EnergyNorth v . AEGIS CV-95-591-PB 07/01/99

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

EnergyNorth Natural Gas, Inc.

v. Civil N o . C-95-591-B Associated Electric & Gas Insurance Services, Ltd., et a l .

MEMORANDUM AND ORDER

EnergyNorth Natural Gas, Inc., has sued its insurers pursuant to

and

, seeking indemnification for costs it incurred in investigating and restoring a Concord, New Hampshire, site polluted by its predecessors’ coal gas manufacturing operations. Defendant American Home Assurance C o . has moved for summary judgment arguing that its policies do not cover the disputed costs because the pollution at the site developed gradually. For the reasons set forth below, I grant American Home’s motion.

I.

EnergyNorth is the successor-in-interest to several

companies that until 1957 manufactured coal gas at a plant in

Concord, New Hampshire. American Home provided Comprehensive Excess Liability (“CEL”) coverage to EnergyNorth from July 3 0 ,

1980, until June 1 , 1982, and from June 1 , 1984, until June 1 ,

1985.

The American Home policies cover property damage “caused by

or growing out of each occurrence . . . [which term] shall mean

one happening or series of happenings, arising out of or due to

one event taking place during the term of this contract.” The

parties dispute whether coverage can be triggered under this

definition of occurrence by continuous, gradual injury to

property during the policy period. The dispute centers on the

meaning of the term “event,” which EnergyNorth defines to mean

simply an “unintentional act.” American Home, on the other hand,

argues that the term means a sudden, discrete happening which

takes place during the policy period. If American Home’s

interpretation is correct, it is not liable for EnergyNorth’s cleanup costs because the pollution at the site developed

gradually.

I held in a prior order that the American Home policies are

ambiguous and reasonably could be understood to include coverage

for gradually incurred property damage. See EnergyNorth Natural

Gas, Inc. v . Associated Electric & Gas Insurance Services, Ltd.,

et a l . , CV-95-951-B (D.N.H. Sept. 3 0 , 1998)(Memorandum and

-2- Order)(denying without prejudice both EnergyNorth’s and American Home’s motions for summary judgment). Because New Hampshire law requires that ambiguities in an insurance contract must be resolved in favor of the insured, this ruling ordinarily would result in a decision in EnergyNorth’s favor. See High County Assoc., 139 N.H. at 4 1 . Here, however, American Home argues that New Hampshire’s normal policy construction rules do not apply because the definition of occurrence used in the policies was selected by EnergyNorth’s agent rather than the insurance company. It also contends that its proposed interpretation is the only plausible construction of the policies when they are construed in light of the relevant extrinsic evidence.

EnergyNorth challenges both contentions and also moves to strike certain deposition excerpts that American Home cites in support of its position.

II.

Summary judgment is appropriate only “if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” Fed. R. Civ. P.

-3- 56(c); see Lehman v . Prudential Ins. C o . of Am.,

, 327 (1st Cir. 1996). A genuine issue is one “that properly can be resolved only by a finder of fact because [it] . . . may reason- ably be resolved in favor of either party.” Anderson v . Liberty Lobby, Inc.,

4 2 , 250 (1986). A material fact is one that affects the outcome of the suit. See id. at 248. In ruling on a motion for summary judgment, I must construe the evidence in the light most favorable to the non-movant and determine whether the moving party is entitled to judgment as a matter of law. See Oliver v . Digital Equip. Corp.,

(1st Cir. 1988).

American Home bears the burden of proving that EnergyNorth is not covered by the policies it issued to its insured. See EnergyNorth Natural Gas, Inc. v . Associated Electric & Gas Insurance Services, Ltd., et a l . , CV-95-591-B (D.N.H. September 3 0 , 1998)(holding that burden of proof set forth in

-a applies to EnergyNorth’s declaratory judgment claims). As such, it must support its position here with materials of evidentiary quality. See In re Varrasso,

6 0 , 763 n.1 (1st Cir. 1994). Further, “[its] showing must be sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party.” Lopez v .

-4- Corporacion Azucarera de Puerto Rico,

(1st

Cir. 1991).

