HARTFORD ACCIDENT & INDEMNITY CO.,

v.

DANA CORPORATION.

No. 49A02-9602-CV-110

Indiana Court of Appeals

Dec. 12, 1997

Case Summary

Appellants-Defendants, American Insurance Company, Associated Indemnity Corporation and Fireman’s Fund Insurance Company (collectively "Fireman’s Fund"), and Granite State Insurance Company, Lexington Insurance Company, and National Union Fire Insurance Company, (collectively "Granite State") appeal from the trial court’s grant of partial summary judgment in favor of Appellee-Plaintiff, Dana Corporation ("Dana"). We affirm.

Issues

Fireman’s Fund raises five issues [FN1] for our review which we restate as:

I. Whether the trial court properly applied Indiana law;

II. Whether Dana designated sufficient facts to support summary judgment;

III. Whether the trial court properly concluded that the policy term "suit" applies to administrative proceedings;

IV. Whether the trial court properly concluded that the policy term "damages" includes environmental cleanup and response costs; and

V. Whether the trial court properly found that Fireman’s Fund has a duty to defend Dana.

Facts and Procedural History

The designated evidence shows that Dana is a manufacturer of automotive components with facilities across the United States and worldwide. Dana has obtained both primary and excess comprehensive general liability ("CGL") insurance coverage for its operations from a variety of insurers. Prior to 1947, Dana’s primary CGL insurer was Hartford Accident and Indemnity Company ("Hartford"). Fireman’s Fund was Dana’s primary CGL insurer from 1947 to 1957. From 1957 to 1963, Dana obtained primary CGL coverage from Associated Indemnity Corporation and from 1963 to 1969, American Insurance Company was Dana’s primary CGL insurer. From 1969 to 1978, Dana’s primary CGL coverage was obtained from Associated Indemnity Corporation, and since 1978, Hartford was again Dana’s primary CGL insurer. [FN2] In addition, Dana obtained excess or umbrella CGL coverage from a multitude of other insurers, including Granite State.

Sixty-three of Dana’s facilities, located in nineteen states, have become the subject of various governmental agency or third party actions regarding alleged environmental contamination. Dana has made claims for coverage under its CGL insurance policies and has been denied coverage for the most part. As a result, Dana filed suit against fifty-six insurers seeking a declaration that it is entitled to indemnification and defense under its primary, umbrella, and excess CGL insurance policies. Fireman’s Fund filed a counter-claim against Dana and a cross-claim against Hartford for declaratory relief and contribution. The trial court issued a Case Management Plan and Order establishing that Phase I would involve contract interpretation.

Dana filed a motion for partial summary judgment against Fireman’s Fund seeking to establish the meaning of certain policy terms, to require Fireman’s Fund to defend, and to obtain reimbursement of damages and legal expenses already incurred. Granite State filed a cross-motion for partial summary judgment. The trial court granted Dana’s motion and entered findings of fact and conclusions of law, in part, as follows:

A. Undisputed Facts

1. . . . Dana is a Virginia corporation headquartered in Toledo, Ohio. Twenty-five of Dana’s plants and facilities are located in the State of Indiana; no other state is home to more Dana facilities and plants. Dana also employs over 6,000 people in this State, far more than it employs in any other state. Indiana is the home of approximately 20 percent of Dana’s United States work force. Based on these facts and on the number or amount of plants, divisions, employees, sales, payroll, square footage of plants, and other criteria, Dana’s operations have been centered in Indiana more than in any other state since at least 1963. These facts are important because they demonstrate that Dana’s insured risk, completely separate from the location of the waste sites, has been centered in Indiana for many years. Moreover, Dana’s premiums paid by Dana were based on sales; more sales are generated by Dana’s Indiana facilities than those in any other state. Ohio, which state’s law the insurers would have this Court apply, is far behind Indiana in all of these criteria and is not even second in most.

2. Fireman’s Fund is a California corporation with its principal place of business in California. Its excess or umbrella insurers on the Dana policies are located throughout the United States.

3. Dana is allegedly liable for environmental contamination at a number of sites across the country.... Fifteen of those sites–nearly one-fourth of the total and substantially more than in any other state–are located in Indiana.

....

5. The contracts of insurance relevant to this case were issued by Fireman’s from its Detroit, Michigan, office. The contracts were primarily negotiated at the office of Marsh & McLennan–Dana’s insurance broker–located in Michigan.

