OneBeacon America Insurance Co. v. Narragansett Electric Co. American Home Assurance Co.

NOTICE: All slip opinions and orders are subject to formal
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13-P-1240 Appeals Court

ONEBEACON AMERICA INSURANCE COMPANY vs. NARRAGANSETT ELECTRIC
COMPANY; AMERICAN HOME ASSURANCE COMPANY & others,1 third-party
defendants (No. 1).

No. 13-P-1240.

Suffolk. June 3, 2014. - June 3, 2015.

Present: Kantrowitz, Hanlon, & Carhart, JJ.

Conflict of Laws. Limitations, Statute of. Practice, Civil,
Summary judgment, Statute of limitations, Dismissal,
Judicial discretion, Attorney's fees. Insurance,
Comprehensive liability insurance, Excess Liability
Insurance, Construction of policy, Insurer's obligation to
defend, Defense of proceedings against insured, Pollution
exclusion clause, Disclaimer of liability. Indemnity.
Contract, Insurance, Indemnity, Construction of contract,
Parties, Performance and breach. Real Property,
Environmental damage. Jurisdiction.

1
Century Indemnity Company; Certain Underwriters at
Lloyd's, London and Certain London Market Insurance Companies;
National Union Fire Insurance Company of Pittsburgh, PA
(National Union); John Does 1-200; American International
Specialty Lines Insurance Company (AISLIC); and Chartis
Specialty Insurance Company (Chartis). During the course of the
proceedings below, AISLIC was succeeded by Chartis. Subsequent
to the proceedings, American Home Assurance Company, Chartis,
and National Union were apparently succeeded by American
International Group, Inc. For the sake of clarity, we refer to
the parties as their names appear in the pleadings.
2

Civil action commenced in the Superior Court Department on
July 25, 2005.

Motions for summary judgment regarding choice of law issues
were heard by Allan van Gestel, J., and a motion for
reconsideration was considered by him; motions for summary
judgment were heard by Margaret R. Hinkle, J., and Peter M.
Lauriat, J.; the remaining issues were tried in two phases
before them; and entry of final judgment was ordered by Lauriat,
J.

Jay T. Smith, of the District of Columbia (A. Hether Cahill
with him) for Narragansett Electric Company.
Kevin J. O'Connor for OneBeacon America Insurance Company.
David B. Chaffin for Century Indemnity Company.
Eileen T. McCabe, of New York, & John T. Harding, for
Certain Underwriters at Lloyd's, London, & others, were present
but did not argue.
Michael F. Aylward, for American Home Assurance Company &
others, was present but did not argue.

KANTROWITZ, J. To put this rather dense environmental case

in perspective, pollution in some of the affected areas started

in the mid-1800s, and the first of several insurance policies at

issue was written in 1945. Today, we are asked to rule on the

propriety of the allowance of numerous summary judgment motions

and the verdicts in three separate, lengthy jury trials.2

I. Background. The plaintiff, OneBeacon America Insurance

Company (OneBeacon), brought this declaratory judgment action in

July, 2005, against its insured, Narragansett Electric Company

(NEC), seeking a determination that OneBeacon had no duty to

2
We also review the conversion of the voluntary dismissal
without prejudice of certain of Narragansett Electric Company's
counterclaims to a dismissal with prejudice.
3

defend or indemnify NEC for damages associated with

environmental contamination at several sites, formerly utilized

by NEC's predecessors for manufactured gas plant operations and

waste disposal. NEC counterclaimed for breach of contract and

declaratory relief, adding other insurers that had issued

primary and excess liability insurance policies to NEC for the

years in question.

The majority of NEC's claims were dismissed on summary

judgment as either time-barred or as not covered under the

policies. NEC appeals from those dismissals. In the three jury

trials, NEC prevailed on its remaining claims, against Century

Indemnity Company (Century) and Certain Underwriters at Lloyd's,

London and Certain London Market Insurance Companies

(collectively, London), who cross-appeal. We affirm in part and

reverse in part.

The issues before us are numerous and complex, involving

Massachusetts procedure and Rhode Island substantive law. The

substantive aspects of the appeal and cross appeals are fact-

intensive and involve Rhode Island law. We address them by way

of an unpublished memorandum and order pursuant to our rule

1:28, which accompanies this opinion.3 Our discussion here

focuses principally on NEC's appeal from the denial of certain

3
See OneBeacon America Ins. Co. v. Narragansett Elec. Co.
(No. 2), 87 Mass. App. Ct. (2015), issued this day.
4

claims as untimely under Massachusetts law. We consider the

issue of timeliness and the accrual of claims in the context of

insurance coverage for environmental contamination.4

A. The parties and policies. NEC is a Rhode Island

utility company with its principal place of business in

Providence. It is successor to the Blackstone Valley Electric

Company (BVEC), and the Blackstone Valley Gas & Electric

Company.5 The sites involved in this case were used by NEC's

predecessors for manufactured gas plants and electric

operations, and for waste disposal, from the mid-1800s until the

1980s. Soil and groundwater contamination were eventually

discovered at those sites, prompting governmental and private

actions against NEC. NEC sought defense costs and

indemnification from a number of insurers that issued primary

and excess policies to NEC for policy periods between 1945 and

1986.

OneBeacon, through its predecessors, issued thirteen

primary comprehensive general liability policies to NEC,

covering the period of October, 1972, to January 1, 1985. These

policies provided for defense costs and indemnification for

4
The cross appeals also raise issues involving accrual in
connection with one of the jury trials, which we address in our
rule 1:28 memorandum and order.
5
For the sake of clarity, we refer to the companies by
their current name, NEC.
5

property damage in actions brought against the insured by third

parties.

