EnergyNorth v . Underwriters, et a l . CV-97-064-M 06/14/02 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
EnergyNorth Natural Gas, Inc., Plaintiff v. Civil N o . 97-064-M Underwriters at Lloyd’s, Defendant
Opinion N o . 2002 DNH 118
EnergyNorth Natural Gas, Inc., Plaintiff v Civil N o . 99-049-M Utica Mutual Insurance Company; St. Paul Fire & Marine Insurance Co.; Northern Assurance Company of America; Underwriters at Lloyd’s; Century Indemnity Company; and American Re-Insurance Company, Defendants
O R D E R
Plaintiff, EnergyNorth Natural Gas, Inc. (“ENGI”), has filed
several suits in state and federal court seeking declaratory
judgment relative to environmental pollution coverage claims
under “accident” and “occurrence” based insurance policies issued
over the years to it or its predecessors. The suits relate to
different manufactured gas plant (“MGP”) sites around New
Hampshire for which ENGI is legally responsible. These are two
of those suits. Background
A similar ENGI coverage suit, brought in state court, ended
recently when summary judgment was entered in favor of the
defendant insurer. That judgment was affirmed by the New
Hampshire Supreme Court. EnergyNorth Natural Gas, Inc. v .
Continental Insurance Company, 146 N.H. 156 (2001).
In Continental, the court held that ENGI’s conduct (or, more
specifically, that of its predecessors) in dumping, or otherwise
intentionally discharging toxic waste by-products of gas
manufacturing to the environment, met the objective “inherently
injurious acts” test. Accordingly, the court held that resulting
property damage was not covered under the “accident” or
“occurrence” based policies at issue because, as a matter of
state law, an insured’s intentional act cannot qualify as an
accident “when it is so inherently injurious that ‘it cannot be
performed without a certainty that some injury will result.’”
Id. at 162 (quoting Providence Mutual Fire Ins. C o . v . Scanlon,
138 N.H. 3 0 1 , 306 (1994)). 1
1 The court noted that, “since an ‘occurrence’ is defined in terms of an ‘accident’ . . . , it is apparent that to obtain coverage under either the accident-based or the occurrence-based
2 Following the supreme court’s opinion in Continental, this
court directed ENGI to submit a legal memorandum in each of these
cases showing cause why the complaints should not be dismissed
for failure to state a claim o r , in the alternative, why judgment
should not be entered in favor of the defendant insurers on
grounds that, as a matter of state law, “any injury to property
caused by the manufactured gas plant’s normal by-product waste
disposal activity cannot qualify as either an ‘accident’ or an
‘occurrence,’ as those terms are used in the accident and
occurrence based policies at issue in this litigation.” Energy
North Natural Gas, Inc. v . Utica Mutual Insurance Co., N o . 99-
049-M, slip o p . (D.N.H. March 2 2 , 2001); see also ENGI v .
Underwriters at Lloyd’s, N o . C-97-064-M, slip op. (D.N.H. March
2 1 , 2001). ENGI complied and defendants filed responsive
memoranda. Thereafter, the court conducted a hearing at which
the parties presented oral argument in support of their
respective positions.
policies, injury must have been caused by an accident.” Id., at 158 (citation and internal quotation marks omitted).
3 Discussion
In these pending cases (Nos. C-97-064-M and C-99-049-M),
ENGI’s complaints assert claims that are substantively identical
to those that were resolved against it in Continental. Here, as
in Continental, ENGI says that it is the successor in interest to
companies that, during the same time period as that addressed in
Continental, manufactured gas at various sites in New Hampshire;
that the waste by-products generated in the ordinary course of
that process were hazardous substances (e.g., Polyaromatic
Hydrocarbons, tar, emulsions, light oils, e t c . ) ; that those waste
by-products have been detected in the soils and ground water at
the respective sites, as well as in contiguous property and
waterways (e.g., the Nashua and Winnipesaukee Rivers); that ENGI
has been advised by governmental agencies of its potential
liability for remediation costs based upon allegations that the
environmental damage resulted from conduct that was “necessary
and incidental” to the business conducted by ENGI’s predecessors
at the respective sites (gas manufacturing); that ENGI is or may
become liable for money damages to cover remediation costs; and
that the insurance policies at issue provide ENGI with coverage
4 because the pollution damage was caused by one or more
“occurrences” or “accidents.”
