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.
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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."
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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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