GrafTech Internatl., Ltd. v. Pacific Emps. Ins. Co. ( 2017 )

[Cite as GrafTech Internatl., Ltd. v. Pacific Emps. Ins. Co., 2017-Ohio-9271.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105258
GRAFTECH INTERNATIONAL, LTD., ET AL.
PLAINTIFFS-APPELLANTS
vs.
PACIFIC EMPLOYERS INSURANCE CO., ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-13-818739
BEFORE: Stewart, P.J., Boyle, J., and Laster Mays, J.
RELEASED AND JOURNALIZED: December 28, 2017
ATTORNEYS FOR APPELLANTS
Richard D. Milone
Jones Day
51 Louisiana Avenue, N.W., Suite 400
Washington, D.C. 20001
Robert P. Ducatman
Ryan A. Doringo
Jones Day
North Point
901 Lakeside Avenue
Cleveland, OH 44114
ATTORNEYS FOR APPELLEES
John G. Farnan
Weston Hurd, L.L.P.
1301 East 9th Street, Suite 1900
Cleveland, OH 44114
Shane Robert Heskin
White and Williams, L.L.P.
One Liberty Place, Suite 1800
Philadelphia, PA 19103
Rema A. Ina
Gallagher Sharp
1501 Euclid Avenue, 6th Floor
Cleveland, OH 44115
MELODY J. STEWART, P.J.:
{¶1} Eighty-four employees working in smelting plants of Alcoa, Inc., an
aluminum manufacturer, alleged that they suffered injuries from exposure to toxic
coal-tar pitch contained in a product made by plaintiff-appellant GrafTech International,
Ltd. GrafTech demanded coverage and legal representation under a series of insurance
policies issued by its primary insurer, defendant-appellee Pacific Employers Insurance
Company, whose parent company is defendant-appellee ACE American Insurance
Company. Pacific denied coverage under a pollution exclusion that excluded coverage
for any injury caused by a substance introduced into the environment that allegedly causes
the environment to become impure or harmful. GrafTech sought a declaration of its
rights under the policy and asked the court to determine the coverage issue. The court
ruled that the plain language of the pollution exclusion “specifically excludes coverage
under the policy for the types of bodily injury claims that have been asserted against the
Plaintiffs.” GrafTech appeals. We agree with the court that the pollution provision
excludes coverage and that Pacific has no duty to defend or pay for GrafTech’s legal
representation.
{¶2} In the proceedings below, the parties comprehensively addressed a
choice-of-law question that GrafTech maintained was potentially dispositive of three
coverage issues: (1) whether GrafTech is entitled to apply Ohio’s “all sums” rule, which
allows it to seek payment of all the defense costs for each of the coal-tar pitch cases
within a certain selected policy year; (2) whether the “contiguous trigger” rule applies,
triggering coverage under each policy that was in effect from the first date of alleged
exposure to GrafTech’s products and continuing through the date of claim, or death of the
claimant; and (3) whether the coal-tar pitch lawsuits all arise out of a single occurrence
for purposes of satisfying the Pacific policy’s deductible per occurrence.
{¶3} GrafTech argued that the substantive laws of Ohio, Pennsylvania, or
Delaware apply: it is a Delaware corporation based in Ohio and that Pacific has been a
Pennsylvania corporation and was so at the time it issued the policies. Pacific argued
that New York law applies because the Pacific policy had been underwritten, quoted,
negotiated, bound, signed, issued, delivered, and performed in New York. The court
agreed with Pacific and granted a partial summary judgment ruling that New York law
would apply. It provided the Civ.R. 54(B) certification of no just reason for delay.
{¶4} GrafTech appealed from the partial summary judgment. We dismissed the
appeal as nonfinal. Although both the parties and the court claimed that the
choice-of-law determination controlled the outcome of GrafTech’s claims, we noted that
the court specifically refused to determine the merits of GrafTech’s claims by applying
New York law. The failure to do so meant that the trial court had not declared all the
rights and obligations of the parties in a way that determined the action for purposes of
R.C. 2505.02. GrafTech Internatl. Ltd. v. Pacific Emps. Ins. Co., 2016-Ohio-1377, 62
N.E.3d 1031, ¶ 10 (8th Dist.).
