Ronald John Smith v. Hughes Aircraft Company, Hartford Accident & Indemnity Company v. Hughes Aircraft Company, Insurance Company of North America v. Hughes Aircraft Company, Ronald John Smith Hartford Accident & Indemnity Company v. Hughes Aircraft Company, Ronald John Smith John Edgar Gale Philip John Freemen, American Home Assurance Company and National Union Fire Insurance Company v. Hughes Aircraft Company, Insurance Company of North America v. Hughes Aircraft Company
Docket: 92-15815
Court: Court of Appeals for the Ninth Circuit; November 25, 1993; Federal Appellate Court
In 1985, about 2,400 Tucson residents filed lawsuits against Hughes Aircraft Company due to injuries from contaminated drinking water caused by the company's disposal of trichloroethylene (TCE) in unlined ponds. Hughes settled these claims for nearly $85 million in 1991. Subsequently, Ronald John Smith and various insurance companies, including Lloyd's, Hartford Accident and Indemnity Company, and Insurance Company of North America, initiated declaratory judgment actions starting in 1988 to clarify their liability for the claims. The district court ruled in favor of the insurers in September 1991 concerning policies from 1971 to 1985 and later granted summary judgment for INA and Lloyd's regarding policies from 1956 to 1971. Hughes appealed these rulings, and the court affirmed some decisions while reversing others. The Ninth Circuit reviewed the summary judgments de novo, assessing whether there were any genuine material facts for trial and whether the district court correctly applied the law. The court also considered the appropriate interpretation of state law.
The district court's September 6, 1991, order granting summary judgment for insurers was based on the AVN 46A pollution exclusion. The court found that this exclusion unambiguously applied to both aviation and excess CGL policies. Hughes contended that the drafting history of AVN 46A and testimony from Lloyd's witnesses indicated the exclusion was intended solely for aviation coverage. The district court dismissed this evidence due to Hughes' failure to connect it to the parties' intent. However, it was noted that Hughes' former insurance manager provided relevant evidence regarding the understanding of AVN 46A, which was admissible to clarify the parties' real agreement, as supported by case law allowing extrinsic evidence to interpret intent.
Hughes also presented evidence that its agents believed AVN 46A was limited to aviation risks. The language of AVN 46A itself was found to contain ambiguities that undermined the summary judgment ruling, including its aviation-specific origin and exclusions that appeared to apply exclusively to aircraft-related incidents. Therefore, the interpretation favoring Hughes, which suggested the exclusion did not extend to non-aviation risks, warranted a reversal of the summary judgment.
Additionally, regarding the 'sudden and accidental' exception to the pollution exclusion in the insurers' 1974-1985 policies, the district court ruled that this exception was inapplicable. It justified this conclusion by asserting that the term 'sudden,' per Arizona and California law, suggests a brief timeframe, not merely unexpected occurrences, and that the pollution-related injuries in the Valenzuela case did not meet this 'sudden' criterion. The appellate court concurred with the district court's findings on this issue.
Under Arizona law, the term "sudden" in the phrase "sudden and accidental" is deemed ambiguous due to varying interpretations across jurisdictions. The district court determined that "sudden" implies a temporal quality, distinguishing it from simply meaning "accidental." This interpretation aligns with public policy, promoting exclusion of deliberate pollution by insured parties. The court's analysis further considered the intent of the parties, concluding that a broader interpretation would undermine the insurers' risk management related to pollution-prone operations.
In contrast, California law maintains that "sudden and accidental" is not ambiguous when interpreted in its ordinary sense. California courts have affirmed that "sudden" conveys an abrupt or immediate event, while "accidental" indicates an unexpected occurrence. This interpretation leads to the conclusion that continuous pollution does not meet the criteria for the exception.
Hughes contended that the pollution exclusion was merely a clarification of prior policy definitions and did not reduce coverage. However, the district court found this argument unpersuasive, noting that Hughes failed to demonstrate reliance on the exclusion's drafting history during negotiations. Consequently, both Arizona and California law recognize that the "sudden and accidental" exception to pollution exclusions requires a temporal element.
The Valenzuela claims were determined to be the result of Hughes' gradual pollution rather than sudden incidents. Hughes contended that the pollution exclusion should not apply for two reasons: (1) TCE was not recognized as a pollutant by the EPA until the late 1970s, and (2) certain sudden events contributed to the injuries. The court rejected both arguments. It clarified that the pollution exclusion does not require EPA listing and that TCE qualifies as a toxic contaminant. Hughes' first argument was deemed waived as it was raised for the first time on appeal. Regarding the second argument, the court found that the sudden events, such as waste treatment failures and spills, resulted in the direct dumping of TCE into unlined ponds, reinforcing the gradual nature of the pollution. Thus, the district court's summary judgment favoring the insurers on the pollution exclusion was affirmed.