Predecessors of Century issued both primary and excess

coverage to NEC. The primary policy was for January 1, 1985, to

January 1, 1986, and similarly provided for defense costs and

indemnification. The excess policies were for July 8, 1949, to

May 1, 1965, and provided indemnification coverage in excess of

retained limits as specified in the policies. Excess policies

were also issued by American Home Assurance Company (American

Home), for June 1, 1973, to June 1, 1985,6 and by London, for

March 1, 1945, to June 1, 1968.

B. The sites, response actions, and notices. Of the eight

involved sites, seven are located in Rhode Island; the remaining

site is located in Massachusetts and Rhode Island.7 A Superior

Court judge (first judge) divided the sites into two phases for

litigation purposes.8

6
AISLIC and National Union, related entities of American
Home, issued pollution legal liability (PLL) policies to NEC as
well. Chartis is the successor to AISLIC.
7
While we could speculate why redress was not sought in the
State with the greatest number of affected sites, we do not.
8
On November 19, 2007, the judge ordered the parties to
select two or three sites "to be representative sites for the
purposes of all further discovery and trial in the initial phase
of this action."
6

1. Phase I. The parties jointly stipulated to the

selection of the "Tidewater" and "Lawn Street" sites for Phase

I.9

a. Tidewater. The Tidewater site is located in Pawtucket,

Rhode Island, and was formerly used as a manufactured gas plant

and power plant. On October 28, 1986, the Rhode Island

Department of Environmental Management (RIDEM) notified NEC that

contaminated waste materials had been found at the site and

requested that NEC construct a barrier to prevent public access

to the contaminated area pending investigation. In 1987, NEC

forwarded the RIDEM correspondence to National Union Fire

Insurance Company of Pittsburgh, PA (National Union), and

Century. On September 12, 1995,10 RIDEM issued a "Letter of

Responsibility" (LOR) to NEC, asserting that NEC was a

responsible party for alleged releases of certain contaminants

and demanding that NEC undertake a remedial investigative work

plan at its own expense. The LOR set forth enforcement actions

and penalties for failure to comply. NEC agreed to the LOR on

9
A second Superior Court judge handled the motion practice
with respect to the Phase I sites, and also presided over a jury
trial concerning the existence and terms of six lost London
policies. In addition, she subsequently presided over a jury
trial regarding the unresolved questions concerning the Lawn
Street site. A third Superior Court judge presided over a jury
trial with respect to the issues not resolved by summary
judgment for the Tidewater site.
10
The reason for the lengthy delay is unclear.
7

September 22, 1995, and on April 17, 1996, NEC submitted a draft

of the requisite plan to RIDEM.

On October 5, 1995, NEC notified OneBeacon, American Home,

Century, and London of the Tidewater LOR and demanded defense

costs and indemnification. On November 15, 1995, Century

notified NEC that it could not find the 1985 policy and was

reserving its rights. On December 27, 1996, American Home

disclaimed coverage as to its excess policies that did not

provide coverage for pollution legal liability (PLL). On June

14, 2001, American Home disclaimed coverage as to its PLL

policies as well. On March 18, 1996, and again on October 14,

1998, OneBeacon disclaimed coverage, and on March 25, 1996,

London disclaimed as to its duty to defend as an excess carrier,

and reserved its rights as to indemnification.

b. Lawn Street. The second site selected, Lawn Street, is

located partially in Attleboro, Massachusetts, and partially in

Cumberland, Rhode Island, and was formerly a sand and gravel pit

owned by a third party. NEC disposed sulfur-containing oxide

box wastes from Tidewater at Lawn Street. On November 21, 1986,

the Massachusetts Department of Environmental Quality

Engineering (DEQE)11 sent NEC a "Notice of Responsibility" (NOR)

11
The Department of Environmental Protection is the
successor agency to the Department of Environmental Quality
Engineering. See St. 1989, c. 240, § 101.
8

pursuant to G. L. c. 21E, for the presence of contaminants at

Lawn Street. In April, 1987, NEC notified OneBeacon of the NOR

regarding Lawn Street. On October 23, 1987, NEC entered into an

administrative consent order with DEQE that required NEC to

prepare and implement site investigation plans. Subsequently,

on September 13, 1996, NEC entered into an amended

administrative consent order, agreeing to comply with the

requirements of the Department of Environmental Protection (DEP)

for remediating the site.

On February 29, 1996, NEC demanded coverage from American

Home. On December 27, 1996, American Home disclaimed coverage

as to its non-PLL policies and reserved its rights as to the PLL

policies; on June 14, 2001, American Home disclaimed coverage

under the PLL policies as well. On May 27, 1998, NEC notified

OneBeacon of the amended administrative consent order for Lawn

Street, and on October 14, 1998, OneBeacon disclaimed coverage.12

12
On June 8, 2001, London disclaimed any duty to defend, as
an excess insurer, and reaffirmed its reservation of rights
regarding coverage. London eventually denied coverage based on
its position that no covered event took place at Lawn Street
during the policy period. On March 31, 1997, NEC sought a
coverage determination from Century for Lawn Street. Century
responded that it was investigating the claim under a
reservation of rights.
9

2. Phase II. The Phase II sites are the Pawtucket water

supply board (PWSB), Hamlet Avenue, J.M. Mills, High Street,

Pond Street, and Exchange Street.13

a. PWSB. The PWSB site, located in Cumberland, Rhode

Island, was a waste disposal site that received sulfur-

containing oxide box waste from NEC that allegedly caused a

release of hazardous substances. On September 12, 1995, RIDEM

sent NEC an LOR and demanded reimbursement of $296,381.70 for

remediation. On September 22, 1995, NEC agreed to comply by

remitting the costs to RIDEM, pursuant to an escrow agreement

whereby the funds were held pending resolution of related

litigation.14 On October 5, 1995, NEC notified OneBeacon,

American Home, Century, and London of RIDEM's claims and sought

defense costs and indemnification for responding to the LOR. On

November 15, 1995, Century issued a reservation of rights,

stating that it was trying to locate the relevant policies.

