Boston Gas Company v. Century Indemnity , 529 F.3d 8 ( 2008 )

United States Court of Appeals
For the First Circuit
No. 07-1452
BOSTON GAS COMPANY,
d/b/a KEYSPAN ENERGY DELIVERY,
Plaintiff, Appellee,
v.
CENTURY INDEMNITY COMPANY,
Defendant, Appellant.
__________
CERTAIN UNDERWRITERS AT LLOYD'S LONDON;
CERTAIN LONDON MARKET INSURANCE COMPANIES;
TRAVELERS CASUALTY AND SURETY COMPANY;
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED;
AETNA CASUALTY & SURETY COMPANY;
THE HARTFORD INSURANCE COMPANY,
Third-Party Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Boudin, Chief Judge,
Selya, Senior Circuit Judge,
and Gelpi,* District Judge.
*
Of the District of Puerto Rico, sitting by designation.
Guy A. Cellucci with whom Shane R. Heskin, White & Williams
LLP, David B. Chaffin and Hare & Chaffin were on brief for
appellant.
David L. Elkind with whom John A. Gibbons and Dickstein
Shapiro LLP were on brief for appellee.
William G. Passannante, Eugene R. Anderson, Anderson Kill &
Olick, P.C., Amy Bach and Law Offices of Amy Bach on brief for
United Policyholders, Amicus Curiae.
Robert J. Gilbert and Gilbert & Renton LLC on brief for
Invensys Systems, Inc., Amicus Curiae.
June 10, 2008
BOUDIN, Chief Judge. This is a dispute between Boston
Gas Company ("Boston Gas"), the largest provider of natural gas in
the New England area, and one of its insurers, Century Indemnity
Company ("Century"). Before natural gas became the primary source
of energy in New England, Boston Gas produced gas fuel at
facilities called manufactured gas plants, known in the industry as
"MGPs". These MGPs created gas by heating coal in large ovens,
generating gas which was then purified and piped out for use.
This process also produced a variety of byproducts,
including ash, drip oil, tar and coke. Many are non-biodegradable
and some are deemed carcinogenic, and they now contaminate the
ground and water around many former MGP sites; further, MGPs were
often sited near waterways which were contaminated in turn.1 See
EnergyNorth Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44,
46-47 (1st Cir. 2006). Contamination has been discovered at
twenty-nine former Boston Gas MGPs; this case concerns only one of
those sites, located in Everett, Massachusetts.
Boston Gas operated the Everett MGP from 1908 until
approximately 1969; the MGP produced manufactured gas and also
processed coke oven gas purchased from a nearby coke plant. In
1995, a routine investigation uncovered contamination at the
1
The main contaminant in this case was tar--the chief liquid
byproduct of manufactured gas production. At nearly all MGP sites
some tar escaped confinement and leaked into the environment; once
that leakage occurs, tar tends to migrate and to contaminate soils
and groundwater beyond the borders of the facility's site.
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Everett site. Although the Everett site had been sold to a new
owner (DOMAC, LLC) in 1970, Boston Gas was nevertheless strictly
liable under Massachusetts law for all costs associated with the
investigation and cleanup of the contamination caused by the MGP's
operations.
Boston Gas had purchased three general commercial
liability insurance policies from Century covering the period from
December 1, 1951, through December 1, 1969. Each policy contained
a self-insured retention ("SIR")--essentially a deductible--of
$100,000 for each occurrence resulting in personal injury or
property damage. Above the deductible amount, the policies
provided that Century would cover Boston Gas' "ultimate net loss"
up to the applicable limits of the policies for any liabilities
stemming from bodily injury, property damage, or other harm caused
by an "occurrence." An "occurrence," said the policies, was
an accident, including injurious exposure to
conditions, which results, during the policy
period, in property damage neither expected
nor intended from the standpoint of the
[i]nsured.
After Boston Gas investigated and began to clean up the
contaminated soils and groundwater at and near the Everett site,
Boston Gas warned Century that it might seek indemnification.
Century "reserved its rights," and on October 22, 2002, Boston Gas
filed a diversity law suit against Century in the federal district
court, seeking a declaratory judgment as to Century's obligations
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under the policies and damages for its breach thereof. A three-
week long jury trial followed, focusing upon the Everett site.2
Boston Gas argued in the district court that to recover
under the policies, it needed to prove only that an occurrence had
caused some off-site property damage during the policy periods--
off-site because the policy had an "owned property" exclusion for
damage to Boston Gas' own property. Off-site damage, in Boston
Gas' view, required Century to indemnify Boston Gas for all its
liabilities connected to the occurrence. Century responded that
various exclusions contained in the policies precluded or limited
indemnification.
Importantly, Century argued that Boston Gas was well
aware by 1951 that pollution from the Everett MGP was causing
property damage at or near the site; the costs were therefore
barred by an exclusion requiring that the property damage be
"neither expected nor intended" by the insured. Century also
argued that Boston Gas improperly sought to recover costs expended
to repair and improve the Everett site itself, rather than to
remediate or prevent off-site property damage.
At trial, the jury awarded Boston Gas over $6.1 million
in past remediation expenses; the district court also issued a
2
The other twenty-eight Boston Gas MGPs remain the subject of
a larger dispute. Boston Gas intends to use the outcome of the
Everett trial as an exemplar to establish its rights against
Century with respect to the other sites.
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declaratory judgment obligating Century to pay all future costs
associated with the investigation and environmental cleanup of the
Everett site. Century now appeals on multiple grounds from the
district court's judgment. As usual, the standard of review
depends on the issue. Indianapolis Life Ins. Co. v. Herman, 516
F.3d 5, 8 (1st Cir. 2008).
