EASTERN PRODUCTS CORPORATION & others [Note 1] vs. CONTINENTAL CASUALTY COMPANY & another. [Note 2]

MASON, J. The plaintiffs, Eastern Products Corporation (EPC), Steven Feinberg, trustee of Ballardview Realty Trust, and Marjorie Feinberg, commenced this action against Continental Casualty Company (Continental), Maryland Casualty Company (Maryland), and five other insurance companies, [Note 3] seeking a declaration that various general liability and other insurance policies issued by the companies obligated them to defend and indemnify the plaintiffs in any environmental liability suit brought against them, either by a third party or by the Department of Environmental Protection (DEP), [Note 4] and also damages for breach of contract and violation of G. L. c. 93A and 176D. On March 8, 2000, a Superior Court judge granted summary judgment to Maryland and dismissed the complaint against it on the grounds that the plaintiffs had failed to comply with the notice and voluntary payment provisions in the single policy issued by Maryland. On February 2, 2001, another Superior Court judge, expressly adopting the first judge's rulings of law, granted summary judgment to Continental and dismissed the complaint against it. We affirm the judgments.

Facts. We recite the pertinent facts shown from materials contained in the summary judgment record that were unmet by any countervailing materials. See Mass.R.Civ.P. 56(c), 365 Mass. 824 (1974); Ng Bros. Constr., Inc. v. Cranney, 436 Mass. 638, 644 (2002).

The plaintiff EPC was incorporated in 1973 and for many years operated a rubber manufacturing business on property consisting of approximately 5.4 acres of land with a processing facility at 18-20 Dale Street in Andover (property). EPC stockpiled used rubber products on the property and ground

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them into rubber buffings and particles for use in the manufacture of rubber athletic surfaces and other materials. The property had been purchased in 1972 by Robert Feinberg (Robert), who was EPC's president and largest shareholder. Each of Robert's four sons, Arthur, James, Richard and the plaintiff Steven Feinberg (Steven), were also shareholders of EPC.

From September, 1977, through May 1, 1985, seven different fires occurred at the rubber stockpiles stored on the property. The fires burned between 5.6 and 6.5 million pounds of stockpiled rubber, along with an estimated one million pounds of rubber buffing dust. In early January, 1986, EPC commissioned Goldberg-Zoino & Associates (GZA) to perform an environmental survey of the property to determine whether a release of hazardous materials as defined in G. L. c. 21E, § 2, had occurred at the property. On January 27, 1986, GZA issued a report to EPC (sent to the attention of Robert) which stated that its testing had indicated that volatile organic compounds (VOCs) and volatile hydrocarbons were present in portions of the groundwaters at the site but that they did not pose a threat to public health or safety.

In June, 1986, Robert died and title to the property passed to his widow, the plaintiff Marjorie Feinberg (Marjorie). In December, 1987, Marjorie sold all of the property, except for the portion on which the processing facility occupied by EPC was located, to the Ballardview Realty Trust (BRT), a real estate trust beneficially owned by Steven and his brother James. [Note 5]

In the meantime, EPC had notified DEP of the January, 1986, GZA environmental survey and report. A little over two years later, in October, 1988, DEP designated the property as a "location to be investigated," and directed EPC to undertake and submit a Phase I preliminary environmental site assessment of

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the property. [Note 6] EPC accordingly engaged Kurz Associates (Kurz) to perform such an assessment, and on March 16, 1990, Kurz issued a report concluding that total petroleum hydrocarbons in the ground water at the site exceeded the limits established in the Massachusetts Contingency Plan (MCP), 310 Code Mass. Regs. §§ 40.0000 et seq. (1995). The report further concluded that the property was a "disposal site" as defined in G. L. c. 21E. [Note 7]

Thereafter, in October, 1991, BRT, acting on behalf of itself and Marjorie as the owner of the smaller portion of the property, and also on behalf of EPC as the operator on the property, applied to DEP for a waiver of the written approvals necessary under the MCP for remedial response actions with respect to the entire property. [Note 8] As part of its application, BRT indicated that within five years of the approval of the application, it would conduct a Phase II comprehensive site assessment [Note 9] of the property and then excavate all the contaminated sediments and treat the groundwaters at the site if the assessment determined that such actions were necessary. BRT further agreed that it would complete each of these remedial actions "in accordance

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with all applicable requirements of G. L. c. 21E and the Massachusetts Contingency Plan." Steven signed the waiver application on behalf of BRT and certified that he had personally examined the waiver and agreed to its terms.

