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July 3, 1997


The opinion of the court was delivered by: GRIESA

 This is an action by Olin Corporation against various insurance companies. Olin seeks to recover from these companies the costs of environmental clean-ups of various sites where it conducted operations. Olin is the successor to Mathieson Chemical Company and Olin Mathieson Corporation. For purposes of simplicity, reference will be made solely to "Olin."

 The action was commenced in 1984. In addition to the sites involved in clean-ups as of that time, other sites have been subject to clean-up costs over the years and have been included in the action. At the same time, claims relating to certain sites have been resolved by motion or settlement. By now, a net total of about 100 sites remain to be dealt with in the action.

 The court has just completed the first actual trial in the action, relating to the Williamston, North Carolina site. This opinion deals with that trial.

 Nature of this Opinion

 The trial that has been held will obviously not resolve all the claims in this action as to all the parties. Only one of many sites is being dealt with, and Olin is making a claim against only one of the several insurance company defendants.

 It is the intention of the court to bring to final disposition all the issues relating to the Williamston site. In addition, there are certain issues which are being fully litigated, which turn out (to some extent unexpectedly) to have little or no bearing upon the Williamston matter, but which are believed to relate in a broad way to many other sites. The court intends to decide those general issues which have been litigated.

 The court intends to enter a judgment under Fed. R. Civ. P. 54(b), which provides in pertinent part:

When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment.

 A partial judgment, embodying the rulings to be made by the court at this juncture is proper under the rule and will enable the parties to take an immediate appeal from these rulings. This will assist in the ultimate resolution of this large lawsuit.

 Certain of the issues about the Williamston site were submitted to a jury. Following the jury verdict additional evidence was taken on issues reserved to the court, and the court has received briefing and heard oral argument. The present opinion will deal with most of the issues to be decided by the court. However, it appears that limited additional proceedings are necessary, particularly on the issues of general application which the court intends to decide. Therefore, prior to the entry of the Rule 54(b) judgment, those additional proceedings will be held and a second opinion will be issued.


 The Williamston Operation

 At Williamston, Olin acquired a fertilizer plant on the Roanoke River in 1950. In that same year, Olin expanded the operation to include production of dry pesticides. In 1952 the production of liquid pesticides was added. Pesticide components were not manufactured at Williamston, but were procured elsewhere and were combined or "formulated" at the Williamston plant.

 Olin continued the production at Williamston until November 1967. From November 1967 to November 1968, the facility was leased to Columbia Nitrogen. The facility was then sold to Kerr-McGee. Kerr-McGee ceased operations at the facility in about 1975. The exact nature of the activities carried out by Columbia Nitrogen and Kerr-McGee is not important, except that the formulation and production of both dry and liquid pesticides entirely ceased with the departure of Olin.

 The Insurance

 Although Olin has named various insurance companies as defendants in the overall lawsuit, only one of these companies has been involved in the trial relating to the Williamston site. This company is the Insurance Company of North America ("INA"). INA was Olin's primary general liability insurer for the period January 1, 1956 through December 31, 1973. The INA insurance covered both personal injury and property damage. The issues relating to Williamston involve only the property damage phase of the insurance. In this respect, the insurance provided the standard coverage for accidental injury to property. Intentional injury to property was not covered. Although the phraseology of the policy language changed at some point, the essential nature of the coverage for accidental injury to property did not change.

 The form of policy which was in effect from 1956 through 1968 provided:

. . . THE COMPANY does hereby agree . . . :
. . . .
To indemnify the insured for all sums which the insured shall become obligated to pay by reason of the liability imposed upon the insured by law . . . for damages because of injury to . . . property . . . caused by accident.

 The form of policy which was in effect from 1969-1973 provided:

INA will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as a result of . . . property damage to which this insurance applies, caused by an occurrence . . . .
. . . .
OCCURRENCE - "occurrence," as respects . . . Property Damage Liability, means an accident, including injurious exposure to conditions, which results, during the policy period, in property damage neither expected nor intended from the standpoint of the Insured;

 The policy which was issued in 1956 was renewed each year through 1968. The policy which was issued in 1969 was renewed each year through 1973. Each form of policy for the years at issue (there is no claim of coverage for 1972 and 1973 for reasons to be explained) provided for a limit of $ 300,000 on account of each accident or occurrence, and a deductible of $ 100,000 for each accident or occurrence.

 The Clean-up Orders

 In 1985, about 16 years after Olin left the facility and all pesticide formulation operations ceased, the State of North Carolina received a complaint about odors at the site. At this time a new owner was having country music programs in buildings formerly used in the pesticide operation. The State took some preliminary soil samples and found contamination. This led to the involvement of the U.S. Environmental Protection Agency ("EPA"). The EPA issued an order on September 22, 1986 pursuant to Section 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9606(a). This and subsequent EPA directives set in motion work by Olin (1) to remove contaminated soil, (2) to have this contaminated soil transported to approved landfills, and (3) to replace the removed soil with clean soil.

 The contamination of soil resulted from Olin's pesticide operation rather than fertilizer. At one relatively small location there was contaminated soil due to the handling of petroleum products by Kerr-McGee. Kerr-McGee reimbursed Olin for the clean-up of this location.

 Following the original EPA order in 1986, there were further orders issued by the EPA in 1987 and 1990.

