MA Pollution: Insurer Breached Duty to Defend Given Possibility That Contamination Was “Sudden or Accidental”

The District Court of Massachusetts, applying Massachusetts law, accepted and adopted the recommendation of a Magistrate Judge that ACE Property and Casualty Insurance Co. (“ACE”) breached its duty to defend its insured, State Line Laundry Services (“State Line Laundry”), in a dispute with Plaistow Project, LLC (“Plaistow”).  The court also accepted and adopted the Magistrate’s denial of ACE’s motion for summary judgment regarding the duty to indemnify, finding that it was ACE’s burden to prove that the environmental contamination was not “sudden or accidental” to be relieved of the duty to indemnify, and ACE had not met that burden.

The insurance coverage dispute before the court was for costs associated with remediating environmental contamination.  Plaistow purchased real property straddling the Massachusetts / New Hampshire border.  The property contained former retail space, part of which had been leased by State Line Laundry, a dry-cleaners.  After the purchase, chemicals associated with dry cleaning were found on the property.  Plaistow sued State Line Laundry in state court.  State Line Laundry notified ACE, its commercial general liability insurer.  ACE declined to defend the suit based upon the pollution exclusion found in ACE’s policies.  The state court action was partially settled, with Plaistow receiving State Line Laundry’s insurance rights.  Plaistow obtained judgment against State Line Laundry for almost $3 million, which remains unpaid.  Plaistow filed the federal coverage action against ACE to obtain damages for ACE’s failure to defend State Line Laundry and failure to pay clean-up costs.

The pollution exclusion in the ACE policies included an exception for “sudden and accidental” discharge.   The Magistrate Judge found that the allegations of the complaint triggered the duty to defend.  ACE argued that in instances where a complaint contains general allegations of negligent releases, the insured has the burden of proving coverage for the duty to defend to apply.  According to ACE, there is a unique burden of proof in “sudden and accidental” cases.  The district court disagreed and held that the Magistrate Judge’s analysis was correct.  According to the district court, under Massachusetts law, the party has the burden to prove a “sudden and accidental” release for purposes of indemnity depends on whether the insurer met its duty to defend.  If the insurer breached its duty to defend, then it bears the burden of proving whether the “sudden and accidental” release exception applied regarding the duty to indemnify; however, if there is no breach of the duty to defend, the insured must prove that coverage applied, and thus, must prove a “sudden and accidental” release.

Under Massachusetts law, “sudden” must have a temporal aspect to its meaning, i.e., not gradual.  “Accidental” relates to expectations and intentions, and thus, depends on context.  The dry-cleaning machines at issue circulated perchlorethlene to perform their dry-cleaning function.  According to the evidence before the court, on no more than six occasions between 1971 and the early 1980s, after customers cleaned items that were not permitted to be placed in the machines, the “button-trap” clogged, and perchlorethlene spilled and puddled on the floor.  The court found that ACE had not met its burden of establishing that there was no coverage by proving that the spills were not sudden and accidental.  Therefore, ACE’s motion for summary judgment was denied.  Plaistow Project, LLC v. Ace Property & Cas. Ins. Co., NO. 16-cv-11385-IT (Mass. Dist. Ct. Sept. 13, 2018).