the court noted that some damage at one site was attributed to waste disposal by the insured, qualifying as occurrences under the insurance policies. The court argued that, while the damage is pollution-related, it may fall under the "sudden and accidental" exception, compelling the insurer to defend against the claims. Allegations linking releases to waste disposal do not specify that all pollution was gradual or intentional, thereby creating ambiguity that supports a duty to defend under the "sudden and accidental" clause.
Liberty Mutual contended that mere ambiguity is insufficient to establish a duty to defend; rather, the complaint must clearly delineate events fitting within the policy coverage for an "ordinary intelligent person" to recognize them as such. The standard requires a description of an "abrupt discharge or release" of pollutants. In prior case law, such as SCA Servs., claims were deemed non-sudden when they described routine activities over an extended period.
In contrast, the current case's EPA documents satisfy the standards from SCA Servs., as they suggest a potential abrupt release of hazardous substances. Unlike the routine activities detailed in SCA Servs., this case includes references to a specific sudden event—a major fire in the 1970s that destroyed structures at the site—which could reasonably be assumed to have caused subsequent contamination. Liberty Mutual's dismissal of the fire as irrelevant was countered by the court, which found it reasonable to connect the fire's destruction of chemical facilities to the later discovered contamination, thus supporting the duty to defend.
Liberty Mutual argues that Emhart's liability is primarily linked to its business activities and waste disposal practices, asserting that a mere reference to a fire does not establish a duty to defend. However, two critical weaknesses in this argument are identified. First, the court must consider all allegations favorably to the insured, even if presented as background information, to assess whether a claim invokes the duty to defend. This is supported by the precedent that background facts can indicate a covered claim, as seen in Travelers Indemnity Co. v. United Food, Commercial Workers Int'l Union. Second, under Massachusetts law, the exclusion of the majority of damages from a policy does not negate the duty to defend if even a minimal amount of harm could be linked to a covered event. The Acushnet River case illustrates that a possibility of "sudden and accidental" pollution triggers the insurer's duty to defend, irrespective of the minimal nature of potential indemnity. The court emphasizes that no Massachusetts decision refutes the coexistence of a strong duty to defend with a negligible duty to indemnify.
In this case, the fire is deemed a "sudden and accidental" event that could have contributed to contamination, as evidenced by its mention in EPA documents. The lack of allegations directly linking the fire to chemical releases does not absolve Liberty Mutual of its duty to defend, particularly if the potential impact on damages is minimal. Furthermore, the "pleadings test" dictates that the duty to defend is determined by alleged facts rather than actual circumstances, holding Liberty Mutual accountable for defending Emhart based on the disclosed fire. The court also notes that the inquiry may extend beyond the complaint to include facts known to the insurer, as established in Boston Symphony Orchestra and Nashua Corp., maintaining the duty to defend even amidst factual disputes post-complaint.
The document discusses the court's conclusion that Liberty Mutual had a duty to defend Emhart, stemming from a factual dispute regarding whether the damages were covered under the "sudden and accidental" clause. The jury verdict in the Emhart lawsuit highlighted a key issue about whether the pollution at the site could be classified as "sudden and accidental," supporting the notion that Liberty Mutual was obligated to defend.
Century argues that since both it and Liberty Mutual shared this duty, they are considered "joint obligors" under Rhode Island law, which should entitle Century to seek equitable contribution from Liberty Mutual for the judgment it paid to Emhart. Liberty Mutual contends that any discussion of equitable contribution is premature and files a motion under Rule 56(f) to request a continuance for further discovery. This discovery aims to investigate whether Century made reasonable settlement efforts to mitigate damages and whether other insurers of Emhart shared the duty to defend, which would impact the equitable allocation of defense costs.
Century opposes Liberty Mutual’s Rule 56(f) motion, asserting that Liberty Mutual has not shown diligence in pursuing discovery before the summary judgment motion and has failed to indicate a plausible basis for believing that relevant facts exist. The court has discretion over whether to grant the discovery request, and while Liberty Mutual has not demonstrated any specific facts regarding Century’s litigation strategies or the involvement of other insurers, the ultimate decision on the motion lies with the court.
The Court acknowledges the timing of Liberty Mutual's discovery requests but determines that allowing a brief period for limited discovery will benefit the resolution of the equitable contribution dispute. No discovery cut-off has been established since the parties moved directly to dispositive motions following Century's initiation of the case. The Court is not convinced that Liberty Mutual is misusing Rule 56(f) to circumvent scheduling orders or compensate for previous inaction.
Liberty Mutual's discovery requests are deemed reasonable, particularly concerning the prior settlement discussions between Century and Emhart. Century has indicated that it did not receive offers below the judgment amount paid; this fact can be substantiated through an affidavit if no documentary evidence exists. Century has expressed a lack of incentive to pursue other insurers, but the Court emphasizes that Liberty Mutual is entitled to independently assess potential contribution options.
