United States Court of Appeals
For the First Circuit
Nos. 06-1951, 06-2017
BARRETT PAVING MATERIALS, INC.,
Plaintiff-Appellee, Cross-Appellant,
v.
CONTINENTAL INSURANCE COMPANY,
Defendant, Appellant,
FIRST STATE INSURANCE COMPANY,
Defendant, Cross-Appellee,
MICHIGAN MUTUAL INSURANCE COMPANY,
Defendant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]
Before
Torruella, Circuit Judge,
Selya, Senior Circuit Judge,
and Tashima,* Senior Circuit Judge.
John T. Harding, Jr., with whom Michael F. Aylward and
Morrison Mahoney LLP, were on brief, for appellant.
Jeffrey T. Edwards, with whom Preti, Flaherty, Beliveau &
Pachios, LLP, was on brief, for appellee.
Mark D. Cahill, with whom Terrence M. Schwab and Choate, Hall
& Stewart LLP, were on brief, for cross-appellee.
May 30, 3007
*
Of the Ninth Circuit, sitting by designation.
TORRUELLA, Circuit Judge. This case arises out of a
dispute between Barrett Paving Materials, Inc. ("Barrett") and
three of its insurers concerning the insurers' respective duties to
defend Barrett against a third party complaint for contribution on
a claim for environmental clean-up costs. The district court
ordered two of the insurers, Continental Insurance Company
("Continental") and Michigan Mutual Insurance Company ("Michigan
Mutual"), to share the costs of Barrett's defense and to pay
Barrett's legal fees incurred in prosecuting the instant case. The
court granted summary judgment in favor of the third insurer, First
State Insurance Company ("First State"). Continental now appeals
from the court's rulings against it, and Barrett appeals from the
court's ruling in favor of First State. After careful
consideration, we affirm on all grounds.
I. Background
The City of Bangor, Maine, sued Citizens Communications
Company ("Citizens"), claiming that Citizens's manufactured gas
plant had been discharging pollutants into the Penobscot River
since 1851. See City of Bangor v. Citizens Commc'ns Co., 437 F.
Supp. 2d 180 (D. Me. 2006). Citizens then brought a third party
complaint (the "Citizens complaint") against Barrett and other
neighboring facilities for contribution and/or indemnification on
the City's claims, alleging that those facilities were to blame for
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the pollution. In its most detailed allegations, the complaint
against Barrett states:
12. Barrett . . . acquired the Barrett Plant
in or about 1979.
. . . .
15. On one or more occasions since Barrett
. . . has owned and operated the Barrett
Plant, asphalt materials containing poly-
aromatic hydrocarbons, also known as PAHs,
were released from the Barrett Plant into the
Penobscot River.
16. Upon information and belief, the soil at
the Barrett Plant is contaminated with
substances that contain PAHs.
17. Sewers historically located in or near the
Barrett Plant drained, directly and without
treatment, into the Penobscot River.
18. Tidal action of the Penobscot River causes
contamination from the Barrett Plant to be
flushed into the river.
. . . .
25. Upon information and belief, releases of
hazardous materials into the Penobscot have
occurred on one or more occasions at the
Barrett Plant.
Barrett, in turn, sued Continental, Michigan Mutual, and
First State in the United States District Court for the District of
Maine, seeking a declaration that the three insurers were required
to defend it against the Citizens complaint, after its tender of
the defense was rejected. Barrett also sought money damages for
the insurers' failure to defend.
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Barrett's claim against Continental was based on three
primary liability insurance policies. Each of the policies
contains an exclusion from coverage for pollution-related
liabilities except when "[a] discharge, dispersal, release or
escape is sudden and accidental." Barrett stipulated that it was
unaware of any sudden or accidental discharges from its plant into
the Penobscot River, but contended that nonetheless Continental was
obliged to defend Barrett against the Citizens complaint.
