New Hampshire Ball v. Aetna Casualty

• Court: Court of Appeals for the First Circuit
• Decided: January 5, 1995
• Docket: 94-1540
• Status: Published

Opinion

USCA1 Opinion

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.



                                         -7-



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."



                                         -9-



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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