Lead Opinion
¶ 1. This is thе latest appeal in a long-running dispute over the remediation of environmental contamination of a property formerly owned by plaintiff/appellant Richard Towns in the Town of Johnson. The parties have cross-appealed from a series of trial court rulings relating to the availability of insurance coverage for the costs of investigation and abatement of the contamination under a policy issued by defendant/cross-appellant Northern Security Insurance Company (Northern) for a period of several years in the 1980s. The parties’ claims include assertions that the trial court erroneously; (1) granted summary judgment in favor of Northern on the basis of the policy’s business-pursuits exclusion; (2) rejected Northern’s claim that continuous exposure to contamination during the policy period, which was discovered after the policy had expired, was insufficient to trigger coverage; (3) apportioned defense and indemnity costs between Towns and Northern based on the percentage of time spent on the risk; and (4) rejected Northern’s claim that Towns’s suit was barred by the doctrine of res judicata. Although not addressed by the trial court, claims based on the owned-property exclusion and prompt-notice provisions of the policy are also raised. For the reasons set forth
¶2. Thе underlying facts and procedural history may be summarized as follows. Towns resided at the property in Johnson from 1972 to 1987. During this time, he diverted a substantial amount of waste and debris from his waste-hauling business to the property for use as fill to level a steep embankment and create a safer and larger rear lot. He also used some of the debris to fill a small swimming hole in front of the property. Towns continued to deposit debris at the property until he sold it in June 1987. Thereafter, the new owners, concerned about the fill, contacted the Attorney General’s Office which — after much delay — resulted in an administrative order in September 1996, alleging that Towns had effectively operated a solid-waste facility at the site without certification in violation of 10 V.S.A. § 6605(a). The order required Towns to hire an environmental consultant to develop a site-remediation plan, remove the solid waste, and restore the site with clean fill.
¶ 3. The Environmental Court affirmed the administrative order, and Towns appealed to this Court.
¶ 4. While these matters were proceeding, Towns was also engaged in litigation with his homeowner’s-insurance рroviders, seeking coverage for the defense and cleanup costs incurred in the underlying environmental-enforcement action. Towns’s initial effort in this regard was a lawsuit, filed in June 1997, against Vermont Mutual Insurance Company, which had issued a homeowner’s policy for a residence in Morrisville that Towns occupied after he sold the Johnson property in June 1987. The trial court entered summary judgment in favor of Vermont Mutual, rejecting Towns’s
¶ 5. After a period of some delay (discussed more fully in Part IV, infra), Towns then filed this action against Northern for defense and indemnification costs based on a policy covering the Johnson property from November 1983 to June 1987. Northern, in response, moved to dismiss the complaint, alleging that the claims should have been raised in the earlier Vermont Mutual litigation and were therefore barred by the doctrine of res judicata. The trial court (Judge Martin presiding) denied the motion, finding a lack of identity between the parties and subject matter, and noting in particular that the case against Northern was based on a “wholly different [insurance] contract” from the one at issue in the earlier proceeding. The parties then filed cross-motions for summary judgment, focused principally on the duty to defend. Northern claimed that coverage was foreclosed as a matter of law on the basis of several policy exclusions, including the business-pursuits and owned-property exclusions. Citing the general principle that the duty to defend is broader than the duty to indemnify, the court (Judge Martin presiding) found that the facts alleged were sufficient to create the potential for coverage, and thereby activate the contractual duty to defend. See City of Burlington v. Nat’l Union Fire Ins. Co.,
¶ 6. Following a period of additional discovery and briefing, during which time groundwater contamination was discovered underlying the Johnson property, the court (Judge Katz presiding) issued a decision adopting the so-called “continuous trigger” theory, under which damage from continuous exposure to contaminants during the policy period is an “occurrence” sufficient to trigger coverage. Based on expert evidence showing continuous leakage of hazardous chemicals from the debris into the soil and groundwater underlying Towns’s property during the policy period, the court concluded that the policy had been triggered. In a follow-up decision, the court also rejected Northern’s claim that groundwater contamination must exceed state or federal enforcement standards to be considered property damage under the policy and denied Towns’s motion to hold Northern responsible for all defense and indemnification cоsts, instead applying a pro rata
¶ 7. A new round of summary judgment motions followed, resulting in a written decision in January 2007. Although Northern claimed that coverage was barred on several grounds, including the owned-property and prompt-notice provisions of the policy, the court (Judge Teachout presiding) ruled that the business-pursuits exclusion precluded coverage as a matter of law and did not address the other arguments. The court found that Towns’s use of the debris for personal, nonbusiness purposes (the filling and leveling of his lot) was immaterial because the debris originated from the business and “[djumping the trash” — regardless of location or purpose — “was an ordinary part of [the] business.” Accordingly, the trial court ruled that Northern owed no duty to defend or indemnify Towns as a matter of law, and entered final judgment for Northern. Both parties have appealed, renewing each of the various claims raised below.
