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Arrowood Indemnity Co. v. Oxford Cleaners and Tailors, LLC

United States District Court, D. Massachusetts

August 15, 2014



PATTI B. SARIS, District Judge.

Oxford Cleaners & Tailors LLC ("Oxford"), a dry-cleaning business, seeks defense costs and indemnity for litigation in which the business is accused of contaminating a neighboring property with hazardous pollutants. Arrowood Indemnity Company ("Arrowood") seeks a declaratory judgment that it has no duty to defend or indemnify under the "pollution exclusion" in the insurance policy. The parties filed cross-motions for summary judgment. After hearing, Arrowood's motion for summary judgment is ALLOWED, and Oxford's motion is DENIED.


The following facts are undisputed, except where noted. Oxford[1] has owned and operated a dry-cleaning business in Easton, Massachusetts since the early 1970s. It also owns the property where the dry-cleaning facility operates. D&D Realty owns a nearby property which was allegedly contaminated by the drycleaning business.

Arrowood, formerly known as Royal Indemnity Company, is the successor-in-interest to Globe Indemnity Company, which provided liability insurance coverage to Oxford from October 1987 through October of either 1993 or 1994 (the dates are disputed). The coverage was renewed annually. The alleged contamination of D&D's property is believed to have occurred during or prior to the years when the policy was in effect.

I. Pollution Claims Against Oxford

An investigation of environmental contamination at the D&D property revealed elevated levels of petroleum and chlorinated solvents, including perchloroethylene ("PCE"), in groundwater samples. D&D notified the Massachusetts Department of Environmental Protection ("DEP") of the contamination, and the DEP subsequently issued a Notice of Responsibility ("NOR") to D&D on October 26, 2011.

D&D told the DEP that Oxford's facility was the likely source of PCE. On December 30, 2011, the DEP issued to Oxford a NOR and Request for Immediate Response Action Plan ("RIPAP"). The NOR/RIPAP stated that the DEP "has reason to believe that [Oxford is] a Potentially Responsible Party" for the "release and/or threat of release of oil and/or hazardous material at the [D&D] property, " because "[g]roundwater elevation and analytical data indicates that the chlorinated solvents are likely migrating from your property." The NOR/RIPAP directed Oxford to investigate the contamination of D&D's property and take steps to rectify it. After receiving the NOR/RIPAP, Oxford forwarded the documents to Arrowood on February 8, 2012, requesting defense costs and indemnity under the insurance policy. On March 9, 2012, Arrowood responded to Oxford's letter by declining coverage, citing the policy's pollution exclusion.

On March 1, 2012, D&D sent a Demand Letter to Oxford, stating that "the PCE release appears to be related to and migrating from your upgradient property." The demand letter asserted that Oxford was liable under § 5A of the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, Mass. Gen. Laws ch. 21E § 5, and sought damages and response costs.

On April 25 and May 16, 2012, Oxford again contacted Arrowood to request defense and indemnity under the policy's Personal Injury provision, and to notify Arrowood of D&D's Demand Letter. Arrowood again refused to defend or indemnify in a letter sent to Oxford on June 25, 2012. On July 20, 2012, Oxford sent Arrowood another letter requesting coverage, which Arrowood denied in its August 14, 2012 response.

D&D sent Oxford a Final Settlement Demand letter in January 2013, and ultimately initiated litigation, serving an eight-count complaint on Oxford in July 2013. Count IV of D&D's complaint is labeled "TRESPASS, " and alleges that Oxford, "through the historical, continued and periodic releases, and migration of hazardous materials, impermissibly and wrongfully entered into and continued to enter the [D&D] Property causing substantial property damages including but not limited to requiring the Plaintiff to vacate its premises to protect inhabitants from Imminent Hazard conditions and take Immediate Response Action Measures."

Count V is labeled "PRIVATE NUISANCE, " and alleges that Oxford "created a nuisance through its negligent actions and/or omissions resulting in the historic release, continued and periodic releases and migration of hazardous materials from [Oxford's] Site onto [D&D's] Property, which materially impairs [D&D's] reasonable use and enjoyment of the property.... Defendants are liable under the common law of nuisance for all damages incurred by [D&D], and are further required to compensate [D&D] for the costs to abate said nuisance, for property damages, for economic losses, for diminution in value, consequential damages, consultant fees and attorneys fees." Count VI alleges negligence.

II. The Instant Litigation

On August 16, 2013, Arrowood agreed to defend Oxford in the D&D lawsuit, subject to Arrowood's statement that it does not believe it has a duty to defend or indemnify Oxford in that matter, and subject to a reservation of rights to deny coverage insofar as the D&D lawsuit "does not allege Personal Injury' as that term is defined under the Arrowood Policies and/or to the extent that the Absolute Pollution Exclusion operates to bar coverage." Arrowood did not agree to defend or indemnify Oxford with regard to the DEP NOR/RIPAP. Oxford subsequently notified Arrowood of its position that the duty to defend and indemnify commenced with the receipt of the NOR. Arrowood responded on October 23, 2013, that it would defend Oxford only in connection with the D&D lawsuit, starting from the date Arrowood received notice of the D&D complaint.

Arrowood filed this action in September 2013, seeking a declaratory judgment stating that it does not have a duty to defend or indemnify Oxford in connection with either the DEP investigation or the D&D lawsuit. Oxford counterclaimed for declaratory judgment, and also alleges that Arrowood has breached the insurance contract and engaged in deceptive business practices in violation of Mass. Gen. Laws ch. 93A.

III. The Insurance Policy

A. The Pollution Exclusion

The insurance policy provides general liability coverage for "bodily injury" and "property damage." Section II, Part One states:

If a claim is made or SUIT is brought against an INSURED for BODILY INJURY OR PROPERTY DAMAGE, caused by an OCCURRENCE to which this coverage applies, WE will:
a. pay damages for which the INSURED is legally liable up to the Limit of Insurance; and
b. provide a defense at OUR expense by counsel of OUR choice. We will do this even if the allegations of the SUIT are not true. WE may investigate or settle any claim or SUIT as we see fit. But after WE have paid the applicable Limit of Insurance, WE are not required:
(1) to pay any settlement or ...

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