6. The "insuring agreements’ in all these policies are standard insurance industry forms using "form" language. The earlier policies provided in relevant part that Fireman’s would:

pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.

(Emphasis added). Further:

With respect to such insurance as is afforded by this policy, the Company shall:

(a) defendant any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.

(Emphasis added). The later policies stated in relevant part that:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A–bodily injury or

Coverage B–property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.

(original boldface).

7. At several of the 63 sites, third parties or governmental entities have filed actions against Dana in courthouse lawsuits to recover their costs incurred, or to compel Dana to participate, in the cleanup of the alleged contamination. At other sites third parties or government entities are pursuing Dana for the same kind of relief, but through administrative rather than judicial actions.

B. Conclusions of Law

1. ...[T]he Court finds that Indiana law applies to this dispute.

....

6. Under § 188 [of the Restatement (Second) of Conflict of Laws], the plea of contracting in this case is Michigan; the place of negotiation is Michigan; the primary place of performance–where the insurance money will be put to use–is Indiana; the primary location of the insured risk–based on the fact that Dana’s operations have clearly been centered in Indiana throughout the policy periods here at issue and because nearly one-fourth of all the cleanup sites are located in this State–is Indiana; and the domicile of the parties is indeterminate. In sum, two of these factors point to Michigan, while two of the factors–including the most important location of the insured risk–point to Indiana. As between Indiana and Ohio (or any other state) the § 188 factors require the Court to apply Indiana law in this case.

....

10. The parties agree and this Court holds that the law of one state should be applied in this case. Applying the law of a single state would foster judicial economy, predictability and uniformity.

....

ORDER

....

2. Dana’s motion for partial summary judgment on the meaning of "suit" and "damages" is GRANTED. In addition to traditional judicial actions, "suit" includes any coercive environmental administrative proceeding, including the following:

- unilateral orders alleging liability for and demanding the cleanup of a site, issued under § 106 of CERCLA (42 U.S.C. § 9606) or analogous state statutes;

- demands alleging liability for and seeking payments of costs incurred by the agency for the cleanup of the site, issued under § 107 of CERCLA (42 U.S.C. § 9607) or analogous state statutes;

- non-CERCLA demands by state or federal authorities in the form of a Notice of Violation or similar notice requiring site cleanups as part of ongoing compliance with state or federal environmental law;

- offers of settlement alleging liability and seeking either cost recovery or the cleanup of a contaminated site under § 122(e) (42 U.S.C. § 9622(e)) of CERCLA or analogous state statutes;

- "voluntary" cleanup of a site by the policyholder in nominal cooperation with a governmental entity, but under explicit or implicit threat of a formal enforcement action.

3. "Damages" includes environmental cleanup and response costs, whether such costs are incurred by a governmental entity or third party seeking contribution or cost recovery from Dana or incurred directly by Dana as a result of any judicial or administrative proceeding against it.

4. Fireman’s shall tender to Dana a defense in all pending "suits" and shall immediately reimburse Dana for defense costs incurred at each of the sites where there is or has been a "suit" s that term has been defined by this Order.

5. [Granite State’s] cross-motion for summary judgment is DENIED.

(R. 1128-50) (citations omitted). Both Fireman’s Fund and Granite State appeal.

Discussion and Decision

When reviewing a grant of summary judgment, we use the same standard as the trial court: whether the pleadings and evidence demonstrate that there are no genuine issues of material fact and that the nonmoving party is entitled to judgment as a matter of law. Miller v. Memorial Hosp. of South Bend, 679 N.E.2d 1329, 1330 (Ind. 1997). We construe the pleadings, affidavits, and designated materials in a light most favorable to the nonmovant and give careful scrutiny to assure that the losing party is not improperly prevented from having its day in court. Id. (citation omitted).

The fact that the parties make cross-motions for summary judgment does not alter our standard of review. Instead, we must consider each motion separately, to determine whether the moving party is entitled to judgment as a matter of law. Hendricks County Bank & Trust Co. v. Guthrie Building Materials, 633 N.E.2d 1180, 1183 (Ind.Ct.App.1996), trans. denied.

I.

