Opinion
Case No. 3:02CV7363
September 4, 2003
ORDER
This is a diversity suit for damages arising from the collapse of a storage tank owned by plaintiff Bailey PVS Oxide LLC (Bailey) and manufactured by defendant Plas-tanks Industries, Inc. (Plas-Tanks). This court has jurisdiction pursuant to 28 U.S.C. § 1332. Pending is a motion for partial summary judgment filed by intervening plaintiff Monroe Guaranty Insurance Company, and a motion for partial summary judgment filed by Plas-Tanks. For the following reasons, Monroe's motion shall be granted in part and denied in part and Plas-Tanks' motion shall be granted in part and denied in part.
BACKGROUND
Plaintiff Bailey is a Michigan limited liability corporation with its principal place of business in Canonsburg, Pennsylvania. Co-plaintiff Fulcrum Insurance Company (Fulcrum), which seeks subrogation for monies paid to Bailey following collapse of the tank, is a New York insurance company with its principal place of business in New York City, New York. Defendant Plas-Tanks is an Ohio corporation, with its principal place of business in Hamilton, Ohio.
Plas-Tanks manufactures and sells fiberglass tanks for industrial use. Monroe Guaranty Insurance Company (Monroe), an Indiana insurance company, issued a commercial general liability insurance policy to Plas-Tanks, subject to a pollution exclusion reading, in part:
This insurance does not apply to:
f. Pollution
1) "Bodily injury" or "property damage" which would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" at any time.
(Exh. 2, at 00911). The policy covered the period between June 30, 2000, and June 30, 2001.
Bailey's facility in Delta, Ohio, recycles spent pickling liquor, a liquid solution containing hydrochloric acid used to clean steel. After the liquor cleans steel, it is known as spent pickling liquor. Fulcrum entered into an insurance policy to indemnify Bailey in the event of a covered loss. Kemper Indemnity Insurance Company also entered into an insurance policy to indemnify Bailey for covered losses.
In 1998, Andritz-Ruthner, Inc. (Andritz) purchased 12 tanks from Plas-Tanks and then sold them to Bailey. In August, 2000, Plas-Tanks learned that one of the tanks was torn. Andritz hired Plas-Tanks to repair the tank, and Plas-Tanks did so on October, 12, 2000. One week later, Plas-Tanks learned the tank had failed. According to Plas-Tanks, most of the released liquid was contained within the containment basin surrounding the tank; less than fifty gallons of the spent pickling liquor spilled onto the surrounding pavement, and that washed into a drain leading to a retention pond. The loss resulted in property damage and expenses totaling $729, 201.50, plus expenses for investigating the incident. Fulcrum paid the insured portion of the losses and damages, which totaled $436,205.50.
Bailey sues Plas-Tanks for its insured and uninsured losses on behalf of itself and the subrogated interest of Fulcrum. Bailey has asserted claims against Plas-Tanks for breach of contract, breach of express warranty, breach of implied warranty, and negligent misrepresentation, seeking $736,415.29 in property damage, lost income, and expenses, plus interest and attorneys' fees.
Plas-Tanks informed Monroe of the tank collapse. Plas-Tanks asked Monroe to defend it against Bailey's suit and indemnify it from liability. Monroe is defending Plas-Tanks, but argues in its intervening complaint that its duties to defend and indemnify Plas-Tanks are limited.
On November 8, 2002, this court granted a motion to intervene filed by Monroe. Kemper also has intervened. Monroe then filed a declaratory judgment action against Plas-Tanks to determine its rights and responsibilities under the insurance policy, under O.R.C. § 2721.01et seq. Monroe and Plas-Tanks each have filed motions for partial summary judgment, seeking a determination by this court as to the extent of Monroe's duties to defend and indemnify Plas-Tanks.
STANDARD OF REVIEW
Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact. Id. at 323. The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting Fed.R.Civ.P. 56(e)).
Once the burden of production shifts, the party opposing summary judgment cannot rest on its pleadings or merely reassert its previous allegations. It is insufficient "simply [to] show that there is some metaphysical doubt as to the material facts." Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, Rule 56(e) "requires the nonmoving party to go beyond the [unverified] pleadings" and present some type of evidentiary material in support of its position. Celotex, 477 U.S. at 324.
