Title: Hercules, Inc. v. AIU Insurance Co., et al. and American Home Assurance Co., et al v. Hercules, Inc.
Citation: N/A
Docket Number: 193, 2000
State: Delaware
Issuer: Delaware Supreme Court
Date: August 15, 2001

IN THE SUPREME COURT OF THE STATE OF DELAWARE
HERCULES, INCORPORATED, a
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corporation of the State of Delaware,
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No. 193, 2000
Plaintiff Below,
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Appellant,
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Court Below: Superior Court
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the State of Delaware in and
              v.
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for New Castle County
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AIU INSURANCE COMPANY, et al.,
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C. A. No.  92C-10-105
Defendants Below,
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                90C-FE-195-1
Appellees.
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              and
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AMERICAN HOME ASSURANCE 
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COMPANY, ALLSTATE INSURANCE
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COMPANY (as successor to Northbrook
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Excess and Surplus Insurance Company 
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and Northbrook Insurance Company),
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EVEREST REINSURANCE COMPANY
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(formerly known as Prudential Reinsur-
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ance Company), GIBRALTAR 
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CASUALTY COMPANY, and THE 
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HOME INSURANCE COMPANY,
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         Defendants-Below
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         Appellees/Cross-
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                           Appellants,
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v. 
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HERCULES, INCORPORATED,
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          Plaintiff Below
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         Appellant/Cross-
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         Appellants.
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Submitted: April 23, 2001
Decided:
August 15, 2001
Before VEASEY, Chief Justice, HOLLAND and STEELE, Justices.
Upon Appeal from Superior Court.  AFFIRMED IN PART AND
REVERSED IN PART AND REMANDED.
Richard E. Poole, Esquire (argued), Gregory A. Inskip, Esquire, and John
E. James, Esquire, of Potter Anderson & Corroon LLP, Wilmington, Delaware;
Of Counsel:  Michael F. Rettig, Esquire, of Hercules Incorporated, Wilmington,
Delaware; Jerold Oshinsky, Esquire (argued), Mark H. Kolman, Esquire, Kent
T. Withycombe, Esquire, and Michael T. Sharkey, Esquire, of Dickstein,
Shapiro Morin & Oshinsky, Washington, D.C., Attorneys for Hercules
Incorporated.
Anthony G. Flynn, Esquire (argued), and Timothy Jay Houseal, Esquire,
of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; Of Counsel:
James P. Schaller, Esquire (argued), Robert E. Rider, Esquire, and Kristan M.
Campbell, Esquire, of Jackson & Campbell, Washington, D.C., Attorneys for
AIU Insurance Company, American Home Insurance Company, Granite State
Insurance Company, Landmark Insurance Company, Lexington Insurance
Company, National Union Fire Insurance Company of Pittsburgh, PA, and
Allianz Insurance Company.
Carmella P. Keener, Esquire of Rosenthal, Monhait, Gross & Goddess,
P.A.; Of Counsel:  Christopher T. Lutz, Esquire (argued), of Steptoe & Johnson
LLP, Washington, D.C., Attorneys for The Home Insurance Company.
Robert J. Katzenstein, Esquire, and Laurence V. Cronin, Esquire, of
Smith Katzenstein & Furlow, Wilmington, Delaware; Of Counsel:  Stephen D.
Cuyler, Esquire, Anne M. Mohan, Esquire, and Eric Konecke, Esquire, of
Cuyler Burk, Parsippany, New Jersey, Attorneys for Allstate Insurance
Company, Everest Reinsurance Company and Gibraltar Casualty Company.
Michael J. Goodrick, Esquire, of Michael J. Goodrick, P.A., Wilmington,
Delaware; Of Counsel:  Hallie Miller Fahey, Esquire, of Meckler Bulger &
Tilson, Chicago, Illinois, Attorneys for Zurich Insurance Company.
Barbara A. Fruehauf, Esquire, of Cattie & Freuhauf, Wilmington,
Delaware; Of Counsel:  Stuart L. Peacock, Esquire, of Gilberg & Kiernan,
Washington, D.C., Attorneys for Argonaut Insurance Company.
John A. Balaguer, Esquire, of White & Williams, Wilmington, Delaware;
Of Counsel:  David P. Donovan, Esquire and Nancy L. Manzer, Esquire, of
Wilmer Cutler & Pickering, Washington, D.C., Attorneys for Century Indemnity
Co.
Loreto P. Rufo, Esquire, of The Bayard Firm, Wilmington, Delaware,
Attorney for Employers Mutual Casualty Company and Federal Insurance
Company.
Kevin F. Brady, Esquire, of Skadden Arps Slate Meagher & Flom LLP,
Wilmington, Delaware; Of Counsel: Irene A. Sullivan, Esquire, and Timothy G.
Reynolds, Esquire, of Skadden Arps Slate Meagher & Flom LLP, New York,
New York, Attorneys for General Reinsurance Corporation.
Daniel P. Bennett, Esquire, of Heckler Frabizzio & Durstein, Esquire,
Wilmington, Delaware; Of Counsel:  Clay H. Phillips, Esquire, and David N.
Larson, Esquire, of Bollinger Ruberry & Garvey, Chicago, Illinois, Attorneys
for International Surplus Lines Insurance Company.
J. R. Julian, Esquire, of J. R. Julian, P.a., Wilmington, Delaware; Of
Counsel:  Edward D. Shoulkin, Esquire, of Taylor Duane Barton & Gilman,
Boston, Massachusetts, Attorneys for Unigard Security Insurance Company.
Francis J. Murphy, Esquire and Jonathan L. Parshall, Esquire, of Murphy
Spadaro & Landon, Wilmington, Delaware; Of Counsel:  John G. McAndrews,
Esquire, Dean J. Vigliano, Esquire, Matthew G. Dineen, Esquire, and Allen R.
McKay, Esquire, of Mendes & Mount, LLP, New York, New York, Attorneys
for Amicus Curiae London Market Insurers.
VEASEY, Chief Justice:
This appeal involves an insurance coverage dispute in which the insured
seeks coverage under a number of policies for tens of millions of dollars of
environmental liability it has incurred.  Rulings of the trial court interpreting
provisions of the insurance contracts at issue resulted in a Final Judgment Order
granting partial coverage to the insured.  Upon review of these rulings, we affirm
in part, reverse in part, and remand for further proceedings consistent with this
Opinion.  Our partial reversal is based on our holding that the trial court erred in
applying pro rata allocation to determine the extent of the insurers’ liability in
this case.  We affirm the rulings of the trial court in all other respects.  The
remaining issues raised in this appeal are summarized below.
Procedural Background
Plaintiff Hercules, Inc., filed an action in Superior Court against 43 of its
insurers seeking coverage for costs incurred in connection with environmental
actions involving twenty manufacturing sites across the country.  After several
years of discovery, a facility in Jacksonville, Arkansas was selected as a test case
for trial in the Superior Court.
A three-month trial was held in Superior Court.  The rulings on appeal are
encompassed in a series of opinions issued by the Superior Court before and after
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trial.  These are:  (1) a Summary Judgment Opinion;1 (2) a Post-Trial Opinion;2
(3) a bench ruling on a motion in limine; and (4) a Post, Post-Trial Opinion.3
These rulings and the jury verdict culminated in a Final Judgment Order issued
by the Superior Court on August 31, 1999.4
Hercules initially sought coverage from excess insurance policies
purchased from 1960-1980.5  As a result of pollution exclusions contained in
certain policies and the jury’s findings premised on those exclusions, only
policies issued between 1964-1970 (which do not contain pollution exclusions)
provide coverage.  Accordingly, the Final Judgment Order imposed liability on
The Home Insurance Company (“Home”), the American Home Assurance
Company (“American Home”),6 and the London Market Insurers (“LMI”).7
                                   