Allocation among insurers. Century's most far-reaching
claim is that the district court should have limited Century's
liability by allocating Boston Gas' liabilities among all insurers
from whom Boston Gas had purchased general commercial liability
insurance during the Everett MGP's lifespan. Century insured
Boston Gas under various policies from 1951-1969,3 while other
insurers covered Boston Gas during other periods of its century-
long operation.
Century does not now dispute the jury's finding that the
Everett site suffered contamination during the 1951-1969 time
period. Indeed, contamination seemingly occurred over a much
longer period, even though no findings were made as to duration.
Rather, renewing an argument made in the district court, Century
says that manifestly not all of the damage could have been caused
3
The terms of the policies varied. The 1960-66 policy had a
per occurrence limit of $1 million and a SIR of $100,000. The
1966-69 policy contained a limit of $17 million and a SIR of
$100,000. The 1951-60 policy was lost, but the jury found that the
policy had a $1 million policy limit in 1951 and from 1955-1960,
and a limit of $500,000 from 1952-1954. The jury did not determine
the lost policy's self-insured retention limits.
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during its limited period of insurance and its liability should be
no more than its proportionate share. It also urges that its share
should be spread among its various policy years.4
The district court instead applied a method of allocation
referred to in the doctrine as the joint and several, or "all
sums," approach and permitted Boston Gas to recover from Century
its total clean-up liability--subject only to the SIR and policy
limit--under any one of its policies in place between 1951 and
1969. Not surprisingly, Boston Gas selected the policy with the
highest coverage limit--$17 million--and Century was held fully
liable for $6,227,327.90 in damages, less that policy's $100,000
SIR.
On appeal, arguing for pro rata allocation, Century
highlights the policy language--the underscoring is ours--defining
an occurrence as "an accident . . . which results, during the
policy period, in property damage." It asserts that it is not
responsible for damage that occurred outside of the policy period,
so proration among insurers is required. Boston Gas counters that
the policy says nothing about proration, so given an occurrence--
which includes "continuous or repeated exposure to substantially
4
In substance Century wants any award reduced by its policies'
self-insured retention of $100,000 for each year of contamination,
arguing that this approach is consistent with Massachusetts'
requirement that an insured exhaust all available underlying
primary insurance. A.W. Chesterton Co. v. Mass. Insurers
Insolvency Fund, 838 N.E.2d 1237, 1254 (Mass. 2005).
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the same general conditions"--within the policy period, Century is
liable for the "'ultimate net loss' mean[ing] the sum actually paid
or payable" by the insured.
This dispute commonly arises in the context of
environmental damage and toxic exposure disputes--so-called "long-
tail" indivisible injuries attributable to ongoing events without
a single clear "cause." See Russ & Segalla, 15 Couch on Insurance
§ 220:25 (3d ed. 2007). The language of traditional comprehensive
general liability policies--drafted before such law suits became
common--does not neatly map onto these types of injuries. Hickman
& DeYoung, Allocation of Environmental Cleanup Liability Between
Successive Insurers, 17 N. Ky. L. Rev. 291, 292 (1990).
Competing methods have emerged. Some courts have deemed
insurers fully liable--normally, jointly and severally--for all
damages attributable to an occurrence, exposure or contamination
that happened at least in part during the coverage period. See
Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1050 (D.C. Cir.
1981). Others have prorated an insurer's liability, based largely,
but not always exclusively, on the number of years during which
coverage was offered. See Ins. Co. of N. Am. v. Forty-Eight
Insulations, Inc., 633 F.2d 1212, 1224-25 (6th Cir. 1980); Owens-
Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 993-94 (N.J.
1994). The parties agree that Massachusetts law governs here.
-8-
Unfortunately, the Massachusetts Supreme Judicial Court
has not yet resolved this allocation question, A.W. Chesterton Co.
v. Mass. Insurers Insolvency Fund, 838 N.E.2d 1237, 1242 n.3 (Mass.
2005) (expressly reserving the issue), so our choices are two: we
can make our best guess on this de novo review issue, or we can
certify the question and ancillary issues to the SJC. The first
path offers the benefit of expedition but with a risk of error; the
second path, the reverse.5
Although there is one Massachusetts Appeals Court
decision on point, its treatment of the choice between the two
allocation methods is cursory. Rubenstein v. Royal Ins. Co. of
Am., 694 N.E.2d 381, 388 (Mass. App. Ct. 1998); see also Chicago
Bridge & Iron Co. v. Certain Underwriters at Lloyd's, London, 797
N.E.2d 434, 441-45 (Mass. App. Ct. 2003) (adopting joint and
several allocation, but as a matter of Illinois law). Nor is there
a clear consensus among the states as to which method is
preferable. A growing plurality have adopted some form of pro rata
5
Century sought certification of the allocation question
before the district court. The district court stated that it
believed itself to be "compel[led]" by Rubenstein v. Royal
Insurance Co. of America, 694 N.E.2d 381, 388 (Mass. App. Ct.
1998), to adopt the joint-and-several approach, but based its
denial of the motion on the fact that the allocation question was
not outcome determinative. See Mass. S.J.C. Rule 1:03
(certification appropriate only when the disputed question of law
"may be determinative of the cause").
