F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 14 2002
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
SCOTT’S LIQUID GOLD, INC., a
Colorado corporation,
Plaintiff-Appellee,
No. 00-1258
v.
LEXINGTON INSURANCE
COMPANY, a Massachusetts
corporation,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 97-B-107)
Steven W. Black, (Wiley E. Mayne, with him on the brief), Holland & Hart, LLP,
Denver, Colorado, for Plaintiff-Appellee.
W. David Campagne, Sinnott, Dito, Moura & Puebla, P.C., San Francisco,
California, (Kenneth Sumner, Sinnott, Dito, Moura & Puebla, P.C., San
Francisco, California; Alan Epstein, Chris Mattison, Hall & Evans, L.L.C.,
Denver, Colorado, with him on the briefs), for Defendant-Appellant.
Before TACHA, Chief Judge, ANDERSON, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
I. INTRODUCTION
Plaintiff-Appellant Lexington Insurance Company (“Lexington”) appeals
the district court’s denial of its motion for summary judgment and grant of partial
summary judgment to Defendant-Appellee Scott’s Liquid Gold-Inc. (“Scott’s”).
The district court ruled that Lexington had a duty to indemnify Scott’s for its
liability relating to releases of environmental contaminants. Lexington also
appeals the district court’s award of attorney fees to Scott’s. This court has
jurisdiction under 28 U.S.C. § 1291. We affirm the district court’s grant of
partial summary judgment to Scott’s but reverse the award of attorney fees.
II. BACKGROUND
Scott’s manufactures wood cleaners and preservatives. From 1955 to 1991,
it used 1,1,1-tricholoroethane (TCA) as an ingredient in these products. In 1970,
Scott’s began manufacturing its products at a plant approximately one mile south
of the Rocky Mountain Arsenal in Colorado. Environmental consultants hired by
Scott’s detected TCA in the soil and groundwater at Scott’s facility in 1989. The
parties do not dispute that Scott’s production activities contributed to the soil and
groundwater contamination. Sometime prior to 1989, TCA had been released into
the soil and groundwater, creating a plume of contamination which flowed
northwest toward the Arsenal. The parties dispute the timing of the TCA release
into the soil and groundwater.
-2-
In the 1980s, the United States Environmental Protection Agency
discovered contaminants in drinking wells owned by South Adams County Water
and Sanitation District (“SACWSD”). The wells are near the Arsenal and Scott’s
facility. The United States Army, owner of the Arsenal, participated in the
investigation and found TCA and other contaminants in the drinking wells and in
groundwater flowing toward the Arsenal. The Army paid over $25 million to
investigate and remediate the contamination. In September 1994, the United
States sued Scott’s for contribution to the cleanup costs. Pursuant to a settlement
agreement, Scott’s paid $6 million to the United States and $200,000 to
SACWSD.
Scott’s sought reimbursement of these costs from its insurers, one of which
was Lexington. Scott’s held a Lexington excess insurance policy for the period
December 1, 1980 to December 1, 1981. Relevant to this appeal is language in
the “Insuring Agreements” and “Definitions” portions of the policy. The policy
provided as follows:
INSURING AGREEMENTS
I. Coverage – To pay on behalf of the Insured
the ultimate net loss in excess of the
retained limit . . . which the Insured shall
become legally obligated to pay as damages by
reason of the liability imposed upon the
Insured by law . . . because of –
. . . ,
(b) Property Damage,
-3-
. . . ,
as defined herein and caused by or arising
out of an occurrence.
. . . .
IV. Territory – Policy Period – This policy
applies only to occurrences happening
anywhere during the policy period.
DEFINITIONS
. . . .
8. Occurrence – With respect to . . .
Property Damage the term “Occurrence” means
an event, including continuous or repeated
exposure to conditions, which result [sic] in
. . . Property Damage neither expected nor
intended from the standpoint of the Insured.
All such exposure to substantially the same
general conditions shall be deemed one
occurrence.
Lexington refused to indemnify Scott’s or pay Scott’s legal expenses incurred in
the Army suit, and Scott’s sued in Colorado state court for breach of contract.