1 Hercules v. Aetna Cas. & Surety Co., Del. Super., C.A. Nos. 92C-10-105, 90C-FE-195-1 (consolidated) (Jan. 14,
1998) [Summary Judgment Opinion].
2 Hercules v. Aetna Cas. & Surety Co., Del. Super., C.A. Nos. 92C-10-105, 90C-FE-195-1 (consolidated), 1998 WL
962089 (Sept. 30, 1998) [Post-Trial Opinion].
3 Hercules v. Aetna Cas. & Surety Co., Del. Super., C.A. Nos. 92C-10-105, 90C-FE-195-1 (consolidated) (Oct.
19, 1998) [Post, Post-Trial Opinion].
4 Hercules v. Aetna Cas. & Surety Co., Del. Super., C.A. Nos. 92C-10-105, 90C-FE-195-1 (consolidated), (Aug.
31, 1999) [Final Judgment Order].
5 Hercules does not challenge rulings excluding coverage under pre-1960 and post-1980 policies.
6 The trial court selected September 30, 1997, as the cutoff date for “past costs.”  Under the trial court’s declaratory
judgment ruling American Home is liable for costs incurred after Sept. 30, 1997 because, based on the trial court’s
rulings, coverage under the American Home policy attaches at a point above the pre-cutoff damages calculated in
the Final Judgment Order.  See Final Judgment Order, at 6, 10, 12.
7 LMI has settled, but has filed an amicus curiae brief in this appeal arguing that we should affirm the trial court in
several respects.
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Because of the nature of the issues on appeal and the fact that certain insurers
have settled with Hercules, only certain insurers are involved in this appeal.
Specifically, Hercules’ appeal concerns those non-settling insurers that sold
policies to Hercules during July 31, 1963 through October 31, 1970 and July 31,
1973 through April 1, 1980.8
Facts
Hercules purchased the Jacksonville site from Reasor Hill, Inc., in 1961.
Reasor Hill had used the plant for the manufacture of agricultural pesticides and
herbicides.  Hercules continued to manufacture herbicides until 1964, at which
time it began to manufacture Agent Orange under a contract with the United
States government.  Manufacture of Agent Orange ceased in 1968.  In 1971,
Hercules leased the plant to Transvaal Corporation.  In 1976 Transvaal was
reorganized as Vertac Corporation, which then purchased the site from Hercules,
ending Hercules’ involvement with the site.  Throughout this period and
continuing until 1986, Transvaal and then Vertac continued production of
herbicides.
                                   