{¶5} On remand from the dismissal of the appeal, the court considered the
pollution exclusion contained in the Pacific policy and concluded that exposure to coal-tar
pitch allegedly suffered by the employees was “pollution” that was excluded from
coverage. It rejected GrafTech’s argument that it should use the word “environment” in
a more expansive sense to encompass the “natural world” and not the workplace. The
court noted that the parties defined the word “environment” to include “any air, land,
structure or the air therein, watercourse or water, including underground water.” Under
this definition, a factory or plant was a “structure,” and the issuance of coal-tar pitch into
the air inside the factory or plant would constitute “pollution” under the policy.
{¶6} In this appeal, GrafTech continues to argue that the court erred by deciding to
apply New York law to the coverage issues. This is an argument we need reach only if
we find that the court erred by concluding that the pollution exclusion barred coverage
under the Pacific policy. Because we conclude that coverage for coal-tar pitch is
excluded by the pollution exclusion, we need not consider which state law to apply in
deciding the duty of representation.
{¶7} Both parties agree that, regardless of their differences on the choice-of-law
issue that should apply to Pacific’s duty to defend, there is no difference between the laws
of Ohio and New York with respect to the pollution exclusion. See appellant’s brief at
fn. 4 (“Neither party has identified any difference between the laws of Ohio and New
York with respect to the pollution exclusion, and Pacific framed its argument to the trial
court on the premise that there is no difference.”); Pacific’s brief in opposition to motion
for summary judgment at 3 (“even if Ohio law were to apply, Graftech’s claims still fail.
Among other things, GrafTech’s claims are barred by the absolute pollution exclusion * *
*.”). Given these statements by the parties, we rely exclusively on Ohio law when
addressing the pollution-exclusion issue, with the caveat that by doing so we express no
opinion on whether the law of Ohio or New York applies to the duty- to-defend issue.
{¶8} Insurance policies are contracts that we interpret as a matter of law.
Sharonville v. Am. Emps. Ins. Co., 109 Ohio St. 3d 186, 2006-Ohio-2180, 846 N.E.2d 833,
¶ 6. “The fundamental goal when interpreting an insurance policy is to ascertain the
intent of the parties from a reading of the policy in its entirety and to settle upon a
reasonable interpretation of any disputed terms in a manner designed to give the contract
its intended effect.” Laboy v. Grange Indem. Ins. Co., 144 Ohio St. 3d 234,
2015-Ohio-3308, 41 N.E.3d 1224, ¶ 8, citing Burris v. Grange Mut. Cos., 46 Ohio St. 3d
84, 89, 545 N.E.2d 83 (1989).
{¶9} The relevant portions of the policy state:
This insurance does not apply to any injury, damage, expense, cost, loss,
liability or legal obligation arising out of or in any way related to pollution,
however caused.
Pollution includes the actual, alleged or potential presence in or
introduction into the environment of any substance if such substance has, or
is alleged to have, the effect of making the environment impure, harmful, or
dangerous. Environment includes any air, land, structure or the air therein,
watercourse or water, including underground water.
***
We have no duty to defend any suit arising out of or in any way related to
pollution excluded by this endorsement.
{¶10} GrafTech cites Andersen v. Highland House Co., 93 Ohio St. 3d 547,
2001-Ohio-1607, 757 N.E.2d 329, for the proposition that pollution exclusions apply only
to contamination of the environment, not to personal injury lawsuits alleging localized
exposure to allegedly dangerous products, even if such exposure happens somewhere in
the “environment.” It maintains that the Pacific policy is ambiguous on whether it
applies only to localized pollution of the environment, so it is entitled to have the policy
construed in favor of providing coverage. King v. Nationwide Ins. Co., 35 Ohio St. 3d
208, 519 N.E.2d 1380 (1988), syllabus (“Where provisions of a contract of insurance are
reasonably susceptible of more than one interpretation, they will be construed strictly
against the insurer and liberally in favor of the insured.”).
{¶11} Andersen held that the release of carbon monoxide from a residential heater
located in an apartment building could not be a “pollutant” under a pollution exclusion of
an insurance policy because the parties had not specifically defined carbon monoxide as a
pollutant. Id. at syllabus. The Supreme Court noted that the history and purpose of
pollution exclusions were to protect insurers against claims for “‘gradual environmental
degradation of any type and to preclude coverage responsibility for government-mandated
cleanups.’” Id. at 550, quoting Stempel, Reason and Pollution: Correctly Construing the
“Absolute” Exclusion in Context and in Accord With Its Purpose and Party Expectations,
34 Tort & Ins.L.J. 1, 5 (1998). Because the carbon monoxide claim in Andersen
involved a residential setting — an atypical setting for pollution claims involving
environmental degradation — the Supreme Court found that an insured would have to
“guess” on whether it was excluded. Construing the ambiguity against the insurer, the
Supreme Court held that “carbon monoxide emitted from a malfunctioning residential
heater is not a pollutant under the pollution exclusion of a comprehensive general liability
policy unless specifically enumerated as such.” Id. at 552.
