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OLIN CORP. v. INSURANCE CO. OF N. AMERICA

April 23, 1991

OLIN CORPORATION, PLAINTIFF,
v.
INSURANCE COMPANY OF NORTH AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

Faced with a rising tide of lawsuits stemming from the alleged chemical contamination of the areas surrounding a number of its chemical plants, the Olin Corporation ("Olin") filed suit in 1984 against its primary and excess liability insurance carriers, seeking a declaration that they were obligated to defend and indemnify in the underlying lawsuits. Now, after seven years of discovery and motion practice, the case again comes before this Court.*fn1 Presently at issue are motions for partial summary judgment by fourteen of Olin's primary and excess insurers. These motions relate to the insurers' duty to defend and indemnify Olin for losses stemming from alleged dichlorodiphenyltrichloroethane ("DDT") contamination in areas near Olin's Huntsville, Alabama plant ("Huntsville plant").

Defendant Employers Insurance of Wausau ("Wausau"), a primary insurer, moves for partial summary judgment on the ground that a so-called "pollution exclusion" clause in its policies with Olin absolves it of any obligation to defend or indemnify Olin. Twelve excess liability carriers*fn2 (collectively, "the Excess Insurers") also move for partial summary judgment. They claim that they have no obligation to indemnify on the grounds that there was no "occurrence" within the meaning of their policies with Olin, and that in any event at least part of their liability is absolved by the pollution exclusion clauses in their policies. Defendant Hanover Insurance Company ("Hanover"), a primary insurer, moves for judgment on the occurrence issue and on the additional ground that Olin did not notify it of the alleged Huntsville occurrence in a timely fashion.

For the reasons given below, Wausau's motion for summary judgment is granted. The motions of the Excess Insurers are granted to the extent they are based on the pollution exclusion clause issue, but denied insofar as they are based on the occurrence issue. Hanover's motion is granted on the late notice issue.

I. BACKGROUND

In 1954, Olin purchased the Calabama Chemical Company ("Calabama"), which operated a manufacturing plant near Huntsville, Alabama. The plant, which produced industrial-grade DDT for commercial use, was located on land owned by the United States Army in an area known as the Redstone Arsenal.*fn3 Calabama had leased the plant and the surrounding land from the Army, and Olin assumed the lease when it bought Calabama. Benton Wilcoxin, a member of the partnership that owned Calabama, continued on as the manager of the plant after the Olin acquisition.

Olin manufactured DDT at the Huntsville plant from 1954 until 1970, at which time Olin voluntarily ceased operations there. During much of that time the plant operated on a continuous seven day a week schedule, producing one to two million pounds of industrial-grade DDT per month.

A. The DDT Manufacturing Process

The DDT manufacturing process at the Huntsville plant began with the manufacture of a chemical called chloral. After being created through a chemical reaction, the chloral was purified through a process which produced two byproducts, sulfuric acid and sodium hypochlorite (bleach). After being purified, the chloral was rinsed with water in a process which resulted in the creation of a third byproduct, hydrochloric acid. The three byproducts — sulfuric acid, bleach and hydrochloric acid — were released into waste water trenches running alongside the plant which eventually led into a creek known as the Huntsville Spring Branch. See Deposition of Benton H. Wilcoxin, Ex. 1 to Cover affidavit ("Wilcoxin Dep. I"), pp. 46-57.

After manufacturing the chloral, Olin started the process of making DDT. DDT was made by mixing the chloral with monochlorobenzene ("MCB") in a process which created molten DDT. The molten DDT was then subjected to three "washings" in water solutions. After the washings, the process water also was released into the waste water trenches. See id. at 58-72.

The molten DDT was then placed into a "steam stripper" which used steam to remove any remaining MCB from the DDT. After being stripped, the molten DDT was allowed to cool and solidify. The steam, now laced with MCB, condensed into a liquid with two layers, a layer of process water and a heavier layer of MCB. The MCB layer was transferred to a storage tank for reuse and the process water was dumped into the waste water trenches. See id. at 70-71.

As described above, the DDT manufacturing process involved the release of process waters and three byproducts (collectively, the "effluent"). The effluent was expelled into brick-lined waste water trenches running alongside the plant. The trenches carried the effluent 50 to 75 feet south of the plant to a 200 foot long drainage ditch. At the end of the drainage ditch the effluent flowed into an acid-neutralization pit and then flowed through a three-quarter mile long drainage ditch which emptied into the Huntsville Spring Branch. See Deposition of Donald E. Morgan, Ex. 2 to Cover affidavit, pp. 49-56.