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allocation,6 but a significant number of courts impose joint and
several allocation.7
Nor do policy arguments line up solely behind one
solution. At first blush it may seem illogical to hold a single
insurer, who may have only covered the insured for a single year,
fully liable for the costs of environmental damage that may have
accrued over the course of a century. But that insurer can seek
contribution from other insurers "on the risk" during the
contamination period. See, e.g., Goodyear Tire & Rubber Co. v.
Aetna Cas. & Sur. Co., 769 N.E.2d 835, 841 (Ohio 2002). And the
alternative may force the insured to sue numerous companies in one
suit, if this is possible at all, to avoid inconsistencies.
6
See EnergyNorth Natural Gas, Inc. v. Certain Underwriters at
Lloyd's, 934 A.2d 517, 526 (N.H. 2007); Aetna Cas. & Sur. Co. v.
Commonwealth of Kentucky, 179 S.W.3d 830, 842 (Ky. 2005); Sec. Ins.
Co. of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d 107, 121
(Conn. 2003); Atchison, Topeka & Santa Fe Ry. Co. v. Stonewall Ins.
Co., 71 P.3d 1097, 1134 (Kan. 2003); Consol. Edison Co. of N.Y. v.
Allstate Ins. Co., 774 N.E.2d 687, 695 (N.Y. 2002); Pub. Serv. Co.
of Colo. v. Wallis & Cos., 986 P.2d 924, 935 (Colo. 1999); Domtar,
Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 732 (Minn. 1997);
Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 140-42
(Utah 1997); Owens-Illinois, 650 A.2d at 993-94.
7
See Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769
N.E.2d 835, 841-42 (Ohio 2002); Hercules, Inc. v. AIU Ins. Co., 784
A.2d 481, 494 (Del. 2001); Allstate Ins. Co. v. Dana Corp., 759
N.E.2d 1049, 1058 (Ind. 2001); Am. Nat'l Fire Ins. Co. v. B & L
Trucking & Constr. Co., 951 P.2d 250, 256-57 (Wash. 1998); J.H.
France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 507-08
(Pa. 1993).
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Either method forces courts to indulge in a probable
fiction as to when the event triggering coverage occurred. The pro
rata method assumes an ongoing occurrence causing stable amounts of
damage over time; the joint and several method pretends, even less
plausibly, that a single occurrence caused all the damage, and
allows the insured effectively to choose the year in which that
happened. Both are crude approximations made under conditions of
uncertainty.
Pro rata allocation is generally favored by insurers;
insureds usually prefer joint and several allocation as it
alleviates the need for multiple defendants and possibly multiple
lawsuits. Yet in those jurisdictions that employ the joint and
several method, but limit the insured to making a claim against a
single policy--a method sometimes referred to as joint and several
allocation without stacking, Am. Physicians Ins. Exch. v. Garcia,
876 S.W.2d 842, 853-54 (Tex. 1994)--the insured may collect less
than it would have under pro rata allocation. Bratspies, Splitting
the Baby: Apportioning Environmental Liability Among Triggered
Insurance Policies, 1999 BYU L. Rev. 1215, 1258.
Each method also has secondary implications, which courts
have variously viewed as more or less desirable. One example is
so-called "orphan shares," i.e., damages attributable to years
during which the insured "went bare" or purchased coverage from a
now-insolvent insurer. Pro rata allocation usually (although not
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inevitably) treats the insured as self-insuring for those years, a
result that some courts view (appropriately) as preventing a
windfall, EnergyNorth, 934 A.2d at 526; others as (inappropriately)
depriving the insured of expected protection. Keene, 667 F.2d at
1048-49. The two approaches also differ in the incentives they
create for settlements, in their tendency vel non to consolidate
litigation in one case, and in their treatment of policy
deductibles and excess insurance policies.
For example, under pro rata allocation, the insured will
seek coverage from each insurance policy in effect during the
contamination period and is likely to absorb the self-insurance
retentions of each policy, Pub. Serv. Co. of Colo. v. Wallis &
Cos., 986 P.2d 924, 941 (Colo. 1999), while excess insurance
policies offering coverage only for damages above that prorated
amount will not be triggered. By contrast, under joint and several
liability all damages are attributable to a single year; ordinarily
the insured is responsible for a single deductible and, given the
large sums ordinarily sought, it becomes more likely that excess
insurance will be activated.
That a legal issue is close or difficult is not normally
enough to warrant certification, or else diversity cases would
regularly require appellate proceedings in two courts. But the
dollar amounts involved in this and the follow-on cases for other
sites are very large (see note 2, above); and the allocation method
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could easily matter in future cases not involving these parties.
Although Massachusetts judicial policy is often favorable to the
insured, at least in consumer cases, sister courts in New York, New
Hampshire and Connecticut have adopted the pro rata approach. See
note 6, above.
Perhaps the strongest argument for certification is that
even within the two broad schools of thought, there are additional
nuances complicating any prediction by us of Massachusetts law.
For instance, in joint and several allocation courts divide on
whether an insured is allowed to "stack" multiple policies to
obtain coverage for all their damages; for pro rata allocation,
some courts allocate damages based purely upon the number of years
of coverage, while others allocate based on both years and amounts
of coverage offered.8
Because we have found no controlling SJC precedent on the
allocation question and the issue is determinative of the scope of
Boston Gas' claim, we will certify the questions set forth at the
8
Compare Keene, 667 F.2d at 1049 (allowing insured to seek
coverage only under a single policy), with J.H. France, 626 A.2d at
509 (adopting joint and several allocation with stacking), and
compare Pub. Serv. Co. of Colorado, 986 P.2d at 942 (proration by
years), with Owens-Illinois, 650 A.2d at 993 (proration by years
and limits). See Gillespie, The Allocation of Coverage
Responsibility Among Multiple Triggered Commercial General
Liability Policies in Environmental Cases: Life After Owens-
Illinois, 15 Va. Envtl. L.J. 525, 535 (1996) (listing various
permutations of the pro rata and joint several allocation methods).