 {¶12} The circumstances here do not raise the same concerns addressed in
Andersen. The alleged toxic exposure in this case occurred in an industrial setting that
would be a prime example of a “traditional” case of environmental pollution. See
Citizens Ins. v. Lanly Co., N.D.Ohio Nos. 1:07 CV 241, 1:07 CV 467, and 1:07 CV 469,
2007 U.S. Dist. LEXIS 78557, 14 (Oct. 23, 2007) (distinguishing Andersen because the
claim “involves residential carbon monoxide poisoning, whereas the instant case involves
industrial asbestos poisoning.”). One of the complaints alleged the following facts about
the aluminum manufacturing process and how coal-tar pitch is used:
Coal tar pitch plays a prominent and omnipresent role in the aluminum
manufacturing process, and is used to line the pots and to make both anodes
and cathodes. The plant used green anode blocks consisting of coke bound
together with coal tar pitch. When the anodes were baked, hydrocarbon
volatiles were released. Coal tar pitch was also used to make the cathodes,
to cover all the pots during the baking process, and applied to all of the
metal columns and even the ventilation systems throughout the plant as an
anti-corrosive, and was additionally used as insulation to prevent corrosion
and fires in the manufacturing process. The application of high
temperatures to coal tar pitch released dangerous hydrocarbons, which
could reach the plaintiff’s decedent and others by way of respiration and by
physical contact with the skin.
Coal tar pitch is used throughout Alcoa’s production process. Alcoa had
production pots in service at the time of Plaintiff’s employment. A
production pot is a large trough approximately 40 feet long and 12 feet wide
and 4 feet deep with nothing inside. Because of their number, workers
were continually stripping and relining the pots. To reline the pots, the
Rockdale plant used seam mix, which contained coal tar pitch. At all
material times, each of the 19 pots were re-lined with approximately 5000
lbs of seam mix. The relining process required the workers to use coal tar
pitch, which exposed Plaintiff’s decedent and other employees by emitting
vapors into the air and dust onto their clothing and skin.
Complaint of Richter at ¶ 31-31.
{¶13} Another complaint made similar allegations about the industrial nature of
the aluminum manufacturing process:
Aluminum is made from an anode and a cathode, which form what is called
a pot. The anode (or positive electrode) is a large block of carbon made
from coke and coal tar pitch. It is inserted in a steel box lined with carbon
made by baking a mixture of metallurgical coke and coal tar pitch. The
lining is called the cathode (or negative electrode). Between the anode and
the cathode is a space filled by electrolyte, which is [sic] mixture that when
heated melts into molten aluminum. It produced aluminum using the
Soderberg process, which uses a continuous anode that is baked from the
heat from the electrolyte cell. During electrolysis, coal tar pitch in the form
of a paste is continuously added to the anode. During the baking process,
the application of high temperatures to the coal tar pitch causes coal tar
volatiles to be emitted in the form of polycyclic aromatic hydrocarbonates
(PAHs). Several of the PAHs emitted from the pots are carcinogenic.
Complaint of Karl at ¶ 24.
{¶14} The allegations show a large-scale, industrial setting for the manufacture
of aluminum. This industrial setting is vastly different from the residential setting in
Andersen.
{¶15} GrafTech maintains, however, that Andersen stands for the proposition that
pollution exclusions were meant to protect insurers against the “explosion” of expensive
pollution clean-up litigation and that “localized” pollution falls outside the purpose of the
pollution exclusion. It argues that a localized release of substances in one part of an
aluminum manufacturing plant is insufficient to constitute a fouling of the “environment”
under the policy because some of the substances may have traveled only a few feet.