I. ENGI’s Complaints Fail to State Viable Causes of Action.
Even indulging every reasonable inference helpful to
plaintiff’s cause, and accepting the facts pled as true, ENGI
cannot recover under any viable theory. See generally Garita
Hotel Ltd. Partnership v . Ponce Federal Bank, F.S.B., 958 F.2d
1 5 , 17 (1st Cir. 1992). The complaints allege little more than
that ENGI i s , or may be held liable for site remediation costs,
as demanded by state and federal environmental agencies, due to
operation–related (i.e., “necessary and incidental”) discharges
of hazardous by-products to the environment. Those potential
damages are not covered by the accident and occurrence based
insurance policies at issue here because, as pled, the acts
resulting in the property damage were, as a matter of state law,
inherently injurious (intentional), as determined by the New
Hampshire Supreme Court in Continental. S o , pollution damage to
property resulting from those acts, whether to land, surface
water, ground water, or contiguous property, does not come within
the meaning of the term “accident” as it is used in the relevant
5 accident and occurrence based insurance policies to describe the
extent of liability coverage. O r , stated differently, nothing in
the complaints – no facts, no conclusory allegations even –
suggests that any event occurred during the relevant policy
periods that might qualify as a covered “accident.”2
Under New Hampshire law, an “accident,” for purposes of
coverage in these cases, is “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.” Continental, 146 N.H. at 1 6 0 , (quoting Vermont Mutual
Ins. C o . v . Malcolm, 128 N.H. 521, 523 (1986)). It has already
been resolved against ENGI, also the plaintiff in Continental,
that a reasonable MGP operator in ENGI’s position during the
relevant decades in which MGP wastes were regularly discharged to
the environment at the Laconia and Nashua sites, would have known
that those waste discharges were certain to cause injury in the
nature of property damage. Continental, 146 N.H. at 164. ENGI
had a full and fair opportunity to litigate that issue (i.e.,
2 Although ENGI has had ample time and reason to do s o , it has made no effort to amend either complaint to allege that some specific cause other than routine operational discharges resulted in the environmental damage at issue.
6 imputed knowledge of the inherently injurious nature of dumping
gas manufacturing wastes) in Continental, and it cannot now
dispute, in these cases, that its predecessors’ acts in
discharging MGP wastes to the environment over the years
constituted inherently injurious acts, the consequences of which
are not covered by defendants’ policies.3
As noted, the gravemen of ENGI’s complaints is that state
and federal environmental agencies assert that the contamination
at the sites and adjacent property and rivers was due to
“operations that were necessary and incidental to the business
conducted by ENGI’s predecessor.” See, e.g., First Amended
Complaint, N o . C-99-049-M (document n o . 7 5 ) . Necessary and
incidental operations are not “something out of the usual,” or
“not anticipated,” or “not naturally to be expected.” That i s ,
property damage from necessary and incidental operations that
were inherently injurious is not “accidental.”
3 Under New Hampshire law, the doctrine of collateral estoppel “precludes the relitigation by a party in a later action of any matter actually litigated in a prior action in which he or someone in privity with him was a party.” In re Alfred P., 126 N.H. 628, 629 (1985)(citation omitted). See also Appeal of Manchester Transit Authority, 146 N.H. 454 (2001).
7 A. The Facts Pled Fail to State Viable Claims.
“[A] complaint should be dismissed under Fed. R. Civ. P.
12(b)(6) for failure to state a claim upon which relief can be
granted ’only if it is clear that no relief could be granted
under any set of facts that could be proved consistent with the
allegations.’” Gorski v . N.H. Department of Corrections, ___
F.3d ___, 2002 WL 1021038 (1st Cir. May 2 4 , 2002) (quoting Hishon
v . King & Spalding, 467 U.S. 6 9 , 73 (1984)) (emphasis added).
“The factual allegations of the complaint are to be accepted as
true, and all reasonable inferences that might be drawn from them
are indulged in favor of the pleader.” Id. (citations omitted).
Under that test, the complaints in these cases fail to state
claims upon which relief can be granted. First, at best they
assert pass-through claims based on regulatory agency allegations
of contamination arising from “necessary and incidental”
operations at MGPs which, under Continental, were “inherently
injurious.” Consequently, they do not describe covered
“accidents” within the meaning of the applicable policies.
Second, no facts or circumstances are pled in either complaint
which, if true, could qualify as a covered “accident.” Third,
8 even construing the complaints exceedingly generously – as
plaintiff itself would construe its own allegations – the
complaints still do not plead any “accidents” that would give
rise to coverage under the policies at issue.
B. Even Crediting As True Those Facts ENGI Now Asserts, But Did Not Allege in the Complaints, it Fails to State Viable Claims.