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close of this decision to the Massachusetts Supreme Judicial Court
in accordance with Mass. S.J.C. Rule 1:03.
Apportionment of recoverable costs. We now turn to a
connected pair of issues: Century's claim that the district court
failed properly to instruct on the "owned-property exclusion"
contained in Century's policies9 and its separate claim for
judgment as a matter of law as to costs incurred incident to
DOMAC's expansion project. The issues both relate to apportionment
between recoverable and unrecoverable costs and both relate in part
to the DOMAC construction.
Review of the legal correctness of an instruction is de
novo, Cigna Ins. Co. v. Oy Saunatec, Ltd., 241 F.3d 1, 8 (1st Cir.
2001), with deference as to phrasing and emphasis, United States v.
Teemer, 394 F.3d 59, 63 n.2 (1st Cir. 2005). On appeal from the
denial of a motion for judgment as a matter of law, the question
usually is whether, drawing all inferences in favor of the verdict,
the evidence permitted a reasonable jury to render a verdict
adverse to the moving party. FHS Props. Ltd. P'ship v. BC Assocs.,
175 F.3d 81, 85 (1st Cir. 1999).
9
Boston Gas argues that claims of jury misinstruction were not
adequately preserved. Having read the pertinent parts of the
record, we are satisfied that Century made its objections clear at
the charge conference, as required by Fed. R. Civ. Pro. 51(c) and
the case law. See Suprenant v. Rivas, 424 F.3d 5, 15 (1st Cir.
2005).
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Each of the policies Boston Gas purchased from Century
contained a clause stating that "[t]his policy does not apply . .
. to property damage to . . . property owned by the [i]nsured."
Such clauses--like other exclusions--provide the insurer with an
affirmative defense to liability, placing the burden on the insurer
to exclude damage otherwise recoverable. Allmerica Fin. Corp. v.
Certain Underwriters at Lloyd's, London, 871 N.E.2d 418, 425 (Mass.
2007). However, this does not mean that costs of remediation of
the Everett site itself are automatically excluded.
The governing Massachusetts decision on the owned-
property exclusion in environmental spill cases is Hakim v.
Massachusetts Insurers' Insolvency Fund, 675 N.E.2d 1161 (Mass.
1997). There the court held that when pollutants have migrated
from the insured's property to an adjacent property--or perhaps
even when the threat of such migration is imminent--"coverage [to
remediate the insured's property] is not barred if the [on-site]
cleanup is designed to remediate, to prevent or to abate further
migration of contaminants to the off-site property." Id. at 1164
& n.8 (emphasis added).10
The special verdict form asked the jury: "Was the cost of
remediation at the Everett site incurred solely to clean up the
10
Accord Patz v. St. Paul Fire & Marine Ins. Co., 15 F.3d 699,
705 (7th Cir. 1994) (Wisconsin law); Intel Corp. v. Hartford
Accident & Indem. Co., 952 F.2d 1551, 1565-66 (9th Cir. 1991)
(California law); Gerrish Corp. v. Universal Underwriters Ins. Co.,
947 F.2d 1023, 1030-31 (2d Cir. 1991) (Vermont law).
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property of Boston Gas Company, as opposed to eliminating and/or
avoiding, at least in part, contamination of ground water or
adjacent property?" A "yes" answer would have barred recovery; a
"no" answer--which the jury returned--required the jury to specify
"the amount Boston Gas Company has been legally obligated to pay
for the investigation and cleanup as a result of the property
damage at the Everett site caused during the years for which it had
coverage."
Century correctly says that the special verdict form
(standing alone) could easily have led the jury to conclude that
once some of the on-site remediation was justified to cope with
actual or threatened off-site pollution, all of the on-site
remediation costs were covered by the policy. The oral
instructions suggest that this was likely not the intended result.11
But while an instruction might sometimes be so clear as to control
an ambiguous special verdict form, here the special verdict form
demanded an all-or-nothing award.
Boston Gas says that it proved off-site contamination,
but this is not an answer to a claim that the special verdict
erroneously presented an all-or-nothing choice. Under Hakim, some
off-site contamination does not automatically justify recovery of
11
The district court told the jury that "the plaintiff cannot
recover for any costs that were incurred solely to clean up its own
property." But other portions of the instructions--the district
court went on to characterize "the cleanup costs" as an indivisible
sum--cut the other way.
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all on-site remediation. As Hakim explained: "The policy covers
cleanup costs incurred to remediate or prevent further migration of
the contaminants to the off-site waterways. Costs incurred for the
sole purpose of remediating the Hakims' property are barred by . .
. the policy." Id. at 1165-66.
Boston Gas also says that Century provided no evidence
that would have allowed the jury to determine that some of the on-
site costs were solely for the benefit of the site and not
necessary to prevent further off-site pollution. Yet substantial
costs (Century says $3.5 million) were incurred to remove soils and
for other work incident to a project undertaken in 2000 by DOMAC to
expand its operations at the Everett site--or at least the jury
could have so found. These costs are part of the award against
Century.