8 As to the 1963-1964 policies, Hercules appeals the trial court’s ruling interpreting a pollution exclusion contained
in those policies. As to the 1973-1980 policies, Hercules argues that the pollution exclusion to which those policies
follow form is void and unenforceable because it was not filed with the Delaware Insurance Commissioner.  As to
the 1963-1964 policies, which do provide coverage under the Final Judgment Order, Hercules raises several issues
concerning the amount of coverage.
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Operations at the Jacksonville site have resulted in extensive environmental
pollution and damage to the site and nearby areas.  “Leaks, spills, drum burial,
and other releases” of various waste by-products has “resulted in contamination
of soil, groundwater, equipment, tanks, sewer lines, the sewage treatment plants,
and sediments and flood plains….”9  One of the byproducts produced at the site
was dioxin, an extremely hazardous substance.  Hercules had placed the waste
residue containing dioxin in drums and buried the drums at the site and nearby
landfills.  In 1975, however, Vertac began storing its drums above ground
apparently with the hope that the waste might someday be recycled.  By 1986,
there were nearly 29,000 waste-filled drums at the site.10  In 1987, Vertac went
into receivership and abandoned the site, leaving the drums there.
Litigation involving the Jacksonville site commenced in 1980 and is still
pending in the United States District Court for the Eastern District of Arkansas.11
Suits filed by the Environmental Protection Agency (“EPA”)12 and the Arkansas
Department of State in the District Court in 1980 were consolidated and an
                                   
9 United States v. Vertac, E.D. Ark., 966 F.Supp. 1491, 1494-95 (1997).
10 These are sometimes referred to as the “Vertac barrels” or “barrels.”
11 For a history of the proceedings, see United States  v. Hercules, Inc., 8th Cir., 247 F.3d 706 (2001).
12 The EPA initially sued under the Resource Conservation and Recovery Act and the Clean Water Act.  The lawsuit
was later converted into action under the Comprehensive Environmental Response, Compensation and Liability Act
(‘CERCLA”).  See Hercules, 247 F.3d at 713.
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injunction was issued ordering Vertac to take measures to stop chemical
leakage.13  Relief against Hercules was denied at that time because it had ceased
operations at the site in 1971.14  Cleanup efforts addressing various sources of
contamination at the site continued during the mid-1980s under a court-approved
consent decree to which Hercules was a party.15  This arrangement fell apart in
1987, when Vertac abandoned the site as a result of financial insolvency.
Hercules was later found liable for the lion’s share of cleanup costs as an
“owner/operator and arranger” under CERCLA.16
After further proceedings a judgment was entered against Hercules
imposing joint and several liability of over $100 million dollars, mostly in
connection with the incineration of the drums referred to above.  While the
instant appeal was under submission to this Court, the Eighth Circuit reversed the
CERCLA judgment and related rulings and remanded to the district court for a
                                   