I.
¶ 8. We review a summary judgment applying the same standard as the trial court, and will uphold such a judgment if there are no genuine issues of material fact and the moving party is entitled to judgment аs a matter of law. Fireman’s Fund Ins. Co. v. CNA Ins. Co.,
¶ 9. Towns first contends that the trial court erred in concluding that the so-called business-pursuits exclusion bars coverage. The policy contains a standard exclusion denying coverage for bodily injury or damage “arising out of business pursuits
¶ 10. While obviously a context-specific inquiry, we have also identified certain factors relevant to distinguishing business from nonbusiness pursuits. In Gambell, for example, we observed that the acts or omissions alleged to have caused the injury in question did not “contribute to or further the interest of the insured’s business” and were not “directly related to that business,” and we therefore held that the nonbusiness pursuits exception applied to afford coverage under the policy.
¶ 11. Analyzed in the light of these cases and principles, the undisputed record evidence demonstrates definitively that the conduct at issue here falls within the nonbusiness-pursuits exception. As noted, Towns operated a trash-hauling business and, over the course of many years, selectively deposited a portion of the material that he had obtained through the business onto his property to fill and level a steep bank behind his house to make it safer and more accessible for his family. Towns testified without dispute that he did not save money by depositing the debris at his home rather than a landfill because two of the three landfills that he regularly used (the Johnson and Lamoille landfills) did not charge fees during the period in question, and the third (the Hardwick landfill) he owned. The residential property was never used as a disposal site by others.
¶ 13. In reaching a contrary conclusion, our dissenting colleague asserts that the “prolonged duration . . . and the overall amount of the material exceeds any activity that can be characterized as an ordinary personal use.” Post, ¶ 44. Yet the dissent offers no guidance or explanation as to precisely how long or how much filling “activity” may be characterized as “normal” for personal
¶ 14. The dissent relies on two additional out-of-state cases to support the assertion that Towns’s personal use of the fill did “not transform an activity which was essentially business related into one ordinarily incident to nonbusiness рursuits.” Post, ¶ 52 (quoting State Farm Fire & Cas. Co. v. Stinnett,
¶ 15. Nor does Grain Dealers Mutual Insurance Co. v. Farmers Alliance Mutual Insurance Co.,
¶ 16. Northern also relies on the policy’s owned-property exclusion. This standard exclusion provides that coverage does not apply to damage “to property owned by the insured” or to property “rented to, occupied or used by or in the care of the insured.” Northern acknowledges that groundwater contaminatiоn caused by the debris has been discovered under Towns’s property, but argues that the exclusion applies because no evidence has been adduced showing that the groundwater contamination has spread beyond the property, and no off-site remediation has been recommended by the experts or required by ANR.
¶ 17. Numerous courts and commentators have considered whether the owned-property exclusion forecloses recovery of the costs of environmental-response measures employed on the insured’s property. Although their conclusions are not entirely uniform, the vast majority have concluded that coverage is allowed for remediation expenses incurred in connection with the insured’s property when necessary to prevent further injury to property owned by others. As one court has cogently summarized:
In cases where environmental contaminants have migrated from a policyholder’s property to an adjacent property, courts generally have agreed that the owned property exclusion does not relieve the insurer of all liability for response costs incurred by the cleanup of the policyholder’s own property; coverage is not barred if the*335 cleanup is designed to remediate, to prevent or to abate further migration of contaminants to the off-site property.