For example, among other steps, DOMAC removed
contaminated soils and liquids from underground storage tanks--
these tanks were buried under the Everett site when DOMAC first
purchased the property in 1970--at a cost to Boston Gas (under a
sharing agreement with DOMAC) of around $1.6 million. Century says
that this was clearly done for the purpose of giving DOMAC a firm
foundation for its own facilities and not as remediation or
prevention of further off-site damage.
The fact that the jury verdict included the disputed
costs shows only that the jury believed that some costs targeted
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pollution that damaged or threatened off-site property. So we must
remand for a new trial on this issue. This is a relatively narrow
issue, but the amounts are not trivial. In all events, the
principle is clear: only that remediation necessary to protect
against off-site contamination is compensable; further costs,
however useful to mitigate on-site contamination, are not.
Century says that it should have been given judgment as
a matter of law as to a portion of these disputed costs--
specifically, the $1.6 million allocated to the removal of the
contaminated soils. Century argues, first, that the removal was
indisputably for the purpose of the DOMAC expansion project and
therefore excluded; and second, that the soil was contaminated by
underground oil only after DOMAC purchased the property and
Century's coverage ceased. We are not persuaded that the issue
should have been taken from the jury.
The "purpose" of the removal may, as Century claims, have
been to forward the DOMAC expansion; but the relevant question
under the policy and Hakim is whether the removal of that soil was
also objectively necessary because contaminants in the soil posed
a threat to off-site property as well. Similarly, Century's claim
that this all occurred after its policy coverage ended in 1969 begs
the question; the covered "occurrence"--ongoing contamination--
began before and continued during and lasted until after Century's
period of coverage.
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Century points to some evidence that the contamination of
the soil in the tanks occurred during the 1970 project; but Boston
Gas attacked the credibility of Century's expert witness, Richard
Meehan, and offered evidence that the tanks may have been
contaminated at some earlier point and that contamination generally
had spread throughout the Everett site and beyond. This is for the
jury to resolve. Sailor Inc. F/V v. City of Rockland, 428 F.3d
348, 354 (1st Cir. 2005).
Exclusion of Charles Anderson's supplementary expert
report. Century next argues that the district court erred in
precluding one of its expert witnesses, Charles Anderson, from
supplementing his expert report after the expiration of the
deadline for such responses as set by the district court. The test
in such a case is abuse of discretion. Licciardi v. TIG Ins.
Group, 140 F.3d 357, 362-63 (1st Cir. 1998); see also Nat'l Hockey
League v. Metro. Hockey Club, Inc., 427 U.S. 639, 642 (1976) (per
curiam).
In federal practice, an expert must ordinarily file a
report, Fed. R. Civ. P. 26(a)(2)(B), kept current by supplementary
reports if needed, id. 26(e)(2). The trial judge typically sets a
schedule and may exclude non-complying evidence. Id. 26(a)(2)(c);
Macaulay v. Anas, 321 F.3d 45, 50 (1st Cir. 2003). Here, November
30, 2004, was the deadline for the parties to serve reports
containing their experts' complete opinions. The parties were to
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conclude expert depositions by April 1, 2005, file rebuttal reports
by April 22, 2005, and conduct rebuttal depositions by May 13,
2005.
Pursuant to this timetable, Century produced Anderson's
report on November 29, 2004, and supplemented it with a report
filed on March 11, 2005. Anderson was to serve as Century's expert
on the proper categorization of costs; Anderson attested that he
would categorize Boston Gas' site-related expenditures as "legal
costs, site investigation costs, remediation costs, and general
business expenditures"-- presumably to aid the jury in determining
which costs fell within Century's policy exclusions.
On September 16, 2005--approximately two months before
trial was set to begin--Century produced a second supplemental
report from Anderson, which contained (in Century's view) essential
opinions related to Century's owned-property defense. For
instance, the report characterized certain expenses previously
categorized as "remediation" as necessary for on-site construction
activities but not remediation. The new report also contained new
analysis of the costs Boston Gas had incurred in the removal and
disposal of the three underground storage tanks; Anderson planned
to say this project was part of construction activity, not
remediation efforts.
Boston Gas moved to strike Anderson's supplemental
report, complaining that Century sought to inject an entirely new
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theory of defense as to certain costs after the deadline for expert
reports. Century answered that the tardy report was based on
information that Boston Gas had itself belatedly disclosed on
August 16, 2005; this data, Century claims, was previously
unavailable to Century. The district court sided with Boston Gas
and excluded the new report, saying the report was a major change
and prior discovery available to Century undermined Century's
claimed lack of notice.
From our vantage, this was a close call. Century has
some basis for contesting Boston Gas' description of the reports as
reflecting a "sea change," and Boston Gas could have asked to
depose Anderson on his new adjustments. See Johnson v. H.K.
Webster, Inc., 775 F.2d 1, 8 (1st Cir. 1985). But changes in
position shortly before trial complicate scheduling; the district
court's on-the-ground weighing of the factors has to be respected,
absent a clear abuse, Thibeault v. Square D Co., 960 F.2d 239, 244
(1st Cir. 1992); and we are not disposed in this case to override
its judgment. If the limited new trial ordered changes the
calculus, that is a matter for the district court.
Jury instructions on "expected or intended" defense.
Century's policy defines occurrence as "an accident, including
injurious exposure to conditions, which results, during the policy
period, in property damage neither expected nor intended from the
standpoint of the [i]nsured." Massachusetts courts read such
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clauses as exclusions, with the insurer bearing the burden of
proof. Quincy Mut. Fire Ins. Co. v. Abernathy, 469 N.E.2d 797, 800
(Mass. 1984); see also McGinnis v. Aetna Life & Cas. Co. 494 N.E.2d
1322 (Mass. 1986). Placing the burden on Century, the district
court asked the jury on the special verdict form to decide:
Did Boston Gas Company intentionally cause or
know to a substantial certainty that it was
causing contamination of soil and groundwater
at the Everett site in one or more policy
years?
