Title: Patrons Oxford Mut. Ins. Co. v. Marois

State: maine

Issuer: Maine Supreme Court

Document:

Decided April 2, 1990. William J. Kelleher (orally), Augusta, for plaintiff. Peter B. Bickerman (orally), Steven T. Blackwell, Lipman & Katz, Augusta, for defendant. James Tierney, Atty. Gen., Dennis Harnish, Asst. Atty. Gen., Augusta, amicus curiae. Before WATHEN, GLASSMAN, CLIFFORD, HORNBY and COLLINS, JJ. HORNBY, Justice. In this case we consider whether a special multi-peril policy covers a polluter's expense in responding to state-ordered clean-up demands. The pollution resulted from leaking underground tanks located on the insured's property. We conclude that insurance contract language providing coverage for amounts the insured is "legally obligated to pay as damages" does not cover expenses the insured incurs in meeting state clean-up demands. We also hold that the duty to defend the insured against "any suit ... seeking damages" does not include an administrative proceeding that can award no damages. *17 Mr. and Mrs. Marois owned S & M Market in South China. By agreement Lathe Fuel Company owned and operated three underground gasoline storage tanks on the premises. Traces of gasoline were found in wells in the area around S & M Market. When all three gasoline tanks were removed in October of 1985, at a time when Patrons Oxford Mutual Insurance Co. was insuring the Maroises, holes were discovered in two of the tanks. The Department of Environmental Protection (DEP) issued a clean-up order directed to Lathe Fuel and the Maroises, finding them to be "responsible parties" under 38 M.R.S.A. § 562(10) (1989).[1] Both Lathe and the Maroises appealed. Lathe Fuel subsequently consented to an Administrative Clean-up order. The Maroises, however, pursued their appeal to the Board of Environmental Protection. The Board ordered the Maroises to give Lathe Fuel access to their premises so that Lathe Fuel could comply with the consent order. It further directed that if Lathe Fuel's measures did not prevent migration of contaminated ground water and restore water quality, the DEP could order the Maroises to submit a remedial action plan proposing a method to prevent migration of contaminated ground water, restore ground water quality levels and provide for the restoration or replacement of water supplies that were contaminated. The only expense the Maroises have incurred to date is legal defense costs arising out of the DEP proceeding. No claims for damages have been made by neighbors or other third parties. Patrons Oxford brought this declaratory judgment action seeking a declaration that it owed no duty to defend the Maroises before the Department of Environmental Protection, and that it is not obliged to pay for remedial actions the State may order the Maroises to undertake. On stipulated facts, the Superior Court (Kennebec County, Alexander, J.) ruled that Patrons Oxford must indemnify the Maroises for amounts they incur in restoring or replacing third parties' water systems and amounts the Maroises pay to third parties to reimburse their losses. The court further declared that the insurer must defend any claims brought against the Maroises by such third parties in any administrative or judicial forum, but that it need not defend the Maroises in the compliance action brought by the DEP. Drawing a line between on-premises and off-premises activity, the court held that Patrons Oxford need not indemnify the Maroises for any repairs, restoration or replacement they are ordered to undertake on their own property. The Maroises have appealed. The insurance company has not cross-appealed. On reasoning somewhat different from that of the Superior Court, we affirm the judgment. In light of the fact that the parties, the Attorney General appearing as amicus curiae and the abundant case law in this area have highlighted the environmental policy issues affected by this question of coverage, we begin by observing that our role here is simply to determine the meaning of a private contract between these parties, not to foster or retard environmental goals. Accord, Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wash. 2d 869 , 872 n. 1, 784 P.2d 507, 510 n. 1 (1990); Broadwell Realty Services, Inc. v. Fidelity & Cas. Co., 218 N.J.Super. 516, 522-25, 528 A.2d 76 , 79-80 (Ct.App.Div.1987). Thus, our discussion *18 focuses on the language of the insurance contract. INDEMNIFICATION The insurance contract between Patrons Oxford and the Maroises provides that the insurer: will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of... property damage ....[2] Some courts have construed this or similar language as limiting coverage to traditional common law damages recovered by third parties, thereby excluding coverage for equitable relief such as clean-up efforts or restoration, see, e.g., Cincinnati Ins. Co. v. Milliken & Co., 857 F.2d 979 (4th Cir.1988) (South Carolina law); Continental Ins. Co. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977 (8th Cir.) (en banc) (Missouri law), cert. denied, ___ U.S. ___, 109 S. Ct. 66, 102 L. Ed. 2d 43 (1988); Maryland Cas. Co. v. Armco Inc., 822 F.2d 1348 (4th Cir.1987) (Maryland law), cert. denied, 484 U.S. 1008, 108 S. Ct. 703, 98 L. Ed. 2d 654 (1988). Other courts have read the language to extend coverage to any expense an insured incurs to mitigate or prevent property damage, see, e.g., Avondale Industries Inc. v. Travelers Indemnity Co., 887 F.2d 1200 (2d Cir.1989); C.D. Spangler Construction Co. v. Industrial Crankshaft and Engineering Co., 326 N.C. 133, 388 S.E.2d 557 (1990); Broadwell Realty Services, Inc. v. Fidelity & Cas. Co., 218 N.J.Super. 