
USCA1 Opinion

	




                            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 &               ___________________            _____________________________          Tanguay, P.A., Allan B.  Taylor and Dan,  Berry & Howard were  on          _____________  ________________     ____________________          brief for Aetna Casualty and Surety Company.               James M. Sweet, with whom Susan M. Kennedy, Drinker Biddle &               ______________            ________________  ________________          Reath,  Richard C. Nelson  and Nelson,  Kinder, Mosseau  & 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 &  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  &  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 &  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, & 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-