With respect to First State,1 Barrett's claim was based
on one of three excess umbrella liability policies. The relevant
First State policy applied in excess of an underlying primary
liability insurance policy issued by Midland Insurance Company
("Midland").2 Midland is now insolvent, such that the insurance is
not collectible. Barrett has no copy of the Midland policy and no
knowledge of its terms and conditions. Even so, it is undisputed
that the Midland policy has not been exhausted as a result of
claims paid on behalf of Barrett. The First State policy states
that the insurer has a duty to defend "[w]ith respect to any
OCCURRENCE not covered, as warranted, by the underlying policies
1
Michigan Mutual does not appeal, and therefore we need not
describe the claims against it or the related procedural history.
2
Both the First State policy and the Midland policy went into
effect on December 14, 1979. The excess liability policy remained
in effect after the Midland policy expired; Barrett then obtained
the Continental policy to replace the Midland primary policy. The
Continental policy went into effect on February 15, 1980, the same
day that the Midland policy expired.
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listed in Schedule A [t]hereof, whether collectible or not, or not
covered by any other underlying insurance collectible by the
INSURED, but covered by the terms and conditions of [the First
State] policy." Schedule A of the First State policy lists general
categories of insurance policies and their respective liability
limits. One of the general categories is "Comprehensive General
Liability" insurance. The schedule does not list any specific
policies by name or number.
First State and Continental filed separate motions for
summary judgment, and Barrett filed a motion for partial summary
judgment. A magistrate judge recommended that First State's motion
be granted, that Barrett's motion be granted as to Continental, and
that Continental's motion be denied. The magistrate determined
that First State was not required to defend Barrett because the
Midland policy was a scheduled underlying policy to the First State
policy, even though Schedule A did not specifically reference the
Midland policy. With respect to Continental, the magistrate
concluded:
The underlying complaint's general allegations
did not foreclose the potential that
Continental could have liability to Citizens
on the basis of any sudden and accidental
discharge of pollutants that might be proved
by Citizens. That legal conclusion is
virtually compelled by the Law Court's opinion
in Travelers Indemnity Company v. Dingwell,
414 A.2d 220 (Me. 1980).
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The magistrate further recommended that Barrett be awarded
attorneys' fees incurred in the declaratory judgment action against
Continental. The district court adopted the magistrate's
recommended decision.
After a bench trial on issues related solely to Michigan
Mutual, the district court entered final judgment on May 22, 2006.
The court ordered Continental to pay Barrett $142,500 for defense
costs incurred in defending the third party complaint and
$20,376.22 for attorneys' fees incurred in the declaratory judgment
action. Continental appeals from the judgment against it, and
Barrett appeals from summary judgment in favor of First State.
II. Standard of Review
We review a grant of summary judgment de novo. N.H. Ins.
Co. v. Dagnone, 475 F.3d 35, 37 (1st Cir. 2007). Where there are
no material facts in dispute, as here, summary judgment is
appropriate if the moving party is entitled to judgment as a matter
of law. See Fed. R. Civ. P. 56(c). We review an award of
attorneys' fees for abuse of discretion. First State Ins. Group v.
Nationwide Mut. Ins. Co., 402 F.3d 43, 44 (1st Cir. 2005).
III. Discussion
A. Continental's duty to defend
Both Continental and Barrett agree that Maine law employs
the "comparison test" to determine whether an insurer has a duty to
defend an insured. See Travelers Indem. Co. v. Dingwell, 414 A.2d
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220, 224 (Me. 1980). The reviewing court is required to "[lay] the
underlying damage complaint[] alongside the insurance policy and
then determine[] [whether] the pleadings [are] adequate to
encompass an occurrence within the coverage of the policy." Id.
(quoting Am. Policyholders' Ins. Co. v. Cumberland Cold Storage
Co., 373 A.2d 247, 249 (Me. 1977)). Maine law is very clear that
the inquiry "is based exclusively on the facts as alleged rather
than on the facts as they actually are." Id. (quoting Cumberland
Cold Storage Co., 373 A.2d at 249).
Continental reads the Citizens complaint as alleging that
Barrett was responsible for discharges as a result of routine
business operations over several decades, as opposed to a "sudden
and accidental" discharge, which would trigger Continental's duty
to defend. As such, Continental argues that this case is analogous
to A. Johnson & Co. v. Aetna Cas. & Sur. Co., 933 F.2d 66 (1st Cir.