DEP approved BRT's waiver application in April, 1992, and then, in July, 1992, it issued a determination that the property was a confirmed disposal site within the meaning of G. L. c. 21E, § 2. At or about this same time, EPC's operations at the site were discontinued and all of its correspondence and other business records, except for records pertaining to various insurance policies it had purchased, were destroyed or discarded.

In November, 1993, EPC and BRT for the first time sent letters to Maryland and Continental stating that they were asserting claims and demanding defenses under various policies the companies had issued based on the contamination that had occurred on the property. Maryland responded with a letter requesting further information while Continental responded with a letter stating that it would provide a defense to EPC for claims arising from the contamination but indicating that it was reserving its rights to deny coverage under its policies in the future. Following substantial additional correspondence between the parties, the plaintiffs commenced the present action in December, 1997.

1. Summary judgment in favor of Maryland. The sole Maryland policy at issue is a general liability policy which was issued to "Robert Feinberg c/o Eastern Warehouse Co.," [Note 10] and was effective for the period from January 19, 1977, through January 19, 1978. Maryland agreed in the policy to pay "on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies, caused by an occurrence," which was defined in the policy as "an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the insured." The policy further provided, however, that, in the event of an occurrence, the insured was

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required to provide written notice of the occurrence to Maryland "as soon as practicable" and also that: "The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of the accident." [Note 11]

In allowing summary judgment for Maryland, the judge reasoned that the plaintiffs had failed to comply with the notice provision of the policy because they had waited more than seven years after obtaining the GZA report in 1986, at which time they knew or should have known of the contamination at the property, to provide any notice to Maryland of any occurrence. The judge determined that Maryland had been prejudiced by the delay because, during the interim, Robert and other potential witnesses with knowledge of the circumstances of the fires had died and all of EPC's business records had been destroyed. The judge further reasoned that the plaintiffs had also violated the voluntary payments provision of the policy by entering into an agreement with DEP in connection with the waiver application to perform all necessary response actions in compliance with G. L. c. 21E and the MCP. [Note 12]

On appeal, the plaintiffs assert that the judge erred in determining that they had failed to provide timely notice of their claims to Maryland and that, in any event, Maryland did not satisfy its burden required by G. L. c. 175, § 112, to demonstrate that it suffered any prejudice as a result of any

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such failure. [Note 13] The plaintiffs further argue that the judge erred in concluding that each of them had violated the voluntary payments provision of the policy and, in any event, Maryland once again failed to show that it suffered any prejudice as a result of any such violation. We address each of these arguments in turn.

a. Late notice. The plaintiffs argue that their duty to notify Maryland of their claims under the policy did not arise until, at the earliest, July, 1992, because it was only then that DEP designated the property as a confirmed disposal site. The plaintiffs assert that, prior to that time, they had no knowledge or reason to believe that DEP would be asserting a claim against them with respect to the VOCs discovered in the groundwater at the property or that the contamination had been caused by the fires.

It is well-settled, however, that "the fact, that the insured has a reasonable and bona fide doubt as to the existence of any injury or of any liability, cannot be used to deprive the insurer of his contractual right to have an immediate notice of the occurrence of an accident, regardless of the damages that may be claimed to flow from that accident." Segal v. Aetna Cas. & Sur. Co., 337 Mass. 185, 188 (1958), quoting from McCarthy v. Rendle, 230 Mass. 35, 39 (1918). This is because "the consequences of the insured's unilateral decision not to report an occurrence of an accident at the time it occurs (irrespective of any good faith belief as to the existence of any liability or injury) are to deny the insurer of the opportunity to investigate the cause and nature of a claim or occurrence while the facts are still fresh in the minds of the parties and while the physical evidence of the occurrence is still fresh." Fireman's Fund Ins. Co. v. Valley Manufactured Prods. Co., 765 F. Supp. 1121, 1126 (D. Mass. 1991), citing Powell v. Fireman's Fund Ins. Cos., 26 Mass. 508, 513 (1988).

Here, the plaintiffs do not dispute that they had actual knowledge of the fires occurring from September, 1977, through

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May, 1985, and that the fires had burned several million pounds of rubber that was stockpiled on the property. Also, upon EPC's receipt of the GZA report in January, 1986, it knew at the level of its president that VOCs and volatile hydrocarbons were present in the groundwaters at the property. We agree with the judge that the plaintiffs' duty to notify Maryland of an occurrence arose at least at that time, because the plaintiffs were then aware or, upon reasonable inquiry, would have been aware both that contamination had occurred at the property and that the fires were a likely source of that contamination. See, e.g., Commonwealth v. Olivo, 369 Mass. 62, 69 (1975) (notice of facts which would incite person of reasonable prudence to inquiry is notice of all facts which a reasonably diligent inquiry would develop). See also Demoulas v. Demoulas, 428 Mass. 555, 577 (1998). It is irrelevant that the plaintiffs might have believed in good faith, based on the GZA report or otherwise, that the VOCs did not pose a threat to public health or safety or would not lead to a claim against it by DEP or some other third party. See Powell v. Fireman's Fund Ins. Cos., supra at 514.