OneBeacon disclaimed coverage on March 18, 1996, and again on

13
The Davies Vocational School site was also litigated in
Phase II. NEC has not appealed from the dismissal of its claims
for Davies Vocational School. The third Superior Court judge
handled the motion practice with respect to the Phase II sites.
14
The escrow agreement provided that NEC would deposit the
funds "to satisfy its obligations to the State pending
resolution of the issue of whether FFC [ferric ferrocyanide] is
a hazardous substance" under State and Federal law, which NEC
was litigating in a related matter.
10

October 14, 1998. On March 25, 1996, London notified NEC that

it had no duty to defend under the excess policies, and reserved

its rights as to any indemnification obligations. On December

27, 1996, American Home denied coverage based on its policy's

"pollution exclusion" provision, and again declined coverage on

June 14, 2001.

b. Hamlet Avenue. The Hamlet Avenue site, located in

Woonsocket, Rhode Island, was used by NEC as a manufactured gas

plant and power plant. Soil and groundwater contamination were

found at the site, and on February 11, 1997, RIDEM issued an LOR

to NEC, directing NEC to develop a site investigation plan. On

February 21, 1997, NEC notified OneBeacon, American Home,

Century, and London, and sought defense costs and

indemnification. On February 25, 1997, NEC settled with RIDEM,

agreeing to pay for the work specified in the LOR, but did not

notify the insurers. Century responded on April 7, 1997,

reserving its rights. Also on April 7, 1997, London informed

NEC that it had no duty to defend under the excess policies and

reserved its rights as to any obligation to indemnify. On

October 14, 1998, OneBeacon disclaimed coverage, and on June 14,

2001, American Home disclaimed coverage as well.15

15
Chartis (as successor to AISLIC) was also notified of the
LOR on February 21, 1997, and disclaimed coverage on November
24, 1997.
11

c. J.M. Mills. J.M. Mills is a former landfill located in

Cumberland, Rhode Island. Between 1967 and 1982, NEC hired a

contractor to carry waste from one of its facilities to J.M.

Mills, which was owned by a third party. The waste included

creosote-covered utility poles. In 2000, the Environmental

Protection Agency (EPA), in the course of investigating

contamination at J.M. Mills, issued a "Request for Information"

(RFI) to NEC. On May 28, 2004, EPA identified NEC as a

potentially responsible party (PRP), and informed NEC that it

was liable for past and future cleanup costs. NEC sought

coverage from OneBeacon, Century, London, and American Home for

expenses in connection with the cleanup of the site. All of the

insurers disclaimed coverage, based either on the pollution

exclusion provisions in their policies, or on the basis that no

triggering event occurred during the policy period.

d. High, Pond, and Exchange Streets. The final three

sites are referred to as High Street, Pond Street, and Exchange

Street, located in Central Falls, Woonsocket, and Pawtucket,

Rhode Island, respectively. When BVEC merged into NEC in 2000,

NEC notified RIDEM of the prior use of those sites as

manufactured gas plants. NEC also notified the insurers on

April 5, 2000, of the potential for governmental claims
12

regarding cleanup of these sites and included the sites in its

counterclaims.16

C. Prior proceedings. OneBeacon filed this action in

Superior Court on July 25, 2005, seeking a declaration that it

has no duty to defend or indemnify NEC for environmental

contamination claims under the thirteen comprehensive general

liability insurance policies issued to NEC between 1972 and

1985. On September 14, 2005, NEC counterclaimed against

OneBeacon for breach of contract and declaratory relief. On

cross motions for summary judgment, the first Superior Court

judge ruled that Rhode Island substantive law would apply in

interpreting the policies. The second judge determined that

Massachusetts's six-year statute of limitations would apply to

the claims, rather than Rhode Island's ten-year statute of

limitations. On October 12, 2007, NEC amended its counterclaim,

adding the other insurers involved in this appeal, and

subsequently filed a second amended counterclaim on July 13,

2009, adding additional insurers and claims, including a claim

against AISLIC for defense costs, and against Century for breach

of its 1985 primary policy.

On the Phase I claims, summary judgment entered for

OneBeacon and American Home on statute of limitations grounds

16
RIDEM had yet to take action with respect to these three
sites at the time of the final hearing in these proceedings.
13

with respect to both Tidewater and Lawn Street.17 On the same

basis, summary judgment entered for Century on NEC's duty to

defend claim as to Tidewater, but NEC's claims against Century

and London for indemnification were tried to a jury, which found

for NEC. As to Lawn Street, summary judgment entered for London

and American Home (see note 17, supra) on their duty to

indemnify, on the ground that no triggering event had occurred

during the policy period. NEC's claims against Century for the

Lawn Street site went to trial, with a jury verdict for NEC.18

NEC also prevailed in a third trial to establish the terms of

six lost policies issued by London.

In the Phase II proceedings, summary judgment entered for

all insurers on NEC's claims for PWSB and Hamlet Avenue, on

statute of limitations grounds. As to J.M. Mills, summary

judgment entered for OneBeacon, Century, and American Home based

on the pollution exclusion clauses in their policies; summary

judgment entered for London (as it had on the Lawn Street

claims) on the basis that no triggering event had occurred

during the policy period. NEC moved to voluntarily dismiss its

17
As to Lawn Street, summary judgment entered for American
Home for the additional reason that no triggering event had
occurred during the policy period.
18
At the beginning of the Lawn Street trial, Century waived
its statute of limitations defense as to the duty to defend, and
trial proceeded on the indemnification claims.
14

claims for High Street, Pond Street, and Exchange Street. The

motion was allowed, conditioned on NEC's paying the insurers'

attorney's fees related to those claims. When the parties

failed to agree on how to proceed as to the fee request, the

judge dismissed the claims with prejudice, omitting the fee

award.