516, 528 A.2d 76 (Ct.App.Div. 1987). Amounts sought by a state or federal agency to reimburse that agency for clean-up costs have been variously categorized as covered damages, Avondale Industries Inc. v. Travelers Indemnity Co., 887 F.2d 1200 (2d Cir.1989); Township of Gloucester v. Maryland Cas. Co., 668 F. Supp. 394 (D.N.J.1987), or uncovered equitable relief, Cincinnati Ins. Co. v. Milliken & Co., 857 F.2d 979 (4th Cir.1988); Continental Ins. Co. v. Northeastern Pharmaceutical & Chem. Co. Inc., 842 F.2d 977 (8th Cir.) (en banc), cert. denied, ___ U.S. ___, 109 S. Ct. 66, 102 L. Ed. 2d 43 (1988); Maryland Cas. Co. v. Armco Inc., 822 F.2d 1348 (4th Cir.1987), cert. denied, 484 U.S. 1008, 108 S. Ct. 703, 98 L. Ed. 2d 654 (1988). The Patrons Oxford contract language provides coverage not for "property damage" itself, but for "sums which the insured shall become legally obligated to pay as damages because of ... property damage" (emphasis supplied). In this case, the Maroises are not yet legally obligated to pay any sums (except their attorney fees, the responsibility for which is determined by the duty to defend). Although they may eventually spend money if Lathe Fuel's efforts are unsuccessful, the money spent to meet the State's demands would be first for a remedial plan, and then, if the plan were accepted, for measures satisfactory to the DEP to prevent contaminated ground water from migrating, restore ground water quality and restore or replace contaminated ground water supplies. Such amounts may be substantial and may effectively alleviate or prevent property damage to others, but we do not believe the "ordinarily intelligent insured," engaged in a "more than casual reading of the policy," Union Mutual Fire Ins. Co. v. Commercial Union Ins. Co., 521 A.2d 308 , 310 (Me.1987), would consider them to be "sums which the insured [is] legally obligated to pay as damages." Instead, they are the expenses the Maroises may be required to incur to halt continuing pollution and property damage.[3] There may be a substantial difference between these remedial costs and the amount of damages the *19 Maroises would have to pay to property owners for damages to their property. It is the latter expenditure upon which the parties have contracted and upon which the insurance premium is based. Prior to the past several years, there had been no suggestion that this insurance contract language providing coverage for sums paid "as damages" would cover anything other than amounts that might be awarded against an insured to recompense a third party for damage to its property.[4] Instead, the case law was to the contrary, see Aetna Cas. & Surety Co. v. Hanna, 224 F.2d 499 (5th Cir.1955); Desrochers v. New York Cas. Co., 99 N.H. 129, 106 A.2d 196 (1954). Recently, however, some courts have argued that lay persons reading an insurance contract do not understand the traditional meaning of sums paid "as damages."[5] Applying rules of construction that favor insureds over insurers, these courts have found coverage for cleanup costs undertaken by the insured in response to governmental demands. We do not adopt such reasoning.[6] There are many words, phrases or paragraphs in a standard insurance contract that a first time reader does not understand. That circumstance does not justify excising such provisions from the contract.[7] Only when they are ambiguous is their interpretation affected, and the insured given the benefit of the doubt. See Allstate Ins. Co. v. Elwell, 513 A.2d 269 , 271 (Me.1986). Previous judicial interpretations made clear the meaning of the words "pay as damages" when used in an insurance contract. See Aetna Cas. & Surety Co. v. Hanna, 224 F.2d 499 (5th Cir.1955); Desrochers v. New York Cas. Co., 99 N.H. 129, 106 A.2d 196 (1954). Ambiguity (as opposed to outright lack of understanding) is created only by converting an insured's hope or assumption that every out-of-pocket payment is covered into a part of the contract language.[8] We conclude that in the current posture of this case, the Maroises are not confronted with any liability for damages. We therefore reject their appeal seeking greater *20 coverage than the Superior Court found. Our analysis might result in somewhat different coverage than the Superior Court found with its on-premises/off-premises distinction, but we do not address that issue. Because the insurance company has not cross-appealed, it is bound by the Superior Court's judgment as to its responsibilities vis-a-vis the Maroises.[9] DUTY TO DEFEND The insurance contract language provides that the insurer: "shall have the ... duty to defend any suit against the insured seeking damages on account of such ... property damage...." Under Maine's statutes, the DEP cannot recover damages in the administrative proceeding it has brought, but can only compel a clean-up. 38 M.R.S.A. § 568 (1989). If the State ultimately has to make payments from the Ground Water Clean-up Fund to abate the pollution, it may refer the matter to the attorney general for collection, including interest and penalties against any "responsible party." 38 M.R.S.A. §§ 568(4)(B), 569(6), 570 (1989). There is no suggestion in the record that such a proceeding is contemplated. Alternatively, third parties could make a claim against the State for damages they suffer from the migration of contaminated ground water and the State could then sue landowners like the Maroises for reimbursement, 38 M.R.S.A. § 569(2-A) (1989). That also has not occurred in this case. Thus, there has been no "suit against the insured seeking damages," and the insurer has no present duty to defend. The entry is: Judgment affirmed. All concurring.