III. A. Evidence Offered by American Home is Admissible Pursuant to the “Former Testimony” Exception to the Hearsay Rule

American Home bases its summary judgment motion in part on

deposition testimony taken in separate lawsuits from the three

non-party witnesses. EnergyNorth has moved to strike the

deposition references claiming that they are inadmissible hearsay

and therefore cannot be used to support a motion for summary

judgment. See Fed. R. Civ. P. 56(e) (affidavits supporting or

opposing a motion for summary judgment shall set forth “such

facts as would be admissible in evidence”). American Home

disagrees and argues that the deposition testimony is admissible pursuant to Fed. R. Evid. 804(b)(1) as “former testimony.” I

address this threshold issue before turning to the merits of the

summary judgment motion.

1. Background

Fed. R. Evid. 801(b)(1) excepts former testimony from the

general rule barring hearsay in certain limited circumstances.

If a witness is unavailable to testify in person, the Rule allows

-5- the admission of former testimony if the opposing party or a “predecessor in interest, had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination.” Fed. R. Evid. 804(b)(1); see also United States v . Bartelho,

(1 st Cir. 1997). The proponent of the evidence has the burden of proving that the former testimony satisfies each element of the exception. See Bartelho,

; United States v . Omar,

(1 st Cir. 1997). EnergyNorth argues that the challenged deposition excerpts do not qualify as former testimony under the Rule because American Home has failed to demonstrate both that the deponents are unavailable and that the parties who were present when the depositions were taken qualify as EnergyNorth’s “predecessors in interest.”

The challenged deposition testimony was taken from (1) Fred C . Zeiloth, former in-house insurance manager for Stone & Webster Management Consultants, Inc., (2) Guy de Repentigny, a former insurance broker from George H . Forster & Company, and (3) L . Barton Cannell, a former insurance broker from Alexander & Alexander. Stone & Webster is a consulting firm that developed a master insurance program for its utility clients in or around 1950. EnergyNorth became insured under Stone & Webster’s master insurance program on July 3 0 , 1980. George H . Forster & Company

-6- was Stone & Webster’s original insurance broker for the master insurance program. Alexander & Alexander succeeded George H . Forster & Company as Stone & Webster’s broker. Zeiloth’s deposition was taken jointly on June 9, 1993, in three actions.1 Attorneys for the three plaintiffs, all utility companies insured under the Stone & Webster master insurance program, were present at the deposition. Cannell’s deposition was taken jointly on May 1 3 , 1993, in the same three actions. Counsel for the three utility companies were present at Cannell’s deposition. De Repentigny’s deposition was taken jointly on February 26-28, 1991, in two actions.2 Counsel for both plaintiffs, including Gulf States Utilities Company, which was insured under the same program at issue here, were present at the deposition. The prior lawsuits were all declaratory judgment

1 Zeiloth was deposed in the following actions: Atlanta Gas Light C o . v . Aetna Casualty & Surety Co., Civil Action N o . 1:91-CV-1803-RLV (N.D. G a . ) ; Green Mountain Power Corp. v . Certain Underwriters at Lloyds, London, Civil Action N o . 2:91-CV- 385 (D. V t . ) ; and South Jersey Industries, Inc. v . The Security Insurance Group, Civil Action N o . ATL-L-00405-88 (Superior Court of New Jersey, Law Division, Atlantic County). 2 De Repentigny was deposed in the following actions: American Telephone & Telegraph C o . v . Aetna Casualty & Surety Co., Docket N o . W-56581-88 (Superior Court of New Jersey, Law Division, Essex County); and Gulf States Utilities C o . v . Associated Electric & Gas Insurance Services, Ltd., Civil Action N o . 89-4086 (E.D. L a . ) .

-7- actions brought against the plaintiffs’ insurers, seeking

coverage under the master insurance policies for costs associated

with the clean-up of environmental contamination. With one

exception, all of the cases involved contamination caused by gas

manufacturing. All four lawsuits also involved policies

containing the same definition of occurrence at issue here. See

Def.’s Mem. at 9. 2. All Three Witnesses are Unavailable For Purposes of Fed. R. Evid. 804

EnergyNorth first argues that the deposition excerpts are

not admissible under the former testimony exception because

American Home has failed to prove that the deponents are

“unavailable.” A witness is “unavailable” for purposes of Fed.

R. Evid. 804 if the “proponent of a statement has been unable to

procure the declarant’s attendance . . . by process or other reasonable means.” Fed. R. Evid. 804(a)(5); see also United

States v . McKeeve,

, 9 (1st Cir. 1997). American Home

has produced a death certificate for Zeiloth and copies of

several letters it sent in unsuccessful efforts to locate Cannell

and de Repentigny. In light of this evidence, I am satisfied

that all three men are “unavailable” for purposes of Rule

804(b)(1). See Republic Security Corporation v . Puerto Rico

Aqueduct and Sewer Authority,

5 2 , 957 (1st Cir.