We address in this opinion NEC's appeal from the summary

judgment rulings dismissing its claims as time-barred. We also

address NEC's appeal from the dismissal, with prejudice, of its

claims for High Street, Pond Street, and Exchange Street.19

II. Issues on appeal. A. Statute of limitations. NEC

argues that the judge erred in applying Massachusetts's six-year

statute of limitations rather than Rhode Island's ten-year

period, and that, in any event, its claims were not time-barred

under either provision.

1. Choice of law. Massachusetts provides a six-year

limitations period, under G. L. c. 260, § 2, for breach of

contract claims, while Rhode Island provides a ten-year

limitations period, under R.I. Gen. Laws § 9-1-13. The forum

19
In our accompanying rule 1:28 memorandum and order, we
address Century and London's cross appeals from certain rulings
made by the trial judges at their respective jury trials
(concerning the Phase I sites and the six lost London policies),
as well as NEC's appeal from the allowance of various insurers'
summary judgment motions on other than statute of limitations
grounds (concerning J.M. Mills and Lawn Street).
15

State applies its own conflict of law rules in determining which

State's law governs. See Clarendon Natl. Ins. Co. v. Arbella

Mut. Ins. Co., 60 Mass. App. Ct. 492, 495 (2004). In resolving

a question involving the statute of limitations, Massachusetts

utilizes the choice of law analysis set forth in Restatement

(Second) of Conflict of Laws § 142 (Supp. 1989).20 Nierman v.

Hyatt Corp., 441 Mass. 693, 695 (2004), citing New England Tel.

& Tel. Co. v. Gourdeau Constr. Co., 419 Mass. 658, 663-664

(1995). Where, as here, the forum State has the shorter statute

of limitations, which bars the claim, we apply § 142(1) of the

Restatement, pursuant to which Massachusetts's six-year statute

of limitations governs NEC's claims, unless exceptional

20
Section 142 of the Restatement provides:

"Whether a claim will be maintained against the
defense of the statute of limitations is determined under
the principles stated in § 6. In general, unless the
exceptional circumstances of the case make such a result
unreasonable:

"(1) The forum will apply its own statute of
limitations barring the claim.

"(2) The forum will apply its own statute of
limitations permitting the claim unless:

"(a) maintenance of the claim would serve no
substantial interest of the forum; and

"(b) the claim would be barred under the
statute of limitations of a state having a more
significant relationship to the parties and the
occurrence."
16

circumstances make the result unreasonable. Shamrock Realty Co.

v. O'Brien, 72 Mass. App. Ct. 251, 255-256 (2008). NEC has

identified no reason why Rhode Island was not available as an

alternative forum or why it would have been "extremely

inconvenient" to bring its claims there. See id. at 257.

Specifically noting that NEC could have brought its claims in

Rhode Island rather than awaiting OneBeacon's filing suit,21 the

judge properly ruled that Massachusetts's six-year statute of

limitations for contract actions applied.

NEC asserts that the choice-of-law principles of

Restatement (Second) of Conflict of Laws § 6 (1971), referenced

in the first sentence of § 142, require a different result from

that provided in § 142(1).22 However, we interpret § 142(1) to

21
Indeed, even after OneBeacon filed suit in 2005, NEC
could have filed a suit in Rhode Island and sought dismissal of
the OneBeacon Massachusetts case. As we have noted, seven of
the eight sites at issue were located in Rhode Island.
22
The factors listed in Restatement (Second) of Conflict of
Laws § 6(2) (1971) are:

"(a) the needs of the interstate and international
systems,

"(b) the relevant policies of the forum,

"(c) the relevant policies of other interested states
and the relative interests of those states in the
determination of the particular issue,

"(d) the protection of justified expectations,
17

be consistent with the § 6 factors when the law of the forum

State would bar the claim. See New England Tel. & Tel. Co. v.

Gourdeau Constr. Co., 419 Mass. at 664 n.6 ("[t]he balance of

§ 142 seems to set forth the way in which the principles of § 6

will be implemented"); Shamrock Realty Co. v. O'Brien, 72 Mass.

App. Ct. at 256, quoting from Restatement (Second) of Conflict

of Laws § 142 comment f (Supp. 1989) (the forum State "has a

substantial interest in preventing the prosecution in its courts

of claims which it deems to be 'stale'"). Moreover, NEC's

interpretation would impermissibly render all but the first

sentence of § 142 superfluous. Cf. Wheatley v. Massachusetts

Insurers Insolvency Fund, 456 Mass. 594, 601 (2010) (statute

should not be interpreted to leave any part inoperative or

superfluous).

2. Accrual. NEC alternatively argues that its claims were

timely because they accrued within the six-year limitations

period. As mentioned, NEC's counterclaims against OneBeacon

were brought in September, 2005, while most of its claims

against the other insurers were brought in 2007, and still

"(e) the basic policies underlying the particular
field of law,

"(f) certainty, predictability and uniformity of
result, and

"(g) ease in the determination and application of the
law to be applied."
18

others in 2009. We examine the history of dealings between NEC

and the insurers to determine when NEC's claims accrued and,

thus, whether the motion judges erred in determining that

certain claims were time-barred.

The statute of limitations for a claim for breach of an

insurance policy, as in a contract action generally, begins to

run on the date of the insurer's alleged breach. See Berkshire

Mut. Ins. Co. v. Burbank, 422 Mass. 659, 661 (1996). Under this

rule, NEC's claims accrued when the insurers failed or refused

to pay defense and indemnity costs under the policies. See id.

at 663 n.5. An action for breach of an insurance policy, like

an action in tort, however, may be tolled until the insured

discovers the facts giving rise to its claim. Szymanski v.