A "yes" answer to this question required the jury to
identify the year or years in which Boston Gas "intentionally
cause[d] or [knew] to a substantial certainty that it was causing
such contamination." But the jury returned a "no" answer,
rendering the exclusion inapplicable. On appeal, Century objects
to the charge based on a remark made by the district court in
explaining its special questions to the jury.
The remark was made by the district judge in seeking to
differentiate between the type of knowledge required by this
"expected/intended" exclusion and another "known loss" exclusion
that Massachusetts courts read into such policies; the latter is a
judicially created exclusion that prevents a policyholder from
recovering for losses from damage that it knew existed before
purchasing an insurance policy. See SCA Servs. Inc. v. Transp.
Ins. Co., 646 N.E.2d 394, 397 (Mass. 1995).
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The court described a known loss as reflecting "knowledge
of damage before the policy becomes effective" as compared to the
expected or intended damage exclusion, which involves "either
intending during the policy year or knowing to a substantial
certainty that it was contaminating during the policy year"
(emphasis added). Century says that the latter direction required
the jury to disregard evidence, heavily relied on by Century, of
Boston Gas' expectations in the years before the first Century
policy went into effect.
Taken literally and in isolation, the underscored
language might be understood as Century contends and might well
misstate Massachusetts law; we can see no reason why knowledge
prior to the policy year would not count against the insured. But
the chance of prejudice is limited because the pertinent charge as
a whole (which Century did not trouble to quote) tended to convey
the correct message and also because common sense tends to reject
the notion that an earlier intention or expectation would not
count.
Anyway, Century failed to object to the district court's
arguable misstatement when the charge was given, Fed. R. Civ. P.
51(c). Century did object to the district court's "expected or
intended" instruction, but did so on grounds unrelated to the
temporal aspect it now criticizes. Cf. Colon-Millin v. Sears
Roebuck de Puerto Rico, Inc., 455 F.3d 30, 40-41 (1st Cir. 2006).
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The misstatement could easily have been corrected on the spot. The
objection is therefore forfeit and we have dealt with the point for
the sake of trial in successor cases.
Declaratory judgment. In addition to awarding the
damages calculated by the jury, the district court granted
declaratory relief requiring Century to indemnify Boston Gas for
all future costs for investigation and cleanup at and around the
Everett site. Century contends--as it did below--that the
declaratory judgment is over-broad because it applies to possible
damage from MGP operations at the Everett site that was not
specifically litigated at the Everett trial.
For instance, Century claims that Boston Gas may use the
declaratory judgment to compel Century to indemnify Boston Gas for
costs incurred to clean up the Mystic River; although the river
abuts the Everett site, Century says that no issue related to the
cleanup of the river was adjudicated as part of the Everett trial.
Century claims that these and some other future costs are "purely
speculative," not the subject of any formulated clean-up plan, and
may be subject to exclusions or defenses that Century was unable to
raise or that were otherwise not at issue during the trial.
The district judge retains substantial discretion in
deciding whether to grant declaratory relief, but--so far as its
grant determines legal liabilities--our review may be more
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searching.12 We are troubled neither by the claim of
speculativeness--there were indications of further damage to the
river--nor about the lack of a final remedial plan. In the
analogous CERCLA context, courts routinely enter declaratory
judgments on liability for response costs or damages. See Kelley
v. E.I. DuPont de Nemours & Co., 17 F.3d 836, 844-46 (6th Cir.
1994).
But the declaratory judgment makes Century liable for
"all costs that Boston Gas has incurred, and will incur, for
investigation and cleanup at and around the Everett site."
Century's obligations are defined by the policy and related
liability rules and, although presumably not intended by the
district court, the judgment could be read to sweep more broadly--
say, to encompass clean-up operations that are necessitated by
future remediation of the Everett site property solely for the
benefit of the new owner.
Surely the entry of declaratory relief in Boston Gas'
favor should not preclude an insurer from contesting the amount of
the requested costs or whether the work undertaken was consistent
with compensable remediation efforts. Cf. Foster v. United States,
922 F. Supp. 663, 664-65 (D.D.C. 1996); see also Am. Cyanamid Co.
12
See generally Diaz-Fonseca v. Puerto Rico, 451 F.3d 13 (1st
Cir. 2006); Ernst & Young v. Depositors Econ. Prot. Corp., 45 F.3d
530, 534 (1st Cir. 1995); Nat'l R.R. Passenger Corp. v. Providence
& Worcester R.R. Co., 798 F.2d 8, 10 (1st Cir. 1986).
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v. Capuano, 381 F.3d 6, 12 (1st Cir. 2004). Whether future costs
may be covered by an exclusion (e.g., for the insured's own
property) or defense is not easily resolved in the abstract. One
can imagine scenarios in which Boston Gas may seek recovery for
costs that Century may deem covered by a defense not yet resolved
or forfeit.
We conclude that as to future costs, Century cannot re-
argue matters that have already been decided, but conversely,
Boston Gas cannot properly seek to recover for future costs spent
purely to remediate its own property where no threat exists of
contamination outside the site. The district court will be able to
determine the scope of litigation when a dispute arises, using
doctrines like collateral estoppel, waiver, and the like to prevent
relitigation of matters that have been, or could have been,
decided.