Consequently, Liberty Mutual is granted 60 days to conduct discovery on two specific issues: (1) the settlement offers made by Emhart to Century and Century's responses; and (2) whether other insurers had a duty to defend in the EPA action. The Court has ruled that Liberty Mutual owed Emhart a duty to defend, granting Century's motion in part and denying Liberty Mutual's cross-motion in part. Liberty Mutual's motion for a continuance to conduct the aforementioned discovery is also granted. Following this discovery, a status conference will be scheduled to discuss further briefing and the inclusion of additional parties, if necessary.
Liberty Mutual must establish that the issue it seeks to preclude in the current action is identical to one previously resolved. In a referenced case, the insured arranged for the disposal of hazardous waste, which led to the conclusion that they routinely mishandled waste. The jury's rejection of this theory in the Emhart lawsuit does not affect Liberty Mutual's obligations. The key legal question is whether an insurer, with a clear duty to defend but minimal duty to indemnify, can terminate its defense without conclusively proving the extent of coverage. The Massachusetts high court indicated that an insurer could seek a declaratory judgment affirming no coverage to end the duty to defend. The relevant timeframe spans from when the EPA issued charges in February 2000 to the jury's verdict on October 19, 2006.
Liberty Mutual argues that Century is collaterally estopped from asserting a duty to defend Emhart based on a jury decision in a related case regarding another insurer's obligation to indemnify Emhart. However, this argument fails as the jury's findings were not directly related to the duty to defend, which is broader than the duty to indemnify. Liberty Mutual's assertion that no pollution was "sudden and accidental," as established by the jury, does not equate to a lack of duty to defend, since the issues are not identical and cannot be precluded under the doctrine of collateral estoppel.
An insurer is generally obligated to defend a policyholder but may not be responsible for paying a judgment awarded to a third party. Liberty Mutual's argument challenges this concept by suggesting that a limited duty to defend negates a broader duty. However, case law indicates that an insurer's obligation to defend persists until it conclusively demonstrates lack of coverage for third-party liability, and a determination of no coverage does not permit the insurer to recover prior defense costs. Even if a jury verdict terminates Liberty Mutual's duty to defend, it cannot retroactively negate obligations incurred before the verdict. The critical issue is whether the charges from the EPA are "reasonably susceptible" to coverage under the policy’s "sudden and accidental" clause. The court finds that the charging documents do activate Liberty Mutual's duty to defend, as they allow for the interpretation that some pollution resulted from a sudden and accidental event, such as a fire at the site in the 1970s. The allegations do not conclusively rule out coverage, as they lack definitive claims about the nature and timing of the contamination, leaving open the possibility of sudden incidents occurring amidst broader claims of gradual pollution practices.
The EPA documents do not assert that waste was intentionally or willfully introduced at the Site, nor do all charges specifically attribute contamination to "disposal" or "burials," with some references relating more broadly to chemical manufacturing operations. This ambiguity suggests that not all contamination was necessarily gradual or intentional. Legal precedent indicates that such uncertainties can trigger defense coverage under Liberty Mutual's policies. In *In re Acushnet River*, the court found that allegations against insured parties—accusing them of discharging contaminated refuse without proper permits—did not conclusively indicate that the releases were non-accidental. Consequently, the insurers were required to defend unless it could be conclusively shown that every release was non-sudden and non-accidental. Similarly, in *Millipore Corp. v. Travelers Indent. Co.*, the court ruled that vague allegations regarding hazardous waste generation and spillage did not eliminate the possibility of coverage under the "sudden and accidental" clause. Thus, the allegations in the current case, linking some pollution to waste disposal without clarifying that all instances were gradual or intentional, also suggest a potential obligation for Liberty Mutual to provide a defense.
The documents in question suggest a potential "sudden and accidental" release of hazardous materials, which Liberty Mutual argues does not suffice to establish a duty to defend. Liberty Mutual contends that a complaint must do more than simply not rule out coverage; it must present clear allegations that an ordinary intelligent person would recognize as falling under the policy. Citing case law, Liberty Mutual emphasizes that mere speculation about a covered event is insufficient. The Massachusetts legal standard requires that complaints describe events with a "temporal element" that indicate an abrupt discharge.
In the referenced case, SCA Services, the complaint was deemed inadequate because the alleged pollution resulted from gradual business activities rather than sudden incidents. In contrast, the current EPA documents reportedly indicate a possible sudden discharge of hazardous chemicals, especially referencing a major fire in the 1970s that destroyed site structures. Although Liberty Mutual downplays the fire's relevance, arguing that the pollution liability is rooted in routine waste disposal, the court must consider all favorable allegations to the insured, even if presented as background information. The presence of a specific sudden event, such as the fire, may indeed support the duty to defend, differentiating this case from SCA Services.