13 In addition to these government suits, Hercules has been named as a defendant in several private suits related to
the Jacksonville operations.
14 See United States v. Vertac Chemical Corp., E.D. Ark., 489 F. Supp. 870 (1980).
15 See United States v. Vertac Chemical Corp., E.D. Ark., 588 F. Supp. 1294 (1984).
16 See United States v. Vertac, E.D. Ark., 79 F.Supp.2d 1034, 1035-36 (1999) (noting that the district court entered
judgment against Hercules as an “owner/operator and arranger” in an amount over $100 million plus any additional
response costs to be incurred).  Because Vertac was apparently responsible for most of the waste at the site, it has
been acknowledged that Hercules has “been left holding the bag” for Vertac.  Id.  Hercules was found jointly and
severally liable together with Uniroyal Chemical, Ltd., which was “was found liable as an arranger based on tolling
agreements… whereby Uniroyal sent 1,2,4,5-tetrachlorozobene (“TCB”) to Vertac for Vertac to convert into 2,4,5-T
for Uniroyal.”  Id. at 1036.
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determination of Hercules’ liability in light of CERCLA’s “divisibility of harm”
doctrine.17  Therefore, the amount of Hercules’ liability in the EPA action is
undetermined.  Nonetheless, Hercules continues to seek declaratory relief with
respect to its potential liability in the ongoing federal litigation, as well as
coverage for other liabilities related to the Jacksonville site.
The Final Judgment Order
The jury found that property damage occurred at the Jacksonville site in
each of the years from 1957-1980.  The jury found that Hercules had been held
liable for property damage that was the result of one “occurrence,” a term
defined in the policies.18  The total amount of Hercules’ costs in connection with
the Jacksonville site as of the Sept. 30, 1997 cutoff date totaled $28,522,910.60,
of which approximately $12 million was related to defense costs (legal expenses
and investigation) and $16 million to indemnification for environmental cleanup.
Under a ruling of the trial court, Home’s policy did not cover any of the defense
costs.
                                   
17 See Hercules, 247 F.3d at 719.
18 Final Judgment Order, at 3.  It is important to note the related jury finding that, with certain exceptions not
relevant to this appeal, this property damage was not caused by a “sudden, unexpected and unintended” happening
within the meaning of the pollution exclusions, explaining why only the 1964-1970 policies (which do not contain
such exclusions) respond to Hercules’ costs.
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The portion of the $28,522,910.60 in total costs that was attributable to the
1964-1970 policies was calculated as $7,131,583.19 This amount was further
reduced to reflect Hercules’s self-retention, which was similarly allocated to the
1964-1970 period.  Under the “modified pro rata allocation” formula adopted by
the trial court to reflect LMI’s “portion of the risk” from 1964-70, LMI was
ultimately found liable for $6,395,839.  Following the same methodology, the
total indemnification costs recoverable under Home’s policy was $128,964.  As
noted above, American Home was not subject to any money judgment because its
coverage had not attached as of Sept. 1, 1997.  Finally, the trial court awarded
prejudgment interest against LMI and Home totaling approximately $2,500,000.
Issues in this Appeal
On appeal, Hercules raises seven issues.  It argues that the trial court
committed the following reversible errors: (1) allocating loss among triggered
policies in accordance with a “modified pro rata allocation” formula as opposed
to finding the insurers jointly and severally liable for all sums; (2) finding that the
                                   
19 This amount was calculated by dividing the total costs by the number of days of property damage in the years
1957-1980 to arrive at a daily cost average and then multiplying that figure by the “period of coverage [i.e.,
December 15, 1964 – July 31, 1970] in days.”  Final Judgment Order, at 10.
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policies have single, per-occurrence limits as opposed to annual limits; (3)
construing the pollution exclusion in the 1963-1964 policies the same way that it
construed the 1970-1980 pollution exclusion in its instructions to the jury; (4)
enforcing the pollution exclusion contained in the 1973-1980 policies
notwithstanding an underlying insurer’s failure to file that exclusion in
compliance with state law; (5) ruling on summary judgment that the cleanup costs
to incinerate the Vertac barrels are not covered as a matter of law; (6) holding
that the Home Insurance policy does not pay for Hercules defense costs; and (7)
setting the accrual date for prejudgment interest as the date the complaint was
filed instead of when the policy levels were reached.
We agree with Hercules that the trial court erred in allocating loss
according to a proration formula.  Accordingly, we reverse the judgment of the
trial court and remand for proceedings consistent with this Opinion.  We affirm
the judgment of the trial court with respect to the remaining issues raised by
Hercules.  In addition to the seven issues raised by Hercules, we address certain
cross-appeals of appellees.
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Insurers Are Liable for All Sums They Are Obligated to Pay Under the Policies
The policies sold to Hercules from 1960 to 1964 and from 1970 to 1980
contain pollution exclusions that bar coverage for property damage caused by
pollution unless the pollution is caused by a “sudden, unexpected and unintended
event.”  The jury found that the pollution damage at the Jacksonville site was
continuous from 1957 through 1980 and that such damage constituted a single
“occurrence” under the insurance policies at issue.  Because the jury also found
that none of this pollution damage resulted from any “sudden, unexpected and
unintended” event, however, insurance coverage for such damage is excluded
under the policies containing the exclusion, leaving only the policies issued
during the period 1964-70.
Before trial, Hercules sought a ruling that the insurers whose policies were
triggered by an occurrence and which policies did not contain operative
exclusions would be jointly and severally liable for damage arising out of the
occurrence.  The insurers argued that liability should be apportioned on a pro
rata basis.  In its Summary Judgment Opinion, the Superior Court agreed with
the insurers that the liability should be allocated pro rata among the insurers
according to time on the risk.20  The Superior Court rejected Hercules’ argument,
                                   