As to the last point, ENGI says that while damage resulting
from historical dumping of hazardous wastes into tar ponds or
effluent streams that eventually reached ground water and rivers
may well not be covered, given the Continental decision, it i s ,
nevertheless, possible that over the years some pollutant
discharges and concomitant damage occurred at these sites as a
result of discrete accidents. That type of damage, ENGI says, is
also pled (albeit implicitly) in its complaints. ENGI argues
that, as phrased, each complaint seeks insurance coverage for all
property damage resulting from hazardous waste discharges, which
would include coverage for discrete accidental injury. Surely,
argues ENGI, there can be no reasonable dispute that some
contamination at the sites was due in part to “accidents” within
the meaning of the policies. In support of that position ENGI
9 points to events like a 1936 flood at the Nashua plant, or the
likelihood of an occasional unexpected pipe leak, an unintended
spill, or the unintended rupturing of a waste holding tank during
decommissioning, resulting in toxic releases at each site
distinct from operational discharges in effluent streams or to
storage ponds.
But even accepting ENGI’s complaints as fairly pleading
discrete accidental events during the decades of MGP operations,
they still fail. The parties do not directly address the precise
issue that arises, but it is not one of first impression. The
question raised by ENGI’s argument is this: Does an
accident–based or occurrence-based liability policy cover
property damage caused by discrete accidental hazardous waste
discharges where the insured has, for a lengthy period of time,
purposefully and regularly carried on operations involving
continuous gradual pollution of the same site? The answer i s ,
ordinarily, “no.”
10 In Lumbermens Mut. Casualty C o . v . Belleville Indus. Inc.,
938 F.2d 1423 (1st Cir. 1991), the court of appeals confronted a
very similar issue under Massachusetts law, holding that the
occasional accidental discharge of pollutants “in the case of a
company with a history of contributing over a lengthy period to a
gradual accumulation of pollutants” does not bring any part of
the overall property damage related to pollution within insurance
coverage for accidents. Id., at 1428.4 In support of that
conclusion, the court identified a number of reasons why
accidental coverage was unavailable under such circumstances,
such as the infeasibility of attempting to microanalyze the
relative contributions to the overall property damage caused by
occasional accidental releases, and the difficulty of
categorizing litigable fringe events as either “expected” or
“unexpected” (i.e., “a catastrophic tropical storm,” a fire,
spills in transferring wastes to storage tanks, employees
tripping and spilling oil, a pipe break, etc.). “[I]n the case
4 The specific coverage provision at issue in Lumbermens was a “sudden and accidental” exception to a pollution exclusion clause. Here, as in Continental, it is presumed, in ENGI’s favor, that the “accidental” coverage trigger does not require a “sudden” event. So the issues presented here and in Lumbermens are identical: Is there coverage for accidental spills when the insured’s history is one of intentional polluting discharges of the same type at the same site?
11 of a pollution-prone operation, where the emission of pollutants
is part and parcel of the daily conduct of business, there is the
possibility of infinite variations on the usual theme; i.e.,
polluting incidents are likely to occur that are on the fringe of
normal operations but that the company seeks to characterize as
sudden and accidental.” Id.
In short, the court found it inappropriate to microanalyze
“a continuous pattern of pollution” in an effort to “distinguish
between virtually indistinguishable occurrences,” id., in a
search for partial coverage when the “nature of an insured’s
enterprise” and its “historical operations” involved the
“discharg[e] [of] pollutants as an ordinary part of its business
operations.” Id., at 1430. If such discrete “accidents” could
trigger accidental property damage coverage under such
circumstances, the court of appeals observed, “the result would
be that of a very small tail wagging a very large dog.” Id., at
1429.
Here, even if it were possible to read ENGI’s complaints to
cover the allegations they say are included (i.e., discrete,
12 fringe spills or releases qualifying as “accidents”), they still
do not state viable claims for coverage because the type of
“accident” ENGI says it has alleged in its complaints would not,
generally speaking, trigger coverage under the circumstances
pled. To borrow the appellate court’s metaphor, ENGI would, at
the very least, have to plead a very large tail. It has not done
so.
II. Even if ENGI’s Complaints Could be Read to State Viable Claims, Defendants Are Probably Entitled to Judgment as a Matter of Law.
Even assuming a construction satisfying minimal pleading
requirements could be teased from these complaints, defendants
would probably still be entitled to judgment. Discovery is
complete in C-97-064-M (Laconia) but only partially complete in
C-99-049-M (Nashua) because discovery was stayed. Nevertheless,
in light of Continental, ENGI was directed to show cause in each
case not only why the complaints should not be dismissed for
failure to state a claim, but also why judgment should not be
entered in favor of defendants, given what seem to be undisputed
material facts.
