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American Chemical Service, Inc. v. United States Fidelity & Guaranty Co.

United States District Court, N.D. Indiana, Hammond Division

April 2, 2015

American Chemical Service, Inc., Plaintiff,
United States Fidelity & Guaranty Company and National Union Fire Insurance Company, Defendants.



Plaintiff, American Chemical Service, Inc. (ACS), brought this lawsuit against its insurers, United States Fidelity & Guaranty Company (USF&G) and National Union Fire Insurance Company (National Union), over an alleged breach of their duty to defend. Plaintiff maintains that both Defendants had a duty to defend them in relation to a claim by the Environmental Protection Agency (EPA) that alleged Plaintiff was responsible for environmental cleanup costs at the Gary Developmental Landfill (GDL). Plaintiff filed a motion for partial summary judgement (DE 31) seeking judgment as a matter of law on USF&G's breach of their duty to defend.[1]

Defendant, USF&G, responded to Plaintiff's Motion for Partial Summary Judgment by filing a Counter-Motion for Summary Judgment.[2] (DE 95 and DE 98.) Defendant maintains that, in this instance, a settlement agreement between the parties released them from a duty to defend. Alternatively, Defendant contends that even if a duty to defend survived the settlement agreement, their duty to defend Plaintiff has not been triggered. Defendant reasons that its duty to defend is only initiated by a lawsuit, and there is currently no lawsuit filed against Plaintiff regarding its shipment of hazardous materials to GDL.

A. Background

Plaintiff, headquartered in Griffith, Indiana, is a chemical manufacturing company that supplies oil and chemicals to various industries. (DE 1, Compl. at 1.) From 1976-1981, Plaintiff focused its business on solvent reclamation and chemical processing. ( Id. ) Plaintiff's solvent reclamation operation was a four-step process. First, clients would ship used solvents to Plaintiff's headquarters for reclamation or disposal. (DE 102-3, Tarpo Dep. at 42-44.) Next, Plaintiff would distill these spent solvents to reclaim usable solvents that would then be shipped back to their client. ( Id. at 44.) Third, Plaintiff would sell excess reclaimed solvent, which the original client did not have capacity to utilize, to third-parties. ( Id. at 44-45.) Lastly, Plaintiff would send any unusable byproduct produced by the reclamation process to a landfill. ( Id. )

Until the mid-1970s, Plaintiff would landfill the unusable byproduct on its property, which was collocated with its headquarters. ( Id. at 60, 77-79.) After complaints from local officials regarding the effects of this practice, Plaintiff began shipping its waste to off-site landfills, including the Gary Developmental Landfill (GDL), Calumet Containers sites in Indiana and Illinois, and at a Thermo Chem landfill site located in Muskegon, Michigan. ( Id. at 177-179; DE 102-13, Aug. 22, 1990 Compl. at 3, 7.)

Defendant provided insurance coverage to Plaintiff from 1955 to 1984. (DE 1, Compl. at 6; DE 99, Def.'s Br. at 10.) The policies in question here were issued by Defendant in 1980 and 1981. (DE 116, Pl.'s Resp. at 3.) Between 1987 and 1990, Plaintiff was notified by the EPA that it may be liable for environmental cleanup costs at three locations: (1) the ACS site in Griffith, Indiana; (2) the Thermo Chem site in Muskegon, Illinois; and (3) the Calumet Container sites, which were located in both Indiana and Illinois. The alleged environmental damage took place as a result of Plaintiff using their own land as a landfill for hazardous materials, as well as shipping hazardous materials to the Thermo Chem and Calumet Container sites where they were improperly disposed of. (DE 102-13, Aug. 22, 1990 Compl. at 2-6.) These lawsuits and accompanying regulatory actions led to a dispute over Defendant's coverage of Plaintiff. (DE 116, Pl.'s Resp. at 3.)

In 1990, as a result of the coverage dispute, Defendant filed a declaratory judgment action against Plaintiff. Defendant asked the court to find, among other things, that their insurance policies provided no coverage for Plaintiff's environmental violations, that Defendant had no duty to defend Plaintiff or its employees against these allegations, and that Defendant did not have a duty to pay any monetary judgement as a result of Plaintiff's actions at these three sites. (DE 102-13, Aug. 22, 1990 Compl. at 14-17.)

This dispute was eventually resolved in 1993 through a settlement agreement (1993 Agreement). Defendant provided Plaintiff with substantial settlement sum to "exhaust the property damage aggregate" under the policies issued. (DE 100, Settlement Agreement at 6-7.) In return for the monetary settlement, ACS agreed to:

release and forever discharge USF&G... from and against any and all claims, demands costs, losses or damages relating to property damage that it has or may have against USF&G which were or could have been raised in the litigation and which in any way relate to the Policies... and which arise from or relate to the ACS, Thermo Chem, and Calumet Container sites.

( Id. at 8-9.)

Turning to the EPA enforcement action at GDL, Plaintiff concedes that it sent solvent reclamation byproducts to GDL from 1980 to 1981. (DE 1 Compl. at 1.) In fact, Plantiff claims that it sent 37 separate, manifested loads of waste byproducts from its facility in Griffith, Indiana, to GDL during this time period. While Defendant contends that Plaintiff shipped waste byproducts to GDL outside of this time period and in excessive amounts, this dispute is not material. (DE 99, Def.'s Br. at 5-7.) In November 1981, GDL notified Plaintiff that it would no longer accept its waste byproducts due to a fire at their facility caused by one of the earlier shipments. (DE 102-3, Tarpo Dep. at 226.)

Plaintiff was aware of the EPA and Indiana Department of Environmental Management (IDEM) investigation of GDL since its inception. On July 1, 1985, Plaintiff received a letter from IDEM requesting manifest of shipments of hazardous materials from Plaintiff to GDL in 1981. (DE 102-14, Ltr. at 1.) This information was requested to assist in the closure of GDL as a hazardous waste disposal facility. ( Id. ) Then, on September 24, 1986, the EPA sent Plaintiff a similar request for information on their shipments to GDL based on the enforcement powers under the Resource Conservation and Recovery Act (RCRA). (DE 102-15, Ltr. at 1.) Lastly, in August 1987, the president of ACS was subpoenaed to testify before the EPA regarding Plaintiff's shipments to GDL and provided the requested testimony on September 10, 1987. (DE 102-17, Subpoena; DE 102-19; ACS President's Testimony.) This would be the last contact between the EPA, IDEM, and Plaintiff regarding GDL until 2011.

On November 7, 2011, Plaintiff received a General Notice Letter from the EPA, which stated that ACS may be liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the cleanup of improperly released hazardous materials at GDL. (DE 102-22, Ltr. at 1.) On February 2, 2012, Plaintiff notified Defendant in writing of the EPA claim against them regarding their shipment of hazardous waste to GDL. (DE 1, Compl. at 4.) On February 25, 2013, Plaintiff received a Special Notice Letter from the EPA again identifying them as a Potentially Responsible Party (PRP) for the improper release of hazardous materials at GDL, which included a formal demand for reimbursement of $628, 813.29 for costs already incurred by the EPA at GDL. (DE 102-23, Ltr. at 1.) Plaintiff sent this Special Notice Letter to Defendant on March 15, 2013. (DE 1, Compl. at 5.) Plaintiff also maintains that from when it first notified Defendant of the EPA claim until May 15, 2013, Defendant attempted to negotiate an ...

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