

                  UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                           

No. 94-1540

                   NEW HAMPSHIRE BALL BEARINGS,

                      Plaintiff - Appellee,

                                v.

                AETNA CASUALTY AND SURETY COMPANY,

                      Defendant - Appellant.

                                           

No. 94-1544

                NEW HAMPSHIRE BALL BEARINGS INC.,

                      Plaintiff - Appellant,

                                v.

                AETNA CASUALTY AND SURETY COMPANY,
            AND AMERICAN MOTORISTS INSURANCE COMPANY,

                     Defendants - Appellees.

                                           

No. 94-1545

                NEW HAMPSHIRE BALL BEARINGS INC.,

                      Plaintiff - Appellee,

                                v.

                AETNA CASUALTY AND SURETY COMPANY,

                      Defendant - Appellee.

                                           

              AMERICAN MOTORISTS INSURANCE COMPANY,

                      Defendant - Appellant.

                                            

          APPEALS FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF NEW HAMPSHIRE

      [Hon. Martin F. Loughlin, Senior U.S. District Judge]                                                                    

                                           

                              Before

                     Torruella, Chief Judge,                                                     

                  Bownes, Senior Circuit Judge,                                                        

                     and Cyr, Circuit Judge.                                                     

                                           

     Stephen  H. Roberts, with whom Ouellette, Hallisey, Dibble &amp;                                                                           
Tanguay, P.A., Allan B.  Taylor and Dan,  Berry &amp; Howard were  on                                                                  
brief for Aetna Casualty and Surety Company.
     James M. Sweet, with whom Susan M. Kennedy, Drinker Biddle &amp;                                                                           
Reath,  Richard C. Nelson  and Nelson,  Kinder, Mosseau  &amp; Gordon                                                                           
were on brief for American Motorists Insurance Company.
     Michael C.  Harvell, with whom  John E. Peltonen,  Thomas S.                                                                           
Burack,  Thomas M.  Closson and  Sheehan, Phinney,  Bass &amp;  Green                                                                           
Professional Association  were on  brief for  New Hampshire  Ball                                  
Bearings.

                                           

                         January 5, 1995
                                           

                               -2-

           TORRUELLA,  Chief Judge.   This  is the  second of  two                    TORRUELLA,  Chief Judge.                                           

insurance coverage,  declaratory judgment actions to  come before

the  court in  recent months  on  appeal from  the United  States

District Court for the District of New Hampshire.  See Mottolo v.                                                                        

Fireman's Fund  Ins. Co.,  No. 94-1707 (1st  Cir. Jan.  3, 1995).                                  

Both cases raise similar issues.  The question we decide on  this

appeal  is whether  a general  liability  insurance policy  which

provides  coverage for  property  damage  that  results  from  an

"occurrence"  applies to  the  intentional  dumping of  hazardous

waste.   We conclude that, as a matter  of New Hampshire law, the

"occurrence" provision does  not apply to the facts  of this case

and  that, therefore, the  defendant insurance companies  are not

obligated  to  indemnify  the  plaintiff-appellee.    Because  we

conclude that the district court decision to the contrary must be

reversed,  and judgment  entered  in  favor  of  the  defendants-

appellants, we need not reach the issue of what triggers coverage

under  the policies,  nor need  we interpret  the owned  property

exclusion.  Likewise, the damages questions decided below are not

necessary to our conclusion.

                                I.                                          I.

                            BACKGROUND                                      BACKGROUND                                                

          New   Hampshire    Ball   Bearings,    Inc.   ("NHBB"),

manufactures precision  ball bearings  for use  in the  aerospace

industry.  It has operated a manufacturing facility ("the plant")

located  approximately  one-quarter   mile  west  of  the   South

Municipal  Well ("the South Well") in Peterborough, New Hampshire

                               -3-

 since  1957.   NHBB relies  heavily on  the  use of  solvents for

essential  degreasing   and   cleaning   functions   during   the

manufacturing  process.    These solvents  include  the  volatile

organic compounds  ("VOCs") trichloroethylene ("TCE")  and 1,1,1-

trichloroethane ("TCA").  

