New Hampshire Ball Bearings v. Aetna Casualty & Surety Co.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1540

NEW HAMPSHIRE BALL BEARINGS,

Plaintiff - Appellee,

v.

AETNA CASUALTY AND SURETY COMPANY,

Defendant - Appellant.

No. 94-1544

NEW HAMPSHIRE BALL BEARINGS INC.,

Plaintiff - Appellant,

v.

AETNA CASUALTY AND SURETY COMPANY,
AND AMERICAN MOTORISTS INSURANCE COMPANY,

Defendants - Appellees.

No. 94-1545

NEW HAMPSHIRE BALL BEARINGS INC.,

Plaintiff - Appellee,

v.

AETNA CASUALTY AND SURETY COMPANY,

Defendant - Appellee.

AMERICAN MOTORISTS INSURANCE COMPANY,

Defendant - Appellant.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Martin F. Loughlin, Senior U.S. District Judge]

Before

Torruella, Chief Judge,

Bownes, Senior Circuit Judge,

and Cyr, Circuit Judge.

Stephen H. Roberts, with whom Ouellette, Hallisey, Dibble &

Tanguay, P.A., Allan B. Taylor and Dan, Berry & Howard were on

brief for Aetna Casualty and Surety Company.
James M. Sweet, with whom Susan M. Kennedy, Drinker Biddle &

Reath, Richard C. Nelson and Nelson, Kinder, Mosseau & Gordon

were on brief for American Motorists Insurance Company.
Michael C. Harvell, with whom John E. Peltonen, Thomas S.

Burack, Thomas M. Closson and Sheehan, Phinney, Bass & Green

Professional Association were on brief for New Hampshire Ball

Bearings.

January 5, 1995

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TORRUELLA, Chief Judge. This is the second of two
TORRUELLA, Chief Judge.

insurance coverage, declaratory judgment actions to come before

the court in recent months on appeal from the United States

District Court for the District of New Hampshire. See Mottolo v.

Fireman's Fund Ins. Co., No. 94-1707 (1st Cir. Jan. 3, 1995).

Both cases raise similar issues. The question we decide on this

appeal is whether a general liability insurance policy which

provides coverage for property damage that results from an

"occurrence" applies to the intentional dumping of hazardous

waste. We conclude that, as a matter of New Hampshire law, the

"occurrence" provision does not apply to the facts of this case

and that, therefore, the defendant insurance companies are not

obligated to indemnify the plaintiff-appellee. Because we

conclude that the district court decision to the contrary must be

reversed, and judgment entered in favor of the defendants-

appellants, we need not reach the issue of what triggers coverage

under the policies, nor need we interpret the owned property

exclusion. Likewise, the damages questions decided below are not

necessary to our conclusion.

I.
I.

BACKGROUND
BACKGROUND

New Hampshire Ball Bearings, Inc. ("NHBB"),

manufactures precision ball bearings for use in the aerospace

industry. It has operated a manufacturing facility ("the plant")

located approximately one-quarter mile west of the South

Municipal Well ("the South Well") in Peterborough, New Hampshire

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since 1957. NHBB relies heavily on the use of solvents for

essential degreasing and cleaning functions during the

manufacturing process. These solvents include the volatile

organic compounds ("VOCs") trichloroethylene ("TCE") and 1,1,1-

trichloroethane ("TCA").

Contamination of the South Well was discovered in 1982

during the first routine sampling of the Peterborough water

supply for VOCs. This contamination was traced to NHBB. No

other potential responsible parties have been identified. In May

of 1983, the United States Environmental Protection Agency

("EPA") put the South Well and contiguous areas on the National

Priorities List, making them eligible for funding under the

Comprehensive Environmental Response Compensation and Liability

Act of 1980 ("CERCLA"), 42 U.S.C. 9601-75, amended by the

Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.

99-499, 100 Stat. 1613 (1986).

NHBB is required to clean up hazardous waste

contamination at the South Municipal Well in Peterborough, New

Hampshire ("the South Well") pursuant to a 1986 consent order

entered into with the EPA and an Administrative Order issued by

EPA on June 19, 1990. A feasibility study has indicated that

cleanup of the South Well will take 19 to 32 years.