The suit was later removed to federal court.
Both sides moved for summary judgment on coverage. Lexington argued
that the policy language dictated that coverage arose only if the property damage
suffered by the Army or SACWSD happened during the policy period, December
1, 1980 to December 1, 1981. Lexington contended coverage was not triggered
since there was no proof that the plume had migrated to the Arsenal or the
SACWSD wells during the policy period. Scott’s argued the contract did not
-4-
require such proof. According to Scott’s, the definition of “occurrence” merely
required that the event ultimately resulting in property damage happen during the
policy period, not that the property damage also occur during the period.
The district court agreed with Scott’s and ruled that the continuous release
of TCA into the soil and groundwater beneath Scott’s facility constituted an
occurrence triggering coverage. The district court determined it was undisputed
that TCA releases into the soil and groundwater started before 1980 and
continued through 1981. The district court also ruled that Scott’s was entitled to
attorney fees incurred in the coverage litigation. In so doing, it recognized the
general rule that attorney fees are not recoverable in a contract action absent some
statute, court rule, or contract provision to the contrary. See Bernhard v. Farmers
Ins. Exch., 915 P.2d 1285, 1287 (Colo. 1996) (en banc). The district court,
however, concluded that the policy obligated Lexington to pay Scott’s reasonable
attorney fees incurred in an action to compel Lexington to provide coverage. The
district court reasoned that its own decision in Flannery v. Allstate Insurance Co.
interpreted Colorado law to require the insurer to pay attorney fees under similar
contract language. See Flannery, 49 F. Supp. 2d 1223, 1232-33 (D. Colo. 1999)
(discussing Allstate Ins. Co. v. Robins, 597 P.2d 1052, 1052-53 (Colo. Ct. App.
1979)).
-5-
III. STANDARD OF REVIEW AND APPLICABLE LAW
Federal jurisdiction is based on diversity. The district court applied the
substantive law of the forum state, Colorado. See Vanover v. Cook, 260 F.3d
1182, 1186 (10th Cir. 2001). Neither party challenges the propriety of the
application of Colorado law. See Webco Indus., Inc. v. Thermatool Corp., 278
F.3d 1120, 1126 (10th Cir. 2002) (applying Michigan law after parties agreed to
its applicability).
We review a district court’s decision on summary judgment de novo,
applying the same standard as the district court. Hirase-Doi v. U.S. West
Communications, Inc., 61 F.3d 777, 781 (10th Cir. 1995). Summary judgment is
proper when the pleadings, discovery materials, and affidavits submitted by the
parties demonstrate that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
The court’s function at the summary judgment stage is not to weigh evidence but
merely decide whether there is a genuine issue of fact for trial. TPLC, Inc. v.
United Nat’l Ins. Co., 44 F.3d 1484, 1489 (10th Cir. 1995). An issue of fact is
genuine when the evidence is such that a factfinder could resolve the issue in
either party’s favor. Bennett v. Quark, Inc., 258 F.3d 1220, 1224 (10th Cir.
2001).
-6-
The district court based the attorney fees award on its interpretation of the
insurance contract and principles of Colorado law. While this court generally
reviews a district court’s award of attorney fees for abuse of discretion, we
review the underlying legal analysis de novo. Towerridge, Inc. v. T.A.O., Inc.,
111 F.3d 758, 765 (10th Cir. 1997).
IV. COVERAGE TRIGGER
In Colorado, a contract is interpreted according to the plain and ordinary
meaning of its language. Chacon v. Am. Family Mut. Ins. Co., 788 P.2d 748, 750
(Colo. 1990) (en banc). A court should enforce the insurance contract as written,
unless an ambiguity exists. Ballow v. PHICO Ins. Co., 875 P.2d 1354, 1359
(Colo. 1993) (en banc). The meaning of the term “occurrence” as defined in this
contract is at the heart of the coverage dispute. Lexington points out, correctly,
that an occurrence must happen during the policy period for coverage to attach.