In deciding the motion for summary judgment, the evidence of the non-moving party will be believed as true, all doubts will be resolved against the moving party, all evidence will be construed in the light most favorable to the non-moving party, and all reasonable inferences will be drawn in the non-moving party's favor. Eastman Kodak Co. v. Technical Servs., Inc., 504 U.S. 451, 456 (1992). Summary judgment shall be rendered only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).
DISCUSSION A. Whether Monroe has a duty to defend Plas-Tanks on all of Bailey's claims
Intervening plaintiff Kemper Indemnity Insurance Company has filed a complaint against Monroe seeking to recover $37,673.46 for payments made to its insured, Bailey, under its policy. Kemper claims a right of subrogation for costs related to environmental control and response, cleanup, and similar damages and expenses. Plaintiff Bailey is seeking an additional $25,000 for environmental cleanup costs, because its policy with Kemper was subject to a $25,000 deductible.
Monroe argues that, according to the terms of the policy's pollution exclusion, it does not have a duty to defend or indemnify for property damage which would not have occurred in whole or in part but for the discharge of pollutants.
In Ohio, the duty to defend is broader than the duty to indemnify. Erie Ins. Exchange v. Colony Dev. Corp., 136 Ohio App.3d 406, 412 (1999). "Where . . . the allegations do state a claim which is potentially or arguably within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer must accept the defense of the claim." Id. at 413. Only if there is no possibility of coverage under the policy based on the allegations in the complaint will the insurer not have a duty to defend the action.Id.
In this case, Monroe concedes that it had a duty to defend and/or indemnify Plas-Tanks for some of Bailey's claims against it. Consequently, Monroe has a duty to defend Plas-Tanks on all of Bailey's claims, even if Bailey's claims are ultimately unsuccessful or are not covered.
B. Whether the policy's pollution exclusion excludes coverage in this case
Monroe argues that it does not have a duty to defend or indemnify any property damage that occurred in whole or in part because of contact with the pickle liquor.
Bailey states that it was required to spend money for asphalt and cement to repair the sidewalks, trenches, foundation around the pump room and the tank farm containment area basin. Monroe argues that because the damage was caused by the pickle liquor, a pollutant as defined in the policy, Monroe does not have a duty to defend or indemnify these claims. Plas-Tanks argues, conversely, that the damage was caused by the flood of liquid, not by the liquid's corrosive effects, and that an identical flood of water would have caused the same amount of damage.
The Sixth Circuit recently summarized the law of insurance contract interpretation in Ohio:
In Ohio, normal rules of contract construction apply to the interpretation of insurance policies. Weiss v. St. Paul Fire Marine Ins. Co., 283 F.3d 790, 796 (6th Cir. 2002). Ohio courts first determine whether contract terms are ambiguous. United Nat'l Ins. Co. v. SST Fitness Corp., 182 F.3d 447, 449 (6th Cir. 1999). A term is ambiguous if it is reasonably susceptible of more than one meaning. Weiss, 283 F.3d at 796 ( citing King v. Nationwide Ins. Co., 35 Ohio St.3d 208, 519 N.E.2d 1380, 1383 (Ohio 1988)). If the terms of the contract are unambiguous the court determines the meaning of the contract. Nationwide Mut. Fire Ins. Co. v. Guman Bros., 73 Ohio St.3d 107, 1995 Ohio 214, 652 N.E.2d 684, 686 (Ohio 1995). Ohio courts give the terms of the contract their plain and natural meaning. Burdett Oxygen Co. v. Employers Surplus Lines Ins. Co., 419 F.2d 247, 248 (6th Cir. 1969); Essex House v. St. Paul Fire Marine Ins. Co., 404 F. Supp. 978, 986 (S.D. Ohio 1975). Following Ohio law, we must give meaning to every paragraph, clause, phrase, and word. Affiliated FM Ins. Co. v. Owens-Corning Fiberglas Corp., 16 F.3d 684, 686 (6th Cir. 1994). Finally, we cannot look to evidence outside of the policy where the contract is clear and unambiguous. Kelly v. Med. Life Ins. Co., 31 Ohio St.3d 130, 31 Ohio B. 289, 509 N.E.2d 411, 413 (Ohio 1987).St. Marys Foundry, Inc. v. Employers Ins. of Wausau, 332 F.3d 989, 992 (6th Cir. 2003).