          Contamination  of the South Well was discovered in 1982

during  the  first  routine sampling  of  the  Peterborough water

supply  for VOCs.   This contamination  was traced  to NHBB.   No

other potential responsible parties have been identified.  In May

of  1983,  the  United  States  Environmental  Protection  Agency

("EPA") put the  South Well and contiguous areas  on the National

Priorities  List,  making  them eligible  for  funding  under the

Comprehensive Environmental  Response Compensation  and Liability

Act  of 1980  ("CERCLA"), 42  U.S.C.     9601-75, amended  by the                                                                       

Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.

99-499, 100 Stat. 1613 (1986).  

          NHBB   is  required   to  clean   up  hazardous   waste

contamination  at the South  Municipal Well in  Peterborough, New

Hampshire ("the  South Well")  pursuant to  a 1986  consent order

entered into with  the EPA and an Administrative  Order issued by

EPA on  June 19, 1990.   A  feasibility study has  indicated that

cleanup of the South Well will take 19 to 32 years.

          In  1987,  NHBB  brought   this  action  against  Aetna

Casualty  &amp;  Surety  Company  ("Aetna")  and  American  Motorists

Insurance Company ("AMICO"), seeking a declaration that Aetna and

AMICO  are  obligated  to indemnify  NHBB  for  its environmental

                               -4-

 cleanup costs at the South  Well.  Following a fourteen-day bench

trial, which included  an evidentiary view of the  NHBB plant and

the  South  Well, the  district  court  issued  a  34-page  Order

containing  detailed  findings  with respect  to  NHBB's  use and

disposal  of solvents  at the  NHBB  plant.   The district  court

concluded that NHBB's practice  for disposing of solvents  led to

pervasive  leaking, overflowing  and  intentional discharging  of

solvents onto the  ground, leading to contamination  of the South

Well through the groundwater.

          Among  the pertinent findings by the district court are

the following.   NHBB  used tanker trailers  to dispose  of waste

liquids from the plant.   The original trailer had a  capacity of

250  gallons while subsequent  trailers had capacities  of 500 to

750 gallons.  When the trailer filled up, the normal practice was

for NHBB employee's to  dump its contents at the town  dump.  The

district court found,  however, that "about twice a  year because

of inclement weather,  solvents and waste were  discharged on the

NHBB premises which subsequently went into the groundwater."  The

district  court  concluded  that  "[t]hese  discharges  were  not

accidental."

          The  court also  noted that  on  other occasions  tanks

would accidentally overflow, discharging solvents onto the ground

at the plant.   This overflowing continued,  notwithstanding some

efforts by NHBB  to curtail it.   In each  year between 1957  and

1983,  solvents were  spilled onto the  ground at  the plant.   A

tumble  sump used to store waste occasionally overflowed, causing

                               -5-

 solvents  in free  phase and  dissolved  form to  spill onto  the

ground and flow through a discharge pipe into a nearby brook.  In

1982, a  roof tank  with  a capacity  of 275  gallons leaked  TCA

through a ruptured pipe onto the ground at the plant.

          The court also  found that wastes were  discharged from

sinks, floor drains and roof drains at the plant onto the  ground

and wetlands  of the plant, and into the  town sewer and a nearby

brook.  Some  of the wastes flowed  into the wetland area  of the

plant while others flowed into a brook near the plant.  The court

found that NHBB was still discharging volatile compounds from its

outfalls in late 1982.

          In  conclusion, the district  court made  the following

findings of fact:

          1.   During  the 1950's,  1960's and early  1970's, the

public and industry were not  generally aware of the threat which

hazardous   wastes  posed  to  the  environment  in  general  and

groundwater in particular.

          2.    NHBB intentionally  discharged solvents  onto the

soil and top surface.

          3.   NHBB's contamination of the soil and wetlands  was

intentional, not fortuitous.

          4.  At the time  of its intentional discharge, NHBB did

not understand the effect its discharge of solvents would have on

the groundwater.

          5.    NHBB's  contamination  of   the  groundwater  was

unintentional.