Lexington argues, however, that before an occurrence can exist property damage
must also exist. Accordingly, Lexington submits that, since the Army and
SACWSD suffered no property damage from the TCA plume during the policy
period, the plume was not an occurrence that existed within the policy period.
We disagree.
The definition of occurrence in the Lexington policy is “an event, including
continuous or repeated exposure to conditions, which result [sic] in . . . Property
-7-
Damage.” The definition, unlike that used in many policies, contains no express
requirement that property damage be manifest within a certain time frame in order
for the event to qualify as an occurrence. Cf. Browder v. United States Fid. &
Guar. Co., 893 P.2d 132, 134 (Colo. 1995) (en banc) (interpreting a policy which
defined occurrence as “an accident . . . which results, during the policy period, in
. . . property damage” (emphasis added)); Fire Ins. Exch. v. Bentley, 953 P.2d
1297, 1300 (Colo. Ct. App. 1998) (same); Robert E. Keeton & Alan I. Widiss,
Insurance Law 595 (practioner’s ed. 1988) (discussing the definition of
occurrence common in standard automobile insurance policy forms: an accident
“which results, during the policy period, in . . . property damages” (emphasis
added)). Without such a temporal qualifier, the plain meaning of the definition is
that an occurrence exists whenever an event happens that will result in property
damage, regardless of when the property damage occurs.
Lexington argues that under Colorado law property damage within the
policy period is a prerequisite to coverage. See Browder, 893 P.2d 132;
Samuelson v. Chutich, 529 P.2d 631 (Colo. 1974) (en banc). Contrary to
Lexington’s assertion, Browder and Chutich are not controlling. Both involve
very different policy language than that at issue in this case.
In Browder, the policy defined “occurrence” as “an accident . . . which
results, during the policy period, in . . . property damage.” 893 P.2d at 134
-8-
(emphasis added). Thus, unlike the policy at issue in this case, the Browder
policy expressly required property damage to occur during the policy period.
The policy in Chutich read, “This policy applies only to accidents which
occur during the policy period.” 529 P.2d at 633 (emphasis added). In deciding
that coverage was triggered only if property damage happened during the policy
period, the Colorado Supreme Court quoted with approval an Arizona case
holding that the word ‘accident’ “clearly implies a misfortune with concomitant
damage to a victim.” Id. at 635 (quoting Century Mut. Ins. Co. v. S. Ariz.
Aviation, Inc., 446 P.2d 490, 492 (Ariz. Ct. App. 1968)); see also Carroll v.
CUNA Mut. Ins. Soc’y, 894 P.2d 746, 753 (Colo. 1995) (en banc) (holding that
“[a]n unanticipated or unusual result flowing from a commonplace cause may be
an accident” (emphasis added)). Thus, unlike an “occurrence” or an “event,” an
“accident” cannot exist without some form of damage. The broad term “event” in
the occurrence definition of the Lexington policy does not appear to have been
directly addressed in the Colorado cases. 1 The plain meaning of such a broad
1
Colorado’s body of insurance caselaw deals overwhelmingly with policies
which define an occurrence using the narrower term “accident.” See, e.g.,
Browder v. United States Fid. & Guar. Co., 893 P.2d 132, 134 (Colo. 1995) (en
banc); Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1086 (Colo. 1991) (en
banc); Fire Ins. Exch. v. Bentley, 953 P.2d 1297, 1300 (Colo. Ct. App. 1998);
Employers’ Fire Ins. Co. v. W. Guar. Fund Servs., 924 P.2d 1107, 1108-09 (Colo.
Ct. App. 1996); M.L. Foss, Inc. v. Liberty Mut. Ins. Co., 885 P.2d 284, 285 (Colo.
Ct. App. 1994); Am. Employer’s Ins. Co. v. Pinkard Constr. Co., 806 P.2d 954,
955 (Colo. Ct. App. 1990).