Boston Mut. Life Ins. Co., 56 Mass. App. Ct. 367, 370 (2002).

"When . . . the parties press different events as triggering

accrual, the factual inquiry focuses on which was the first

event reasonably likely to put the plaintiff on notice that the

defendant's conduct had caused him injury." Id. at 371. NEC

and the insurers disagree as to the nature and extent of the

injury that should have alerted NEC to its claims.

a. Duty to defend. NEC appeals from the summary judgment

decisions of the second judge for OneBeacon and Century as to

Tidewater, and from the decision of the third judge for both
19

insurers as to Hamlet and PWSB.23 The primary policies, issued

by OneBeacon and Century, provided that the insurers had the

"right and duty to defend" suits against the insured. NEC's

initial counterclaim, filed in 2005, asserted that OneBeacon had

a duty to defend. It was not until NEC's second amended

counterclaim, filed in 2009, that NEC asserted that Century also

had a similar duty to defend. NEC's claims for breach of the

duty to defend accrued when its demand to the insurers for costs

associated with defending the claims was refused, and NEC began

to incur such costs. See Siebe, Inc. v. Louis M. Gerson Co., 74

Mass. App. Ct. 544, 558 (2009) (limitations period for breach of

duty to defend begins to run when insured is sued, insurer

refuses to defend, and insured begins to incur defense costs).

See also Berkshire Mut. Ins. Co. v. Burbank, 422 Mass. at 662

(action against insurer accrued when it refused to arbitrate

plaintiff's claim); Lumbermens Mut. Cas. Co. v. Y.C.N. Transp.

Co., 46 Mass. App. Ct. 209, 214 (1999) (assuming insurer's

disclaimer violated duty to defend, insured required to bring

action to recover defense costs within six years from the

disclaimer); John Beaudette, Inc. v. Sentry Ins. A Mut. Co., 94

F. Supp. 2d 77, 102-103 (D. Mass. 1999). The judges properly

23
NEC also brought a claim for defense costs against one
excess insurer (AISLIC), which is not at issue on appeal.
20

ruled that NEC's claims for defense costs were time-barred based

on the dates it received the insurers' disclaimers.24

NEC urges that its duty to defend claims should be governed

by the majority rule, which requires resolution of the

underlying litigation against the insured before a claim for

breach of the duty to defend accrues. See, e.g., Dutton-Lainson

Co. v. Continental Ins. Co., 271 Neb. 810, 825-828 (2006), and

cases cited; 17 Couch, Insurance § 236:102 (3d ed. 2000) (citing

rule that underlying judgment triggers accrual of action for

refusal to defend but acknowledging authority to the contrary).

A primary reason cited for waiting until the underlying

litigation concludes is to ascertain the extent of the insured's

defense costs. See, e.g., Brannon v. Continental Cas. Co., 137

P.3d 280, 285 n.20 (Alaska 2006). Massachusetts, however, does

not follow the majority rule. Here, certainty as to the amount

of a plaintiff's claim is not a prerequisite to accrual of a

breach of contract claim. See, e.g., International Mobiles

Corp. v. Corroon & Black/Fairfield & Ellis, Inc., 29 Mass. App.

Ct. 215, 221 (1990) (breach of contract claim accrued when

24
As we have noted, OneBeacon disclaimed coverage as to
Tidewater and PWSB on March 18, 1996, and again on October 14,
1998; Century reserved its rights on November 15, 1995. As to
Hamlet, OneBeacon disclaimed coverage on October 14, 1998, and
Century reserved its rights on April 7, 1997. NEC's claim for
coverage from OneBeacon was filed in September, 2005; its
counterclaim against Century for a duty to defend was not filed
until July, 2009, in the second amended counterclaim.
21

insurance agent failed to procure insurance policy, not later

date, after trial of underlying negligence claim against

insured). See also DiGregorio v. Commonwealth, 10 Mass. App.

Ct. 861, 862 (1980). Therefore, accrual of an action for

defense costs is not postponed until their full extent can be

determined.

NEC additionally argues that accrual should be tolled

because the duty to defend is a continuing obligation, which the

insurer might cure by the litigation's conclusion. See Vigilant

Ins. Co. v. Luppino, 352 Md. 481, 492 (1999). In Massachusetts,

however, the possibility that the insurer might eventually cure

the breach does not affect accrual once the breach occurs. See,

e.g., International Mobiles Corp. v. Corroon & Black/Fairfield &

Ellis, Inc., 29 Mass. App. Ct. at 221, citing DiGregorio v.

Commonwealth, 10 Mass. App. Ct. at 862 (rejecting plaintiff's

argument that accrual should be tolled until condition defendant

required for payment of damages was fulfilled so that plaintiff

could ascertain whether defendant would make any payment).