20 Summary Judgment Opinion, at 32-36.  See id. at 36 (“Defendants are liable in proportion to the time period their
policies covered the risk.”).
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based principally on “all sums” language in the policies, that insurers whose
policies were triggered should be held joint and severally liable.  The Superior
Court’s decision was based on E.I. du Pont de Nemours and Co. v. Admiral Ins.
Co. (“DuPont”).21
Hercules’ points to the “all sums” language in support of joint and several
liability.  According to Hercules, given this language and the absence of any
proration clause, there is no basis to apply pro rata allocation.  Hercules relies on
Monsanto Co. v. C.E. Heath Compensation and Liability Ins. Co.
(“Monsanto”).22  In Monsanto, we held under Missouri law that policy provisions
similar to those in this case preclude pro rata allocation.
The insurers argue that because Monsanto did not interpret Delaware law,
and because it did not address the implications of the “continuous trigger” theory
allegedly applicable to this case of long-term gradual pollution, the trial court
properly chose pro rata allocation under DuPont.  We hold that pro rata
allocation is inconsistent with the “all sums” provisions in the policies.  
Our analysis of this issue begins with the language of the insurance
policies.  Proper construction of the policy language is a question of law that we
                                   
21 Del. Super., Civ. A. No. 89C-AU-99, 1995 WL 654020, Steele., V.C., (Oct. 27, 1995) (Mem. Op.).
22 Del. Supr., 652 A.2d 30 (1994).
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review de novo.23  Our goal is to ascertain the intent of the contracting parties
based on the contract terms.24  Ambiguity exists when the contractual provisions
in controversy are “reasonably or fairly susceptible of different interpretations or
may have two or more different meanings.”25
The policies contain or follow form to generally similar provisions, which
provide:
Underwriters hereby agree, subject to the limitations, terms and
conditions hereinafter mentioned to indemnify the Assured for all
sums which the Assured shall be obligated to pay by reason of the
liability… for damage, direct or consequential and expenses, all as
more fully defined by the term “ultimate net loss” on account of …
Property Damage … caused by or arising out of each occurrence
happening anywhere in the world.
In addition, the policies define “occurrence” as:
An accident or happening or event or a continuous or repeated
exposure to conditions which unexpectedly and unintentionally
results in personal injury, property damage or advertising liability
                                   
23 See Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co., Del. Supr., 616 A.2d 1192, 1195-96
(1992).
24 See id. (“When the language of an insurance contract is clear and unequivocal, a party will be bound by its plain
meaning because creating an ambiguity where none exists could, in effect, create a new contract with rights,
liabilities and duties to which the parties had not assented.”); see also E.I. du Pont de Nemours & Co. v. Allstate Ins.
Co., Del. Supr., 686 A.2d 152, 155-56 (1996) (“Allstate I”).  Allstate I is discussed below in connection with the
issue related to the Vertac Barrels.  Another of the opinions belonging to the DuPont litigation, which we will refer
to as Allstate II for the purposes of clarity in this opinion, is discussed below in connection with the issue relating to
the interpretation of the pollution exclusions.  The Allstate II opinion is reported as E.I. du Pont de Nemours & Co.
v. Allstate Ins. Co., Del. Supr., 693 A.2d 1059 (1997).   Further, we note that Allstate II affirmed two separately
reported decisions of the trial court:  E.I. du Pont de Nemours and Co. v. Admiral Ins. Co., Del. Super., 711 A.2d 45,
64-65 (1995) and E.I. du Pont de Nemours & Co. v. Admiral Ins. Co., Del. Super., C.A. No. 89C-AU-99, 1996 WL
769627, Steele, J. (Dec. 24, 1996) (Mem. Op.).  Each of these are also cited below.
25 Rhone-Poulenc, 616 A.2d at 1196.
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during the policy period.  All such exposure to substantially the
same general conditions existing at or emanating from one premises
location shall be deemed one occurrence.
In Monsanto, this Court held that a nearly identical “all sums” provision
did not support pro rata allocation. The reasoning in Monsanto applies to this
case, and we therefore quote from the portion of the Monsanto decision
explaining the operation of the “all sums” language:
The ESLIC policy provides that it will indemnify “the Assured,”
Monsanto, for all sums which Monsanto becomes obligated to pay
for particular types of harm, such as bodily injury or property
damage that is caused by an “occurrence.”  An “occurrence,” in
turn, is defined as an “accident,” happening” or “event” that results
in unexpected and unintended injury or damage during the policy
period.
A policy is activated by bodily injury or property damage that takes
place “during the policy period.”  The triggering language in the
Monsanto insurance policies does not define the extent of the
coverage.  Once a policy is on the risk, the unambiguous policy
language requires the insurance company to pay “all sums” for
which the policy holder shall become liable, up to the policy limits.
That language defines ESLIC’s duty under its policies as the
obligation to pay “all sums” for which Monsanto becomes liable—
not a proportionate share.26
Thus in Monsanto we held that the “all sums” language is inconsistent with
pro rata allocation based on time on the risk.  To the extent this holding was
                                   