                               -6-

           Based on these  findings, the district court  held that

NHBB  is  entitled  to indemnification  from  Aetna  for expenses

related to the investigation and cleanup up of the groundwater at                                                                        

the South Well, but not the soil or wetlands, pursuant to Aetna's

general liability  insurance policy in effect for the period July

1, 1982 to July  1, 1983.1  The court ordered  Aetna to reimburse

NHBB in the amount of  $14,213,199.94 and ordered Aetna to defend

NHBB in any related suits.

                               II.                                         II.

                        STANDARD OF REVIEW                                  STANDARD OF REVIEW                                                    

          We  review determinations of state law  made in a bench

trial of a diversity action de novo.  Williams v. Poulos, 11 F.3d                                                                  

271, 278  (1st Cir.  1993); Blanchard v.  Peerless Ins.  Co., 958                                                                      

F.2d 483, 487 (1st Cir. 1992).  The district court's  findings of

fact  will be upheld in the absence of clear error.  Fed. R. Civ.

P. 52(a);  Williams, 11  F.3d at 278.   In  other words,  we will                             

defer to the district court's findings of fact unless we form "'a

strong,  unyielding  belief  that  a  mistake  has  been  made.'"

Cumpiano v. Banco  Santander Puerto Rico, 902 F.2d  148, 152 (1st                                                  

Cir. 1990).

          The clearly erroneous standard  also ordinarily applies

when we review  a trial court's resolution of  mixed questions of

                                                  

1  The district court found  that the "trigger date" for purposes
of  determining insurance  coverage was  October  1982 (when  the
contamination  was discovered  by the  State  of New  Hampshire).
AMICO's policies were no longer in effect as of October 1982 and,
consequently, the court ruled that  they did not provide coverage
for the contamination.

                               -7-

 fact and law.   See In re  Extradition of Howard, 996  F.2d 1320,                                                          

1328 (1st Cir. 1993) ("the  more fact dominated the question, the

more likely  it is  that  the trier's  resolution of  it will  be

accepted  unless shown  to be  clearly erroneous").   If  a trial

court  "bases  its   findings  upon  a  mistaken   impression  of

applicable legal principles,"  however, we are  not bound by  the

clearly erroneous standard.  LoVoulo  v. Gunning, 925 F.2d 22, 25                                                          

(1st   Cir.  1991)   (quoting   Inwood   Laboratories   v.   Ives                                                                           

Laboratories, 456 U.S. 844, 855 n. 15, 102 S.Ct. 2182, 72 L.Ed.2d                      

606 (1982)).

          In addition, we  note that the district  court properly

found that, because there is no underlying state court lawsuit in

this  case,  the  burden shifting  framework  of  New Hampshire's

declaratory judgment act, N.H. Rev. Stat. Ann.   491.22, does not

apply and the  burden of establishing  coverage remains with  the

plaintiff, NHBB.   See  Town of Allenstown  v. National  Casualty                                                                           

Co., No. 94-1106, slip op. at 8-9 (1st Cir. Sept. 30, 1994).             

                               III.                                         III.

                            DISCUSSION                                      DISCUSSION                                                

          Aetna is  required to indemnify  NHBB for monies  it is

legally obligated to pay because of property damage caused by "an

occurrence."  The policy defines  "occurrence" as "an accident  .

. . which results in .  . . property damage neither  expected nor

intended from the standpoint of the insured."  The district court

found  that NHBB intentionally contaminated the soil and wetlands

but did not  realize the effect its  pollution would have  on the

                               -8-

 groundwater.   The narrow issue we decide in this case is whether

NHBB's  contamination of groundwater  with hazardous waste  is an

"occurrence" or an "accident" under those circumstances.