Contrast Lumbermens Mut. Cas. Co. v. Y.C.N. Transp. Co., 46

Mass. App. Ct. at 214-215 (by making partial payment after first

disclaiming coverage and after statute of limitations had run,

insurer waived the limitations defense). Accordingly, we

decline to follow those jurisdictions that require resolution of
22

the underlying litigation before the insured's claim for breach

of the duty to defend accrues.25

NEC further complains that the judges wrongly treated

Century's reservation of rights as a disclaimer of Century's

duty to defend regarding claims against NEC for environmental

pollution at Tidewater, Hamlet, and PWSB. Century reserved its

rights for Tidewater and PWSB on November 15, 1995, and for

Hamlet on April 7, 1997, but then failed to make a decision for

a number of years, even as NEC incurred costs.26

We agree with the judges that Century's failure to render a

decision on NEC's request for a defense, despite the significant

passage of time, constituted a breach that triggered the statute

of limitations at some point well before 2003. As one of the

25
We also reject NEC's reliance on the "no action"
provision in some of the policies as a basis to postpone accrual
until judgment enters in the underlying action. The typical
provision here provided, in relevant part, that "[n]o action
shall lie against the [insurer] . . . until the amount of the
Insured's obligation to pay shall have been finally determined
either by judgment . . . or by written agreement." See, e.g.,
Ratner v. Canadian Universal Ins. Co., 359 Mass. 375 (1971).
There, although the insurer argued the claim against it was
premature under the policy's "no action" provision, the court
held that an insurer that "without right has refused to defend
an action against its insured no longer can insist upon the case
being carried to judgment against the insured." Id. at 379,
quoting from Berke Moore Co. v. Lumbermens Mut. Cas. Co., 345
Mass. 66, 70 (1962). See John Beaudette, Inc. v. Sentry Ins. A
Mut. Co., 94 F. Supp. 2d at 101-103.
26
Indeed, for all that appears, Century never made a formal
disclaimer of its duty to defend.
23

judges explained, the time needed for the insurer to make a

determination regarding its duty to defend "required no more

than a comparison of the LOR against the terms of the 1985

policy." See Siebe, Inc. v. Louis M. Gerson Co., 74 Mass. App.

Ct. at 548, 558 (claim accrued when insured sent insurer notices

of underlying lawsuits, and insurer failed to reply to notices).

See also DiGregorio v. Commonwealth, 10 Mass. App. Ct. at 862;

Felton v. Labor Relations Commn., 33 Mass. App. Ct. 926, 927-928

(1992) (plaintiff's claim barred where he waited ten months,

without inquiry, for union's response to his request to file

grievance); Epstein v. C.R. Bard, Inc., 460 F.3d 183, 187-188

(1st Cir. 2006) (statute of limitations was not tolled pending

defendant's reply to plaintiff's letter inquiring whether

defendant was improperly using his technology).

b. Duty to indemnify. Accrual of NEC's claims for breach

of the insurers' duty to indemnify involves somewhat different

considerations. The policies required the insurers to indemnify

NEC for amounts that NEC became legally obligated to pay as

damages, because of property damage, in actions brought against

it by third parties.27 Thus, NEC's claims against the insurers

accrued when the insurers breached that duty, by failing or

27
The language of the policies differs slightly, some
referring to the insured's legal obligation or loss the insured
is legally obligated to pay, others to the insured's liability
arising from a claim against it or imposed by law.
24

refusing to pay environmental response costs that NEC became

legally obligated to pay. See Berkshire Mut. Ins. Co. v.

Burbank, 422 Mass. at 663 n.5 (collecting cases).

NEC urges that its cause of action did not accrue until its

legal obligation to pay environmental damages was established

through adjudicatory proceedings, whether by judgment,

settlement, or other binding determination. See, e.g., John

Beaudette, Inc. v. Sentry Ins. A Mut. Co., 94 F. Supp. 2d at 103

(reasoning, inter alia, that underlying lawsuit against insured

might determine that insured was not liable). See also 17

Couch, Insurance § 236:17 (3d ed. 2000) (claim under commercial

policy covering legal liability of insured accrues upon

rendering of judgment against insured). While we understand the

argument, we think a legal obligation imposed by a governmental

agency, pursuant to an environmental statute, is different. The

insured's liability for remediation in such instances may be

determined long before final judgment. Indeed, given the public

interest in a prompt response to environmental hazards, the

insured's legal obligation for the expenses may arise without

any litigation at all.

In Hazen Paper Co. v. United States Fid. & Guar. Co., 407

Mass. 689, 693-697 (1990), for example, a letter from the EPA

was deemed the equivalent of a lawsuit, for purposes of

establishing a duty to defend. In that case, the insured was
25

required to respond to the EPA's assertion that releases of

hazardous substances were occurring at a facility where the

insured had sent solvents for recycling. The EPA letter, while

seeking the insured's voluntary participation, essentially

required the insured's commitment to all measures needed to

remediate the site, and advised of penalties for failure to

cooperate. In the court's view, "It would be naive to

characterize the EPA letter as a request for voluntary action."

Id. at 697. Given the statutory powers available to the EPA,

"[t]he prospects of avoiding financial responsibility were

minimal because liability is not based on fault," and available

defenses were few. Id. at 696-697. The obligation to pay

response costs was imposed pursuant to the statutory authority

granted to the agency, and required no lawsuit -- in fact, none

had been filed.

"[T]he EPA processes for the enforcement of obligations to
aid in the cleaning up of environmental pollution have
moved away from the use of lawsuits toward the use of
agency demands for participation in remedial action. Those
requests are dangerous for the alleged polluter to ignore
because they often result in dispositive, extrajudicial
solutions."

Id. at 695-696.

Applying those same principles to the duty to indemnify,

in Employers' Liab. Assur. Corp. v. Hoechst Celanese Corp., 43

Mass. App. Ct. 465, 482-483 (1997), we reasoned that the excess

insurers' duty to indemnify the insured for liability "imposed
26

upon the Insured by law," as the policies provided, was

triggered when an environmental agency sought response actions

from the insured; formal litigation was not required.28 As this

court explained, "It is hard to see what public interest would

be promoted by having an insured deliberately await, or even

actively encourage, formal litigation by an environmental agency

in order to make sure that the insured's right of

indemnification would not be compromised." Id. at 483. Compare

Wilkinson v. Citation Ins. Co., 447 Mass. 663, 671 (2006) (in

usual case of insurer indemnification for property damage,

"[t]he element of time is less critical").

Taking all of these considerations into account, we

conclude that for purposes of accrual, NEC's legal obligation

was established when the respective governmental agencies

imposed essentially mandatory requirements that NEC take action.

Neither litigation nor final resolution was necessary, in this

context, to impose liability for purposes of accrual of NEC's

indemnification claims against the insurers.