In 1987, NHBB brought this action against Aetna

Casualty & Surety Company ("Aetna") and American Motorists

Insurance Company ("AMICO"), seeking a declaration that Aetna and

AMICO are obligated to indemnify NHBB for its environmental

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cleanup costs at the South Well. Following a fourteen-day bench

trial, which included an evidentiary view of the NHBB plant and

the South Well, the district court issued a 34-page Order

containing detailed findings with respect to NHBB's use and

disposal of solvents at the NHBB plant. The district court

concluded that NHBB's practice for disposing of solvents led to

pervasive leaking, overflowing and intentional discharging of

solvents onto the ground, leading to contamination of the South

Well through the groundwater.

Among the pertinent findings by the district court are

the following. NHBB used tanker trailers to dispose of waste

liquids from the plant. The original trailer had a capacity of

250 gallons while subsequent trailers had capacities of 500 to

750 gallons. When the trailer filled up, the normal practice was

for NHBB employee's to dump its contents at the town dump. The

district court found, however, that "about twice a year because

of inclement weather, solvents and waste were discharged on the

NHBB premises which subsequently went into the groundwater." The

district court concluded that "[t]hese discharges were not

accidental."

The court also noted that on other occasions tanks

would accidentally overflow, discharging solvents onto the ground

at the plant. This overflowing continued, notwithstanding some

efforts by NHBB to curtail it. In each year between 1957 and

1983, solvents were spilled onto the ground at the plant. A

tumble sump used to store waste occasionally overflowed, causing

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solvents in free phase and dissolved form to spill onto the

ground and flow through a discharge pipe into a nearby brook. In

1982, a roof tank with a capacity of 275 gallons leaked TCA

through a ruptured pipe onto the ground at the plant.

The court also found that wastes were discharged from

sinks, floor drains and roof drains at the plant onto the ground

and wetlands of the plant, and into the town sewer and a nearby

brook. Some of the wastes flowed into the wetland area of the

plant while others flowed into a brook near the plant. The court

found that NHBB was still discharging volatile compounds from its

outfalls in late 1982.

In conclusion, the district court made the following

findings of fact:

1. During the 1950's, 1960's and early 1970's, the

public and industry were not generally aware of the threat which

hazardous wastes posed to the environment in general and

groundwater in particular.

2. NHBB intentionally discharged solvents onto the

soil and top surface.

3. NHBB's contamination of the soil and wetlands was

intentional, not fortuitous.

4. At the time of its intentional discharge, NHBB did

not understand the effect its discharge of solvents would have on

the groundwater.

5. NHBB's contamination of the groundwater was

unintentional.

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Based on these findings, the district court held that

NHBB is entitled to indemnification from Aetna for expenses

related to the investigation and cleanup up of the groundwater at

the South Well, but not the soil or wetlands, pursuant to Aetna's

general liability insurance policy in effect for the period July

1, 1982 to July 1, 1983.1 The court ordered Aetna to reimburse

NHBB in the amount of $14,213,199.94 and ordered Aetna to defend

NHBB in any related suits.

II.
II.

STANDARD OF REVIEW
STANDARD OF REVIEW

We review determinations of state law made in a bench

trial of a diversity action de novo. Williams v. Poulos, 11 F.3d

271, 278 (1st Cir. 1993); Blanchard v. Peerless Ins. Co., 958

F.2d 483, 487 (1st Cir. 1992). The district court's findings of

fact will be upheld in the absence of clear error. Fed. R. Civ.

P. 52(a); Williams, 11 F.3d at 278. In other words, we will

defer to the district court's findings of fact unless we form "'a

strong, unyielding belief that a mistake has been made.'"

Cumpiano v. Banco Santander Puerto Rico, 902 F.2d 148, 152 (1st

Cir. 1990).

The clearly erroneous standard also ordinarily applies

when we review a trial court's resolution of mixed questions of

1 The district court found that the "trigger date" for purposes
of determining insurance coverage was October 1982 (when the
contamination was discovered by the State of New Hampshire).
AMICO's policies were no longer in effect as of October 1982 and,
consequently, the court ruled that they did not provide coverage
for the contamination.