13 ENGI does not contest (not seriously anyway) that hazardous
waste by-products of its manufacturing operations were routinely
discharged to the environment at each site in the ordinary
course, over a lengthy period of time. While it hints at
reviving arguments it unsuccessfully made in Continental (i.e.,
it did not intend to cause environmental damage; tar ponds and
effluent discharge streams were customary and socially acceptable
at the time; it was not “disposing” but reclaiming wastes for
reuse when placing them in unlined holding ponds; e t c . ) , ENGI
does not, and cannot in good faith, challenge the essential fact
that MGPs at each site historically discharged hazardous wastes
to the environment as part of normal operations over a long
period of time.5
5 See, e.g., ENGI Answers to Interrogatory N o . 7 , 8 , 1 0 , 1 2 , Exhibits to Memorandum, § 4 (document n o . 1 4 1 ) , C-99-049-M:
ENGI understands that the normal operations of MGPs of this type could result in discharges of materials into the environment. Additionally, leaks and losses were possible from tanks and pipes. ENGI also understands that some MGP residuals may have been released at an off-site location and/or into site ground water, surface water and soil as a result of plant decommissioning, which ENGI believes took place in the 1960s.
Based upon discovery conducted in other coverage
14 ENGI has pointed to nothing in either record that might give
rise to coverage for a discrete, identifiable, segregable
“accident” related to pollution releases at either site. While
it insists that additional discovery in the Nashua case (No. C-
99-049-M) might turn up evidence of accidents during a period
covered by the policies, it does not suggest what those might b e ,
beyond pointing to the existence of “fringe events” like
occasional spills by employees, or leaking pipes, or unexpected
flooding. See Lumbermens Mutual Casualty Co., supra. (Of
course, by additional discovery, ENGI does not necessarily mean
discovery from the defendant insurers, but, instead, discovery
aimed at assisting its already lengthy investigation into
historical events occurring during its predecessors’ ownership
and operation of the MGPs.)
litigation involving ENGI and these defendants, ENGI has come to understand that at least some of the contamination at the former Nashua MGP may have resulted from discharges of MGP wastes which were entirely legal and accepted practices during the periods in which the MGP operated. . . . [D]uring the entire period of time the Nashua MGP operated, it was acceptable and appropriate for its operators to discharge effluent to the adjacent Nashua River . . . . [i]t is also ENGI’s understanding that it was accepted practice during this era to manage demolition wastes on site, including discharges of effluent to adjacent waterways.
15 Accepting ENGI’s argument that evidence exists, or could be
obtained, to support its assertions that pipes leaked, employees
tripped and spilled wastes, floods and hurricanes exacerbated or
contributed to contamination of the site(s), and storage tanks
ruptured during decommissioning, releasing additional pollutants
at the site, still, given the nature of the MGP enterprises and
history of inherently injurious (i.e., intentional) hazardous
waste discharges, pollution damage coverage related to these
sites will not likely be afforded under these policies, as a
matter of New Hampshire law. But, the final bell has not yet
rung.
III. The Changed Legal Landscape and Status of These Cases.
Retrospective criticism of ENGI’s complaints is probably not
entirely fair since they were drafted pre-Continental and, at the
time, were fairly ordinary, broad invocations of coverage. That
is particularly true in light of the absence of clearly developed
“trigger of coverage” law in New Hampshire with regard to
environmental pollution cases. (Why ENGI has made no attempt to
amend the complaints since Continental is not entirely clear, but
16 is likely due to its inability to make the requisite allegations
consistently with Fed. R. Civ. P. 11.)
In any event, Continental has had, and will no doubt
continue to have, far-reaching consequences relative to pollution
remediation in New Hampshire. It is perhaps premature, however,
to read too much into Continental’s seemingly broad reach. The
supreme court did not, for example, explicitly rule out the
possibility of “accident” coverage at MGP sites for any and every
discrete accidental discharge. To be sure, property damage
occasioned by ordinary operations and routine by-product
discharges cannot qualify for coverage under accident or
occurrence policies. And, New Hampshire would likely follow
Massachusetts in ruling out coverage for fringe discharges that
could be anticipated and that do not significantly or
identifiably alter the degree or character of the property damage
caused by years of intentional dumping.
But, Massachusetts law also recognizes that even in
pollution-prone industries, like MGP operations, ‘evidence of a
subsequent unexpected and abrupt release of a significant amount
17 of pollutants into the environment may sometimes defeat the
insurer’s motion for summary judgment” based on a Continental
non-accident or non-occurrence argument. Millipore Corp. v .
