State v. CNA Insurance Companies

State v. CNA Insurance Companies (99-276); 172 Vt. 318; 779 A.2d 662

[Filed 20-Jul-2001]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 99-276


State of Vermont	                         Supreme Court

                                                 On Appeal from
     v.	                                         Washington Superior Court


CNA Insurance Companies,	June Term, 2000
Continental Insurance Company and
Glens Falls Insurance Company


Matthew I. Katz, J.

William H. Sorrell, Attorney General, and William E. Griffin, Chief Assistant 
  Attorney General, Montpelier, for Plaintiff-Appellant.

James E. Preston of Pierson Wadhams Quinn & Yates, Kevin J. Coyle of McNeil 
  Leddy & Sheahan, Burlington, and Robert M. Kaplan of Robson Ferber Frost 
  Chan & Essner, LLP, New York, New York, for Defendants-Appellees.


PRESENT:  Dooley, Morse, and Johnson, JJ., and Toor, Supr. J., and 
          Gibson, J. (Ret.), Specially Assigned


       JOHNSON, J.  Plaintiff State of Vermont appeals and defendants CNA
  Insurance,  Continental Insurance and Glens Falls Insurance cross-appeal
  from an order of the superior court  granting in part and denying in part
  the parties' motions for summary judgment.  The State initiated a 
  declaratory judgment action to determine insurance coverage for potential
  liability arising from the  contamination of the state prison site in
  Windsor.  The trial court held that there was coverage for 

 

  a civil suit, but no coverage for a state administrative proceeding.  We
  affirm in part, reverse in part  and remand for further proceedings.

       The State of Vermont operated a state prison on a parcel of land that
  it owned in the town of  Windsor until 1971.  Between 1954 and 1958 the
  state Department of Corrections (DOC) operated a  wood treatment facility
  on the property.  Treatment of the wood involved the use of kerosene and 
  pentachlorophenol by state prisoners.  In 1976, DOC conveyed part of the
  property, including the  portion on which the wood treatment facility was
  located, to the Windsor School District.

       In 1995, the district filed a complaint with the Vermont Agency of
  Natural Resources (ANR),  asking that the agency hold DOC responsible for
  environmental contamination at the site of the  former Windsor Prison.  At
  the same time, the district submitted a complaint directly with DOC  asking
  that the department share the costs of testing the site and any clean-up
  costs.  Subsequently,  the district filed a civil action in federal
  district court against DOC, alleging that it had released  hazardous
  substances from its wood treatment facility to the soil and groundwater;
  the district sought  an order requiring the department to rehabilitate the
  site.  This suit was later dismissed without  prejudice.  The district also
  filed a civil action against DOC in Washington Superior Court alleging 
  substantially the same claims as in the federal action.  During this
  period, ANR proceeded against  DOC, in part directing DOC to retain a
  consultant to investigate the extent of contamination and  possible methods
  of remediation.

       The State of Vermont purchased comprehensive general liability (CGL)
  insurance from the  Glens Falls Insurance Company.  Glens Falls is now
  owned by Continental Insurance Company and  both are CNA affiliated
  companies.  Policies were written for three-year periods for at least most
  of  the years 1963 to 1990.  The parties dispute whether there was a policy
  for the period 1969-1972.

 

       The policies bound the insurer to pay "all sums which the insured
  shall become legally  obligated to pay as damages because of . . . property
  damage to which this insurance applies, caused  by an occurrence, and the
  [insurer] shall have the right and duty to defend any suit against the
  insured  seeking damages on account of such . . . property damage" (quoting
  from policy 1981-1984).   Starting in 1984, the policies included a
  pollution exclusion, and the State represents that it has not  claimed
  coverage for any period after 1984.

       The State brought a declaratory judgment action to determine
  defendants' obligation to  defend and indemnify the State in both the civil
  action in Washington Superior Court and the ANR  proceedings.  Both sides
  moved for summary judgment.  The trial court awarded partial summary 
  judgment to the State on the "issues of coverage" raised by the district's
  civil suit, and awarded  partial summary judgment to defendants on the
  "issue of indemnity for expenses arising out of the  administrative [ANR]
  proceedings."  The court found that because ANR is part of the same branch
  of  government as the agency under investigation, both of which are
  ultimately responsible to the  governor, the proceedings are the equivalent
  of the same entity suing itself.

