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09/17/96 FRUIT LOOM v. TRAVELERS INDEMNITY COMPANY

September 17, 1996

FRUIT OF THE LOOM, INC., PLAINTIFF-APPELLANT,
v.
THE TRAVELERS INDEMNITY COMPANY, AND TRANSPORTATION INSURANCE COMPANY, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County. Honorable Albert Green, Judge Presiding.

As Corrected November 22, 1996.

Presiding Justice Hartman delivered the opinion of the court: Scariano and DiVITO, JJ., concur.

The opinion of the court was delivered by: Hartman

PRESIDING JUSTICE HARTMAN delivered the opinion of the court:

This appeal concerns environmental pollution at a plant Fruit of the Loom, Inc. (FOTL) formerly owned in Bridgeport, Connecticut. FOTL sought a declaratory judgment against defendants Travelers Indemnity Company (Travelers) and Transportation Insurance Company (Transportation) for failing to defend it in connection with the subject pollution. Travelers and Transportation filed answers and affirmative defenses. Travelers also filed a counterclaim seeking a declaration that it had no duty to defend or indemnify FOTL.

Following cross-motions for summary judgment between Travelers and FOTL, the circuit court initially granted partial summary judgment for FOTL but, upon motion for reconsideration, vacated its earlier order and granted partial summary judgment for Travelers instead. Subsequently, the court granted summary judgment for Transportation as well. FOTL appeals.

The issues presented include whether (1) a "suit" was filed giving rise to the insurers' duties to defend; (2) defendants are estopped from raising noncoverage as a defense where the underlying action was settled before either defendant filed a declaratory judgment action; (3) defendants' "intentional damage" exclusions bar coverage; (4) FOTL breached its duty to notify; (5) defendants' "pollution exclusions" bar coverage; and (6) FOTL waived its extra-contractual claims by not raising them on appeal. We need address only issue one, under point I of this opinion, and issue five, under point II of this opinion, for disposition of this appeal.

From the mid-1950s to the late 1970s FOTL, through a former subsidiary, Universal Manufacturing Corporation (Universal), operated a leased facility in Bridgeport (Bridgeport plant) to manufacture electrical capacitors. Universal used low-chlorinated liquid polychlorinated biphenyls (PCBs) to impregnate the capacitors. One such agent, Aroclor 1242, was used until approximately 1972; another, Aroclor 1016, was used until 1978. PCBs, dielectric compounds that increase the efficiency of capacitors, are essentially insoluble in water. The Bridgeport plant initially used 55 gallons of PCBs each week to impregnate its capacitors, which rose to approximately 2,000 gallons per week prior to its discontinued use of PCBs in February 1978.

Universal purchased the PCBs from Monsanto Company (Monsanto) which, as early as 1963, placed warning labels on its Aroclor products concerning toxicity, and distributed product bulletins informing customers of toxicity and safe handling of the product. In the late 1960s, Monsanto discovered PCBs' harmful effects on the environment of which it informed Universal in March 1969. Monsanto specifically advised Universal to keep all chemicals well contained and, subsequently, to exercise the highest degree of control in its storage of PCB products. In May of 1970, Monsanto began to label Aroclor 1242 with a caution stating "extreme care should be taken to prevent any entry into the environment through spills, leakage, use, disposal, vaporization or otherwise." Aroclor 1016 was similarly labeled. Monsanto's warnings about the dangers of PCBs also were placed on its shipping documents and invoices. In February of 1970, however, Monsanto notified Universal that low-chlorinated PCBs (less than 54%) "have not been found in the environment and appear to present no potential problem to the environment." Aroclor 1016 contained 42% chlorine. In July of 1971, Monsanto sent a product bulletin to Universal, urging that "every care should be taken by users of PCB-containing products to prevent entry into the environment ***." The bulletin proposed nine guidelines for users of PCBs to follow. *fn1

The Bridgeport plant used large amounts of lower-chlorinated PCBs to impregnate the capacitors, about one million pounds each year. Some of these PCBs escaped from the capacitor impregnation room through the wood and steel flooring, down into the underlying oil reclamation room where it leached into the concrete slab beneath the plant and leached through the concrete into the soil and groundwater beneath the oil reclamation room. The "source point" for this contamination was the capacitor impregnation area at the Bridgeport plant. It was an ongoing process.

A Universal foreman, Robert Delvy, testified that PCB drippage occurred all the time; it was an ongoing problem to keep certain areas clean. He later testified that the drippage occurred occasionally and that the drippage was always cleaned up because "it was slippery and somebody could fall." Universal used chipboard to absorb the oil and "spent tons of money trying to keep the floor in reasonably good condition." Some drippage soaked through a protective floor to the underlying wood floor and into the basement area. Delvy stated that during the early 1980s, Universal made several efforts to clean up the PCB contamination and that material from years before was contaminated, including wood, walls and floors.

Universal had stored PCB drums in its plant parking lot at one time; it excavated most of the parking lot in an effort to clean up PCB contamination. In the past, Universal poured PCBs into the sewer drains. Delvy "pumped probably 3 or 400 gallons right out an exhaust port of a vacuum pump out onto the driveway and down the street and [it] ran into sewer drains and [it] ran into the railroad viaducts on more than one occasion." Delvy poured PCBs into the external drains in the plant; he and "other people" did this as a practice for a time when he was young until he was stopped. In the 1960s, the practice of pouring PCBs into the sewer was discontinued. Delvy did not know whether the drippage of PCBs was causing property damage.