NEC additionally argues that its costs incurred prior to

the mid-2000s were purely investigative, rather than remedial,

28
As to the contrary view, that the insurers' duty would
only be triggered by "a lawsuit or similar compulsory
proceeding," Justice Kaplan observed, "In a superficial view,
this seems incorrect, for we regularly speak of the existence of
legal liabilities although they have not been and are not being
established by actual litigation." 43 Mass. App. Ct. at 482.
27

and so implicated only the accrual of its claims for breach of

the insurers' duty to defend, not their duty to indemnify. See,

e.g., American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 452

Mich. 440, 460-461 (1996) (distinguishing investigation costs

that go toward remediation from those aimed at limiting

insured's liability, which are treated as defense costs).

However, as the second judge observed, NEC claimed the right, in

its answers to interrogatories, to recover all costs incurred at

the sites, for both investigation and remediation, as

indemnification costs. Moreover, NEC's response actions took a

remedial turn long before the accrual dates for its

indemnification claims against the insurers. For Tidewater,

that happened when NEC agreed to the LOR on September 22, 1995,

and incurred associated costs as of April, 1996, for submitting

and implementing a remedial investigative work plan to address

the environmental releases. For Lawn Street, NEC's legal

liability for damages was established when it entered into the

amended administrative consent order with DEP on September 13,

1996, agreeing to conduct all necessary response actions. With

regard to Hamlet, NEC responded to the LOR on February 25, 1997,

by agreeing to pay for the remediation. And at PWSB, NEC

responded to the LOR in September, 1995, by agreeing to comply

with RIDEM's request to remit the remediation costs, and
28

depositing the funds in escrow pending the outcome of related

litigation.29 See note 14, supra.

NEC also complains that the third judge erred in ruling

that the reservation of rights letters issued by Century and

London, for PWSB and Hamlet, amounted to disclaimers by the time

NEC's claims for indemnification accrued in October, 2001.30

Century reserved its rights in 1995 and 1997 for PWSB and

Hamlet, respectively, and London reserved its rights in 1996 and

1997, for PWSB and Hamlet, respectively. The judge, relying on

the duty to defend analysis in Siebe, Inc. v. Louis M. Gerson

Co., 74 Mass. App. Ct. at 558, reasoned that the insurers' delay

in failing to provide an affirmative response to NEC's demand

for coverage, combined with the fact that NEC began to incur

response costs at those sites, constituted a breach of contract

sufficient to trigger the statute of limitations for NEC's

indemnification claims.

29
NEC argues that its liability for cleanup at PWSB was not
established until 2003, when it agreed to fund the remediation,
and that placing the funds in escrow pending the outcome of its
litigation as to whether the material removed from the site by
RIDEM was a "hazardous substance" under Federal or State law did
not establish liability. But we view the requirement that NEC
escrow the funds, in order to comply with RIDEM's demand, as a
legal obligation triggering accrual of its claim, regardless
whether the funds might ultimately be returned to NEC. See,
e.g., DiGregorio v. Commonwealth, 10 Mass. App. Ct. at 862.
30
The judge incorrectly characterized London's response to
NEC's notices regarding those sites as a denial of coverage, and
London appears to concede the point.
29

Our review of the summary judgment record leads us to

conclude otherwise. We think a question of fact exists as to

whether the insurers' failure to make coverage determinations

with respect to Hamlet and PWSB constituted disclaimers of their

duty to indemnify prior to October, 2001. To begin, unlike the

duty to defend, an insurer's determination of its duty to

indemnify depends on actual facts, rather than allegations, and

reasonably might require more time to investigate. See, e.g.,

Employers Mut. Cas. Co. v. PIC Contractors, Inc., 24 F. Supp. 2d

212, 217 (D.R.I. 1998). Moreover, correspondence and deposition

testimony in the record indicate that Century and London

continued to communicate with NEC concerning PWSB and Hamlet

after the initial reservation of rights letters were issued. A

July 14, 1999, letter from London to NEC requested additional

information to evaluate NEC's claims for Hamlet and PWSB, and a

June 8, 2001, letter from London requested an itemization of

costs already incurred as well as a "site-by-site estimate" for

expected future costs for all NEC sites. Deposition testimony

from a Century representative suggested that Century, as well,

may have continued to communicate with NEC regarding the sites

after issuing its initial reservation of rights.31 Construing

31
In the case of Century's response regarding PWSB, a
Century representative testified that while there was no written
correspondence in the file between 1995 and 2002, there may have
been telephone calls and other verbal communication, "which I
30

the evidence and reasonable inferences in favor of NEC, the

nonmoving party, the insurers' conduct suffices to raise a

question of fact as to whether Century and London's responses to

NEC's indemnification claims for PWSB and Hamlet constituted

disclaimers prior to 2001.

We note that the same judge presided at the trial for the

Tidewater site, which involved NEC's indemnification claims

against Century and London and took place almost a year before

the judge ruled in their favor on NEC's indemnification claims

for PWSB and Hamlet. At the Tidewater trial, the question

whether Century and London's reservation of rights letters and

subsequent conduct constituted disclaimers prior to 2001 was put

to the jury on similar facts. We discern no basis for the

divergent rulings and conclude that the summary judgment record

raises an issue of material fact as to whether Century and

London disclaimed their duty to indemnify NEC for PWSB and

Hamlet; the matter should not have been decided as a matter of

law on summary judgment.