Hakim v. Mass. Insurers’ Insolvency Fund,
¶ 18. Consistent with this principle, courts have generally held that — in jurisdictions where groundwater is considered to be a public resource or trust of the state rather than privately owned — the owned-property exclusion does not bar coverage of the costs incurred to clean up and abate environmental pollution on the insured’s рroperty when it has contaminated the groundwater below. In such cases, the damage is considered to be to property not owned by the insured, and therefore within the exception allowing coverage for the costs of remediating the source of the contamination, even if located entirely within the insured’s property. In Olds-Olympic, Inc. v. Commercial Union Insurance Co.,
¶ 19. As noted, it is undisputed here that groundwater contamination from the debris deposited by Towns has been discovered beneath his former property. As in many states, however, groundwater in Vermont is not subject to private ownership. Under the Vermont Groundwater Protection Act, it is the express “policy of the state that the common-law doctrine of absolute ownership of groundwater is . . . abolished.” 10 V.S.A. § 1410(a)(5). Consistent with the weight of authority, therefore, we conclude that the groundwater contamination identified in this case is not damage to property “owned” by Towns within the scope of the owned-property exclusion, and that the costs incurred to monitor and clean up the pollution causing the contamination are therefore not excluded from coverage.
¶ 20. We recognize, to be sure, that the Act also declares groundwater to be a mobile resource “necessarily shared among all users,” id. § 1410(a)(3), in which “all persons have a right to the beneficial use and enjoyment . . . free from unreasonable interference by other persons,” id. § 1410(a)(4). We are not persuaded, however, that this right creates an ownership interest sufficient to trigger the owned-property exclusion. See U.S. Aviex Co. v. Travelers Ins. Co.,
¶21. In a related argument, Northern also asserts that groundwater contamination is not “property damage” under the policy unless it reaches levels that exceed state or federal clean-water laws and regulations governing safe drinking water. The policy here contains a standard definition of property damage as “physical injury to or destruction of tangible property.” While the policy provides no additional guidance as to the meaning of “physical injury” or the level of harm necessary to constitute an “injury,” at least one court has interpreted a similar provision to hold that groundwater is not “damaged” unless the contamination exceeds state or federal environmental-protection standards. Muralo Co. v. Employers Ins. of Wausau,
¶22. First, as a factual matter, there is no dispute here that chemicals from the waste and debris deposited by Towns have leached into the groundwater beneath his former property, resulting in contamination in excess of certain enforcement standards of the Vermont Water Quality Standards. The site-investigation report commissioned in response to the State’s administrative order and the Environmental Court ruling sets forth in considerable detail the results of the independent environmental consultant’s sampling and analysis of the groundwater. Under the section entitled “Groundwater Analytical Results,” the report states that
¶23. While the policy language at issue here may provide no clear measure to determine when “damage” or “injury” to groundwater has occurred, we do not believe that — in light of such evidence — any reasonable person could dispute that the standard is met or exceeded here. Indeed, although Northern’s expert hydrologist inaccurately described the report as finding manganese in the groundwater “at levels that exceeded Vermont’s secondary enforcement standards” (as noted, the report found levels of the chemical in excess of primary enforcement standards), even this is to acknowledge contamination in excess of enforcement standards. Nor, in our view, is there any doubt that costs incurred to monitor and remediate contamination, specifically in compliance with a government order finding a risk to public health and safety, fall within the normal understanding and reasonable expectations of an insured reading the damage section in question. See Hardwick,
¶ 24. Our conclusion does not end the matter, however, for factual questions remain as to which remediation costs were incurred to prevent further damage to third-party property within the scope of coverage, and which were incurrеd solely to remedy damage to the insured’s property within the owned-property exclusion, and whether as a practical matter the two can be separated in this case. See Intel Corp.,
III.