26 Monsanto, 652 A.2d at 34-35.  See also Ostrager & Newman, Insurance Coverage Disputes 453 (9th ed. 1997)
(noting “a growing trend for courts to consider the issue of allocation of liability among triggered policies as distinct
from what constitutes the trigger of coverage”).
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based on unambiguous policy language, it is not limited by the fact that Monsanto
decided an issue of Missouri law.  Furthermore, Monsanto noted that a majority
of courts do not prorate liability where the policy does not contain a proration
provision.27  We believe that the Monsanto doctrine should be applied here.
Therefore, we will “follow the majority rule and not read a pro rata allocation of
coverage” into the insurer’s policies in this case.28  Accordingly, the insurers are
jointly and severally liable for sums they are legally obligated to pay. 29
Although our holding is based on the “all sums” provision as interpreted
by this Court in Monsanto, we also conclude that the equitable considerations30
                                   
27 See Monsanto, 652 A.2d at 35 n.6 (collecting authorities).  See also Allstate Ins. Co. v. Dana Corp., Ct. App. Ind.,
737 N.E.2d 1177, 1189-91 (2000) (construing all sums language, which was found ambiguous, against the insurer;
citing the reasoning of this Court in Monsanto for its rejection of allocation according to time on the risk); American
National Fire Ins. v. B & L Trucking and Construction Co., Wash. Supr., 951 P.2d 250, 255-57 (1998) (en banc)
(citing and following Monsanto; noting as well that “[u]sually, when a continuous trigger is utilized, costs are not
apportioned between triggered policies, but insurer’s rather, are held jointly and severally liable”).
28 Id. at 35. The policies could have contained proration provisions but did not.  See id.at n.7 (“But where there is no
provision in a policy of insurance providing for prorating if other insurance exists upon the same subject matter, a
company against whom suit is brought after loss cannot insist upon prorating the loss with other companies thereon,
even though the insured may be limited to the recovery of a single indemnity.”) (quoting 6 John A. & Jean
Appleman, Insurance Law & Practice § 3905, at 436-37 (rev. ed. 1972; Supp.1993)).
29 See Ostrager & Newman, § 9.04[a] (noting that “courts have predicated joint and several liability on the ‘all sums’
language contained in the standard CGL policy”).  Our clarification of the Monsanto decision recognized that
liability for “all sums” does not automatically equate to joint and several liability; for example, harms may be
divisible.  Monsanto, 652 A.2d at 36.  In this case, the jury found that the property damage was the result of a single
occurrence.
30 Following DuPont, the trial court concluded that the imposition of the continuous trigger presumption made pro
rata allocation “appropriate” and joint and several liability “illogical.” Summary Judgment Opinion at 35.  The trial
court did not mention Monsanto.  Similarly, on appeal, the insurers rely primarily on what they describe as
“considerations of logic and fairness.”
The insurers also argue for pro rata allocation based on the policy language, but argue merely that pro rata
allocation is “consistent” with the “all sums” policy language.  This argument fails under Monsanto.
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underlying the decision of the Superior Court in DuPont do not have force in this
case.31  The DuPont Court imposed “pro rata allocation based on time on the
risk” notwithstanding “all sums” provisions in the policies at issue.32  The
rationale for this method of allocation rested on the trial court’s use of the
“continuous trigger” method of determining which policies are triggered.33
Having chosen the continuous trigger, the DuPont Court next explained why in
its view the continuous trigger theory “requires” pro rata allocation:
The use of the continuous trigger requires the presumption damage
occurred at a constant, continuous rate from the inception of the
environmental damage.  The method of allocation must coincide with
that presumption.  For this reason, the Court concludes joint and
several allocation is inconsistent with the imposition of the
continuous trigger.
* * *
                                                                                                                  