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fact and law. See In re Extradition of Howard, 996 F.2d 1320,

1328 (1st Cir. 1993) ("the more fact dominated the question, the

more likely it is that the trier's resolution of it will be

accepted unless shown to be clearly erroneous"). If a trial

court "bases its findings upon a mistaken impression of

applicable legal principles," however, we are not bound by the

clearly erroneous standard. LoVoulo v. Gunning, 925 F.2d 22, 25

(1st Cir. 1991) (quoting Inwood Laboratories v. Ives

Laboratories, 456 U.S. 844, 855 n. 15, 102 S.Ct. 2182, 72 L.Ed.2d

606 (1982)).

In addition, we note that the district court properly

found that, because there is no underlying state court lawsuit in

this case, the burden shifting framework of New Hampshire's

declaratory judgment act, N.H. Rev. Stat. Ann. 491.22, does not

apply and the burden of establishing coverage remains with the

plaintiff, NHBB. See Town of Allenstown v. National Casualty

Co., No. 94-1106, slip op. at 8-9 (1st Cir. Sept. 30, 1994).

III.
III.

DISCUSSION
DISCUSSION

Aetna is required to indemnify NHBB for monies it is

legally obligated to pay because of property damage caused by "an

occurrence." The policy defines "occurrence" as "an accident .

. . which results in . . . property damage neither expected nor

intended from the standpoint of the insured." The district court

found that NHBB intentionally contaminated the soil and wetlands

but did not realize the effect its pollution would have on the

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groundwater. The narrow issue we decide in this case is whether

NHBB's contamination of groundwater with hazardous waste is an

"occurrence" or an "accident" under those circumstances.

In Mottolo v. Fireman's Fund Ins. Co., No. 94-1707 (1st

Cir. Jan. 3, 1995), we analyzed the law of New Hampshire with

respect to "occurrence" policy provisions. We will briefly

summarize the salient principles. The New Hampshire Supreme

Court construes the term "accident" in the context of

"occurrence" coverage to mean "'an undesigned contingency, . . .

a happening by chance, something out of the usual course of

things, unusual, fortuitous, not anticipated, and not naturally

to be expected.'" Jespersen v. U.S. Fidelity & Guar. Co., 131

N.H. 257, 260, 551 A.2d 530 (1988) (quoting Vermont Mutual Ins.

Co. v. Malcolm, 128 N.H. 521, 523, 517 A.2d 800 (1986) (other

citations omitted).

In Providence Mutual Fire Insurance Co. v. Scanlon, 138

N.H. 301, 638 A.2d 1246 (1994), the Court articulated the test

for determining whether there is an accident as follows:

"If the insured did not intend to inflict
the injury on the victim by his
intentional act, and the act was not so
inherently injurious that the injury was
certain to follow from it, the act as a
contributing cause of injury would be
regarded as accidental and an
'occurrence.'"

Scanlon, 638 A.2d at 1249 (quoting Vermont Mutual, 128 N.H. at

524). Under Scanlon, NHBB's actions were not "accidental" if

either 1) it intended to inflict the injury or 2) its actions

were "inherently injurious."

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The district court's findings that NHBB's intended to

contaminate the top soil and wetlands, but not the groundwater,

raise the question whether those "injuries" can be divided for

purposes of determining whether NHBB "intended to inflict the

injury on the victim by his intentional act." We have serious

doubts that the intended injuries to the top soil and wetlands

are divisible from the unintended injury to the groundwater. See

Lumbermens Mutual Casualty Co. v. Belleville Indus., 938 F.2d

1423, 1427-28 (1st Cir. 1991) (cautioning against microanalysis

of a continuing pattern of pollution). We need not decide that

question here, however, because we find that NHBB's intentional

actions were inherently injurious within the meaning of Scanlon.

The test of "inherently injurious" conduct under

Scanlon is that "an insured's intentional act cannot be an

'accident' when it is so inherently injurious that 'it is certain

to result in some injury, although not necessarily the particular

alleged injury.'" Green Mountain Ins. Co. v. Foreman, 138 N.H.

440, , 641 A.2d 230, 232 (1994) (quoting Scanlon, 638 A.2d at

1249). In determining whether an insured's actions were certain

to result in some injury, New Hampshire law instructs that the

reviewing court look at "the character of the act viewed, with

reference to the insured, as a cause of injury." Jespersen, 131

N.H. at 260 (quoting Vermont Mutual, 128 N.H. at 524). This has

been interpreted as an objective standard. "[T]he Court does not

look to the actor's subjective intent that the result in question

occur, but rather, the Court 'may infer that the actor's state of

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mind was the same as a reasonable person's state of mind would

have been.'" King v. Prudential Property and Cas. Ins. Co., 684

F. Supp. 347, 349 (D.N.H. 1988) (quoting W. Keeton, D. Dobbs, R.

Keeton, & D. Owen, Prosser and Keeton on the Law of Torts 8, at

35-36).