          In Mottolo v. Fireman's Fund Ins. Co., No. 94-1707 (1st                                                         

Cir. Jan. 3,  1995), we  analyzed the law  of New  Hampshire with

respect  to  "occurrence"  policy provisions.    We  will briefly

summarize  the salient  principles.   The  New Hampshire  Supreme

Court  construes   the  term   "accident"  in   the  context   of

"occurrence" coverage to mean "'an undesigned contingency, . .  .

a  happening by  chance, something  out  of the  usual course  of

things, unusual, fortuitous,  not anticipated, and not  naturally

to be  expected.'"  Jespersen v.  U.S. Fidelity &amp;  Guar. Co., 131                                                                      

N.H. 257, 260,  551 A.2d 530 (1988) (quoting  Vermont Mutual Ins.                                                                           

Co. v. Malcolm,  128 N.H. 521,  523, 517 A.2d  800 (1986)  (other                        

citations omitted).

          In Providence Mutual Fire Insurance Co. v. Scanlon, 138                                                                      

N.H. 301,  638 A.2d 1246  (1994), the Court articulated  the test

for determining whether there is an accident as follows:

            "If the insured did not intend to inflict
            the   injury   on  the   victim   by  his
            intentional act,  and the act  was not so
            inherently injurious that  the injury was
            certain to follow  from it, the act  as a
            contributing  cause  of injury  would  be
            regarded    as    accidental    and    an
            'occurrence.'"

Scanlon, 638  A.2d at 1249  (quoting Vermont Mutual, 128  N.H. at                                                             

524).   Under Scanlon, NHBB's  actions were  not "accidental"  if                               

either 1)  it intended to  inflict the injury  or 2) its  actions

were "inherently injurious."

                               -9-

           The district court's findings  that NHBB's intended  to

contaminate  the top soil and wetlands,  but not the groundwater,

raise the question  whether those "injuries"  can be divided  for

purposes of  determining whether  NHBB "intended  to inflict  the                                                                           

injury on the  victim by his intentional  act."  We have  serious                

doubts that  the intended injuries  to the top soil  and wetlands

are divisible from the unintended injury to the groundwater.  See                                                                           

Lumbermens Mutual  Casualty Co.  v. Belleville  Indus., 938  F.2d                                                                

1423, 1427-28  (1st Cir. 1991) (cautioning  against microanalysis

of a continuing  pattern of pollution).  We need  not decide that

question here, however,  because we find that  NHBB's intentional

actions were inherently injurious within the meaning of Scanlon.                                                                         

          The  test  of   "inherently  injurious"  conduct  under

Scanlon  is  that  "an insured's  intentional  act  cannot  be an                 

'accident' when it is so inherently injurious that 'it is certain

to result in some injury, although not necessarily the particular

alleged injury.'"   Green Mountain Ins. Co. v.  Foreman, 138 N.H.                                                                 

440,     , 641 A.2d 230, 232 (1994) (quoting Scanlon, 638 A.2d at                                                              

1249).  In determining whether  an insured's actions were certain

to result  in some injury,  New Hampshire law instructs  that the

reviewing court  look at "the  character of the act  viewed, with

reference to the insured, as a cause of injury."   Jespersen, 131                                                                      

N.H. at 260  (quoting Vermont Mutual, 128 N.H. at 524).  This has                                              

been interpreted as an objective standard.  "[T]he Court does not

look to the actor's subjective intent that the result in question

occur, but rather, the Court 'may infer that the actor's state of

                               -10-

 mind was  the same as a  reasonable person's state  of mind would

have been.'"  King v. Prudential  Property and Cas. Ins. Co., 684                                                                      

F. Supp. 347, 349 (D.N.H. 1988) (quoting W. Keeton, D.  Dobbs, R.

Keeton, &amp; D. Owen, Prosser and Keeton on the Law of Torts   8, at                                                                   

35-36).

          Although the district court cited much of the above New

Hampshire law, it  ultimately relied on New Jersey  law in making

its determination that NHBB's  intentional discharge of  solvents

was an "occurrence."  Citing Morton International Inc. v. General                                                                           

Accident  Insurance Co.,  134 N.J.  1, 629  A.2d 831  (1993), the                                 

district   court  sought   to   determine  "whether   exceptional

circumstances exist that objectively establish [NHBB's] intent to

injure."   This test does not  reflect the law of  New Hampshire.