We also agree with the judge that Maryland satisfied its burden under G. L. c. 175, § 112, of showing that it suffered actual prejudice from the late notice. [Note 14] The undisputed facts establish that Robert was president and largest shareholder of EPC throughout the relevant period; he was likely to have the most knowledge of the fires and of other possible causes for the contamination occurring at the site; and that Robert died in June, 1986, approximately six months after the plaintiffs' duty to provide notice to Maryland "as soon as practicable" had arisen. [Note 15] It was also undisputed that in 1992, before the plaintiffs notified Maryland of any claims, EPC wound up its operations and, in connection with that winding up, destroyed all of its

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correspondence and business records. [Note 16] The loss of these likely sources of critical information regarding the origins of the fires and other possible causes of the contamination existing at the property constituted prejudice to Maryland as matter of law. See Darcy v. Hartford Ins. Co., 407 Mass. 481, 486 (1990) (loss of critical evidence or testimony from material witnesses was sufficient where insurer demonstrated its interests actually were harmed). See also West Bay Exploration Co. v. AIG Specialty Agencies of Tex., Inc., 915 F.2d 1030, 1037 (6th Cir. 1990). Contrast Employers' Liab. Assur. Corp., Ltd. v. Hoechst Celanese Corp., 43 Mass. App. Ct. 465, 476-477 (1997).

b. Voluntary payments. The plaintiffs also assert that the judge erred in concluding that each of them had violated the voluntary payments provision in the policy because it was only BRT which applied to DEP for a waiver of the written approvals necessary for remedial response actions and there was no indication in the record that BRT accepted the waiver ultimately approved by DEP. The plaintiffs further argue that even if they did violate the voluntary payments provision, Maryland should be barred from relying on that provision as a basis for avoiding liability under the policy because it cannot show that it was prejudiced by the violation.

In fact, Steven stated in an affidavit submitted in the Superior Court that, at the time he submitted the waiver application to DEP, he was acting for Marjorie and EPC, as well as for BRT. More specifically, Steven stated in his affidavit that BRT hired an environmental engineering company, known as IEP, Inc., to submit a waiver application to the DEP. He further stated that he was advised by the DEP that it would not grant the waiver unless the trust agreed to include the EPC building in its defined waiver site. Accordingly, BRT agreed to include the remaining property of EPC in its waiver request, even though it had no ownership interest in the facility. Finally, he asserted that through these actions, BRT managed real estate concerns that normally would have been borne by the operator of the site, EPC, or by its title owner, Marjorie Feinberg.

On the basis of this affidavit, the plaintiffs argued in the

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Superior Court that because BRT had acted as property manager for EPC both before and after it had purchased its portion of the property, BRT was an insured entity under Maryland's policy. More specifically, the plaintiffs argued that Steven K. Feinberg, as trustee, handled EPC's property management problems alleged by the Andover board of health in 1987; undertook and financed the environmental assessment of the entire property including the DEP waiver process; and performed all indicative real estate management on behalf of BRT and EPC. Thus, BRT argued it was an additional insured under the Maryland policy.

Having themselves asserted in the Superior Court that BRT was acting for EPC and Marjorie, as well as for itself, in submitting the waiver application to DEP, the plaintiffs cannot now assert that the judge erred in finding this as an undisputed fact, and thereby concluding that EPC and Marjorie had entered into the waiver agreement to the same extent as if they had signed the agreement. See Nalbandian v. Hanson Restaurant & Lounge, Inc., 369 Mass. 150, 156 (1975) (undisclosed principal is liable on agreement entered into for his benefit). Plaintiffs' arguments would result in a mockery of the rules on summary judgment, and defeat their very purpose. [Note 17] See Manganaro Drywall, Inc. v. Penn-Simon Constr. Co., 357 Mass. 653, 659 (1970).