In a separate matter, Hartford sought costs totaling $62,170.73 after winning summary judgment, primarily for deposition costs shared with other insurers. The district court clerk awarded $55,777.83, and Hughes contested this decision. The court denied Hughes' motion for review as untimely and stated that even if timely, it would have been denied on the merits due to the necessity of the depositions. Hughes argued that the court improperly presumed the necessity of costs without detailed justification from Hartford. However, the court upheld that it had the discretion to determine the necessity of the deposition costs and agreed with the district court’s conclusions.
Hughes' argument that the district court could not determine that deposition costs were 'necessarily obtained' was rejected, as the court adequately detailed the necessity of each deposition category and was familiar with the case proceedings. The court did not abuse its discretion regarding Hartford's deposition costs.
The district court ruled that pre-1971 policies excluded damages that Hughes 'expected or intended.' Hughes contended this inference was erroneous, arguing it improperly extended California Insurance Code Sec. 533 to include 'expected' harm. However, the court maintained that a 'willful act' under this section includes acts that the insured deliberately expected to cause harm, thus INA and Lloyd's are not liable for injuries Hughes expected or intended to inflict.
Hughes also challenged the district court's refusal to consider extrinsic evidence suggesting INA believed similar policies covered 'expected' harm. This evidence was deemed irrelevant as it was created after Hughes' policies expired and was not available during negotiations.
The district court ruled that Hughes 'expected' the damage to the Valenzuela claimants, but this was contested. The appropriate standard for determining 'expected' damage is whether Hughes knew or believed that their actions would likely result in such damage. The court's conclusion was problematic, particularly as it erroneously linked Hughes' chromium disposal to the Valenzuela injuries, which were actually related to organic solvents, not chromium contamination. Consequently, on remand, the court should avoid using evidence of chromium disposal in its assessment.
Evidence presented by Hughes regarding TCE contamination does not support the conclusion that Hughes expected or intended to cause injuries from its disposal practices. The district court's reliance on TCE’s toxicity was inadequate, as Hughes argued that moderate exposure was historically deemed non-harmful, with TCE widely used in various applications until regulatory standards emerged in the late 1970s. Furthermore, Hughes demonstrated that the common disposal method involved allowing TCE to evaporate on the ground, and regulatory agencies did not critique Hughes' practices during the relevant period. Thus, it cannot be concluded that Hughes knew or believed its actions would likely harm the Valenzuela claimants, leading to the reversal of the district court's summary judgment on this issue.
Regarding insurance coverage, the district court correctly determined that injuries to the Valenzuela claimants must have occurred during the policy period for coverage to be triggered. The term 'occurrence' in Hughes' insurance policies was not defined, and the court affirmed that an occurrence requires actual injury. Hughes’ argument against this general rule, citing a previous case, was rejected as that case involved ambiguous policy language, unlike the clear use of the term 'occurrence' in Hughes' policies. Consequently, INA and Lloyd's insurance companies are not liable for injuries that occurred after the policy period.
The District Court erred by ruling that the Valenzuela injuries occurred after the expiration of the pre-1971 policies. The court relied on expert evidence from Hughes, which indicated that TCE contamination from Hughes' ponds to Tucson drinking water wells moved too slowly to impact all but one well before 1971. Additionally, it was claimed that the contamination in the affected well was mitigated by mixing with uncontaminated water. Conversely, expert evidence from the Valenzuela claimants asserted that Tucson's municipal wells were contaminated with TCE starting no later than 1956 and that any TCE exposure is harmful. The district court did not consider this testimony because Hughes had not designated these experts before the discovery deadline, and it deemed their evidence less credible than Hughes' experts. However, the court's discovery rulings are subject to an abuse of discretion review, and the Valenzuela experts were not retained by Hughes, which undermines the designation requirement. Given that the Valenzuela expert evidence indicates some injuries occurred prior to 1971, the district court's dismissal of this evidence was an abuse of discretion. Furthermore, the assessment of credibility at the summary judgment stage was inappropriate. Consequently, there is a genuine issue of material fact regarding the timing of the Valenzuela injuries, warranting a reversal of the district court's summary judgment.
The court affirmed in part and reversed in part a lower ruling, remanding the case with each party bearing its own appeal costs. The document outlines a noise and pollution exclusion clause in an insurance policy, stating that claims related to noise, vibration, pollution, electrical interference, or property use interference are not covered unless caused by specific incidents like a crash or in-flight emergency. The district court determined that California law governs the interpretation of INA's insurance policies, while also considering both California and Arizona law for other insurers, ultimately concluding that both states’ laws produced the same results. The pollution exclusion specifies that the policy does not cover bodily injury or property damage from the release of various pollutants unless the release is sudden and accidental. The court agreed that the depositions for which Hartford sought reimbursement were necessarily obtained, thus not addressing the timeliness of a related motion. Although the district court did not resolve which law applies to Lloyd’s excess policies, it concluded that California law applies to INA's primary CGL policies, which Lloyd's excess policies follow. Therefore, California law is applied to both INA's and Lloyd’s pre-1971 insurance policies.