1991) (applying Maine law). In that case, we found no duty to
defend under a "sudden and accidental" discharge exception to a
pollution exclusion worded identically to the Continental policy
exception, because "the [underlying allegations] make[] clear that
pollution and contamination has taken place as a concomitant of the
[alleged polluter]'s regular business activity . . . over an
extended period of time, rather than as a result of a 'sudden and
accidental' release." Id. at 74. In support of its reading of the
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Citizens complaint, Continental points to Barrett's denial that any
sudden and accidental discharges have ever occurred.
Barrett, on the other hand, like the magistrate judge,
believes that Dingwell, 414 A.2d 220, compels the conclusion that
Continental has a duty to defend Barrett against the Citizens
complaint. We agree. In Dingwell, the Supreme Judicial Court of
Maine held that an insurer had a duty to defend the insured
pursuant to a "sudden and accidental" discharge exception, where
the underlying complaint alleged only that wastes from the
insured's facility had permeated the ground and polluted the water
table and a major watercourse. Id. at 226-27. Notably, the
allegations against the insured did not specify how the wastes were
released from the facility such that they were able to permeate the
ground, i.e., whether the discharges were sudden and accidental or
the result of regular operations. Id. at 224-25. Thus, the
Dingwell court held that the insurer was required to defend the
insured because the conclusory nature of the underlying complaint
left open the "potential that liability [would] be established
within the insurance coverage." Id. at 226.
By contrast, in A. Johnson, the allegations against the
insured "contained factual details which were totally inconsistent
with any view that the pollution at the [relevant] site was 'sudden
and accidental.'" 933 F.2d at 72. The insured was engaged in the
waste disposal business and was accused of polluting the
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surrounding area. The allegations specifically described how the
discharges occurred: "[H]azardous substances . . . were disposed of
at the Site and in such a manner that they have been or are being
released into the soil and ground water posing a threat to the
environment and to the health of the residents of the area. . . .
[For example, c]racked tanks were observed in a leaking condition
which released their contents onto the ground." Id. at 74-75.
Here, the Citizens complaint alleges only that Barrett
has discharged pollutants that have found their way to the
Penobscot River via sewers and tidal action. As in Dingwell, the
complaint does not specify how the pollutants may have been
released from the facility into the soil or the sewers, i.e.,
suddenly and accidentally, or through routine operations.
Moreover, the underlying allegations are not entirely inconsistent
with a sudden and accidental discharge, as were those described in
A. Johnson. Thus, based solely on the allegations in the Citizens
complaint, the Continental policy potentially covers Citizens's
claims against Barrett,3 and therefore Continental has a duty to
defend its insured.
3
Continental argues that the possibility of coverage is highly
speculative and theoretical, as opposed to "potential." When the
complaint does not address how a discharge occurred and there are
no factual allegations inconsistent with a sudden and accidental
discharge, however, it is equally speculative and theoretical that
pollutants were discharged in any way other than suddenly and
accidentally.
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Continental points out that, in reality, there is no
possibility that the Citizens allegations fall within its coverage
because Barrett stipulated that it was not aware of any sudden or
accidental discharges from the Barrett Plant. The "true facts" of
the situation, however, are relevant only to Continental's ultimate
duty to indemnify, not to its duty to defend. Dingwell, 414 A.2d
at 224. Our review is limited to a comparison of the underlying
complaint with the language of the insurance policy.
Continental finally argues that it is Barrett's burden to
prove that the exception to the pollution exclusion applies in this
case, but that Barrett made no effort to meet its burden. While it
is true that the "the insured bears the burden to establish, for
purposes of indemnification, that this exception . . . has been
satisfied," A. Johnson, 933 F.2d at 76 n.14, Barrett has met its
burden with respect to the comparison test. Barrett has provided
us with both the underlying complaint and the insurance policy,
which show that the Continental policy potentially covers the
Citizens allegations.
B. Attorneys' fees
Continental next challenges the district court's award of
attorneys' fees incurred by Barrett in prosecuting the instant
declaratory action. Under Maine law,
an award of attorney fees to the insured is
appropriate when it is clear from a comparison
of the insurance policy and the complaint that
the insurance company is potentially liable to
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indemnify the insured. An award of attorney
fees is not appropriate if the law is
unsettled with respect to a duty to defend a
particular action or if the possibility that
the insurance policy requires coverage is "not
something that [i]s obvious on the face of the
complaint."
