ELR Citation: ELR 21153
No(s). s. 89-3814 et al (3d Cir. Apr 30, 1991)

The court holds that the district court improperly held that the pollution exclusion clause in comprehensive general liability insurance policies does not bar coverage for claims against a county arising from pollution leaching from two county landfills. The court first holds that it has appellate jurisdiction. The court holds that the insurer's original appeal was timely, although it was filed more than 30 days after the district court's decision. The insurer's motion for reargument of the district court decision was the functional equivalent of a motion under Federal Rules of Civil Procedure 59(e) and thus tolled the time for filing an appeal. The court holds that the district court's decision was no longer a final order as a result of the insurer's cross-claims on the finality of the order. Although the appeal became ripe for review when the district court dismissed the cross-claims, the court dismisses the insurer's first appeal as superfluous because it was superseded by a subsequent and adequate notice of appeal. The court holds that the second notice of appeal was clearly taken from a final order and properly raises all of the district court's prior decisions. The court holds that the district court improperly dismissed the insurer's cross-claims, but declines to remand the case to the district court for certification based on considerations of judicial economy.

The court, applying Delaware law, next holds that the insurer has the burden of proving that the property damage resulted from the discharge of pollutants and that the discharge was neither sudden nor accidental. The court then holds that the three underlying lawsuits against the county under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) are included within the basic coverage provisions of the policies. The common, everyday meaning of the term "damages" in the policies encompasses liabilities actions at law and in equity. The county's liability for CERCLA response costs and the costs of repairing property damage caused by pollution from the landfill are thus included within the term "damages." Although the insurer's narrower, technical definition of damages is reasonable, the existence of alternative interpretations merely creates an ambiguity, which under Delaware law is construed against the insurer. The fact that the county may be more sophisticated than the average insured does not deprive it of a pro-coverage interpretation of a standardized policy. The court next holds that the property damage was caused by an "occurrence," which is an accident that results in damage that is neither expected nor intended. The court rules that damage is "expected" within the meaning of the occurrence clause if there is a substantial probability of damage before the policy period begins. The court holds that the district court's factual finding that there was not a substantial probability of off-site pollution damage from the landfill when the insurer issued its first policy is not clearly erroneous.

However, the court holds that the district court improperly construed the pollution exclusion clause. The district court properly held that the term "sudden" in the exception to the pollution exclusion is ambiguous and thus should be interpreted in favor of the insured to mean unexpected. While the existence of more than one definition of sudden in the dictionary does not by itself establish ambiguity, the district court reasonably relied on the multiple dictionary definitions and other factors to conclude that the term is ambiguous. Although the term "accidental" already encompasses notions of unexpectedness, and the interpretation of "sudden" to also mean unexpected appears to disregard the significance of the phrase "sudden and accidental," the district court's interpretation was not flawed. The term "sudden," even if interpreted to mean unexpected, is not completely synonymous with the term "accidental," and insurance policies routinely use words that are somewhat synonymous. The case law is evenly divided between the parties' competing interpretations of "sudden," which suggests that the term is susceptible to more than one reasonable definition. The drafting and marketing history of the pollution exclusion clause also suggests that this interpretation is plausible. However, the court holds that the district court improperly focused on whether the pollution damage was sudden and accidental when it should have inquired whether the discharge of pollutants from the landfill was sudden and accidental. The plain language of the sudden and accidental exception to the pollution exclusion clause focuses on the nature of the discharge, not on the resulting environmental damage. The court therefore remands to the district court to consider whether the discharge of pollutants from the landfill was unexpected and unintended. The court notes that the damage/discharge distinction could be dispositive, because there is evidence that the county did not expect the landfill to cause off-site environmental damage but did expect the landfill to discharge leachate into the groundwater.

Finally, the court holds that the insurer's cross-claims against five co-defendant insurance carriers that had already settled with the county were timely filed under a provision of the parties' 1986 stipulation. The court declines to decide whether the settlements between the co-defendant insurers and the county bar the insurer's claims for contribution.

Counsel for Plaintiff
Joseph D. Tydings, Jerold Oshinsky, Catherin Serafin Sponseller
Anderson, Kill, Olick & Oshinsky
2000 Pennsylvania Ave. NW, Ste. 7500, Washington DC 20006
(202) 728-3100

George H. Seitz III
Prickett, Jones, Elliott, Kriston & Schnee
1310 King St., Wilmington DC 19801
(302) 888-6500

Counsel for Defendant
Clifford B. Hendler, John I. Stewart Jr., Scott L. Winkelman, William D. Wallace
Crowell & Moring
1001 Pennsylvania Ave. NW, Washington DC 20004
(202) 624-2500

Before Nygaard and Re,^* JJ.