-9-
definition, coupled with the tendency of Colorado courts to interpret “occurrence”
against the insurer, compel the conclusion that an event which eventually results
in property damage should be deemed an occurrence under this contract. See,
e.g., Bentley, 953 P.2d at 1301 (“An ‘occurrence’ is to be broadly construed
against the insurer.”). If that event happens during the policy period then
coverage is triggered, regardless of when the property damage becomes manifest.
Thus, if contamination of the soil and groundwater in this case happened
during the policy period, December 1, 1980 to December 1, 1981, coverage is
triggered, regardless of when the TCA plume crossed the Army and SACWSD
property. The district court concluded the only evidence presented demonstrated
that contamination of the groundwater underneath Scott’s facility began prior to
1980 and continued through the policy period. We agree that no genuine issue of
fact exists as to release during the policy period.
Scott’s offered the affidavits of two experts in support of its motion for
partial summary judgment. One expert, Dr. Chirlin, stated in his affidavit that,
according to his analysis of groundwater flow and velocity, the TCA plume
passed the arsenal boundary by early 1981. Chirlin further opined that “in order
for the groundwater to have traveled the distance from Scott’s facility to the
Arsenal boundary by early 1981, it must have been contaminated by events at
Scott’s beginning prior to 1976.” Chirlin also concluded that, based on the length
-10-
of the plume, TCA had continued to leach into the groundwater beneath Scott’s
facility through at least 1991. The other expert, Mr. Folkes, stated in his affidavit
that “TCA more likely than not began to seep into the soil between 1971 and
1976, and was present in the soil through 1980-81, into later years.
Contamination of the groundwater also occurred continuously during these years.”
In opposition, Lexington offered excerpts from the depositions of Folkes
and Chirlin in both this coverage case and the underlying suit brought by the
Army against Scott’s. In Chirlin’s depositions, he stated that he did not actually
know when contamination started at Scott’s facility. In Folkes’ deposition in the
underlying case, he stated that “I don’t know when [TCA] first became located in
the groundwater below the Scott’s facility.” Lexington contends these statements
indicate that contamination could have occurred after the policy period and thus
create a genuine issue of material fact.
In response to the specific question whether they actually knew the earliest
date of contamination, both experts responded no. A thorough reading of
Chirlin’s and Folkes’ deposition testimony, however, reveals that neither
disclaimed having an opinion as to the date of contamination. Both experts used
groundwater flow velocity estimates and the known date of contamination of
other areas to infer the start of contamination at Scott’s facility. Because these
calculations involved estimates of groundwater flow velocity and numerous other
-11-
variables, it would be impossible for each expert to know precisely the start date
of contamination. Yet, the calculations did permit both experts to conclude that
more likely than not the contamination began before and continued through the
policy period. Lexington cites no evidence conflicting with these opinions or the
underlying calculations. Thus, based on the evidence presented, a factfinder
could only find for Scott’s. Summary judgment for Scott’s on the coverage issue
is therefore proper.
V. ATTORNEY FEES
Scott’s recognizes that in the absence of a statute, court rule, or contract
provision to the contrary, attorney fees should not be awarded in Colorado.
Bernhard, 915 P.2d at 1287. It argues, however, that the following language in
the insurance contract mandates the award of attorney fees incurred in this
coverage action:
INSURING AGREEMENTS
. . . .
II. Defense, Settlement, Supplementary
Payments – Solely as respects occurrences
covered under this policy . . . but not
covered under the underlying insurance . . .
or under any other underlying insurance
collectible by the Insured, the Company
shall:
. . . ;
(c) reimburse the Insured for all
reasonable expenses incurred at the
-12-
Company’s request, (including actual
loss of wages or salary, but not
loss of other income, not to exceed
$75 per day) because of his
attendance at hearings or trials at
such request.
The district court relied upon its previous decision in Flannery, which in turn
relied upon Allstate Insurance Co. v. Robins, in which the Colorado Court of
Appeals determined that language similar to section II(c) required the insurer to
pay the insured attorney fees incurred in a suit for coverage. See Robins, 597
P.2d 1052, 1052-53 (Colo. Ct. App. 1979).