By its literal terms the declaratory judgment could be
read to encompass costs that are not recoverable under Century's
policy; the district court may not have considered that requiring
Century to indemnify Boston Gas for all costs related to
"investigation and cleanup" may apply more broadly than it
intended. On remand an adjustment is needed in order to clarify
that Boston Gas' entitlement extends only to costs incurred for
remediation not barred by the terms of Century's policies and
consistent with the findings of the jury.
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Statutory prejudgment interest. Mass. Gen. Laws ch. 231
§ 6C provides:
In all actions based on contractual
obligations . . . interest shall be added by
the clerk of the court . . . at the rate of
twelve per cent per annum from the date of the
breach or demand. If the date of the breach
or demand is not established, interest shall
be added . . . at the rate of twelve per cent
per annum from the date of the commencement of
the action.
Based on this provision, the district court calculated prejudgment
interest (roughly $2.5 million) as running from the various dates
that Boston Gas incurred expenses for which it was entitled to
indemnity from Century. For purposes of this calculation, Boston
Gas submitted dated invoices for all of these expenses.
Century argues to us, as it did in the district court,
that interest should instead run from October 22, 2002--the date on
which Boston Gas filed the action--with respect to expenses
incurred before that date. (Both agree that interest on expenses
incurred after the filing date accrues only from the dates they
were incurred.) It says that the date of breach or demand has not
been "established" because there was no jury finding; and, further,
no breach or demand occurred before suit was filed because Boston
Gas had not requested indemnification for specific expenses. Our
review on this claim is de novo. See R.I. Charities Trust v.
Engelhard Corp., 267 F.3d 3, 5 (1st Cir. 2001).
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Massachusetts courts have repeatedly stated that, where
a case is tried to a jury, the jury is to pass on the question of
whether and when (for purposes of section 6C) breach occurred or a
demand was made. Deerskin Trading Post, Inc. v. Spencer Press,
Inc., 495 N.E.2d 303, 308 (Mass. 1986) (in jury case neither trial
judge or appellate court can decide issue); see also Berish v.
Bornstein, 770 N.E.2d 961, 979-980 (Mass. 2002). Here, neither
party sought a special verdict finding on this question.
Federal courts in diversity cases are bound to follow
state substantive law, but whether a judge or jury should decide an
issue is a matter of court practice or procedure. Byrd v. Blue
Ridge Rural Electrical Cooperative, Inc., 356 U.S. 525 (1958),
expressly decided that the distribution of issues between judge and
jury is "not bound up with rights and obligations," so as to commit
a federal court to follow the state rule. Id. at 538; see also
Hanna v. Plumer, 380 U.S. 460, 465 (1965); Mayer v. Gary Partners
& Co., 29 F.3d 330, 333 (7th Cir. 1994).
Boston Gas is entitled, under Massachusetts law, to
prejudgment interest at the statutory rate from the date of "breach
or demand"; but in a federal court federal practice governs who
determines that date. Our case law does not appear to have
directly addressed this question before. Occasionally, on this or
like issues, we have referred to state practice, e.g., Saint-Gobain
Indus. Ceramics Inc. v. Wellons, Inc., 246 F.3d 64 (1st Cir. 2001)
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(where no one seems to have argued that federal law should govern),
but without a considered holding.
In federal practice, usually the jury is required to pass
on all elements of damages; yet prejudgment interest is routinely
added by the judge on motion to alter or amend the judgment under
Fed. R. Civ. P. 59(e), e.g., Osterneck v. Ernst & Whinney, 489 U.S.
169, 171-72 (1989), and the district judge decides based on
"considerations of fairness" whether to award interest at all and
at what rate. Bd. of County Comm'rs of Jackson County v. United
States, 308 U.S. 343, 352 (1939).
If interest were required to be awarded from a certain
date by right, and there were a genuine factual dispute as to that
date, then a federal court might yield to the jury, cf. Erskine v.
Van Arsdale, 82 U.S. (15 Wall.) 75, 77 (1872); but even this is not
beyond doubt since judges do determine facts in certain contexts,
see Markman v. Westview Instruments, Inc., 517 U.S. 370, 378
(1996). The inquiry, to the extent that the seventh amendment is
invoked, is largely historical. Id.We need not engage in that inquiry here because we are
convinced that no factual questions are implicated. The material
facts are known and undisputed. On August 4, 1995, Boston Gas
wrote to Century to give notice of the contamination:
This will serve as notice of circumstances
indicating the potential for claims against
Boston Gas Company ("Boston Gas") arising out
of alleged contamination . . . . You are
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hereby notified that Boston Gas claims
entitlement to coverage under the referenced
policies with respect to any claims or
liabilities that may arise out of any
contamination of the referenced sites.
Century responded on July 22, 1996, writing that until it could
"obtain additional factual information," it will "reserve all
rights, at law and in equity, to disclaim coverage under the terms,
conditions, definitions and exclusions of the policies."
The letter explicitly warned that it "should not be
understood as either accepting or disclaiming coverage but, rather,
as notice to Boston Gas that coverage may be in jeopardy under the
policies." Century says that, thereafter, Boston Gas never
requested payment for specific expenses or submitted particular
invoices to it for reimbursement, and Boston Gas does not claim
otherwise. In other words, until this suit there was never a
refusal to pay any invoice, either specifically or categorically.