-8- 1982)(citing Bailey v . Southern Pac. Transp. Co.,

(5th Cir. 1980))(trial court has discretion to accept or reject counsel’s assertion that declarant is unavailable). 3. EnergyNorth’s Predecessors in Interest Had an Opportunity and a Similar Motive to Develop the Deponent’s Testimony

EnergyNorth next argues that the policyholders who were present when the depositions were taken do not qualify as EnergyNorth’s “predecessors in interest.” Fed. R. Evid. 804(b)(1) does not require that a legal relationship exist between the party against whom the evidence is being offered and the parties who were present when the former testimony was taken. See Horne v . Owens-Corning Fiberglas Corp.,

(4th Cir. 1993); Dykes v . Raymark Industries, Inc.,

1 0 , 816 (6th Cir. 1986). Instead, a party to prior litigation will be deemed to be a current party’s predecessor in interest for purposes of the Rule when the party to the prior litigation had a “right and opportunity to develop the testimony with similar motive and interest.” Fed. R. Evid. 804(b)(1), notes of the advisory committee.

American Home argues that the policyholders in the prior lawsuits qualify as EnergyNorth’s predecessors in interest because they had an opportunity and comparable motives to develop

-9- the deposition testimony regarding the authorship of the Stone & Webster master policies. I agree. The five lawsuits, like this case, were declaratory judgment actions in which the policy- holders sought coverage for environmental clean-up costs. Four of the five policies at issue in the prior cases involved the same policies at issue here. Further, the deposition testimony of Zeiloth and Cannell makes clear that the source of the policy language was an important issue in the prior lawsuits, as both were questioned about it at length. As such, I find that the parties were “predecessors in interest” to EnergyNorth for purposes of Rule 804(b)(1).

B. Because American Home Did Not Propose the Contested Policy Language, it Should Not be Construed in Favor of EnergyNorth As noted above, American Home claims that it did not propose the definition of occurrence used in the policies at issue. Rather, it alleges that EnergyNorth, or one of its agents, was

responsible for proposing the “occurrence” language, and thus it

should not benefit from the common law rule requiring the

construction of ambiguous policy language in favor of the

insured. American Home has submitted excerpts of the three

depositions referenced above, and other evidence, to support its

argument. EnergyNorth counters with portions of the same three

-10- depositions, as well as other evidence. American Home claims that Stone & Webster proposed the policy language on a take-it-or-leave-it basis, which American Home accepted without alteration. To support its position, American Home has produced copies of a prior Stone & Webster Master Insurance Program policy, dated June 1 0 , 1953, and issued

by Lloyds of London, which defines “occurrence” a s :

one happening or series of happenings, arising out of or due to one event taking place during the term of this contract.

Def.’s Ex. B ( 8 ) . American Home has also produced a June 1 , 1971,

master insurance program policy issued by a successor insurer, The Home Insurance Company, that uses the same definition of

occurrence. See Def.’s Ex. B ( 9 ) . All three American Home

Policies at issue in this case also employ the same definition.

See Def.’s Ex. B(5)-(7). In contrast, American Home has established that other policies it issued in 1973, the year it

began to provide insurance to utility companies through the Stone

& Webster program, and 1980, the year EnergyNorth became an

insured under the program, do not define “occurrence” in the same manner as the Stone & Webster policies.3 See Def.’s Ex.

3 An American Home policy form used in or around 1973 defined “occurrence” as “an event, including continuous or repeated exposure to conditions, which result in Personal Injury

-11- B(12),(13). This evidence provides circumstantial support for

American Home’s claim that it did not draft the policy language

at issue here, but that it instead was provided by Stone &

Webster.

Support for American Home’s position can also be found in

the deposition excerpts it has produced with its motion. Zeiloth

testified that when Stone & Webster changed insurers in 1968, it

offered The Home Insurance the policy on a take-it-or-leave-it

basis. See Def.’s Ex. B ( 1 ) , Zeiloth Dep. at 20:17-21:3. He

stated that “The Home would have to duplicate the policy in its

present form completely or it was no deal.”