Even if the “at the Company’s request” language of section II(c) obligates
Lexington to pay Scott’s attorney fees incurred in a coverage action brought by
Scott’s, that duty, like the other duties under section II, is triggered only when an
occurrence is (1) covered under the Lexington policy and (2) not covered by the
underlying insurance agreements. The parties dispute whether Scott’s underlying
insurance covered the TCA plume. Lexington argues that since Scott’s exhausted
its underlying insurance policies, the TCA plume must have been covered by
those policies. Scott’s contends that the phrase “not covered” is susceptible to
two readings. First, it may mean that the event in question does not satisfy the
underlying policies’ criteria for a covered peril. Second, it may also mean that
though the event is an occurrence that would otherwise be covered, it is not an
insured event because the underlying policies have been exhausted. In other
-13-
words, if the limits of the underlying policies have been reached, those policies
cannot be said to cover the occurrence. Scott’s argues that “not covered” is thus
ambiguous and should be construed against Lexington. 2 We disagree.
The purpose of the “not covered” clause “is to provide for risks not insured
against by the underlying insurances.” See Unigard Mut. Ins. Co. v. Mission Ins.
Co., 907 P.2d 94, 99 (Colo. Ct. App. 1994). In Arcement v. Norman Industries,
Inc., the Fifth Circuit rejected the argument that an occurrence was not covered
by the underlying insurance policies simply because the insured had let those
policies lapse. 652 F.2d 395, 397 (5th Cir. Unit A June 1981) (per curiam), cited
with approval in Unigard, 907 P.2d at 99. The Fifth Circuit reasoned that “not
covered” referred to events not meeting the definition of a covered event in the
underlying insurance policies, not to a situation in which an event was a covered
event but the underlying insurers did not indemnify because the policies had
lapsed. Id. Similarly, “not covered” in the Lexington policy plainly refers to an
event which does not meet the definition of a covered event in the underlying
policies. 3 There is no dispute that the TCA plume was a covered event under the
2
Scott’s also contends that Lexington never argued below that its duties
under section II were not triggered. We have reviewed the record and conclude
that Lexington sufficiently preserved the issue for appeal.
3
Our agreement with the Fifth Circuit is limited to its holding that “not
covered” means an event does not meet the underlying policies’ definitions of a
covered event. We express no opinion on whether the lapsing of underlying
insurance polices would trigger the duties enumerated in section II or similar
-14-
definition employed by Scott’s underlying insurance policies. Scott’s cites no
evidence to the contrary and, indeed, stipulated that its other insurers paid
$5,920,000 of its TCA plume liability. Scott’s underlying insurers paid precisely
because the plume was a covered event under those policies.
If the parties had intended to obligate Lexington to reimburse Scott’s for
attorney fees when Scott’s exhausted its underlying insurance, they could have
easily specified that exhaustion of the underlying insurance policies renders an
occurrence “not covered.” See, e.g., Nat’l Union Fire Ins. Co. v. Travelers Ins.
Co., 214 F.3d 1269, 1272 (11th Cir. 2000) (interpreting policy that included the
provision: “This section shall also apply to occurrences not covered by any
underlying insurance due to exhaustion”); Hocker v. N.H. Ins. Co., 922 F.2d 1476,
1481-83 (10th Cir. 1991) (interpreting insurance contract expressly providing
excess insurer had duty to defend when underlying insurance exhausted). This
court will not reach a strained interpretation of a contract, especially when the
interpretation runs counter to the obvious intentions of the parties. See Allstate
Ins. Co. v. Starke, 797 P.2d 14, 17-18 (Colo. 1990) (en banc). Thus, Lexington is
not obligated by section II(c) to reimburse Scott’s for attorney fees incurred in
this coverage action. Because Scott’s references no other language in the contract
entitling it to attorney fees, the award was contrary to Colorado law.
contractual language.
-15-
VI. CONCLUSION
The district court’s grant of summary judgment to Scott’s on the question
of coverage is AFFIRMED. The district court’s award of attorney fees is
REVERSED. The case is remanded for further proceedings consistent with this
opinion.
-16-