 Olin's soil clean-up project started in 1988. It continued for a time during that year and then broke off until 1990, when it resumed and was completed in November 1990. During the hiatus it was decided that the demolition of the buildings formerly used for the production and storage of pesticides was necessary because these buildings were themselves seriously contaminated. This demolition was part of the 1990 work. For purposes of simplicity the references to "soil clean-up" in this opinion will include the building demolition. The EPA issued Olin a "sign-off" letter in November 1991 certifying that the requirements of the EPA had been met.

 The total cost to Olin of the soil clean-up conducted pursuant to the EPA directions was about $ 3.7 million, after reimbursement by Kerr-McGee of its relatively small share.

 At some point, a well located at the site, which had been used during the time of the Olin operation, was damaged by the clean-up work. Olin wrote the State of North Carolina in December 1990 advising the State of this situation and indicating the possibility of contamination of drinking water in the area - i.e., contamination of water which was drawn by wells in the area. On June 25, 1991 the State of North Carolina issued an order to Olin and another order to an entity which succeeded Kerr-McGee. The order to Olin recited that sampling from the damaged on-site well indicated contamination by pesticide components, in violation of North Carolina standards respecting groundwater. The order directed Olin to identify and eliminate the source of groundwater contamination.

 It was eventually ascertained that the damaged on-site well posed no threat to the area's drinking water, and that the contamination in that well had been caused by the soil removal work. However, pursuant to the directive of the State of North Carolina, Olin installed a number of monitoring wells on the site commencing in late 1991 and started sampling groundwater from these wells in January 1992. The degree to which contamination of groundwater was found in the monitoring wells will be discussed in some detail later in this opinion. For the present, it is sufficient to say that no contamination was found in groundwater at the level of the wells in this area used for drinking water and other human uses - i.e., about 370-400 feet. However, some contamination was found in "surficial" groundwater. This surficial groundwater starts at the water table, which, in this area, averages about 4 or 5 feet below ground surface. The surficial ground water runs from the water table to a depth of about 15-20 feet.

 During the work carried out under the directive of the State of North Carolina Olin hired two consultants. One of these was Geraghty & Miller, Inc. of Raleigh, North Carolina. The other was Rust Environment & Infrastructure of Greenville South Carolina (known as SEC Donohue, Inc. during some of the relevant time). These consultants participated in the taking and analyzing of the groundwater samples, and rendered reports setting forth the results of the tests and also making certain comments about the source of the surficial groundwater contamination. In regard to the latter point, the consultants concluded that the soil removal and replacement carried out by Olin for the EPA had essentially removed the source of the groundwater contamination.

 Ultimately Olin requested that it be required to do no work pursuant to the State of North Carolina directive aside from the continuation of testing, and that the alleviation of any groundwater contamination be left to "natural attenuation." In effect, this meant that, with the source of the groundwater contamination gone, and with the surficial groundwater having its natural flow into the Roanoke River, the groundwater would be left to take care of itself.

 On May 7, 1996 the State of North Carolina issued a letter approving this plan. Monitoring was to be carried out thereafter on a reduced basis, and indeed continues to this day.

 Olin has spent about $ 400,000 dollars complying with the requirements of the State of North Carolina. Basically no work was done aside from installing the monitoring wells, taking samples and analyzing the results.

 The Issues for Trial

 Olin claims that it should be indemnified by INA for the $ 3.7 million dollars spent on the soil clean-up during the EPA phase, and for the $ 400,000 spent on groundwater work during the State of North Carolina phase. Olin further argues that the soil clean-up must be considered as having had a dual result, both in removing contaminated soil, and in removing the source of groundwater contamination.

 The range of questions to be resolved were divided into those submitted to the jury and those reserved for the court.

 Most of the questions submitted to the jury related, in one way or another, to issues about injury to soil and injury to groundwater. It should be noted here that the INA insurance policies contain exclusions about property owned by the insured. It was agreed that the effect of the owned property exclusions would be decided by the court. The jury was apprised of this and was told that they should assume, so that their deliberations would make sense to them, that the State of North Carolina had a sufficient interest in both the soil and the groundwater, for purposes of protecting the environment, so that the owned property exclusions would not apply.

 The jury then answered a series of questions relating to the years during which Olin was insured by INA. This period started in 1956. It concluded at the end of 1973. However, both sides agree that there was a "pollution exclusion" applicable in 1972 and 1973. An issue was submitted to the jury about whether there was also a pollution exclusion in effect for the year 1971. In view of these circumstances, the series of questions about injury to property during the period of INA coverage related to the period from 1956 through 1971. The jury found, by agreement of both parties, that there was injury to soil during the years 1956 through 1971. However, the jury found that the injury to soil was accidental only for the years 1956 and 1957. As noted earlier, the INA coverage was for accidental injury only. The jury found that there was injury to groundwater commencing in the year 1958 and running through the year 1971, and that this injury was accidental during all those years.

 It is worth describing at this point the law regarding the meaning of the concept of accidental injury in connection with liability insurance policies. The parties agree that New York law applies. An accident is contrasted with something intended, an accident being unintended. An unintended act resulting in an unintended injury is clearly accidental injury. However, an intended act resulting in an unintended injury is also an accidental injury. ...

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