¶25. In related claims, Northern asserts on cross-appeal that the trial court erred in adopting the so-called continuous-trigger standard to determine whether there was an “occurrence” resulting in property damage under the policy. In turn, Towns contends that, in applying the continuous-trigger standard, the court erred in allocating defense and indemnity costs between Northern and Towns. Numerous courts and commentators have considered the question of what is necessary under a standard “occurrence” policy, like the one at issue here, to trigger coverage for property damage resulting from environmental contamination that is continuous or progressively deteriorating through successive policy periods. See generаlly Montrose Chem. Corp. of Cal v. Admiral Ins. Co.,
¶ 26. The trial court rejected Northern’s proposal to apply what is known in the trade as a “manifestation” trigger, which requires that the environmental damage be discovered or manifested during the policy period, a standard that would result in a denial of coverage here because the contamination was discovered well after the Northern policy expired. See Fischer, supra, at 644 (under the manifestation theory, the policy is triggered “when the injury became reasonably apparent or known to the claimant”). As
¶ 27. As the trial court here recognized, the continuous-trigger test has gained widespread acceptance among courts across the country as the approach most compatible with the standard occurrence-based policy and the reasonable expectations of the insured in cases involving long-term environmental damage. See Montrose,
¶28. Like most of the standard occurrence-based policies at issue in these decisions, the Northern policy here provides among the stated “conditions” of coverage that it applies only to bodily injury or property damage “which occurs during the policy period.” (Emphasis added.) The policy contains no other conditions
¶ 29. As these and othеr courts have recognized, to conclude otherwise would in effect transform the typically more expensive occurrence-based policy into a cheaper claims-made policy, a form of coverage specifically designed to limit the insurer’s risk by restricting coverage to claims made during the policy period “without regard to the timing of the damage or injury.” Montrose,
¶ 31. Thus, in the common circumstance where hazardous chemicals progressively migrate into the surrounding soil and groundwater underlying an insured’s property, numerous courts have applied the continuous-trigger test to hold each of the insurers on successive policies liable for the resulting environmental damage from the point of initial exposure or contamination through to the last triggered policy. See, e.g., New Castle County v. Cont’l Cas. Co. (CNA),
¶ 32. The record here also supports the trial court’s application of the continuous-trigger test to conclude that environmental damage occurred during the policy period. As Northern’s own expert explained, the leaching of chemical constituents from material placed in the ground generally begins within one to six months with an initial “burst” of constituents lasting several months, followed by a relatively “steady state” of contamination lasting for as long as the material remains in place. Furthermore, Towns testified without dispute that the placement of waste and debris on his property was “ongoing” during the time that he occupied the home from 1972 to 1987, leaving no doubt that chemicals from the material leached into the surrounding soil and groundwater during the period from November 1982 to June 1987, when the Northern policy was in effect. Thus, the trial court correctly determined that a damage-producing “occurrence” was present during the policy period sufficient to trigger coverage.
¶ 33. Although Towns agrees that the trial court applied the correct trigger, he challenges its subsequent decision to apportion only a percentage of the total costs of defense and indemnity to
¶ 34. Many courts and commentators have concluded that the “time on the risk” method of allocating loss to each insurer proportionate to the damage suffered during its policy’s term is most consistent with the continuous-trigger rule and the standard occurrence-based policy provision limiting coverage to damages occurring during the policy term on which it is based. See, e.g., Spartan Petroleum Co. v. Federated Mut. Ins. Co.,
¶ 35. Courts and commentators have also recognized that the time-on-the-risk method offers several policy advantages, including spreading the risk to the maximum number of carriers, easily identifying each insurer’s liability through a relatively simple calculation, and reducing the necessity for subsequent indemnification actions between and among the insurers. See Olin Corp. v. Ins. Co. of N. Am.,
¶ 36. Consistent with the principle that an insurer’s liability for damages resulting from long-term exposure to injury-producing conditions such as environmental pollutants should be proportionate to its time on the risk, many courts have also held that it is appropriate to allocate both the costs of indemnification and the costs of defending claims arising from such long-term conditions. See, e.g., Gulf Chem. & Metallurgical Corp. v. Assoc. Metals & Minerals Corp.,
¶ 37. Furthermore, where the policyholder is self-insured for any period of time on the risk, many courts have concluded that it is equally fair and reasonable to hold the policyholder responsible for that portion of the total defense and indemnity costs over which he or she chose to assume the risk. See, e.g., Olin Corp.,
¶ 38. Consistent with the reasoning of these authorities, therefore, we conclude that the trial court here properly allocated defense and indemnity costs between Towns and Northern based on the percentage of each party’s time on the risk.