B. Discharge of DDT from the Huntsville Plant

According to Olin, it believed that the Huntsville plant was a "closed" plant — that is, "a plant which did not, as part of its regular operations, allow its product, DDT, to escape into the effluent or waterways." Memorandum of Law of Olin Corporation in Opposition to Wausau's Motion for Partial Summary Judgment ("Olin's Memorandum of Law"), p. 16. However, the undisputed facts show that DDT was escaping from the plant on a more or less continuous basis during the sixteen years Olin operated the plant. In 1965, when Olin installed a "settling tank" through which the effluent passed, the tank filled up with 12,000 pounds of DDT-bearing material in four months. See United States Army Preliminary Sanitary Engineering Survey, Ex. 8 to Gimer affidavit ("Army Sanitary Survey Report"), p. 9. On the basis of this event, it is clear that substantial quantities of DDT were leaving the plant during the entire period of its operation.

As early as 1948, Mr. Benton Wilcoxin, the plant manager, knew that some DDT was escaping from the plant. At that time, Wilcoxin saw DDT in the waste water ditches running alongside the plant. Deposition of Benton H. Wilcoxin, Ex. 1 to Gimer affidavit ("Wilcoxin Dep. II"), p. 1.

By 1952 the United States Army, which owned the land on which the plant was situated, had become concerned about chemical discharges from the Olin plant. On June 23, 1952, Niles Prestage, the Army Chief of Utilities at the Redstone Arsenal, wrote a memorandum in which he set a maximum limit of DDT in Olin's effluent at 10 ppm (parts per million). He also established the permissible level of DDT in the Huntsville Spring Branch, into which the drainage ditch emptied, as "none". See Memorandum of Niles Prestage, Ex. 32 to Gimer affidavit, p. 1.

In 1955 two engineers, Donald Morgan and Thomas Trapane, were assigned to the Huntsville plant by Olin. Their duties included the task of monitoring the discharge of waste water from the plant. When the two arrived at the plant in 1955, they observed DDT in the waste water trenches near the plant. Deposition of Donald E. Morgan, Ex. 11 to Gimer affidavit ("Morgan Dep."), pp. 14, 102. Trapane began analyzing the plant effluent on a daily basis. He determined that small concentrations of DDT were present in the effluent due to the ordinary operations of the plant. Deposition of Thomas Trapane, Ex. 40 to Gimer affidavit ("Trapane Dep."), p. 115.

During the mid-1950s, a body of scientific literature began to develop concerning the possible dangers of DDT to the environment and to humans. Olin executives at the Huntsville plant were familiar with this literature, although they disagreed that DDT was dangerous.*fn4 See id. at 71-72.

In 1957, the Army hired a chemist named Jimmie Reid to work in the Sanitation Section at the Redstone Arsenal. His duties included monitoring the operations of Olin and other companies located on the Redstone Arsenal property. Reid began monitoring the effluent from the Olin plant in 1957. At that time he noticed white material, "which appeared to be DDT," on the bottom of Olin's waste water ditches. Deposition of Jimmie G. Reid, Ex. 28 to Gimer affidavit ("Reid Dep. I"), pp. 9-10; see also Deposition of Jimmie G. Reid, Ex. 44 to Gimer affidavit ("Reid Dep. II"), p. 33. A sample of the material was sent to a NASA laboratory for analysis, where it was determined to be DDT. See Deposition of Knowlen F. Knowles, Ex. 45 to Gimer affidavit, p. 11.

In 1961, Reid inspected the drainage ditch leaving the Olin plant. He observed DDT in the ditch. He also observed a delta of white material, which appeared to be DDT, at the confluence of the Olin drainage ditch and the Huntsville Spring Branch. Deposition of Jimmie G. Reid, Ex. 43 to Gimer affidavit ("Reid Dep. III"), pp. 224-25. Reid later tested the white material and confirmed that it was DDT. On instructions from his supervisor at the Redstone Arsenal, Reid took pictures of the DDT deposits in the drainage ditch and in the Huntsville Spring Branch. Reid showed these photos to Mr. Wilcoxin, the Olin plant manager, but Wilcoxin took no action to determine how much DDT was in the Huntsville Spring Branch. See Reid Dep. I at 44; Wilcoxin Dep. II at 330-31.