. A

letter from Zeiloth to Stone & Webster’s clients dated April 2 3 ,

1968, supports this assertion: In an effort to better the rates which Lloyd’s offered, quotations were requested from several domestic insurance companies but only The Home Insurance Company indicated any real interest. We understand that this lack

or Property Damage neither expected nor intended from the standpoint of the insured. All such exposure to substantially the same general conditions shall be deemed one occurrence.” Def.’s Ex. B(12). An American Home policy form used in or around 1980 defined “occurrence” as “an event, including continuous or repeated exposure to conditions, which result in Personal Injury or Property Damage during the policy period, neither expected nor intended from the standpoint of the Insured. All Personal Injury or Property Damage arising out of the continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” Def.’s Ex. B(13).

-12- of interest was primarily due to the low retention of many of the participants and the refusal by most companies to accept the present broad contract.

Def.’s Ex. B(10). Further, both Zeiloth and Cannell stated that

when American Home was offered the program in 1973, the relevant

policy language was also presented to it on a take-it-or-leave-it

basis. See Zeiloth Dep. at 26:6-15; Def.’s Ex. B ( 3 ) , Cannell

Dep. at 14:17-22, 15:18-16:5. This evidence strongly supports

American Home’s contention that Stone & Webster selected the

definition of occurrence used in the policies.

EnergyNorth argues that New Hampshire’s special insurance

policy construction rules apply even if its agent proposed the

relevant policy language because the language had been developed

by the insurance industry. I reject this argument. The

justification for New Hampshire’s common law rule construing insurance policies differently from other contracts is that

insurance policy terms generally are developed by the insurer,

are imposed on insureds without an opportunity for negotiation,

and concern technical matters not generally understood by

policyholders. It is reasonable under such circumstances to

subject insurers to liability if they require their insureds to

agree to policy terms that are ambiguous and reasonably can be

interpreted in favor of coverage. The justification for applying

-13- this rule in cases such as this, however, where a highly sophisticated policyholder dictates the terms of the policy to its insurer, is non-existent. The fact that the insured may have selected policy language that had been developed by other insurers does nothing to alter this analysis. Accordingly, I decline to apply New Hampshire’s special insurance policy

construction rules in construing the American Home policies.

Instead, I will construe the relevant policy terms using New Hampshire’s general rules of contract interpretation.4

C. American Home is Entitled to Summary Judgment When Its Policies Are Construed Using New Hampshire’s General Rules of Contract Construction

A court applying New Hampshire law may consider extrinsic

evidence in resolving disputes based on ambiguous contract

language. See Gamble v . University System of New Hampshire,

(1992). Such disputes cannot be resolved at the summary judgment stage, however, unless a rational factfinder

construing all of the relevant evidence in the light most

4 American Home argues that I should construe the language in its favor because Stone & Webster, as an agent of EnergyNorth, was responsible for the occurrence definition. I decline to do so because New Hampshire law ordinarily does not permit a court to construe ambiguous contract language against the drafter. See Centronics Data Computer Corp. v . Salzman,

9 2 , 696 (1987)(general rule in contract interpretation is that “no presumptions are to be indulged in either for or against a party who draws an agreement”)(internal quotations omitted).

-14- favorable to the non-moving party could resolve the ambiguity only one way. See

at 1 5 . I have previously determined that when the term “event” is construed solely in light of the relevant policy language, it reasonably could be construed to mean either an unintentional act, as EnergyNorth contends, or a discrete incident as American Home argues. I now reexamine this issue in light of all of the relevant evidence.

This is the rare case where the interpretation of an ambiguous contract term can be determined authoritatively through a motion for summary judgment. I reach this conclusion for two reasons. First, although, I have previously determined that the relevant policy language plausibly could be interpreted to cover property damage that develops gradually, the alternative construction suggested by American Home is far more likely even if I restrict my analysis to the relevant policy language. The American Home policies define an occurrence as “one happening or series of happenings, arising out of or due to one event . . . .” (emphasis added). The use of the highlighted terms plainly suggest the definition’s focus on the occurrence of discrete incidents and strongly support the interpretation of the term “event” suggested by American Home. While it is conceivable that, notwithstanding these references, a reasonable person might

-15- construe the term more broadly to include gradual property damage, the surrounding language makes this interpretation far less likely than the construction suggested by American Home. Second, American Home has produced substantial unrebutted extrinsic evidence to support its proposed interpretation.