       The State appeals, arguing that defendants are obligated to defend and
  indemnify the State in  the ANR proceeding because the proceeding is a suit
  and DOC would be legally obligated to pay any  damages assessed by ANR. 
  Defendants cross-appeal claiming there is no coverage for the civil suit 
  because the contamination is not an "occurrence" under the policy, and that
  there was no proof of  property damage during the policy periods. 
  Defendants also raise a number of issues that challenge  the extent of
  their liability for either proceeding.  Defendants point to a pollution
  exclusion clause in  the 1981 policy and "owned" and "alienated" clauses in
  the 1981 and 1963 policies, which they  believe limits coverage for the
  contamination on the prison site.  Finally, defendants raise the 

 

  issues of whether CNA and Continental are proper defendants, and whether
  the trial court's  disposition was final for the purpose of review on
  appeal.

                            I.	Jurisdiction

       Defendants argue that because the trial court failed to address a
  number of the issues they  raised on summary judgment, the court's judgment
  is not final and thus not ripe for appeal.  It is  elementary that "a final
  judgment is a prerequisite to appellate jurisdiction."  Hospitality Inns v. 
  South Burlington R.I., 149 Vt. 653, 656, 547 A.2d 1355, 1358 (1988).  "'The
  test of whether a decree  or judgment is final is whether it makes a final
  disposition of the subject matter before the court.'"   Morissette v.
  Morissette, 143 Vt. 52, 58, 463 A.2d 1384, 1388 (1983) (quoting Woodard v.
  Porter  Hospital, Inc., 125 Vt. 264, 265, 214 A.2d 67, 69 (1965)). We
  require "that the decree or judgment  disposed of all matters that should
  or could properly be settled at the time and in the proceeding then  before
  the court."  In re Estate of Webster, 117 Vt. 550, 552, 96 A.2d 816, 817
  (1953).  As in this  case, where multiple claims are involved, any decision
  that "adjudicates fewer than all the claims or  the rights and liabilities
  of fewer than all the parties shall not terminate the action."  V.R.C.P.
  54(b).

       From its order, it is clear that the court intended its ruling to be
  final.  At the conclusion of  the court's order, the court stated, "Should
  either party require a more formal declaratory judgment, it  may submit one
  within ten days.  Barring such submission, the foregoing shall constitute
  the  judgment of the court." Here, defendants contend that the court's
  judgment, in fact, is not final  because the court did not address each
  claim that defendants raised to limit their liability under the  policy. 
  We agree with defendants that the court failed to address several issues
  that needed to be  addressed, see infra part IV.  The trial court's
  resolution of the case did not render these issues 

 

  irrelevant or superfluous.  Because the court decided that defendants are
  liable for coverage for the  civil proceeding, it should have addressed all
  the claims that purport to limit defendants' liability for  that coverage. 
  The court left several claims undecided, and thus the legal rights and
  liabilities of  each party were not resolved conclusively. (FN1)

       We must conclude, therefore, that the court's order is not a final
  judgment, and a proper  appeal lies only pursuant to V.R.A.P. 5. 
  Huddleston v. Univ. of Vt., 168 Vt. 249, 251, 719 A.2d 415, 417 (1998). 
  None of the procedures for perfecting an interlocutory appeal was followed
  in this  case. See V.R.A.P. 5.  According to V.R.A.P. 2, however, we have
  discretion to suspend "application  of Rule 5 where dismissal would most
  likely result in another appeal after remand, the merits of the  question
  of law were fully briefed and argued, and the Court has expended valuable
  time on the  case."  In re Smith, 169 Vt. 162, 167, 730 A.2d 605, 609
  (1999).  Given that these requirements have  been met in this case, we may
  entertain this appeal under V.R.A.P. 2.  Further, because ultimately we 
  reverse the court on several issues, the interests of judicial economy
  compel us to rule on those  claims that the court did reach.  Therefore,
  consistent with the court's explicit intent, we will treat the  court's
  ruling as one for partial summary judgment under V.R.C.P. 54(b).  See In re
  E.W., 169 Vt.  542, 543, 726 A.2d 58, 60 (1999) (mem.).

