Opinion
No. 5-061 / 02-0111
Filed April 13, 2005
Appeal from the Iowa District Court for Black Hawk County, James C. Bauch, Judge.
Hydrite Chemical Company appeals the district court's grant of summary judgment to an insurance company on the ground that Hydrite had breached the conditions precedent to coverage. REVERSED AND REMANDED.
Cynthia Smith and Raymond R. Krueger of Michael Best Friedrich, L.L.P., Milwaukee, Wisconsin, and Charles Becker of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellant.
Michael Resis and Timothy J. Fagan of O'Hagan, Smith Amendsen, L.L.C., Chicago, Illinois, and Jim D. DeKoster of Swisher Cohrt, P.L.C., Waterloo, for appellee United States Fire Insurance.
Michael W. Morrison and Dale R. Kurth of Tressler, Soderstrom, Maloney Priess, Chicago, Illinois, and James R. Hellman of Dutton, Braun, Staack Hellman, Waterloo, for defendant American Motorist Insurance.
Heard by Huitink, P.J., and Miller and Eisenhauer, JJ.
I. Background Facts Proceedings
Hydrite Chemical Company is a Wisconsin-based corporation whose business includes the storage and reprocessing of waste solvents and chemicals for resale. In 1980 Hydrite purchased land and constructed an outdoor tank farm near Waterloo to store its "inventory of virgin and retained solvents." Hydrite's Waterloo facility began operation in 1981.
Hydrite purchased two commercial umbrella insurance policies from United States Fire Insurance Company. These policies were respectively in effect from January 1, 1984, through January 1, 1985, and January 1, 1985, through January 1, 1986. Under the terms of the policies, Hydrite was insured for $25,000,000 in excess liability coverage over $1,000,000 per occurrence and $3,000,000 in aggregate primary coverage.
The policies in the section entitled CONDITIONS, provided:
Upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable to the company or any of its authorized agents. Such notice shall contain particulars sufficient to identify the insured and the fullest information obtainable at the time.
The insured shall give like notice of any claim made on account of such occurrence. If legal proceedings are begun, the insured, when requested by the company, shall forward it to each paper thereon, or a copy thereof, received by the insured or the insured's representative, together with copies of reports of investigations made by the insured with respect to such claimed proceedings.
Each policy also contained the following exclusion:
This policy shall not apply:
. . . .
(f) to liability arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental;. . . .
In 1990 Hydrite began the process of closing its Waterloo facilities. Under the terms of the federal Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901- 6992k (1976), Hydrite was required to dismantle its storage tanks and test for soil and groundwater contamination. While dismantling the tanks, Hydrite employees noticed corroded or missing valves and pinholes on the bottom of some of the tanks. Subsequent soil tests indicated that leaking tanks were the possible cause of contamination.
On November 7, 1991, Hydrite informed the Environmental Protection Agency that the soil and groundwater contamination at the Waterloo site exceeded permissible levels. On October 26, 1992, Hydrite notified its insurers, including U.S. Fire, that "[p]reliminary analytical results from soil and groundwater samples report detections of hazardous substances in soil and groundwater at the Waterloo Facility." By that time, Hydrite spent approximately $45,000 to determine the extent of the resulting contamination.
In September 1993, Hydrite agreed to an Environmental Protection Agency consent order requiring it to remediate groundwater and soil contamination at its Waterloo facility. Hydrite's expected clean-up costs exceed $1 million.
After Hydrite's insurance carriers denied coverage, Hydrite filed suit against seven insurance companies, seeking a declaratory judgment that it was entitled to insurance coverage for its environmental clean-up costs. U.S. Fire, along with the other defendants, moved for summary judgment, citing Hydrite's failure to comply with the earlier quoted notice and pollution exclusion provisions of Hydrite's commercial umbrella policies. The trial court's resulting ruling provides:
Hydrite is contending that the primary event that caused the pollution problem was the rupture of an above-ground waste storage tank alleged to have occurred in the summer months of 1982. . . . Hydrite contends that this is the event that caused contamination to leach into the groundwater.
At the time this tank rupture allegedly occurred, Hydrite was in the process of dealing with a significant groundwater pollution problem at its chemical plant in Cottage Grove, Wisconsin, which is where the waste solvent stored at the Waterloo plant were routinely shipped for processing. Hydrite was aware as early as 1975 that chemical spills could cause environmental problems including groundwater contamination.
. . . .
While Plaintiff contends it was unaware of this rupture, the Court finds that they established, operated, and supervised the operation of this plant as well as their other plants and they are in the best position to determine whether an event occurred. Failing to report this catastrophic spill to the E.P.A. and failing to even take minimal steps to reduce the effects such as removing the gravel and soil that the substance had leaked into substantially prejudiced the defendants. Furthermore, the fact that the defendants never had an opportunity to examine the tank and determine the cause of the rupture and to interview witnesses prejudiced their ability to prepare defenses in this case. No documentation relating to the rupture exists and witnesses gave vastly conflicting testimony about when the occurrence took place and memories of the witneses have been impaired by the passage of time. At least one of the witnesses testified that the rupture occurred as early as 1982 and others said it was between mid-`80s to as late as 1987.
. . . .