{¶16} We must reject this argument. The parties defined the word “environment”
to mean, among other things, any “structure or the air therein.” “[W]ords and phrases
used in an insurance policy must be given their natural and commonly accepted meaning,
where they in fact possess such meaning, to the end that a reasonable interpretation of the
insurance contract consistent with the apparent object and plain intent of the parties may
be determined.” Gomolka v. State Auto. Mut. Ins. Co., 70 Ohio St. 2d 166, 167-168, 436
N.E.2d 1347 (1982), citing Dealers Dairy Prods. Co. v. Royal Ins. Co., 170 Ohio St. 336,
164 N.E.2d 745 (1960), paragraph one of the syllabus. Nothing in the words used by the
parties suggests that the “air” inside a “structure” was intended to make the pollution
exclusion inapplicable to minimal, localized releases of pollutants into the air within a
structure. For purposes of the Pacific policy, the air in a structure can be polluted in part;
or in the terms used by the parties, even a minimal, localized release of pollutants can
render the air within a structure harmful or impure. This is an unremarkable conclusion:
we do not understand GrafTech to suggest, for example, that the same policy definition of
pollution that mentions “water” would not apply to a chemical discharge in Lake Erie that
did not pollute the entire lake. Nothing in the way the parties defined the word
“pollution” makes the pollution exclusion apply only to a release of pollutants in a
structure that is so pervasive that it renders the air throughout the entire structure harmful
or impure.
{¶17} The claims by the employees collectively alleged that they were exposed to
hazardous substances in products that GrafTech supplied to Alcoa as early as 1942. The
employees also alleged that they were exposed to fumes or particles released from the
burning of coal-tar pitch in various parts of Alcoa plants. That these particles may not
have permeated the entire manufacturing plant is immaterial — the insurance policy
required only that the particles make the air inside the structure (the plant) impure or
harmful.
{¶18} In any event, GrafTech does not dispute that the employees alleged that the
release of fumes from coal-tar pitch had the effect of harming the environment or making
the environment impure. See GrafTech motion for summary judgment at 31.1
{¶19} Finally, GrafTech argues that the pollution exclusion does not apply because
all of the employee complaints contain tort allegations regarding the use or handling of a
product manufactured by GrafTech that, if proven, could potentially establish liability on
GrafTech’s part. It maintains that these allegations that GrafTech manufactured and sold
allegedly dangerous products that each employee came into contact with or was exposed
to state a potentially covered claim by GrafTech for which Pacific must pay the defense
cost.
There were allegations to show plant-wide releases of fumes from coal-tar
1
pitch. One employee alleged that in 1977, air monitoring at the Alcoa plant
“showed that excess exposures” to coal-tar pitch “could be found almost anywhere in
the carbon plants and that both pitch dust and volatiles were contributing to the
airborne concentrations.” Phillips’s complaint at ¶ 72. There were other
allegations of airborne “migration” of polycyclic aromatic hydrocarbonates into
various departments at the Alcoa plant. See Pevehouse complaint at ¶ 13.
{¶20} An insurer’s duty to defend is determined by the facts as alleged, not the
legal theory of liability asserted in the complaint. Whaley v. Franklin Cty. Bd. of
Commrs., 92 Ohio St. 3d 574, 576, 2001-Ohio-1287, 752 N.E.2d 267 (court must decide
whether complaint alleges sufficient facts to trigger a duty to defend); Orthopedic &
Neurological Consultants v. Cincinnati Ins. Co., C.P. No. 16CV-5552, 2017 Ohio Misc.
LEXIS 426, 16 (May 8, 2017) (“a plaintiff’s label for their legal theory is not the sole test
for defense, there still must be conduct alleged in some manner that at least arguably
could implicate coverage before a duty of defense can be found.”). The complaints
collectively allege that GrafTech’s products released a toxic substance into the plant.
The complaints further allege that GrafTech negligently failed to provide a safe product,
the normal use of which resulted in a release of toxic chemicals that caused harm to
exposed employees. These are allegations that GrafTech’s products had the effect of
making the environment impure, harmful, or dangerous. The pollution exclusion thus
applies.
{¶21} The court did not err by finding that Pacific had no duty to defend GrafTech
or that it had any duty to pay for GrafTech’s defense of the employee lawsuits. Our
disposition of this assignment of error moots consideration of the choice-of-law question.
See App.R. 12(A)(2).
{¶22} Judgment affirmed.
It is ordered that appellee recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common
pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
______________________________________________
MELODY J. STEWART, PRESIDING JUDGE
MARY J. BOYLE, J., and
ANITA LASTER MAYS, J., CONCUR