B. Dismissal with prejudice. On February 4, 2011, after

prosecuting its claims against the insurers for over five years,

NEC moved to voluntarily dismiss its claims, pursuant to

would have expected in the ordinary course of business," and
that Century had continuously indicated to NEC that it was still
gathering information. As for the Hamlet Avenue site, the same
Century representative testified in 2010 that "we are continuing
to investigate the site at this point."
31

Mass.R.Civ.P. 41(a)(2), 365 Mass. 803 (1974), for High Street,

Pond Street, and Exchange Street. Although NEC had anticipated

RIDEM involvement at those sites, no such action was

forthcoming, and thus there existed no claim under the policies

and no justiciable controversy. In an order issued in February,

2012, the third judge, who heard the motion, conditioned the

allowance of NEC's request for dismissal without prejudice upon

NEC's payment of the insurers' reasonable costs and attorney's

fees in responding to those claims. At a hearing held one month

later, the parties reported that they had not reached agreement

on how to proceed; as a result, the insurers had not yet

submitted their fee request. Thereupon, in the interest of

"mov[ing] this case on," the judge dismissed the claims with

prejudice and omitted the award of attorney's fees.

On appeal, NEC argues that the claims should have been

dismissed without prejudice, correctly observing that because

the claims presented no justiciable controversy, the court

lacked subject matter jurisdiction to enter an order of

dismissal with prejudice. See Department of Community Affairs

v. Massachusetts State College Bldg. Authy., 378 Mass. 418, 422

(1979) (court's subject matter jurisdiction limited to cases

involving an actual controversy); Linehan v. Linehan, 453 Mass.

1017, 1017-1018 (2009) (until claim became ripe, it did not meet
32

jurisdictional threshold of an actual controversy; dismissed

without prejudice).

In entering the order of dismissal without prejudice,

conditioned on NEC's paying the defendants' attorney's fees, the

judge relied on rule 41(a)(2), which provides that voluntary

dismissal be allowed "upon such terms and conditions as the

court deems proper." See Quest Sys., Inc. v. Zepp, 28 Mass.

App. Ct. 489, 494 (1990) (award of attorney's fees "not unusual

where dismissal is without prejudice"). However, Mass.R.Civ.P.

12(h)(3), 365 Mass. 754 (1974), requires that "[w]henever it

appears by suggestion of a party or otherwise that the court

lacks jurisdiction of the subject matter, the court shall

dismiss the action." The rule makes no mention of terms and

conditions that may attach to dismissal when subject matter

jurisdiction is lacking. In fact, this court has held that

dismissal for lack of subject matter jurisdiction, even if

labelled "with prejudice," will not bar a subsequent action by

the plaintiff on the same claim. Department of Rev. v. Ryan R.,

62 Mass. App. Ct. 380, 383 (2004), citing Restatement (Second)

of Judgments § 20 comment d (1982). See also Mass.R.Civ.P.

41(b)(3), as amended, 454 Mass. 1403 (2009).32

32
Rule 41(b)(3) provides, in relevant part, that "any
dismissal not provided for in this rule, other than a dismissal
for lack of jurisdiction, . . . operates as an adjudication upon
the merits."
33

We recognize that the Superior Court judge possessed

inherent power to manage his case load and enforce his lawful

orders, even in a manner not specifically authorized by the

rules. See Sommer v. Maharaj, 451 Mass. 615, 621 (2008). But

even assuming, without deciding, that such power may be

exercised in the course of complex litigation when subject

matter jurisdiction over a particular claim is lacking, NEC's

conduct here did not warrant dismissal with prejudice. The

court's inherent power is to be exercised with restraint and

discretion, with the extreme sanction of dismissal with

prejudice reserved for extreme misconduct. Id. at 621-622.

Here, the hearing transcript suggests that NEC was not

recalcitrant in failing to pay the insurers' fees but, rather,

was awaiting information from the insurers regarding the amount

of their fees. Indeed, at the March, 2012, hearing, the judge

acknowledged, "[T]hat's fine. I appreciate you tried." We

agree with NEC that the judge's decision to dismiss its claims

with prejudice in order to "move this case on" was not

warranted.

A question remains whether the judge had authority to order

that NEC pay the insurers' attorney's fees as a condition of

dismissal without prejudice, when the court lacked subject
34

matter jurisdiction over the claims.33 We think not. In Quest

Sys., Inc. v. Zepp, supra, relied upon by the insurers, this

court ordered dismissal without prejudice, with imposition of

attorney's fees at the judge's discretion. 28 Mass. App. Ct. at

498. However, that case did not implicate the trial court's

subject matter jurisdiction. Again, Mass.R.Civ.P. 12(h) does

not authorize the imposition of terms or conditions in the order

of dismissal in this instance, and the record does not justify

the fee award as a sanction for misconduct. NEC's claims

involving High Street, Pond Street, and Exchange Street are

therefore to be dismissed without prejudice.

III. Conclusion. It was error to grant summary judgment

(a) in favor of Century and London on statute of limitations

grounds with respect to their duty of indemnification for Hamlet

Avenue and PWSB; and (b) in favor of OneBeacon, Century, and

American Home with respect to the application of the pollution

exclusion provisions in their policies covering the J.M. Mills

site. Accordingly, we reverse so much of the final judgment and

declaratory decree as (a) declares that Century and London have

no duty to indemnify NEC with respect to claims or liabilities

at Hamlet Avenue and PWSB and dismisses those claims; and (b)

declares that OneBeacon and Century have no duty to defend or

33
NEC does not raise the point, but we address it, in
accordance with Mass.R.Civ.P. 12(h)(3).
35

indemnify, and American Home has no duty to indemnify, NEC with

respect to claims or liabilities at J.M. Mills and dismisses

those claims. We vacate so much of the final judgment and

declaratory decree as dismisses with prejudice NEC's claims as

to High Street, Pond Street, and Exchange Street, and the

judgment shall be modified to dismiss those claims without

prejudice. In all other respects, the final judgment and

declaratory decree is affirmed. The orders denying Century's

motion for judgment notwithstanding the verdict (JNOV) or new

trial, London's motion for JNOV, and London's motion for new

trial and to alter or amend the judgment are affirmed.

So ordered.