Indiana’s choice for law rule for actions on contract calls for applying the law of the forum with the most intimate contacts to the facts. Dohm & Nelke v. Wilson Foods Corp., 531 N.E.2d 512, 513 (Ind.Ct.App.1988). The court will consider all acts of the parties touching the transaction in relation to the several states involved and will apply as the law governing the transaction the law of that state with which the facts are in most intimate contact. W.H. Barber Co. v. Hughes, 223 Ind. 570, 63 N.E.2d 417, 423 (1945). Indiana follows the approach formulated by the Restatement (Second) of Conflict of Laws. See Eby v. York-Division, Borg-Warner, 455 N.E.2d 623, 626 (Ind.Ct.App. 1983); Utopia Coach Corp. v. Weatherwax, 177 Ind.App. 321, 379 N.E.2d 518, 522 (1978). In the absence of an effective choice of law by the parties, the contacts to be taken into account include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

Restatement (Second) of Conflict of Laws § 188 (1971). In addition, [t]he validity of a contract of fire, surety, or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy.

Restatement (Second) of Conflict of Laws § 193 (1971) (emphasis added).

The trial court found that the place of contracting was Michigan, the place of negotiation was Michigan, the place of performance was Indiana, the location of the subject matter/risk was Indiana, and the domicile of the parties was indeterminate. The court concluded that the location of the insured risk was the most important contact, and accordingly applied Indiana law. Fireman’s Fund argues that the trial court erred in its conclusions regarding the contacts included in § 188 and also erred in applying § 193 to this case. Fireman’s Fund contends that Ohio substantive law should be applied in this case.

"[B]efore entangling itself in messy issues of conflict of laws a court ought to satisfy itself that there actually is a difference between the relevant laws of the different states." Barron v. Ford Motor Co. of Canada Ltd., 965 F.2d 195, 197 (7^th Cir. 1992), cert. denied, 506 U.S. 1001, 113 S.Ct. 605, 121 L.Ed.2d 541 (1992). If the purposes and policies of two potential rules are the same, the forum should apply the forum law. Lutz v. DeMars, 559 N.E.2d 1194, 1196 n. 1 (Ind.Ct.App. 1990), trans. denied.

The two substantive issues before us today, the meaning of CGL policy terms "suit" and "as damages," are questions of the first impression in Indiana. However, Ohio courts have addressed both of these issues. [FN3] In Professional Rental, Inc. v. Shelby Ins. Co., 75 Ohio App.3d 365, 599 N.E.2d 423 (1991), the term "suit" was found to be susceptible to more than one meaning and thus construed in favor of the insured. "The junction where environmental law meets insurance law is an inappropriate place to erect an inflexible rule requiring the initiation of a traditional lawsuit as a condition precedent to the insurer’s obligation to defend." Id., 599 N.E.2d at 428. In that case, however, the court held that an agency notification regarding potential liability was merely a claim, and unless followed by an administrative order imposing liability, was not the functional equivalent of a suit. Id. at 430. In Sanborn Plastics Corp. v. St. Paul Fire and Marine Ins. Co., 84 Ohio App.3d 302, 616 N.E.2d 988 (1993), the Ohio court concluded that costs for environmental cleanup constituted "damages" even though such costs may be restitutional, or equitable, in nature. Also, in Morton Int’l, Inc. v. Harbor Ins. Co., 79 Ohio App.3d 183, 607 N.E.2d 28 (1992), the court held that settlement payments for environmental damage constituted sums payable as "damages."

While the absence of precedent in Indiana on these issues does not necessarily mean that a conflict of law exists, there are other issues in the litigation between these parties where Indiana and Ohio case law differ. [FN4] The various policies purchased by Dana include exclusions for pollution related claims. [FN5] Similar exclusions have been the subject of numerous cases nationwide. Our supreme court, in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind.1996), held that the term "sudden" used in the standard pollution exclusion clause was ambiguous in that it could mean "unexpected" as well as "abrupt." Under this interpretation, the clause would not exclude from coverage discharges which were unexpected or unintended. By contrast, the Ohio Supreme Court, in Hybud Equipment Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d 657, 597 N.E.2d 1096 (1992), cert. denied, 507 U.S. 987, 113 S.Ct. 1585, 123 L.Ed.2d 152 (1993), held that the term "sudden," used in the standard pollution exclusion clause, was unambiguous and must have a temporal aspect, as in "abrupt." As such, the exclusion does not apply to gradual or long term discharges of pollution. Thus, for purposes of the present, case, the laws of Indiana and Ohio significantly differ, necessitating a choice of law decision.