American Home began to insure EnergyNorth’s predecessor, Concord

Gas, on July 3 0 , 1980. Approximately two months later, a representative of Stone & Webster sent Concord Gas’s assistant

treasurer a letter which states:

As you are undoubtedly aware the Environmental Protection Agency has issued restrictive regulations governing the treatment, storage, and disposal of hazardous wastes. Most insurance contracts, including our master comprehensive excess liability policy, do not cover gradual pollution of the environment, but do cover sudden and accidental pollution. Because of the possible liability which may result from allegations that a Company has been gradually polluting the environment, we have been reviewing this subject with our Brokers to determine whether it is advisable to amend our current Master policy to incorporate protection for this type of liability or to develop an additional Master policy to provide the particular coverage. Def.’s Ex. B(17)(emphasis added). This letter clearly put

Concord Gas on notice shortly after the first American Home

policy was issued that the policy did not cover gradual

environmental pollution. EnergyNorth’s failure to produce any

evidence suggesting that its predecessor ever took issue with

-16- Stone & Webster’s interpretation strongly supports American

Home’s proposed interpretation.

The September 1980 letter referenced above was followed five

months later by a letter describing Stone & Webster’s new

Environmental Impairment Liability Insurance (“EIL”). The

letter, addressed to the same Concord Gas official and dated

February 9, 1981, noted that Stone & Webster would cancel and

rewrite its master insurance as of March 2 , 1981, and add EIL

insurance to its new policy, effective March 2 , 1981 (policy

number CE338 16 82AB). See Def.’s Ex. B(17). Stone & Webster

included a brochure describing the new master policy, along with

the EIL insurance, with the February 1981 letter. See

The

brochure states, under the heading of “New Coverage,” that: The exclusion of gradual (non-sudden/non-accidental) pollution coverage represents a serious gap, leaving companies and their offices vulnerable. To help protect your assets, Stone & Webster developed Environmental Impairment Liability coverage which will be automatically incorporated into our program as of March 2 , 1981. Coverage will include clean-up costs; loss control services are also available.

The EIL insurance was added to the master policy as a

separate section, leaving much of the original master CEL policy

- including the “occurrence” language - unchanged. See Def.’s

Ex. B(6)(policy number CE338 16 82AB). EnergyNorth applied for

-17- and received the EIL insurance.5

New Hampshire law permits a court to consider a party’s statements and conduct both before and after the formation of a contract when construing ambiguous contract terms. See White v . Ford,

5 2 , 455 (1984); Auclair v . Bancroft,

(1981); Spectrum Enterprises, Inc. v . The Helm Corp.,

(1974). In the present case, the only relevant extrinsic evidence that the parties have produced expressly supports American Home’s interpretation of the disputed policy terms. In the absence of any contrary information, this evidence is sufficiently strong to render other interpretations

irrational. Accordingly, I determine as a matter of law that the American Home policies at issue in this case do not cover property damage resulting from gradual environmental pollution.

5 While the EIL insurance appears to cover EnergyNorth’s claims, American Home notes that it applies only to claims made against the insured and reported to the insurer during the policy period. Thus, American Home states, any coverage EnergyNorth seeks here must be pursuant to the provisions contained in the CEL portion of the master policy, which includes the ambiguous “occurrence” definition. American Home states that it has asked EnergyNorth to clarify that it is not seeking coverage under the EIL section of Stone & Webster policy numbers CE338 16 82AB and CE364 9251, but that EnergyNorth has not responded. I take no position as to whether the EIL section of those two policies covers EnergyNorth’s claims. I focus my decision here solely on EnergyNorth’s claims pursuant to the comprehensive excess liability section of the policies.

-18- As all of the property damage at issue here was the result of

such pollution, American Home is entitled to summary judgment.

IV. For the reasons set forth above, I deny EnergyNorth’s motion

to strike (document n o . 183) and grant American Home’s renewed

motion for summary judgment (document n o . 1 7 9 ) .

SO ORDERED.

Paul Barbadoro Chief Judge July 1 , 1999 cc: Bruce W . Felmly, Esq. Robert Gallo, Esq. Vincent Ziccolella, Esq. Richard Bryan, Esq. Emily Rice, Esq. Paul Leodori, Esq. John L . Putnam, Esq. Jeffrey Osburn, Esq. John Guarascio, Esq. Michael Aylward, Esq.

-19-