Although the district court cited much of the above New

Hampshire law, it ultimately relied on New Jersey law in making

its determination that NHBB's intentional discharge of solvents

was an "occurrence." Citing Morton International Inc. v. General

Accident Insurance Co., 134 N.J. 1, 629 A.2d 831 (1993), the

district court sought to determine "whether exceptional

circumstances exist that objectively establish [NHBB's] intent to

injure." This test does not reflect the law of New Hampshire.

By looking for objective evidence from which the court could

infer NHHB's subjective intent to injure the groundwater, the

court ignored the objective nature of the inquiry required by

Vermont Mutual and its progeny. Although we could remand to the

district court for reconsideration under the appropriate legal

standard, we are perfectly equipped to apply the proper legal

standard to the factual findings of the district court.

As we interpret it, the test that emerges from Vermont

Mutual and its progeny is the following: would a reasonable

company in NHBB's position know that its intentional dumping and

contamination of the soil and wetlands with hazardous waste was

certain to result in some injury to property, although not

necessarily the particular injury to the groundwater. To this

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question, our answer is yes. In our view, the district court's

findings that 1) NHBB intentionally contaminated the soil and

wetlands -- a finding that was not contested on appeal; 2) the

dumping was done in a reckless manner with no perceptible concern

for whether the materials would migrate from the NHBB site; and

3) much of the waste flowed directly into a nearby brook,

foreclose any serious argument that a reasonable company would

not have known that the dumping was certain to cause some injury

to adjacent property.

NHBB nonetheless presses the argument that it did not

intend to injure the groundwater. The Vermont Mutual Court

rejected the argument that an event is an "accident" within the

meaning of the policy language if the insured did not expect or

intend the injury that resulted: "[t]he policy does not condition

coverage on the fortuitous nature of the victim's injury, but on

the accidental character of the insured's act." Vermont Mutual,

128 N.H. at 524. As the New Hampshire Supreme Court stated in

Jespersen: "[b]ecause their act was inherently injurious, it is

of no consequence that the Jespersens have sworn, without

contradiction, that they did not intend to cause the alleged

injuries." Jespersen, 131 N.H. at 261. The fact that NHBB did

not intend to injure the groundwater is irrelevant.

We also think this case falls within the factual ambit

of our decision in Great Lakes Container Corp. v. National Union

Fire Ins. Co., 727 F.2d 30 (1st Cir. 1984). In Great Lakes, we

held, pursuant to New Hampshire law, that there was no

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"occurrence," under an insurance policy similar to that in this

case, because the insured discharged chemical pollutants on its

land "as a concomitant of its regular business activity." Id. at

33. The facts found by the district court, and recited herein,

clearly establish that NHBB discharged chemical pollutants as a

concomitant of its regular business activity. The district court

attempted to distinguish Great Lakes by pointing out certain

facts apparently from which it could be inferred that the company

in Great Lakes subjectively intended to contaminate the water

supply. The subjective intent to pollute was not relevant to our

decision in Great Lakes. Great Lakes stands for the simple

proposition that a company which engages in systematic pollution

as a concomitant of its normal business practice cannot claim

that such pollution was "accidental." See Belleville, 938 F.2d

at 1429 (surveying similar decisions in other circuits). Thus,

our analysis in Great Lakes applies with equal force to the

facts of this case.

IV.
IV.

CONCLUSION
CONCLUSION

For the reasons stated herein, the district court erred

in finding that Aetna was required to indemnify NHBB for costs

associated with its investigation and cleanup of groundwater

contamination at the South Municipal Well site in Peterborough,

New Hampshire. We hold that, as a matter of New Hampshire law,

NHBB's contamination of the groundwater was not an "occurrence"

within the meaning of the insurance policy issued by Aetna to

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NHBB. We therefore reverse the judgment below, to the extent it

is inconsistent with this opinion, and enter judgment for Aetna.

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