During the period 1962-63, concern about the potentially harmful effects of DDT grew in the scientific community and among the public at large. Rachel Carson's book Silent Spring, which made serious allegations regarding the harmful effects of DDT on wildlife and humans, was published in 1962. In 1963, an official of the National Cancer Institute testified in a Senate hearing that DDT was carcinogenic. See Testimony of Dr. Hueper, Ex. 51 to Gimer affidavit, p. 34. Management personnel at Olin were aware of these developments. See Deposition of Richard Henderson, Ex. 19 to Gimer affidavit, p. 182; Deposition of Leonard A. Krause, Ex. 52 to Gimer affidavit, pp. 73-76, 83.

In August, 1963, Jimmie Reid again visited the Olin plant. He observed a DDT "bar" at the confluence of the Olin drainage ditch and the Huntsville Spring Branch. See Reid Dep. I at 64. He also observed DDT some two hundred feet downstream. In addition, Reid noticed "an extensive DDT build-up along the lower bank" of the Branch. Id. at 49. Reid's observations were reported to Olin's management at the Huntsville plant. See id. at 71-72. Reid, concerned about the possible DDT contamination of the Branch, recommended that the United States Public Health Service ("Health Service") become involved. See id. at 90.

The Health Service visited the Olin plant in the fall of 1963. Concern within the Health Service grew when it was discovered that traces of DDT were found at a dam more than 100 miles downstream from the Olin plant. See Deposition of Billy G. Isom, Ex. 61 to Gimer affidavit, p. 56. The Health Service issued a report on the Redstone Arsenal area in late 1963. The report found that Olin's effluent contained DDT. The report also noted that the Huntsville Spring Branch was substantially polluted, resulting in fish kills. Toxicity studies contained in the report showed that all fish exposed to a 25% concentration of Olin's effluent were killed within an hour of exposure. See Health Service Preliminary Report, Ex. 65 to Gimer affidavit, pp. 1, 8. In a subsequently issued report, the Health Service concluded that wastes from the Olin plant contained "toxic concentrations of DDT. . . ." Health Service Interim Report, Ex. 7 to Gimer affidavit, p. 10. On March 26, 1964, Wilcoxin and another Olin executive attended a meeting in Atlanta called by the Health Service. At the conference, a Health Service official summarized the results of the 1963 Health Service report and described the Service's concerns about the effect of DDT on fish and wildlife, and on members of the public who might consume affected fish or wildlife, such as squirrels or waterfowl. See Wilcoxin Dep. II at 377; see also Conference Summary Report, Ex. 70 to Gimer affidavit, pp. 2-5.

At about this time, the Army sent a warning letter to Olin's legal department regarding the pollution situation at the Huntsville plant. The Army's lease with Olin provided that Olin was forbidden from "discharg[ing] waste or effluent from the Leased Property in such a manner that such discharge will contaminate streams or other bodies of water or otherwise become a public nuisance." See Memorandum of V.H. Hartmann, Ex. 129 to Gimer affidavit, p. 1. In its letter, the Army advised Olin that its continued discharge of hazardous waste might constitute a violation of the lease.

In May, 1964, the Army again wrote to Olin. This letter, addressed to Wilcoxin, proposed a limit of 80 ppb (parts per billion) with respect to the DDT in Olin's effluent. See Letter of United States Army (5/15/64), Ex. 73 to Gimer affidavit, pp. 1-4. Wilcoxin responded with a letter in which he stated that "the most serious area, with respect to pollution, is that of DDT concentration." Wilcoxin Letter (5/22/64), Ex. 74 to Gimer affidavit, p. 1. Olin management began planning methods to reduce the DDT problem, including the installation of a "settling tank" between the waste water trenches and the drainage ditch, the purpose of which would be to permit the DDT to settle out of the effluent before it reached the Huntsville Spring Branch. See Morgan Letter (7/8/64), Ex. 10 to Gimer affidavit, p. 2.

On July 11, 1964, the Olin plant was shut down temporarily to permit the construction of the settling tank. While construction was underway, the Tennessee Valley Authority ("TVA") completed a study which showed that the Huntsville Spring Branch was "highly polluted with DDT." Deposition of Charles Davidson, Ex. 64 to Gimer affidavit, pp. 70-71. Construction of the settling tank was completed on January 8, 1965. The tank was large, measuring eight feet wide, thirty-two feet long and eight feet deep. From the tank, the plant effluent flowed into the plant's drainage ditch and then onward to the Huntsville Spring Branch. After the tank was completed, Olin reopened the plant but operated it at only 50% of capacity. See Morgan Dep. at 267.