The plaintiffs' further assertion that there was no indication in the summary judgment record that BRT itself had accepted the waiver ultimately approved by DEP is equally insubstantial. Steven testified at a deposition that he was "almost certain" that he signed the form included with the approval indicating that BRT was accepting the approval together with its stated conditions. The plaintiffs never submitted any contrary evidence and, indeed, never argued in the Superior Court that BRT had not entered into the waiver agreement. They are once again barred from doing so here.

Finally, in Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 123 (1991), the Supreme Judicial Court explicitly held that

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prejudice would be presumed in a case such as this where, prior to giving notice to its insurer, an insured had entered into an agreement with the Commonwealth to clean up a site at its own expense. We reached a similar result in Atlas Tack Corp. v. Liberty Mut. Ins. Co., 48 Mass. App. Ct. 378, 386 (1999). Contrary to the plaintiffs' suggestion, we do not think that those decisions are inapplicable here merely because they involved consent judgments rather than an agreement entered into before any litigation had commenced. Here, just as in these prior cases, the plaintiffs entered into a binding agreement with the Commonwealth to clean up the property at their own expense, and thereby caused prejudice to Maryland's interests as matter of law. We therefore conclude that the judge did not err in granting summary judgment in Maryland's favor both because the plaintiffs had failed to give timely notice to Maryland and also because they violated the voluntary payment provision of the insurance contract.

2. Summary judgment in favor of Continental. Continental issued one general liability policy (no. CAP9419187) to Robert, effective for the period from October 1, 1973, to October 1, 1976, and two additional general liability policies (nos. CCP2440203 and CCP3308582) to EPC, effective for the periods from January 1, 1976, to January 1, 1977, and from January 1, 1977 to January 1, 1980) (general liability policies). Additionally, Continental issued a personal umbrella policy (no. UP1793434) to Robert, effective for the period from December 27, 1974, to December 27, 1977 (excess policy). The plaintiffs alleged that Continental had also issued a multiperil insurance policy (no. 2761020) to EPC, effective as of 1976 (multiperil policy), but could not produce a copy of the policy or documents showing its terms.

Because the general liability policies issued by Continental had precisely the same notice and voluntary payment provisions as the Maryland policy, we agree with Continental that the judge properly allowed summary judgment in its favor with respect to those policies. The plaintiffs have advanced no substantial basis, and we can discern none, for reaching a different

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result with respect to the general liability policies that Continental issued first to Robert and then to EPC. [Note 18]

The situation is different, however, with respect to the personal umbrella policy. In contrast to the Maryland and Continental general liability policies, the personal umbrella policy contained a notice provision which was tied, not to occurrence, but to the insured obtaining information or forming an opinion that a claim would implicate the excess layer. [Note 19] It also contained a general assistance and cooperation clause which omitted any statement about voluntary payments by the insured. The record does not establish that Continental made any showing that the plaintiffs failed to comply with either of these substantially different provisions contained in the excess policy. See Employers' Liab. Assur. Corp., Ltd. v. Hoechst Celanese Corp., 43 Mass. App. Ct. at 472-476.

Nevertheless, the personal umbrella policy contained a provision stating that it would not apply:

"to any business pursuits or business property (other than farms) of an Insured except to the extent that insurance therefor is provided by an underlying policy listed in the Schedule of Underlying Insurance . . . ."

While the schedule of underlying insurance attached to the personal umbrella policy referred to a "general liability" policy issued by "Hartford" with a limit of $100,000 "per occurrence,"

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[Note 20] the plaintiffs did not produce a copy of any such policy providing coverage for Robert's "business pursuits" or "business property," as distinct from his home or other real estate he owned. In support of its motion, Continental produced evidence that, before the litigation began, the plaintiffs had submitted a Hartford policy to it, which they identified as the policy referred to in the schedule but which did not provide any coverage for Robert's business pursuits or business property. In these circumstances, where Continental produced evidence that no triggering policy existed, and where the plaintiffs failed to produce any contrary evidence, Continental was entitled to summary judgment dismissing the plaintiffs' claims with respect to the personal umbrella policy. [Note 21] See Kourouvacilis v. General Motors Corp., 410 Mass. 706, 711-712 (1991). Contrast Employers' Liab. Assur. Corp., Ltd. v. Hoechst Celanese Corp., supra at 483- 484.

Likewise, while the plaintiffs alleged in their amended complaint that Continental had issued a multiperil insurance policy to EPC effective as of 1976, they failed to produce any evidence that Continental in fact had issued any such policy to EPC or indicating the terms of any such policy. Continental, therefore, was entitled to summary judgment dismissing the plaintiffs' claims with respect to the alleged multiperil policy as well.

Judgments affirmed.