¶ 39. Northern’s two remaining claims require no extended discussion. First, Northern renews its claim that the court erred in denying its motion to dismiss on the basis of res judicata. It asserts that the claims should have been raised in Towns’s earlier suit against Vermont Mutual. To recall, in that action, Towns had unsuccessfully attempted to obtain coverage under a Vermont Mutual policy covering the home in Morrisville that he owned and occupied after selling the Johnson property in 1987. We affirmed a summary judgment in favor of Vermont Mutual, rejecting Towns’s claim that the Vermont Mutual policy somehow covered “formerly owned” property of the insured. Towns III,
¶ 40. Northern asserts that the parties, subject matter, and causes of action in the Vermont Mutual litigation were identical to those here, and that any claims against it should have been raised and tried in the earlier proceeding and are therefore barred. See Cold Springs Farm Dev., Inc. v. Ball,
¶ 41. This contention is unpersuasive. Even assuming, as Northern claims, that it was in privity with Vermont Mutual as a wholly owned subsidiary, the subject matter of the two suits involves the interpretation and application of two entirely different insurance policies, and the judgment as to one cannot, by any stretch of reasoning, be binding as to the other. See State Life Ins. Co. v. Goodrum,
¶ 42. Finally, Northern contends that Towns forfeited any coverage by failing to comply with the policy’s prompt-notice requirement. See Coop. Fire Ins. Ass’n v. White Caps, Inc.,
¶ 43. The trial court did not reach the late-notice issue, and we decline to do so here. Apart from the unresolved questions as to whether Towns’s letter substantially complied with the contractual-notice requirement notwithstanding its failure to set forth “the identity of the policy,” and whether such notice was a precondition of coverage, a resolution of the issue may also turn on the fact-specific question of whether Northern was prejudiced as a result of the omission. See Coop. Fire,
The judgment is affirmed in part, reversed in part, and the case remanded for further proceedings consistent with the views expressed herein.
Notes
While affirming the violation, the Environmental Court remanded to the Agency of Natural Resources (ANR) to clarify the remediation section, and subsequently certified ANR’s decision as a final judgment for the purposes of appeal.
The court specifically determined that, during Towns’s ownership of the property, he was self-insured from November 3, 1972 to November 2, 1983, or 4015 days, and was insured under the Northern policy from November 3, 1983 to June 28, 1987, or 1331 days.
The dissent asserts that merely because Towns derived no profit from dumping the material on his property, or that the dumping in fact served no tangible business interest because he could more easily have utilized several landfills at no cost, does not transform the activity into a personal use. Post, ¶ 50. With respect, the existence of a profit motive is certainly relevant to whether an activity “eontribute[s] to or furtherfs] the interest of the insured’s business,” Gambell,
Although the trial court did not reach this issue, ruling that coverage was precluded on the basis of the business-pursuits exclusion, the issue was raised below and has been fully briefed on appeal. Furthermore, as explained in the discussion which follows, the issue does not turn on the resolution of any material disputed facts. Accordingly, in the interest of judicial economy, we deem it appropriate to address the issue. See Cardiff v. Ellinwood,
In State v. CNA Insurance Cos.,
We recognize that courts and commentators have identified and applied different initial triggering events capable of setting off the continuous-trigger theory. Some have measured the damage-producing occurrence from the initial exposure of the soil or groundwater to the hazardous material. See, e.g., Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co.,
Dissenting Opinion
¶ 44. dissenting. I dissent from the majority’s conclusion that Towns’s action of disposing on his property large amounts of construction and demolition debris procured through his business is an activity ordinarily incident to homeownership and therefore excepted from the business-pursuits exclusion in his homeowner’s insurance policy. The prolonged duration of Towns’s disposal, the type of materials deposited, and the overall amount of the material exceeds any activity that can be characterized as an ordinary personal use. I would affirm the trial court’s decision that the business-pursuits exclusion, but not the exception, applies, and therefore that there is no coverage.
