For all of its diminutive stature, Rhode Island has proven over the years that it can punch outside of its weight class when it comes to generating large environmental liability disputes and the insurance coverage controversies that invariably attend them.
Rhode Island also has the unique distinction of being one of the few states (perhaps the only one) that still recognizes “manifestation” as the appropriate trigger of coverage in long-tail disputes such as those involving pollution liabilities. Further, Rhode Island’s view of “manifestation” is not just the date of discovery. Rather, as the Rhode Island Supreme Court explained in CPC Int., Inc. v. Northbrook Excess & Surplus Ins. Co., 668 A.2d 647 (R.I. 1995) coverage should arise in the policy year in which property damage was discovered, became manifest or, in the exercise of reasonable diligence, could have been discovered.
Traditionally, “manifestation” was viewed as a coverage theory that assigned the insured’s entire claim to a single policy year, that being the year in which the loss was actually discovered. In Rhode Island, it seems that courts are not only broadening the idea of “discoverability” but are implicitly treating “manifestation” as potentially involving different years of coverage that correspond to the different events identified in CPC, that is to say when the pollution was actually discovered or became manifest (ie. discovery) and the earlier year when it could have been discovered in the exercise of reasonable diligence.
Although no Rhode Island court has explicitly declared that “manifestation” may trigger multiple policies, several recent cases have acknowledged the right of an insurer in one year to sue another for contribution, thus implicitly suggesting that multiple policy years may be required to respond to a single “occurrence.”
Last year, for instance, a federal district court in Rhode Island ruled that a liability insurer that had insured an industrial polluter in 1969-70 was entitled to recover from an earlier insurer nearly all of the defense costs that it had been ordered to pay to its insured following a lengthy and contentious coverage law suit. Judge Smith ruled in Century Ind. Co. v. Liberty Mut. Ins. Co., No. 09-285 (DRI, September 6, 2011) that even though Liberty Mutual had bought back its 1971-79 policies early on for a settlement of $250,000, it must reimburse Century Indemnity for nearly $6 million in defense costs that it had been forced to pay since the tiny amount paid had all but guaranteed that the insured would be forced to litigate its claims against the other insurers to the better end. The court declared that, “To reward Liberty Mutual for its settlement with Emhart would do nothing to serve Rhode Island’s public policy of encouraging settlements and that ‘far from being a litigation killer, Liberty Mutual’s settlement essentially ensured that this litigation would not die.’” Having found that Liberty Mutual owed contribution to Century Indemnity, Judge Smith concluded that defense costs should be apportioned on a “time on the risk” basis, comparing Century Indemnity’s 11 months of coverage to the eight years insured by Liberty Mutual. As a result, the Court ruled Liberty Mutual was obliged to reimburse Century Indemnity for 86.87% of the defense costs that it had paid to Emhart for a total payment of $5.27 million less the $250,000 settlement that Liberty Mutual had already paid. The case subsequently settled.
Now the First Circuit has issued a new opinion sustaining a liability insurer’s equitable contribution claim against another insurer for claims arising out of the same Centredale Manor Superfund site as engendered the dispute between Century Indemnity and Liberty Mutual. In Travelers Property & Cas. Co. v. Providence Washington Ins. Co., No. 11-2193 (1st Cir. July 11, 2012), Travelers sought contribution from Providence Washington for costs that it had incurred in defending a mutual insured against claims that it had contributed to pollution at the site. New England Container (NEC) had conducted various business operations at the site between 1952 and 1969, including the incineration of the chemical contents of drums and other containers.
After being named as a PRP by the U.S. EPA, New England Container tendered its defense to Travelers, which had issued CGL policies to it between 1969 and 1982, and Providence Washington, which insured it after 1982. Travelers, which had agreed to defend under a reservation of rights, sued Providence Washington for contribution. However, a federal district court in Rhode Island ruled in 2011 that Providence Washington had rightly refused to defend as the property damage in question had all occurred before its 1982-85 coverage. The court observed that by 1982, NEC was no longer doing business at the site and had no on-going connection to it. Remarking that it had found no Rhode Island court decision holding that the coverage trigger "was satisfied when the policy period did not correspond at all to the period during which the insured conducted its allegedly harmful activities," the district judge underscored that, here, "there is not even a small speck of an overlap between the policy period and the period of the insured's allegedly damaging activities." Travelers appealed.
In reversing the lower court’s finding of no coverage, the First Circuit emphasized Rhode Island’s liberal view of the scope of the duty to defend as well as the principle that coverage is triggered by when property damage is reasonably discoverable and not merely by reference to the date of the insured’s involvement at a site. In this case, the First Circuit ruled the government’s claims against New England Container left open the possibility that pollution could have been discovered in the exercise of reasonable diligence within one of the prongs of the CPC “manifestation” rule. The court ruled that “discoverable in the exercise of reasonable diligence” does not require a temporal overlap between the policy period and the insured’s active business operations during which the allegedly damaging polluting activity took place.” As the underlying facts alleged that pollution had migrated over a period of decades leading up to its discovery in 1999, the court found that the absence of specific allegations with respect to when property damage became detectable did not preclude the potential of a manifestation trigger during the Providence Washington coverage period.
Fairly read, these allegations give rise to the potential that NE Container's polluting activities may have spanned two decades and that the pollution migrated from NE Container's property and eventually caused damage to surrounding land and waterways, which damage was discovered in 1999. While the complaint does not include specific allegations showing when property damage became detectable, the potential magnitude of NE Container's alleged polluting activities supports a reasonable inference that property damage was discoverable in the exercise of reasonable diligence some time before its actual discovery, including during the policy period
The First Circuit acknowledged that an insured might face a heavier burden in establishing a claim for indemnity in such a case as this but declared that there was, nonetheless, a duty to defend:
It may be difficult to unearth evidence and prove for indemnity purposes that property damage occurred in accord with the reasonable diligence coverage trigger during a time frame when the insured has long ceased its business operations that coincided with the pollution activity. Still, there is a vast array of factual circumstances in the progressive environmental damage context, and we must take our cue from the Rhode Island court's demarcation of an "occurrence" coverage trigger for delayed manifestation scenarios. Cf. Emhart Indus., 559 F.3d at 69 (concluding that the state court's silence on the duty to defend issue does not sufficiently support [the insurer-appellant's] claim that the Rhode Island Supreme court would not apply the pleadings test in the CERCLA context).
Finally, the First Circuit rejected Providence Washington’s suggestion that this construction of the manifestation trigger transformed it into a continuous injury trigger. The court observed that under a continuous injury trigger, injury is presumed to have occurred in all years from the date of initial exposure through manifestation, whereas under Rhode Island’s pleadings test, a duty to defend only arises where allegations in the charging document “show the potential that property damage occurred during the policy period.” More candidly, the First Circuit also commented that “it is not necessarily certain that the Rhode Island Supreme Court has put to rest the continuous trigger test in the environmental context,” pointing to dicta in Textron in which the Supreme Court had stated that “because we conclude that liability under the policy may be established by one of the recognized CPC tests, we need not address the continuous trigger-of-coverage standard."
There is some irony in this holding, as Providence Washington’s Rhode Island counsel—Adler Pollock & Sheehan--is also the law firm that prevailed on behalf of policyholders in cases such as Textron. In the wake of this latest ruling, one must wonder what distinction remains between “manifestation” and “continuous injury” triggers in the context of environmental claims.