Arco Industries Corp. v. American Motorists Insurance

215 Mich. App. 633 (1996) 546 N.W.2d 709

ARCO INDUSTRIES CORPORATION
v.
AMERICAN MOTORISTS INSURANCE COMPANY

Docket No. 187104.

Michigan Court of Appeals.

Submitted July 6, 1995, at Lansing. Decided March 1, 1996, at 9:00 A.M.

Honigman Miller Schwartz & Cohn (by Jay E. Brant, Philip A. Grashoff, Jr., and Mark A. Goldsmith) and Butler Durham & Willoughby (by Sidney D. Durham), for the plaintiffs.

Miller, Canfield, Paddock & Stone (by Kevin J. Moody) and Drinker Biddle & Reath (by T. Andrew Culbert and Paul H. Saint-Antoine), for the defendant.

Before: MICHAEL J. KELLY, P.J., and MacKENZIE and CORRIGAN, JJ.

MacKENZIE, J.

ON REMAND

At the conclusion of a bench trial in this declaratory judgment action, defendant American Motorists Insurance Company (AMICO) was ordered to indemnify its insureds, plaintiffs Arco Industries Corporation and Frederick C. Matthaei, Jr. (hereinafter Arco), for costs Arco incurred as a result of an action brought by the Department of Natural Resources to compel the remediation of chemical contamination at Arco's manufacturing plant. AMICO appealed, and this Court reversed, holding that because Arco expected or intended to contaminate the environment, there was no duty to indemnify. Arco Industries Corp v American Motorists Ins Co, 198 Mich App 347; 497 NW2d 190 (1993). Arco appealed the decision of this Court, and the Supreme Court reversed, concluding that this Court "erred in reversing the determination that neither Arco nor its employees expected or intended to harm the environment." Arco Industries Corp v American Motorists Ins Co, 448 Mich 395, 411; 531 NW2d 168 (1995). The Supreme Court remanded the case to this Court for consideration of issues relating to the duty to defend that had been raised by Arco. Id. at pp 417-418. Additionally, by motions for peremptory reversal and summary affirmance Arco again brought before this Court many of the issues raised but not decided by our previous opinion, including the question of when AMICO's coverage was triggered. On remand, we conclude that, on the facts of this case, coverage could not have been triggered until 1985 and that AMICO therefore had no duty to indemnify or defend in the underlying action. Accordingly, we again reverse the judgment of the trial court.

I

Arco is an automotive parts manufacturer. Its manufacturing plant was built in 1953 and has been operated by Arco since 1967. The manufacturing and cleansing processes employed at the plant by Arco and its predecessor involved certain volatile organic compounds (VOCS). These VOCS were flushed through a drainage system that emptied into a seepage lagoon.

In November 1985, the DNR discovered groundwater contamination by VOCS that had originated from Arco's plant. Subsequent tests showed further contamination of the soil and groundwater beneath Arco's seepage lagoon. In October 1987, the state brought suit to compel remediation. That suit ultimately resulted in a consent decree that required Arco to pay the state $450,000 in response costs and attorney fees. Arco was also required to implement a groundwater treatment system, a soil remediation program, a groundwater purge system, and a groundwater monitoring program.

Arco was insured under several policies during the years it operated the plant. As relevant to this case, Arco sought coverage with respect to the underlying litigation under seven AMICO policies, each for a period of one year, beginning in 1968 and continuing through 1974. The trial court found AMICO liable under these policies and ordered it to indemnify Arco for 68.63 percent of the costs incurred in remediating the contamination and to reimburse Arco its costs in defending the underlying action.

II

We have been instructed by the Supreme Court to consider various issues surrounding AMICO'S duty to defend Arco in the underlying litigation. We conclude that AMICO had no duty to defend Arco in the underlying litigation because coverage was not triggered during the policy period. Accordingly, we conclude that the duty to defend issues are moot.

The duty to defend is essentially tied to the availability of coverage. As stated in Polkow v Citizens Ins Co of America, 438 Mich 174, 178; 476 NW2d 382 (1991), the duty to defend arises in instances in which coverage is even arguable, though the claim may be groundless or frivolous. See also Auto-Owners Ins Co v City of Clare, 446 Mich 1, 15; 521 NW2d 480 (1994). Consistent with this premise, any analysis of an insurer's duty to defend must begin with an examination whether coverage is possible. See id., pp 15-16. If coverage is not possible, then the insurer is not obliged to offer a defense. Id., citing Protective Nat'l Ins Co v Woodhaven, 438 Mich 154, 160; 476 NW2d 374 (1991).

As the Supreme Court in this case noted: "According to the plain meaning of the applicable AMICO comprehensive general liability policy, coverage only exists where an occurrence has taken place." 448 Mich 403. The term "occurrence" is defined as

an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured. [Emphasis added.]

One of the issues raised but not yet addressed by this Court or the Supreme Court in this case is whether the damage resulting from Arco's discharge of contaminants transpired "during the policy period." If it did not, coverage under AMICO's policies is not even arguably possible, and it cannot be said that AMICO had a duty to defend.

The question when the damage resulting from an insured's acts took place is one of whether coverage was "triggered." Arco, supra, 448 Mich 423, n 8 (opinion of BOYLE, J.); Gelman Sciences, Inc v Fidelity & Casualty Co, 214 Mich App 560, 563; 543 NW2d 38 (1995). In Gelman Sciences, this Court held that in environmental contamination cases involving a lengthy interval between the act that actually causes the damage and the discovery of that damage, courts should apply the so-called "manifestation" trigger. Under the manifestation trigger, coverage is triggered at the time that the damage is discovered. Id., p 564. See also Transamerica Ins Co of Michigan v Safeco Ins Co, 189 Mich App 55; 472 NW2d 5 (1991); anno: Event triggering liability insurance coverage as occurring within period of time covered by liability insurance policy where injury or damage is delayed — modern cases, 14 ALR5th 695; Dow Chemical Co v Associated Indemnity Corp, 724 F Supp 474, 478 (ED Mich, 1989).

In this case, there is no dispute that the groundwater and soil contamination at issue in the underlying litigation was not discovered until November 1985 — almost eleven years after the expiration of the last AMICO insurance policy issued to Arco. Applying the manifestation trigger, therefore, it would be impossible for the claims in that case to come within the coverage extended to Arco by AMICO. Because there can be no coverage under the AMICO policies, it was not obligated to defend (or to indemnify) Arco. Compare City of Clare, supra; Woodhaven, supra; Gelman Sciences, supra. In the absence of a duty to defend, the issues raised by Arco and remanded for this Court's consideration are moot.

Reversed.