Despite Universal's precautionary measures, pipe leaks and overflows continually occurred in the impregnation area, for example, when "somebody forgot to put a clamp on a chamber door" or when a "bottom clamp was left open." When significant spills occurred, the employees used "speedy dry"; when lesser amounts spilled on the floor, the chipboard was "put there to soak it up." Employees often got PCB oil on their shoes and tracked the oil throughout the plant, which was "not specifically" cleaned up.

Although one Monsanto employee reported that the Bridgeport plant was very clean, other Monsanto employees were concerned about the spillage at the plant. A Monsanto report indicated that Universal was losing about "6 1/2 lbs. per week out of vent lines." The report concluded that Universal was losing approximately one "tank car of Aroclor per year."

The Bridgeport plant was inspected several times prior to 1986. In 1976, the Connecticut Department of Environmental protection (DEP) and the Federal Environmental protection Agency (EPA) inspected the Bridgeport plant. They issued an abatement order which stated that Universal is "maintaining a condition which reasonably can be expected to create a source of pollution to the waters of the state ***." The order did not allege any contamination of the building, soil or groundwater, but ordered Universal to investigate all sources of PCBs associated with the manufacturing of capacitors and to institute any necessary procedures or modifications to ensure no contamination by PCBs. Universal was required to submit a report detailing the use and disposal of PCBs.

A 1981 EPA inspection report cited Universal for several violations including improper disposal and storage of PCBs and labeling and recordkeeping of PCB containers.

On November 17, 1982, DEP inspected the Bridgeport plant in order to verify the findings by EPA one year earlier. In its report, DEP noted a "4' x 15' spill next to the flood tank," as well as "numerous spills throughout the processing section of the facility." DEP sampled the spills to determine the presence of PCB. The report noted the "spillage might be DOP," a non-PCB fluid. DEP also cited Universal for failing to keep proper dating and recordkeeping of PCBs. The report also noted another extensive spill of waste oil but indicated that the oil was DOP.

On February 1, 1983, DEP conducted another inspection of the facility. In August of 1983, EPA sent Universal a notice of noncompliance, relating to the 1982 and 1983 inspections. The notice of noncompliance stated that Universal had improperly stored PCB "drums in the basement of your facility where the masonry walls had small cracks and the floor had an opening which may permit spilled PCB fluid to flow from the storage area." DEP's report of 1982 noted that it concurred in the findings concerning the basement area but the inspectors were unable to find an "opening" noted in the 1981 report.

In 1986, FOTL sold Universal and its interest in the Bridgeport plant to MagneTek. A Connecticut statute known as the "Transfer Act" required a seller of corporate realty to certify to both DEP and the buyer that either (1) there is no contamination on site, or (2) one of the parties to the sale agrees to be responsible for any clean up of the site. On January 29, 1986, FOTL certified to DEP that FOTL would remain responsible for the economic consequences of any remedial action. The certification stated that the Bridgeport plant "utilized PCB until 1978" and that, despite "prior cleanup efforts, residual PCB contamination from pre-1978 activities has recently been discovered." FOTL also certified that it would remove any hazardous waste at the Bridgeport plant "in accordance with procedures and a time schedule approved by the Commissioner of Environmental Protection pursuant to an order, stipulated judgment, or consent agreement."

In the spring of 1986, Universal retained Memphis Environmental Center (Memphis) as environmental manager at its Bridgeport plant. Memphis became responsible for managing all issues concerning PCB contamination. Memphis advised DEP of remedial plans at the Bridgeport plant in the summer of 1986, which remedial measures were implemented in order to "minimize employee exposure to surface and airborne PCB contamination." On November 19, 1986, FOTL submitted a report to DEP "summarizing the results of in-plant and soil and groundwater data collection, and recommended a phased approach to remediation at Universal."

On September 4, 1986, DEP conducted an inspection, pursuant to FOTL's certification of transfer, and discovered PCB contamination at the Bridgeport plant. The inspection, according to a later 1986 DEP letter to Universal from Scott Deshefy, DEP's PCB coordinator, a PCB investigation "was conducted as an extension of an investigation, voluntarily initiated by Universal Manufacturing Corporation, to determine the extent of PCB contamination resulting from past manufacturing of small, low-voltage capacitors impregnated with PCBs."

FOTL's Director of Insurance, Burgess D. Ridge, received a copy of the 1986 DEP letter on March 17, 1987. Ridge concluded that there was a claim under the terms of its insurance policies, and reported the letter to Travelers and Transportation on March 19, 1987. Ridge did not believe that Farley, Universal's parent, was entitled to a defense from the insurers until "it was established that there was a property damage claim that required defense." Ridge did not think that a property damage claim existed in the fall of 1985.

On April 22, 1987, Travelers acknowledged receipt of Ridge's letter of March 19, 1987, notifying Travelers of DEP's letter. On July 2, 1987, Travelers sent Ridge a questionnaire in order to determine whether the insurance policies issued afforded coverage. The Travelers' letter noted, among other things:

"Please be advised that Comprehensive General Liability insurance responds to liability arising out of an "occurrence" resulting in "bodily injury" or "property damage" during the policy periods. This type of policy may also contain language excluding coverage for damages arising out of any emission *** of any liquid *** or pollutant that is either expected or intended from the standpoint of the insured ***."

Both Travelers' letters reserved all rights and provided that neither the acknowledgement nor any investigation "shall be construed as a waiver of any of the rights and defenses available to The Travelers ***."

On June 21, 1988, FOTL negotiated a consent order with DEP, requiring FOTL to (1) continue investigating PCB contamination resulting from past manufacturing practices of Universal; (2) minimize any threat to human health and/or the environment; and (3) obtain discharge permits as necessary for any "discharge to the waters of the State resulting from implementation of remedial measures." The consent order established a three phase schedule for remediation of the site and concluded that failure to comply ...


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