 

                             II. ANR Proceeding

       Defendants contend that the ANR administrative proceeding is not a
  suit and therefore is not  covered by the policy.  The court agreed that
  the policy did not contemplate paying for sums arising  out of an
  administrative proceeding as opposed to a more traditional legal judgment. 
  As noted  above, defendants have a "duty to defend any suit against the
  insured seeking damages."  The  policies do not, however, define "suit." 
  At issue, then, is whether the ANR proceeding is a "suit" for  the purposes
  of the policy.

       In construing an insurance policy, disputed terms should be read
  according to their plain,  ordinary and popular meaning.  American
  Protection Ins. Co. v. McMahan, 151 Vt. 520, 522, 562 A.2d 462, 464
  (1989).  Because a policy is prepared by the insurer, all ambiguities must
  be resolved  in favor of the insured.  Peerless Ins. Co. v. Wells, 154 Vt.
  491, 494, 580 A.2d 485, 487 (1990).   Further, the burden is on the insurer
  to show that a third party's claim against the insured is entirely 
  excluded from coverage.  Village of Morrisville Water & Light Dep't v.
  United States Fid. & Guar.  Co., 775 F. Supp 718, 725 (D. Vt. 1991).

       In 1995, ANR directed DOC to undertake investigative work at the
  prison site intended to  define the degree and extent of contamination,
  determine the risk posed to the public, and  evaluate  methods of any
  corrective action.  This action took the form of letters from the
  Commissioner of the  Department of Environmental Conservation to the
  Commissioner of DOC.  Based on the result of  this investigation, ANR also
  required responsible parties to undertake a clean-up of the site, 
  including excavation of the most contaminated soils.  In response to these
  proceedings, DOC hired  private firms to facilitate and execute the
  remediation plan.  Although these steps are not a "suit" in  the
  traditional sense, they are sufficiently adversarial in nature to
  constitute a "suit" in a broader 

 

  interpretation.  Our interpretation is consistent with other courts that
  have addressed similar issues,  particularly in actions brought by the
  Environmental Protection Agency (EPA).  See Governmental  Interinsurance
  Exch. v. City of Angola, 8 F. Supp. 2d 1120, 1130 (N.D. Ind. 1998) ("The
  vast  majority of courts around the United States . . . have found that all
  kinds of coercive administrative  actions are 'suits' covered by general
  liability insurance policies.") (internal quotations and citations 
  omitted); Vermont Gas Sys. v. United States Fid. & Guar. Co., 805 F. Supp. 227, 232 (D. Vt. 1992)  (EPA special notice letter triggers duty to
  defend); Village of Morrisville, 775 F. Supp.  at 733 (EPA  notification
  that town was a potentially responsible party for contamination is suit
  under CGL  policy).  We see no reason to treat compliance with a state
  environmental regime differently from a  federal one.  Instead, we look to
  whether the official action is "sufficiently coercive and adversarial  in
  nature."  Village of Morrisville, 775 F. Supp.  at 733.  The record
  indicates that the clean-up  undertaken by DOC of the site was in response
  to the coercive adversarial nature of ANR's requests.   These proceedings
  should therefore be treated as a "suit" by the CGL policy.	

       The letters sent by ANR to DOC were motivated not by any discretionary
  desire to intervene,  but rather mandated by the legislative scheme for
  managing hazardous waste.  The legislature has  vested authority to enforce
  the hazardous waste statutes in the secretary of ANR.  See, e.g., 10 
  V.S.A. § 8003(a)(12) (secretary of ANR may enforce Vermont statutes
  "relating to solid waste,  hazardous waste and hazardous materials"); id. §
  6604 ("the secretary shall publish and adopt . . . a  solid waste
  management plan"); id. § 6604a ("[t]he secretary . . . shall develop a plan
  for the receipt,  treatment and disposal . . . of soils contaminated"); id.
  § 6610a(a) (detailing powers of secretary to  enforce waste management
  statutes).