Me. Mut. Fire Ins. Co. v. Gervais, 745 A.2d 360, 363 (Me. 1999).
Continental argues that it was "entirely within its rights to deny
that it had an obligation to defend the Citizens Third Party
Complaint based upon the express policy language and the Court's
decision in A. Johnson," and therefore that it should not be
required to pay attorneys' fees.
We cannot say, however, that the district court abused
its discretion in awarding attorneys' fees in this case. Given the
factual distinctions between A. Johnson and Dingwell, it is fairly
clear to us, as it was to the district court and the magistrate
judge, that Continental was potentially liable to indemnify
Barrett. Furthermore, Maine law concerning the duty to defend in
circumstances such as these is well-settled. Dingwell made clear
that Barrett would not be required to establish that the Citizens
complaint conclusively alleged a sudden and accidental discharge;
rather, Barrett was only required to show that Citizens's claims,
as stated in its complaint, were potentially covered under the
Continental policy. See 414 A.2d at 226-27 ("The correct test is
whether a potential for liability within the coverage appears from
whatever allegations are made. . . . We see no reason why the
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insured, whose insurer is obligated by contract to defend him,
should have to try the facts in a suit against his insurer in order
to obtain a defense.").
C. First State's duty to defend
Under the First State umbrella policy, First State has a
duty to defend Barrett against allegations that are covered by the
terms and conditions of the umbrella policy when those allegations
are not covered by either (1) an underlying policy listed in
Schedule A, without regard to the collectibility of the policy, or
(2) a collectible underlying policy not listed in Schedule A. In
this case, First State's duty to defend Barrett against the
Citizens complaint thus depends on whether the Midland policy is
listed in Schedule A; if so, whether the Midland policy covers the
Citizens allegations; whether any other underlying policy that is
either scheduled or collectible covers the allegations; and whether
the allegations are otherwise covered by the First State policy.
The last two issues are not seriously in dispute. Like
the Continental policy, the First State policy has a pollution
exclusion and related "sudden and accidental" discharge exception.
As discussed above, the Citizens allegations are potentially
covered by such policy language. Thus, under the comparison test,
First State has a duty to defend if the policy otherwise comes into
play. See Dingwell, 414 A.2d at 227 ("[T]he complaint here does
generate a duty to defend, because it discloses a potential for
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liability within the coverage and contains no allegation of facts
which would necessarily exclude coverage." (emphasis omitted)).
First State argues that the Continental policy is an
"other" underlying policy potentially covering the Citizens
complaint, and therefore that First State has no duty to defend
Barrett regardless of the status of the Midland policy. The
problem with this argument is that the Continental policy and the
Midland policy were not in effect at the same time. As First State
stipulated, the Midland policy provided coverage from December 14,
1979 to February 15, 1980, and the Continental policy "replaced"
the Midland policy for the remainder of the relevant umbrella
policy's coverage period. The Citizens complaint does not specify
when the alleged discharges occurred, but alleges only that one or
more discharges occurred since 1979, when Barrett acquired the
Bangor facility. Thus, Barrett is potentially liable for
discharges that occurred during the time period covered by the
Midland policy. Because Midland is no longer available to defend
it, Barrett is seeking a defense based on First State's excess
coverage for that same time period. The Continental policy was not
in effect during that period, and the parties do not suggest that
Barrett was covered by any other liability policy during that
period. Therefore, there are no "other" policies that might affect
First State's duty to defend Barrett based on the excess coverage
over the Midland policy.
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Given that the First State umbrella policy otherwise
potentially covers the Citizens complaint, and no other liability
policies cover the relevant allegations, First State's duty next
depends on whether the Midland policy is listed in Schedule A, a
matter that the parties dispute. Under Maine law, "[a]n insurance
contract must be construed in accordance with the intention of the
parties, which is to be ascertained from an examination of the
whole instrument." State Farm Mut. Auto. Ins. Co. v. Montagna, 874
A.2d 406, 408 (Me. 2005). The interpretation of an unambiguous
contract is a matter of law, the review of which is limited to "the
plain meaning of the language used and . . . the four corners of
the instrument without resort to extrinsic evidence." Am. Prot.