It also fails because this amounts to a tacit argument that the policy language is ambiguous.  Under the
doctrine of contra preferentum the ambiguity would be construed against the insurers.  See Kaiser Alum. Corp. v.
Matheson, Del. Supr., 681 A.2d 392, 398 (1992); Delmarva Health Plan, Inc. v. Aceto, Del. Ch., 750 A.2d 1213,
1214 (1999) (quoting Hallowell v. State Farm Mut. Auto. Ins., Del. Supr., 443 A.2d 925, 926 (1982)).
31 Cf. In re Prudential Lines, Inc., v. American Steamship Owner’s Mutual, 2d Cir., 158 F.3d 65, 86 (1998) (noting
that pro rata allocation generally rests on “considerations of equity and policy, rather than contract wording,” but
noting the “the lack of any compelling policy or equitable reasons favoring allocation” in the case before it)
32 DuPont at *15.
33 Id.  The “continuous trigger” involves a presumption that, in cases of long-term, gradual damage such as
pollution, the damage occurred at a constant rate, relieving the parties from having to quantify the rate and extent of
pollution.  See New Castle County v. Continental Cas. Co., 725 F.Supp. 800, 811-12 (1989).  In New Castle County,
the presumption was justified on the basis that the term “injury” is ambiguous and should be construed against the
insurers to preserve coverage.  Id. at 812-13.  In DuPont, by contrast, the trial court found the “policy language
pertaining to ‘occurrence and property damage’ clear and unambiguous with no temporal limitations.”  DuPont at
*10.  Therefore it found that a policy could be triggered at any stage of the continuous property damage.  Id.
Accordingly, an entire injurious process may constitute injury, thereby triggering every policy in effect during that
process.  The presumption preserves coverage because it relieves the insured of the “impossibility” of proving when
damage occurs.  See New Castle County, 725 F.Supp. at 812 (“[I]t would be impossible in this case to determine
when the first molecule of contaminant damaged neighboring property, or at what rate the contamination spread.”).
- 15 -
[I]t is illogical to compress all of this damage into one policy period
and hold each insurer fully liable.  The presumption of continuous
damage logically and fairly requires the imposition of the modified
pro rata allocation of damage.34
The DuPont case concerned potential liability35 for damages occurring over
a period of at least five decades and implicating nearly twenty years of coverage.
The insured in DuPont was seeking coverage for damages arising from
manufacturing activities at three locations that had been “ongoing for decades…
resulting in the contamination of the surrounding land, surface waters and ground
waters.”36  The disposal of hazardous waste at one of the sites occurred “from
1930 until 1977.”37  It is apparent that in the view of the DuPont court this
factual scenario lent itself to the continuous trigger presumption.38  In DuPont the
                                   
34 DuPont at  *15.
35 DuPont decided the allocation issue on cross-motions for summary judgment.  Id. at 1.
36 DuPont at *1.
37 Id.
38 See id. at *9 (“Since the contamination of the soil… constitutes property damage, and the process of
contamination indisputably had been ongoing for decades, the continuous trigger should apply.”) (emphasis added);
id. (citing as authority for use of continuous trigger a case in which the damage had been ongoing for over twenty
years) (citing National Union National Union Fire Ins. Co. v. Rhone-Poulenc Basic Chem. Co. of Pittsburgh, Del.
Super., C.A. No. 87C-SE-11, Poppiti, J. (Jan. 16, 1992), aff'd sub. nom., Rhone-Poulenc Basic Chem. Co. v.
American Motorists Ins. Co., Del. Supr.,  616 A.2d 1192 (1992)).
- 16 -
insured requested the continuous trigger, presumably in order to avoid having to
prove perceptible harm for each year for which it sought coverage.39
In this case, however, Hercules was required to prove by a preponderance
of the evidence that it had been held liable for property damage during each
policy year from 1961 to 1980.40  The insurers concede that no evidence to the
contrary was offered.41  Given the relatively limited time frame ultimately
involved in this case,42 and the fact Hercules proved by a preponderance of the
evidence the occurrence of property damage in each relevant policy year,
Hercules has derived little if any benefit from a continuous trigger theory.
Therefore, it would not be equitable to diminish its coverage as a result of a
presumption of continuous damage.
Additionally, one of the key equitable considerations in DuPont was that
the insured “consciously chose to self-insure until [it] began to purchase excess
insurance,” and had not “demonstrated the unavailability of insurance during the
                                   