       The legislature has also broadly defined the scope of hazardous waste
  liability.  Section 6615 

 

  provides in part:

    [A]ny person who at the time of release or threatened release of
    any  hazardous material owned or operated any facility at which
    such  hazardous materials were disposed of . . . shall be liable
    for abating  such release or threatened release, and costs of
    investigation, removal  and remedial actions incurred by the state
    which are necessary to  protect public health or the environment.

  Id. § 6615 (a)(2),(4)(A), (B).  The legislature was explicit that this
  liability was intended to be  enforced against state agencies.  Id. §
  6602(6) (defining person as including "the state of Vermont or  any agency,
  department or subdivision of the state").  Because ANR is the agency
  entrusted with  enforcing the hazardous waste statutes and the statutes
  specifically apply to state agencies, including  DOC, the statutory scheme
  must have contemplated an action by ANR against another department  like
  DOC.   Therefore, DOC's liability for any cost of investigation or clean-up
  as required by statute  would be damages covered by the policy.

       Defendants argued and the trial court held that any "damages"
  resulting from the ANR  proceedings against DOC would not be covered by the
  policy because both entities are agencies in  the executive branch whose
  commissioners serve at the pleasure of the governor.  Under these 
  circumstances, the court held, any judgment by one agency against another
  would be the result of an  action that was essentially controlled by the
  same person.  The court feared that aspects of the case  such as the
  zealousness of the defense or the prosecution, the forms of relief
  requested, and any  decision to appeal could be tainted by the unified
  interest of the executive.  Therefore, the court  denied insurance coverage
  for the proceeding.  The trial court based its conclusion on one case for 
  the proposition that the "same person cannot be both plaintiff and
  defendant at the same time in the  same action."  Globe & Rutgers Fire Ins.
  Co. v. Hines, 273 F. 774, 777 (2nd Cir. 1921).  We find 

 

  this authority unpersuasive and contrary to the modern trend. 
 
       Allowing one agency to proceed against another is neither
  unprecedented nor unusual.  The  United States Supreme Court addressed the
  issue of whether the government could sue itself in  United States v.
  Interstate Commerce Comm'n, 337 U.S. 426 (1949).  In that case, in which
  the  United States was suing the I.C.C. to abate wharfage charges,  the
  Court held that "courts must look  beyond the names that symbolize the
  parties to determine whether a justiciable case or controversy is 
  presented."  Id. at 430; see also United States v. Nixon, 418 U.S. 683, 697
  (1974) (dispute between  special prosecutor and president presents
  traditionally justiciable issue).  More recently, the Court  has held that
  the EEOC has the authority to require federal agencies to pay compensatory
  damages in  employment discrimination cases.  West v. Gibson, 527 U.S. 212,
  217 (1999).  Similar to our  analysis here, the Court read the statutory
  language at issue (Title VII) as an explicit grant of  authority to the
  agency to levy damage awards upon other federal agencies.  Id.; see also
  Tennessee  Valley Authority v. United States, 13 Cl. Ct. 692, 697 (1987)
  ("The mere assertion of a claim of  intrabranch dispute, without more, has
  never operated to defeat . . . jurisdiction.") (internal  quotations and
  citations omitted).  

       The intra branch dispute between ANR and DOC does not violate any
  notion of separation of  powers or transform the proceeding into a
  collusive first-party claim.  Rather, ANR is proceeding  against DOC in a
  traditionally justiciable controversy just as the agency would have against
  a private  party.  There is no evidence that the governor has any intent to
  interfere in these proceedings to alter  the behavior of either agency. 
  The steps taken by the secretary of ANR against DOC were not taken  at the
  direction of the governor, but instead imposed by a statutory duty. 
  Likewise, DOC's response  is not controlled by the governor but instead by
  a legislative scheme that renders state agencies