Travelers Indem. Co., 115 F.3d 2 1 , 33 (1st Cir. 1997)(emphasis
added). The test for coverage under such circumstances has been
held to be “whether the triggering event is ‘so beyond the pale
of reasonable expectation as to be considered ‘accidental.’” Id.
(quoting Highlands Ins. C o . v . Aerovux, Inc., 676 N.E.2d 8 0 1 , 806
n.10 (Mass. 1997)). Of course, “the insured must bear the burden
of proving that the contamination was caused by [an] . . .
accidental release.” Id. (quoting Aerovux, 676 N.E.2d at 8 0 5 ) .
New Hampshire would likely follow that lead and recognize
the bare possibility of coverage under accident or occurrence
based policies, where a demonstrably distinct and unexpected
accidental discharge of pollutants caused an appreciable amount
of identifiable damage (i.e., more than de minimus), at a site
long polluted by intentional discharges.
Given that bare possibility, and ENGI’s insistence that it
has evidence of discrete accidents, here, as in Millipore, the
18 better and fairer outcome at this point is to permit the parties
to make new submissions, if they wish, in light of the
significant intervening decision in Continental. See Millipore,
115 F.3d at 34. 6 While nothing in the record suggests it can do
s o , ENGI ought to be afforded an opportunity to present what it
can relative to coverage – that i s , qualifying accidental
environmental damage at each site.
ENGI shall, initially, amend its complaints to describe
cognizable causes of action under applicable state law, as it
currently stands, giving fair notice to defendants as to what it
claims by way of qualifying discrete accidents or occurrences,
provided, of course, that it can do so consistently with Fed. R.
Civ. P. 1 1 . Failure to amend to state cognizable claims will
result in dismissal of the current complaints for the reasons
given above.
6 Given the factual realities in each case, and the rather bleak prospects for ENGI under Continental and the standards described in this order, rational business considerations may counsel against bearing additional significant litigation expenses and attorneys’ fees chasing what will likely prove to be uninsured events. And, of course, even if a qualifying accident or two might be found, continued litigation expenses may well exceed by multiples the comparatively small amount of damage ENGI would even be able to prove beyond that caused by its inherently injurious conduct in dumping wastes.
19 The defendant insurers may file motions for summary judgment
in each case within thirty (30) days after amended complaints are
filed, based upon controlling state law. Dispositive motions by
the insurers should, of course, provide evidence of the nature
and duration of alleged inherently injurious acts by ENGI
resulting in pollution damage at the sites, and the nature and
extent of that damage. To survive summary judgment ENGI must
present evidence raising a genuine material issue of fact as to
whether discrete, non-fringe, accidental discharges of pollutants
occurred, during relevant policy periods, that caused an
identifiable and appreciable amount of damage beyond that
occasioned by its inherently injurious acts over the years, for
which it is being held liable.
Discovery is complete in the Laconia case. While discovery
in the Nashua case is stayed in this court, discovery related to
that site has been ongoing in the parallel state case.
Therefore, ENGI should be able to respond quickly in both cases.
It has, after all, been investigating each site for years, and by
this point is certainly in a position to know whether a
qualifying accident occurred. Should ENGI decide to move for
20 relief under Fed. R. Civ. P. 56(f) in the Nashua case, it will be
held strictly to the applicable standards, as the court will be
vigilant in guarding against perpetuation of this litigation
merely for the sake of keeping faint hopes for coverage alive.
Conclusion
While ENGI has not shown cause as directed, nevertheless,
given the dramatic change i n , or clarification o f , applicable
state law relative to MGP operations and resulting site
pollution, the parties ought to be afforded the opportunity to
clarify their respective positions in an orderly procedure under
the rules announced in Continental. ENGI shall amend its
complaints to state causes of action cognizable under applicable
state law, as it currently stands, within fourteen (14) days of
the date of this order, if it can do so in good faith.
Within thirty (30) days of the filing of amended complaints,
the defendant insurers may file appropriate and well-supported
dispositive motions.
21 Within thirty (30) days thereafter, ENGI shall respond to
any dispositive motions filed by the defendant insurers.
SO ORDERED.
Steven J. McAuliffe United States District Judge
June 1 4 , 2002
cc: Bruce W . Felmly, Esq. Doreen F. Connor, Esq. Robert P. Firriolo, Esq. Edmund J. Boutin, Esq. Robert J. Bates, Jr., Esq. Eric A . Kane, Esq. Jeffrey P. Heppard, Esq. Charles P. Bauer, Esq. John D. Frumer, Esq. Michael F. Aylward, Esq. Kevin E . Buchholz, Esq.