Despite the addition of the settling tank, Olin's effluent exceeded the 80 ppb limitation on many occasions. See Olin Letter (5/18/65), Ex. 88 to Gimer affidavit, pp. 1-2. When a team of Army inspectors visited the Olin plant in September, 1965, they noticed that the settling tank was "completely filled with DDT solids." Army Sanitary Survey Report at 9. Plant personnel estimated that there were more than 12,000 pounds of DDT solids in the tank, which had been cleaned approximately four months before. Id. When a specialist from Olin visited the Huntsville plant three months later, in December, 1965, he also found that "the tank area and the area around it looked as though the DDT solids had overrun the tank." Memorandum of Louis Rozmay, Ex. 100 to Gimer affidavit, p. 1.

On December 14, 1965, a meeting was held between an official of the Army Corps of Engineers and Olin personnel, including Wilcoxin. At that meeting the Army set a limit of 10 ppb of DDT in the Huntsville Spring Branch and retained the 80 ppb limit for the effluent. See Wilcoxin Dep. II at 462. In an effort to meet these limits, Olin built a "settling pond" in the drainage ditch area. Completed in approximately May, 1966, the pond was 190 feet long, 20 to 30 feet wide and 9 feet deep. See Morgan Dep. at 59-60. Olin also began constructing a new drainage ditch during this period.

On October 26-27, 1967, a conference was held regarding water pollution in the Redstone Arsenal area. Present at the meeting, among others, were Olin representatives and an official from the Federal Water Pollution Control Agency. The official reported that a DDT level of 10 ppb in the Huntsville Spring Branch was dangerous to aquatic life and that the limit would have to be reduced. See Memorandum (10/30/67), Ex. 10 to Gimer affidavit, p. 1.

Despite Olin's remedial measures, the DDT levels in the plant effluent and in the Huntsville Spring Branch exceeded the applicable limitations on many occasions. See, e.g., Wright Report on Redstone Arsenal, Ex. 113 to Gimer affidavit, p. 1; Wilcoxin Letter (12/12/67), Ex. 114 to Gimer affidavit, p. 1; Report on Waste Disposal Facilities, Ex. 121 to Gimer affidavit, p. 5. The DDT levels in the mud in the drainage ditches and in the Branch were higher still. By May, 1969, the TVA had concluded that "too much DDT [was] still leaving the Redstone Arsenal plant[]." Memorandum of Charles Chance, Ex. 124 to Gimer affidavit, p. 1.

In August, 1969, the Army inspected the Olin plant. This inspection led the Army to believe that Olin was in violation of its lease, based upon its emission of DDT and other pollutants. Following the inspection, the Army began procedures to shut down the Olin plant. See Summary Report of DDT Contamination, Ex. 9 to Gimer affidavit ("DDT Summary Report"), p. 3; Letter of General McBride (9/5/69), Ex. 127 to Gimer affidavit, p. 1. When the plant was closed for maintenance on August 18, 1969, the Army informed Olin that it would not be permitted to reopen the plant until more effective pollution controls were in place. See id.

Olin subsequently established additional pollution control measures at the plant, including improved settling ponds and the installation of a carbon filter system. See Letter of V.H. Hartmann (11/4/69), Ex. 134 to Gimer affidavit, pp. 1-2. On January 10, 1970, the plant reopened. Despite the presence of the additional controls, DDT levels in the effluent and in the Huntsville Spring Branch continued to exceed the limits established by the Army. See Letter of Kenneth Knapp (1/20/70), Ex. 136 to Gimer affidavit, pp. 3-4; Deposition of David Delavan, Ex. 109 to Gimer affidavit, p. 89.

In April, 1972, the Army conducted a water quality survey in the areas surrounding the Olin plant site. The study showed extensive land and water contamination with DDT. See id. at 6. An analysis of fish in the waters surrounding the old plant site revealed DDT levels in excess of Food and Drug Administration limits. Id. Based on these findings, the Environmental Protection Agency ("EPA") authorized the Army to clean up the plant site. Id. at 7.

In 1978, the TVA conducted a study of the extent of DDT contamination downstream from the Redstone Arsenal and produced a report, at the request of the EPA. The report found high levels of DDT in fish in the waters downstream from the old Olin plant. The report also expressed concern about the possible effects of DDT on persons ...


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