Under South Carolina law, an insurer has a duty to defend if the allegations in a complaint suggest a potentially covered claim, even if they are characterized as "background allegations." Massachusetts law similarly mandates that an insurer must defend against a claim if any part of the allegations could be connected to a covered event, such as "sudden and accidental" pollution, regardless of how minimal the damages might be. In the case referenced, although the majority of damages were likely non-covered, the possibility of covered damages necessitated the insurer's defense obligation. The Massachusetts Supreme Judicial Court has affirmed that the duty to defend exists even when potential liability for damages is negligible or infinitesimal. In this instance, the fire at the contaminated site was deemed a "sudden and accidental" event, contributing to the contamination and obligating Liberty Mutual to defend Emhart, despite the lack of direct allegations linking the fire to chemical releases. The duty to defend is determined by the allegations in the complaint and may also consider extrinsic evidence known to the insurer, as seen in the EPA documents disclosing the fire. Courts have upheld that factual ambiguities regarding coverage can prevent an insurer from obtaining summary judgment on defense obligations.
A key point of contention in the Emhart lawsuit was whether the pollution at the Site could be classified as "sudden and accidental." The court determined that Liberty Mutual had a duty to defend Emhart based on this dispute. Century contends that because Liberty Mutual also had a duty to defend, both insurers are "joint obligors" regarding the judgment paid to Emhart, which under Rhode Island law entitles Century to seek equitable contribution from Liberty Mutual. Liberty Mutual argues that the issue of equitable contribution is premature and seeks a continuance under Rule 56(f) to conduct discovery on two matters: first, whether Century made reasonable settlement efforts to mitigate its damages as required by Rhode Island law, and second, whether other insurers of Emhart also had a duty to defend, which could affect the allocation of defense costs. Century opposes Liberty Mutual’s motion, arguing that it has not demonstrated due diligence in pursuing discovery and has not provided a plausible basis for the necessity of further facts. The court has discretion in deciding on discovery requests and motions under Rule 56(f), and its decisions on these matters are subject to review for abuse of discretion.
Liberty Mutual is being criticized by Century for failing to present evidence that Century rejected reasonable settlement offers from Emhart or engaged in unreasonable litigation strategies. Century argues that Liberty Mutual has not established a credible basis for believing there is additional relevant information regarding other insurers' liability for defense costs that was not revealed in the Emhart lawsuit. The Court acknowledges the timing of Liberty Mutual's discovery requests but decides that allowing a brief period for limited discovery will facilitate a fair resolution regarding equitable contribution. There has been no prior discovery cut-off since the case moved directly to dispositive motions after Century filed the action. The Court is reassured that Liberty Mutual is not misusing Rule 56(f) to circumvent a scheduling order or compensate for previous delays.
The Court notes that after Liberty Mutual settled with Emhart, it had reset the discovery schedule multiple times, showing leniency towards Century and other parties that did not settle early, which consumed more judicial resources. The Court emphasizes that Rule 56(f) should be applied liberally unless the requesting party has been negligent in their discovery efforts. Liberty Mutual’s requests are deemed reasonable.
During the hearing, Century acknowledged it had some settlement discussions with Emhart, and the Court allows Liberty Mutual to review any offers from Emhart and Century’s responses. Century claims it did not receive offers lower than the judgment it ultimately paid, which should be verifiable through an affidavit. Regarding Century’s claims about other insurers, while Century believes it has no reason to pursue any other insurers for defense liability, the Court asserts that Century's judgment does not bind Liberty Mutual. Consequently, Liberty Mutual is granted a limited time to conduct its own investigation, confirming that Century should provide reasonable efforts to share relevant information about potential contributors. Liberty Mutual is allotted 60 days to pursue discovery on two specific topics: (1) any settlement offers made by Emhart to Century and Century’s responses, and (2) whether any other insurers had an obligation to defend the EPA action.
Liberty Mutual is determined to have owed Emhart a duty to defend, leading the Court to grant part of Century's motion while denying part of Liberty Mutual's cross-motion. Liberty Mutual's request for a continuance to conduct discovery related to the issue of equitable contribution is also granted. A status conference will be scheduled to address supplemental briefing and the potential joinder of additional parties after the completion of discovery. The document notes ambiguity regarding whether federal or state issue-preclusion law should apply in diversity jurisdiction cases, referencing relevant case law that outlines the requirements for issue preclusion. It highlights that the previous jury's rejection of a theory in the Emhart lawsuit is not pertinent to the current ruling. Additionally, it clarifies that an insurer with a clear duty to defend, but minimal duty to indemnify, may seek a declaratory judgment to terminate its duty to defend if no coverage is established under the insurance policy.