By looking  for objective  evidence from  which  the court  could

infer NHHB's  subjective intent  to injure  the groundwater,  the                                         

court ignored  the objective  nature of the  inquiry required  by

Vermont Mutual and its progeny.  Although we could remand to  the                        

district court for  reconsideration under  the appropriate  legal

standard, we  are perfectly  equipped to  apply the  proper legal

standard to the factual findings of the district court.

          As we interpret  it, the test that emerges from Vermont                                                                           

Mutual and  its  progeny is  the  following: would  a  reasonable                

company in  NHBB's position know that its intentional dumping and

contamination of the soil  and wetlands with hazardous  waste was

certain  to  result in  some  injury  to  property, although  not

necessarily the  particular injury to  the groundwater.   To this

                               -11-

 question, our answer is yes.   In our view, the  district court's

findings that  1) NHBB  intentionally contaminated  the soil  and

wetlands -- a  finding that was  not contested on appeal;  2) the

dumping was done in a reckless manner with no perceptible concern

for whether the  materials would migrate from the  NHBB site; and

3)  much  of the  waste  flowed  directly  into a  nearby  brook,

foreclose  any serious argument  that a reasonable  company would

not have known that the dumping was certain  to cause some injury

to adjacent property.

          NHBB nonetheless presses  the argument that it  did not

intend  to injure  the  groundwater.   The  Vermont Mutual  Court                                                                    

rejected the argument  that an event is an  "accident" within the

meaning of the  policy language if the insured did  not expect or

intend the injury that resulted: "[t]he policy does not condition

coverage on the fortuitous nature  of the victim's injury, but on

the  accidental character of the insured's act."  Vermont Mutual,                                                                          

128 N.H. at  524.  As the  New Hampshire Supreme Court  stated in

Jespersen: "[b]ecause their  act was inherently injurious,  it is                   

of  no  consequence  that  the  Jespersens  have  sworn,  without

contradiction,  that they  did  not intend  to cause  the alleged

injuries."  Jespersen, 131  N.H. at 261.  The fact  that NHBB did                               

not intend to injure the groundwater is irrelevant.

          We also  think this case falls within the factual ambit

of our decision in Great  Lakes Container Corp. v. National Union                                                                           

Fire Ins. Co., 727 F.2d 30 (1st  Cir. 1984).  In Great Lakes,  we                                                                      

held,  pursuant  to   New  Hampshire  law,  that   there  was  no

                               -12-

 "occurrence," under an  insurance policy similar to  that in this

case, because the  insured discharged chemical pollutants  on its

land "as a concomitant of its regular business activity."  Id. at                                                                       

33.  The facts found by  the district court, and recited  herein,

clearly establish that  NHBB discharged chemical pollutants  as a

concomitant of its regular business activity.  The district court

attempted  to distinguish  Great Lakes  by  pointing out  certain                                                

facts apparently from which it could be inferred that the company

in Great  Lakes subjectively  intended to  contaminate the  water                         

supply.  The subjective intent to pollute was not relevant to our

decision  in Great  Lakes.   Great  Lakes stands  for the  simple                                                   

proposition  that a company which engages in systematic pollution

as  a concomitant of  its normal  business practice  cannot claim

that such pollution was  "accidental."  See Belleville, 938  F.2d                                                                

at 1429 (surveying similar  decisions in other circuits).   Thus,

our analysis in  Great Lakes   applies  with equal  force to  the                                      

facts of this case.

                               IV.                                         IV.

                            CONCLUSION                                      CONCLUSION                                                

          For the reasons stated herein, the district court erred

in finding  that Aetna was  required to indemnify NHBB  for costs

associated  with  its  investigation and  cleanup  of groundwater

contamination at the  South Municipal Well site  in Peterborough,

New Hampshire.  We  hold that, as a matter of  New Hampshire law,

NHBB's contamination of  the groundwater was not  an "occurrence"

within the  meaning of  the insurance policy  issued by  Aetna to

                               -13-

 NHBB.   We therefore reverse the judgment below, to the extent it                                                                           

is inconsistent with this opinion, and enter judgment for Aetna.                                                                         

                               -14-