Hydrite's experience in dealing with contamination problems at the Cottage Grove site in the `80s should have made it aware that the costs of addressing the tank rupture were reasonably likely to exceed its primary coverage. Hydrite had prior knowledge of its potential liability for substantial cleanup costs and should have notified its excess insurers as well.
Hydrite's declaratory judgment was accordingly dismissed. Hydrite's post-ruling motions were denied, resulting in this appeal.
At the time this case was submitted, U.S. Fire was the only remaining appellee.
On appeal, Hydrite raises the following issues:
HYDRITE'S NOTICE TO THE INSURERES WAS TIMELY, AND EVEN IF UNTIMELY, THE INSURERS HAVE NOT BEEN PREJUDICED.
THE POLLUTION EXCLUSION DOES NOT PRECLUDE COVERAGE FOR GROUNDWATER CONTAMINATION CAUSED BY THE TANK RUPTURE.II. Standard of Review
We review a district court's ruling on a motion for summary judgment for correction of errors of law. Financial Mktg. Servs., Inc. v. Hawkeye Bank Trust, 588 N.W.2d 450, 455 (Iowa 1999). Summary judgment will be upheld when the moving party shows there are no genuine issues of material fact and the party is entitled to judgment as a matter of law. See Iowa R. Civ. P. 1.981(3). In reviewing a motion for summary judgment, we consider the evidence in a light most favorable to the party opposing the motion. Smith v. Shagnasty's, 688 N.W.2d 67, 71 (Iowa 2004).
III. Notice
When a notice provision is written as a condition precedent to coverage under an insurance policy, the insured must show substantial compliance with the condition. Grinnell Mut. Reins. Co. v. Jungling, 654 N.W.2d 530, 541-42 (Iowa 2002). If the insured cannot prove substantial compliance, the insured must show that (1) failure to comply was excused, (2) the requirements of the condition were waived, or (3) failure to comply was not prejudicial to the insurer. Simpson v. U.S. Fidelity Guar. Co., 562 N.W.2d 627, 631 (Iowa 1997). Generally, the question of whether an insured has substantially complied with a notice provision is an issue of fact for the jury. Fireman's Fund Ins. Co. v. ACC Chem. Co., 538 N.W.2d 259, 262 (Iowa 1995).
In considering similar language in an umbrella policy, requiring notice of an occurrence "reasonably likely to involve liability on the part of the [insurer]," the supreme court determined the language must be applied within the context of the insurer's liability as an excess insurer over and above the limits of the company's primary liability insurance coverage. See Interstate Power Co. v. Insurance Co. of N. Am., 603 N.W.2d 751, 757 (Iowa 1999).
In Interstate Power, 603 N.W.2d at 757, Interstate Power Company found out in 1987 that four of its sites were potentially contaminated. In 1989, it learned that clean-up costs at manufactured gas sites may be several million dollars. Interstate Power, 603 N.W.2d at 757. Interstate Power did not notify its excess insurer until 1994. Id. at 758. By that time, Interstate Power had spent several millions of dollars in remediating the contamination at three of the sites. Id. The supreme court concluded:
Given the gross disparity between the costs incurred at the Mason City, Rochester, and Albert Lea sites and other available liability insurance and, based on Interstate's prior knowledge of its potential liability for substantial cleanup costs, we are convinced that the notice given to INA was unreasonably tardy.
Id. The court determined that as to the three listed sites, the insurer was entitled to summary judgment based on late notice. Id.
Contrary to the trial court's conclusions, we determine there are genuine issues of material fact concerning the time at which Hydrite can be reasonably charged with knowledge that its clean-up costs at the Waterloo site could exceed $1 million. Specifically, there is a fact question as to when the relevant tank rupture occurred. While it was likely it occurred in 1982, there was conflicting evidence on this issue. Also, there is a fact question concerning whether Hydrite's clean-up costs were caused by the tank rupture or by leaks from other sources. One expert, Dr. Richard Brown, testified that the tank rupture caused groundwater contamination, while another expert, Dr. Peter Shanahan, testified that groundwater contamination was most likely caused by the leakage of chemicals into the soil over a long period of time. Furthermore, there is a fact question as to when Hydrite became aware that it would be required to spend substantial amounts of money to remediate the contamination. At the time Hydrite notified U.S. Fire its expenses were approximately $45,000 and not all of those expenses were covered under the terms of the policies.
While Hydrite's experiences at its Cottage Grove facility are relevant evidence of Hydrite's knowledge, they alone are insufficient to establish, as a matter of law, that its clean-up cost at the Waterloo facility could exceed $1 million. Unlike the situation in Interstate Power, Hydrite had not spent a relatively large amount of money on clean-up costs at the time it notified U.S. Fire. The trial court erred in concluding otherwise, and we therefore reverse on this issue.
IV. Pollution Exclusion
U.S. Fire alternatively argues that it is "entitled to summary judgment because the soil and groundwater contamination was not `sudden' or `accidental' within the meaning of the exception to the pollution exclusion but the result of routine business practices." It is sufficient to note the resulting factual issues inherent in the conflicting evidence concerning the cause of the contamination at Hydrite's Waterloo facility. There is a genuine issue of material fact concerning whether the cause of the contamination was sudden, or was the result of leakage over a long period of time.
The judgment of the trial court is reversed, and this case is remanded for further proceedings in conformity with this opinion.