Fireman’s Fund argues that because Dana’s primary place of business is in Ohio, the place of contracting and the place of negotiation should point to Ohio. In addition, because the premiums were paid from Ohio and notification of claims came from Ohio, Fireman’s Fund contends that the place of performance of the contracts was Ohio, citing Pennington v. American Family Ins. Group, 626 N.E.2d 461 (Ind.Ct.App.1993). In Pennington, another panel of this court held that "[i]n conflict of law cases involving the interpretation of insurance contracts, the law of the state where the contract is executed controls. An insurance contract is executed in the state where application is made, the premium is paid and the policy is delivered." Id. at 465 (citing Travelers Ins. Co. v. Eviston, 110 Ind.App. 143, 152, 37 N.E.2d 310, 313 (1941)).

Our supreme court, however, modified the traditional choice-of-law rule relied upon in Eviston in W.H. Barber Co. v. Hughes, 223 Ind. 570, 63 N.E.2d 417, 423 (1945). See Hubbard Mfg. Co. Inc. v. Greeson, 515 N.E.2d 1071, 1073 (Ind.1987). "Judge Richman in Barber stated,"A contract is deemed to have been made in the state where the last act necessary to make it a binding agreement takes place," not that the law of the place of contracting controls." Suyemasa v. Myers, 420 N.E.2d 1334, 1343 (Ind.Ct.App.1981) (citation omitted) (internal quotation marks omitted) (emphasis added). "Indiana does not follow the lex loci contractus approach to determine ... which forum’s substantive law is applicable." Id. at 1344. In light of Barber, Hubbard, and Suyemasa, we decline to follow Pennington’s holding that the law of the place of contract controls. Accord Schaffert v. Jackson Nat’l Life Ins. Co., 687 cmt. e. (1971).

Dana is a Virginia corporation headquartered in Ohio. Fireman’s Fund is a California corporation headquartered in the same state. We agree with the trial court that the place of domicile of the parties for choice of law purposes is indeterminate. [FN6]

The last § 188 factor for us to consider is the location of subject matter of the contract or, as phrased in § 193, the principal location of the insured risk.

The location of the insured risk will be given greater weight than any other single contact in determining the state of the applicable law provided that the risk can be located, at least principally, in a single state. Stituations ... where the location of the risk has less significance[] include ... where the policy covers a group of risks that are scattered throughout two or more states.

Restatement (Second) of Conflict of Laws § 193 cmt. b (1971). The Restatement approach to a multiple risk policy is to treat the case "as if it involved [multiple] policies, each insuring an individual risk." Restatement (Second) of Conflict of Laws § 193 cmt. f.

Courts have followed any of two approaches when confronted with CGL coverage of multi-state claims. "Under the uniform-contract-interpretation approach, the law of a single forum governs the interpretation of a coverage under a casualty-insurance policy for multi-state claims arising from environmental damage in multiple jurisdictions." Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass’n Ins. Co., 134 N.J. 96, 629 A.2D 885, 889 (1993). "The site-specific[-interpretation approach] provides that a casualty-insurance policy should be interpreted under the substantive law of the state that the parties understood to be the principal location of the insured risk," with the result that more than one body of law will apply to a single contract. Id., 629 A.2d at 891. The parties have argued before the trial court and before us that, in the interest of judicial efficiency, the law of a single state should be applied.

Fireman’s Fund contends that the contact primarily relied upon the trial court, the location of the insured risk, should be accorded less weight because the risks were scattered in several states. See Restatement (Second) of Conflict . . .

[continued]

[FN1] Because Granite State’s arguments do not substantially differ from Fireman’s Fund’s, we will not generally differentiate between these appellants in our discussion.

[FN2] Hartford entered into a settlement agreement with Dana, leaving Fireman’s Fund as the only primary CGL insurer in the case.

[FN3] None of the parties contends that the law of any other state should be applied to this case. Although several of Dana’s environmental cleanup sites are located in Michigan, and that state has some contacts with this case, neither party advocates that the laws of Michigan should apply.

[FN4] The trial court’s Case Management Plan and Order mentions several of these issues. (R. 2266-81).

[FN5] One policy reads: "This insurance does not apply ... to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental." R. 471).

[FN6] Granite States cites Eli Lilly and Co. vs. Home Ins. Co., 764 F.2d 876 (D.C.Cir.1985) for the proposition that an insured’s place of business and place of incorporation constitute a strong interesting in choosing that state’s law. In Eli Lilly, however, the insurers did not dispute the choice of law. Id. at 882. In addition, because Dana’s place of business and place of incorporation are in different states, Eli Lilly inapposite.