Ins. Co. v. Acadia Ins. Co., 814 A.2d 989, 993 (Me. 2003) (quoting
Portland Valve, Inc. v. Rockwood Sys. Corp., 460 A.2d 1383, 1387
(Me. 1983)). On the other hand, the interpretation of an ambiguous
contract is ordinarily a question of fact. Id. Whether a contract
is ambiguous, i.e., "reasonably susceptible of different
interpretations," is a question of law determined by the reviewing
court. Id. (quoting Acadia Ins. Co. v. Buck Constr. Co., 756 A.2d
515, 517 (Me. 2000)). "[I]f the language of an insurance policy is
ambiguous or susceptible of varying interpretations, then the
policy 'is construed against the insurer in favor of coverage.'"
Geyerhahn v. U.S. Fid. & Guar. Co., 724 A.2d 1258, 1261 (Me. 1999)
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(quoting Genthner v. Progressive Cas. Ins. Co., 681 A.2d 479, 482
(Me. 1996)).
Barrett first argues that the Midland policy cannot be
"listed in Schedule A" because the schedule nowhere mentions the
word "Midland" or any policy number. In support of this argument,
Barrett describes the schedule as a blank form with places to list
specific policies, but with no policies actually listed. In fact,
there is no indication that Schedule A is supposed to be filled in
with specific policies. Rather, the schedule only lists broad
categories of policies and specifies the limits of liability for
each category. Accordingly, we read the First State policy as
unambiguously incorporating into Schedule A all underlying policies
that fall within the broad categories listed.4
One of those categories is entitled "Comprehensive
General Liability." The parties stipulated that the Midland policy
was a primary liability insurance policy, which we interpret as
comprehensive general liability coverage. The parties do not
suggest otherwise. Therefore, as a matter of contract
4
Our interpretation is supported by a reading of the insurance
policy as a whole. See Montagna, 874 A.2d at 408. The purpose of
an umbrella policy is to provide coverage for losses in excess of
the limits of liability of underlying policies. It would make
little sense if the umbrella policy provided for no underlying
policies. A policy is ambiguous if "an ordinary person in the
shoes of the insured would not understand that the policy did not
cover claims such as those brought." Geyerhahn, 724 A.2d at 1261.
Here, it is difficult to see how Barrett could have reasonably
assumed that the very policy for which it purchased the umbrella
policy as excess coverage was not included in Schedule A.
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interpretation, we conclude that the Midland policy is a scheduled
underlying policy under the plain language of the First State
umbrella policy.
Because the Midland policy is listed in Schedule A, First
State has a duty to defend Barrett only if the Midland policy does
not cover the Citizens allegations. The burden is on Barrett to
establish that the allegations fall within the scope of the First
State policy's coverage. See Pelkey v. Gen. Elec. Capital Assur.
Co., 804 A.2d 385, 387 (Me. 2002) ("It is [the insured]'s burden
. . . to show that his injury falls within the scope of the
[insurance] contract."); see also A. Johnson, 933 F.2d at 76 n.14
("[I]t appears that the insured bears the burden to establish, for
purposes of indemnification, that this exception to the 'pollution
exclusion' has been satisfied.") (citing 19 G. Couch, Couch on
Insurance § 79:385 (2d ed. 1983)). Barrett stipulated that it did
not have a copy of the Midland policy and that it otherwise has no
knowledge of the policy's terms and conditions. Absent any attempt
to reconstruct the Midland policy or show that it does not cover
the Citizens complaint, Barrett cannot meet its burden, and we must
affirm the judgment in favor of First State. See Ingram v.
Brink's, Inc., 414 F.3d 222, 229 (1st Cir. 2005) ("[S]ummary
judgment cannot be defeated by relying on improbable inferences,
conclusory allegations, or rank speculation.").
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IV. Conclusion
For the foregoing reasons, we affirm the district court's
judgment against Continental and its entry of summary judgment in
favor of First State. Costs are granted in favor of Barrett with
respect to Continental's appeal, and in favor of First State with
respect to Barrett's appeal.
Affirmed.
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