In this case, the policy's absolute pollution exclusion states that "[t]his exclusion does not apply to . . . `property damage' which would not have occurred in whole or in part but for the . . . release or escape of `pollutants' at any time." (Exh. 2, at 00911). "Pollutants" are defined as "any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed." (Exh. 2, at 00907). Because the spent pickling liquor contained hydrochloric acid, it constituted a type of pollutant.
In St. Marys Foundry, the Sixth Circuit summarized Ohio law on construing insurance policy exclusions:
When an insurance policy includes ambiguous exclusions, "`a general presumPlas-Tankson arises to the effect that that which is not clearly excluded from the operation of such contract is included in the operation thereof.'" Moorman v. Prudential Ins. Co. of Am., 4 Ohio St.3d 20, 4 Ohio B. 17, 445 N.E.2d 1122, 1124 (Ohio 1983) ( quoting Home Indem. Co. v. Plymouth, 146 Ohio St. 96, 64 N.E.2d 248, 250 (Ohio 1945). The exclusion "must be stated clearly in explicit wording setting forth with specificity exactly what is to be excluded." River Servs. Co. v. Hartford Accident Indem. Co., 15 Ohio St.2d 171, 239 N, E.2d 33, 35 (Ohio 1968)). "The insurer, being the one who selects the language in the contract, must be specific in its use; an exclusion from liability must be clear and exact in order to be given effect." Lane v. Grange Mut. Cos., 45 Ohio St.3d 63, 543 N.E.2d 488, 489 (Ohio 1989). As we explained in Burdett:
The basis of this rule is that the insurer — who formulates the insurance contract and proffers it to the insured for the ostensible benefit of the insured in the event of a loss — is responsible for the language employed. Furthermore, the purpose of the contract being to provide insurance coverage, an interpretation of doubtful terms which construes the language to provide such coverage tends to effectuate the presumed good faith intent of the contracting parties.
Burdett, 419 F.2d at 248-249. For these reasons, the insurer, not the insured, bears the burden of proving the applicability of an exclusion in its policy. Cont'l Ins. Co. v. Louis Marx Co., 64 Ohio St.2d 399, 415 N.E.2d 315, 317 (Ohio 1980). Courts should not, however, construe an insurance contract against the insurer in the absence of ambiguity in its language. Karabin v. State Auto. Mut. Ins. Co., 10 Ohio St.3d 163, 10 Ohio B. 497, 462 N.E.2d 403, 406 (Ohio 1984); see also King, 519 N.E.2d at 1383 (holding that only if provisions in an insurance contract are open to more than one interpretation should it "be construed strictly against the insurer and liberally in favor of the insured").St. Marys Foundry, 332 F.3d at 992-93.
In Andersen v. Highland House Co., 93 Ohio St.3d 547 (2001), the Ohio Supreme Court noted that the insurance industry created absolute pollution exclusions in the 1980s, "to bar coverage for gradual environmental degradation of any type and to preclude coverage responsibility for government-mandated cleanup[s]." 93 Ohio St.3d at 547-48. The court held that the insurance company in Andersen had a duty to defend and indemnify the insureds, "because the policy language in question does not clearly, specifically, and unambiguously state that coverage for residential carbon monoxide poisoning is excluded." 93 Ohio St.3d at 549.
Plas-Tanks argues that the policy does not unambiguously exclude coverage where the insured tanks leak a fluid "which does not cause any damage over and above damage that may be caused by an equally heavy non-pollutant such as water or sand." (Doc. 34, at 13.) Plas-Tanks argues that the damage was not caused by the pickle liquor's corrosiveness; rather, the damage was from flooding, which any noncorrosive liquid also would have caused. Further, Plas-Tanks argues, Monroe has not presented any evidence from which this court could conclude that the damage Bailey sustained was more severe than the damage that would have been caused by a spill of noncorrosive liquid.