On the present record, no date of "breach or demand" has
been established, and Boston Gas is entitled to statutory interest
only from the date of filing suit (or later, for those expenses
that post-dated the filing). The Supreme Judicial Court has held
that a demand should inform the defendant "of the basis and extent
of its obligations, as well as the fact that performance was then
due." Town of Lexington v. Town of Bedford, 393 N.E.2d 321, 324
(Mass. 1979). Boston Gas' letter, which gave notice only of the
"potential" for claims (presumably to satisfy notice requirements),
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did not do so; it was not an "unequivocal demand[] for payment."
Gen. Dynamics Corp. v. Fed. Pac. Elec. Co., 482 N.E.2d 824, 830
(Mass. App. Ct. 1985).
In allowing interest from the dates of the invoices, the
district court relied on Sterilite Corp. v. Continental Casualty
Co., 494 N.E.2d 1008 (Mass. 1986), holding that an insurer who
breached its duty to defend was liable for interest from the dates
that the insured, "on notice that the defendant would refuse to pay
for those expenses, was forced to pay those expenses itself." Id.
at 1011. But Century had not disclaimed coverage, cf. Protective
Life Ins. Co. v. Dignity Viatical Settlement Partners, L.P., 171
F.3d 52, 55 (1st Cir. 1999), and was not bound to make payments in
the absence of specific requests to do so.
Missing policies. Century's last objection is easily
dispatched. Century challenges the jury's findings on the limits
of liability for the insurance policies Century issued to Boston
Gas between 1951 and 1960. Although Boston Gas sought coverage
for liabilities at the Everett site under the Century policy in
effect from 1966-1969, Boston Gas--presumably to protect its own
interests in subsequent cases and in settlement discussions--
requested that the jury find the limits of Century's policy XPL-
3392, which was in effect from 1951 through 1960. The jury
concluded that the policy had an annual limit of $500,000 during
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the 1952-54 time period, and a limit of $1,000,000 in all the other
years.
Neither party produced a copy of policy XPL-3392;
possibly the policy, over a half century old, was lost or perhaps
destroyed at some point in the intervening years. Under
Massachusetts law, the loss of a policy is not fatal to a claim:
the proponent of the policy simply bears the burden of proving--
e.g., by business records and expert testimony--the prior existence
and terms of the policy. Rubenstein, 694 N.E.2d at 384. Century
now claims that the jury's findings as to the terms of policy XPL-
3392 are unsupported by the evidence.
At trial, evidence was produced by both sides as to
Century's insurance practices during the relevant period; for
example, Boston Gas placed in evidence a 1951 Century insurance
policy issued to Brooklyn Union Gas Company. Boston Gas relied
heavily on the language of the 1960-66 policy, XPL-5607, which
stated that it was a renewal of XPL-3392; Boston Gas' former
director of risk management, Stephanie Shepard, testified that the
term "renewing" meant that XPL-5607, which had an annual limit of
$1,000,000, renewed a prior policy with similar coverage and
limits.
Boston Gas also relied on testimony about reinsurance
practices from Judith Harnadek, an assistant vice-president in
Century's claim handling department, to show that XPL-3392 was
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valued somewhere between $500,000 and $1,000,000. Century, in
turn, attempted to impugn Shepard's knowledge of insurance
practices during the 1950s and said that Harnadek's testimony
established that Century's insurance practices were highly variable
and the policy limits of XPL-3392 could not be determined with any
certainty.
The jury's determination of raw facts stands unless it is
unsupported by any rational view of the evidence. Marcoux v. Shell
Oil Prods. Co. LLC, 524 F.3d 33, 40 (1st Cir. 2008). Here a jury
could reasonably be persuaded by Boston Gas' evidence showing that
XPL-5607 served as a renewal of the earlier XPL-3392, as well as by
the documentary evidence of contemporaneous policies issued by
Century to other manufactured gas companies. Century produced
evidence casting doubt on Boston Gas' position, but nothing that
compelled a different finding.
Conclusion. The questions specified below will be
referred to the Massachusetts Supreme Judicial Court for its
consideration. We have decided all other issues, confirming that
the certified issues do affect the ultimate outcome. The questions
are as follows:
1. Where an insured protected by
standard CGL policy language incurs covered
costs as a result of ongoing environmental
contamination occurring over more than one
year and the insurer provided coverage for
less than the full period of years in which
contamination occurred, should the direct
liability of the sued insurer be pro rated in
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some manner among all insurers "on the risk,"
limiting the direct liability of the sued
insurer to its share but leaving the insured
free to seek the balance from other such
insurers (see pages 9-13, above) ?
2. If some form of pro rata liability
is called for in such circumstances, what
allocation method or formula should be used
(see page 13, above)?
3. If a single insurer in such
circumstances is subject to liability under
more than one policy and each policy has a
separate deductible or self-insured retention,
should the insured be able to collect covered
losses from a single policy subject only to
that policy's deductible or self-insured
retention, or should liability be reduced by
the sum of the applicable self-insured
retentions, effectively allocating total
liability across the policies of that insurer
in effect during the contamination period (see
page 7 and note 4, above)?
We would also welcome any additional observations about relevant
Massachusetts law that the Supreme Judicial Court may wish to
offer.
The clerk of this court is directed to forward to the
Massachusetts Supreme Judicial Court, under the official seal of
this court, a copy of the certified questions and our decision in
this case, along with a copy of the briefs and appendix filed by
the parties in this case. We retain jurisdiction over this appeal
and will frame our ultimate decision and judgment after receiving
such guidance on the certified questions as the SJC may be prepared
to give. No costs will be taxed at this stage of the proceedings,
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but the issue may be revisited after we have received the answers
to the certified questions.
It is so ordered.
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