¶ 45. As described by the majority, Towns’s homeowner’s insurance policy contained an exclusion for property damage “arising out of business pursuits.” This exclusion was limited by an exception for “activities which are ordinarily incident to non-business pursuits.” The business-pursuits exclusion allows insurance providers to separate the risks associated with business and personal activities and therefore to keep premium levels for homeowner’s policies at a reasonable level. 9A L. Russ & T. Segalla, Couch on Insurance § 128:12, at 128-30 to 128-31 (3d ed. 2006); see Smith v. State Farm Fire & Cas. Co.,
¶46. “[T]he non-business pursuits exception operates to restore coverage for some activities that in fact arise out of the insured’s business pursuits.” 9A Russ & Segalla, supra, § 128:23, at 128-50. In construing such provisions, we have explained that the exception to the exclusion applies when the insured’s activities “are usual to his or her nonbusiness pursuits.” Vt. Mut. Ins. Co. v. Gambell,
¶ 47. In applying the exclusion, the majority concludes that the initial hauling of the debris was for profit and part of Towns’s business, and was thus subject to the business-pursuits exclusion. I agree. The majority, however, further concludes that Towns’s activities fall within the nonbusiness-pursuits exception to the exclusion for two main reasons: because it was ordinary at the time for landowners in a small rural state such as Vermont to deposit fill on their property; and because Towns did not save any money by depositing fill on his property as opposed to at a proper waste disposal site. I find neither reason convincing.
¶ 48. Although it may be true that at times landowners deposit fill on their propеrty, the type of the material Towns deposited and the amount of fill he used preclude any finding that his endeavor was an ordinary personal activity.
¶ 49. In this case, given the large quantity of fill and the industrial nature of the fill, Towns’s disposal of these materials on his property was very different from an operation that an ordinary homeowner might undertake. “[I]t is unlikely the parties expectеd to cover the increased risks associated” with this type of large-scale, industrial activity. Id. at 149; Luneau v. Peerless Ins. Co.,
¶ 50. I also find no basis for the majority’s conclusion that Towns’s conduct “served no business purpose” because he saved no money by depositing the debris at his home. Ante, ¶ 12.
¶ 51. In Luneau, a wedding disc jockey got in a physical fight with a guest. During the fight, a speaker was knocked over and injured the plaintiff. The plaintiff argued that fighting was a nonbusiness activity and therefore there was coverage under the disc jockey’s homeowner’s policy for the injury. This Court disagreed, explaining that it was the disc jockey’s negligence in placing the speaker that was at issue and that this was related to his business duty “to maintain a safe space for his customers.” Id. at 449-50,
¶ 52. Towns does not dispute that he obtained the material he deposited in his yard from sites he was contracted to clean up, that he was paid to remove the debris from those sites, and that without these contracts, he would not have had access to these materials. As the majority recognizes, most homeowners would not have the same means at their disposal. Ante, ¶ 12. Towns obtained the materials through his business and was paid by contract to dispose of the items. Therefore, the activity was “one that the insured would not normally pursue but for the business.” Gambell,
¶ 53. Because disposing of construction and demolition debris was an integral part of Towns’s business and because this disposal far exceeded any expected, ordinary nonbusiness activity, I would affirm the trial court’s conclusion that the business-pursuits exclusion bars coverage in this case. I am authorized to state that Justice Burgess joins this dissent.
In support of its assertion that Towns’s actions were ordinary, the majority relies on information recited in our earlier opinion that the Attorney General’s Office initially told the purchasers of Towns’s property that dumping was a common occurrence in Vermont. Agency of Natural Res. v. Towns,
The majority criticizes this dissent for failing to provide guidance on “precisely how long or how much filling ‘activity’ may be characterized as ‘normal’ for personal use.” Ante, ¶ 13. As the majority recognizes, however, distinguishing business from nonbusiness pursuits is a “context-specific” inquiry. Ante, ¶ 10. Thus, the sole question before us is whether Towns’s activity, when viewed in its entirety, was part of his business, not what activity hypothetically might amount to a nonbusiness pursuit in another situation.
The majority deems Velleman inapposite because the regular and frequent deliveries were business-related material made to a business entrance of the insured’s residence. I fail to understand how this is different from Towns’s regular and frequent delivery of business materials to his home. In any event, the main point is that just as courier deliveries are not so frequent at residences “so as to be an expected adjunct to a homeowner’s activities,” Velleman,