I find Plas-Tanks's argument well taken. The pollution exclusion clearly applies only to property damage that would not have occurred "but for" the release of the pollutant. As noted, the insurer, not the insured, bears the burden of proving the applicability of an exclusion in its policy. Cont'l Ins. Co. v. Louis Marx Co., 64 Ohio St.2d 399, 415 N.E.2d 315, 317 (Ohio 1980). Based on the history of the pollution exclusion, as described by the Ohio Supreme Court in Andersen, one reasonable interpretation of the pollution exclusion in the policy at issue in this case is that the exclusion applies only to damage caused by pollution's "environmental degradation," not its more general effects as a flood of liquid.
The Ohio Supreme Court in Andersen also was persuaded by the argument that the insured, who was in the business of renting property, would be concerned about carbon monoxide poisoning and so must have intended to seek indemnification from claims arising from such poisoning.
Plas-Tanks argues that Monroe knew, when it wrote the policy at issue in this case, that Monroe was insuring Plas-Tanks's tanks holding industrial liquids, and that these liquids most likely would be used to hold liquids classified as "pollutants" under the exclusion. Plas-Tanks argues that spills from the tanks were an obvious concern, so the company therefore reasonably believed that Monroe would indemnify Plas-Tanks against claims resulting from the release of the liquids from those tanks. Plas-Tanks argues that Monroe should indemnify Plas-Tanks based on that reasonable belief, just as the insured in Andersen was indemnified on the claim based on a reasonable belief of coverage. I agree. It is permissible to look to the intent of the contracting parties, because the policy is ambiguous. Burdett, 419 F.2d at 248-249 The policy is ambiguous because it is unclear whether only damages caused by a pollutant qua pollutant, rather than by a pollutant's more general qualities, which it shares with nonpollutants, are excluded from coverage.
Plas-Tanks argues that because hydrochloric acid was not specifically listed as a type of pollutant, even though the more general term "acid" was included in the definition of "pollutant," the policy does not specifically exclude the claim and Monroe must indemnify Plas-Tanks for the loss. This argument is based on the Ohio Supreme Court's ruling in Andersen, which, which excluded coverage for losses caused by pollutants, which the policy defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." 93 Ohio St.3d at548. The court held in Andersen that because the policy did not specifically list carbon monoxide as a pollutant, the policy was ambiguous and the pollution exclusion did not bar coverage for a claim.
In this case, I find no ambiguity in the term, "acids," as used in the policy, or as applied to hydrochloric acid. Thus, while losses caused by the liquid form of that substance are covered, losses caused by the corrosive effects of its acidic nature are not covered.
The parties' cross-motions for summary judgment shall both be granted in part and denied in part, with the result that Monroe is obligated to indemnify Plas-Tanks for losses due to the liquid nature of the spill, but not those losses due to the acidic nature of the spilled substance.
C. Whether Monroe must indemnify Plas-Tanks for all damages except the tank's replacement
Monroe argues that it does not have a duty to defend Plas-Tanks for costs associated with the repair and replacement of the tank, including Bailey's alleged lost profits and expenses. Monroe argues that the policy does not cover claims for defective workmanship. Plas-Tanks, in response, notes that this argument is premature. Discovery is ongoing in this case. The cause of the tank's failure is in dispute. Summary judgment on this issue, Plas-Tanks argues, is inappropriate.
I agree. Monroe's duty to indemnify Plas-Tanks based on causation simply cannot be determined. Monroe's defective workmanship claim requires findings of fact which this court cannot make at this stage in the case. Monroe's motion for partial summary judgment on this matter must be denied, with leave to renew it.
CONCLUSION
Monroe has a duty to defend Plas-Tanks against all claims Bailey asserts against it. Monroe has a duty to indemnify Plas-Tanks for Bailey's losses caused by the discharge of pickle liquor, but not by the losses caused by the pickle liquor's corrosive qualities. Determining Monroe's potential liability for defective workmanship would be premature.
It is, therefore,
ORDERED THAT:
1. The cross-motions of Plas-Tanks and Monroe Guaranty Insurance Company are granted in part and denied in part with regard to the duty to indemnify for losses caused by the spill, with such duty encompassing losses caused by the liquid, but not the acidic nature of the spilled substance; and
2. The cross-motions of the parties are overruled without prejudice with regard to the demand for coverage for losses caused by the alleged defective repair of the tank.
So ordered.