39 See DuPont at *7 (noting insured’s reliance on New Castle County v. Continental Cas. Co.,, 725 F.Supp. 800
(1989)).
40 Final Judgment Order, at 2.  As Hercules points out, there is no requirement in the policy that it prove the precise
amount of property damage occurring in any given policy year, since the policy is triggered by any occurrence that
happens during the policy period.
41 The insurers argue that Hercules itself did not offer evidence to establish when damage occurred.  Nonetheless,
the jury found that damage did occur.
42 The jury’s verdict following the trial establishes that only three policies providing coverage for all or part of the
1964-70 period are at issue due to the pollution exclusions.  Rulings before trial limited the relevant time period to
the years 1957-1980.
- 17 -
period [it] self-insured.”43  Proration according to time on the risk would include
those years in which the insured was self-insured, thus preventing the “windfall”
to the insured that would supposedly result from joint and several liability.44
The insurers argue that joint and several liability would result in a windfall in this
case because it would allow Hercules to recover for the years in which it had not
purchased applicable pollution insurance, i.e., continuing, post-1970 damages
would be “telescoped” into policies issued during 1964-70.
In this case, however, the policies contain or follow form to non-
cumulation clauses that provide:
It is agreed that if any loss covered hereunder is also covered in
whole or in part under any other excess policy issued to the Assured
prior to the inception date hereof the limit of liability hereon as
stated in Item 2 of the Declaration shall be reduced by any amounts
due to the Assured on account of such loss under such prior
insurance.
Subject to the foregoing paragraph and to all other terms and
conditions of this policy in the event that personal injury or property
damage arising out of an occurrence covered hereunder is continuing
at the time of termination of this policy Underwriters will continue
to protect the Assured for liability in respect of such personal injury
or property damage without payment of additional premiums.
                                   
43 Id. at *16 (“[R]ather, it consciously decided to carry its own risk.”)  It appears that the insured was self-insured for
a period of decades, declining to buy insurance until the 1960’s.  Id. at *1.
44 Id. at   *14, *16.
- 18 -
Together with the “all sums” provisions set forth above, the second paragraph of
this clause extends coverage beyond the policy period in the case of continuing
damage.45  Recognizing that this clause cannot be reconciled with pro rata
allocation, the Superior Court held that “pro rata allocation… implicitly prevents
[the second] paragraph [from] applying for Hercules’ benefit.”46
Rather than giving way to pro rata allocation, this contract provision
undercuts the rationale for pro rata allocation because it provides continuing
insurance for post-1970 damage arising out of a continuing occurrence (subject,
of course, to the policy limits).  Joint and several liability does not result in a
“windfall” to Hercules because of the continuing coverage Hercules purchased.
Under the contract, Hercules is entitled to coverage for damages occurring after
the insurer’s time on the risk once a policy has been triggered.  The DuPont
decision did not take into account any type of non-cumulation clause similar to
the one present in this case.  Although our holding rests solely on our decision in
Monsanto based on the unambiguous “all sums” provision, this strengthens the
                                   
45  See Liberty Mutual Ins. Co. v. Those Certain Underwriters at Lloyds, W.D. Pa., 650 F.Supp. 1553, 1559 (1987)
(“There can be no clearer indication that these policies were intended to provide coverage for all damage regardless
of when they occurred, provided that they derived from the ‘occurrence’ which triggers coverage.”); FMC Corp. v.
Plaisted and Cos., Cal. Ct. App., 72 Cal. Rptr. 2d 467, 499 (1998).
46 Post-Trial Opinion, at 11.
- 19 -
conclusion that the equitable considerations on which the decision in DuPont
rested are inapplicable to this case in any event.
Application of Non-Cumulation Clause to Home
The Home Insurance Company cross-appeals the trial court’s determination
with respect to the first paragraph of the non-cumulation clause.  That provision,
which is excerpted above, reduces recovery under an excess policy to the extent
that the insured already recovered under “a policy issued prior to the inception
date” of that excess policy.  The trial court ruled that because the pre-1964
policies do not provide coverage (due to the pollution exclusions), there was no
recovery under policies issued before the inception date of the excess policies,
and therefore the first paragraph of the provision is inapplicable.
Home argues that this determination is correct as to policies with 1964
inception dates, but not as to its own policy, which has an inception date of July
31, 1968.  Because the trial court’s Final Judgment Order found coverage
between the years 1964-1970 under LMI’s policy, the amounts owed by Home
should be reduced to reflect the coverage provided by LMI before the Home
inception date in 1968.  In response, Hercules argues that the LMI policy
providing coverage is not “prior” insurance, because by following form to the
LMI policy the Home policy incorporates LMI’s 1964 inception date.
- 20 -
Hercules’ argument must fail.  The fact that Home follows form to the
LMI non-cumulation clause does not mean that Home is deemed to have the same
1964 inception date when in fact its policy did not begin until 1968.  The trial
court held that the non-cumulation clause “limits the insurer’s liability, based on
amounts paid under earlier contracts,”47 a conclusion not appealed by any of the
parties.  The only issue concerns the trial court’s conclusion that the clause did
not apply because there was no “prior insurance.”  We disagree with this
conclusion as to Home.  Since the inception date of the Home policy is July 31,
1968, policies providing coverage before that date implicate the non-cumulation
clause in Home’s favor.
The Policies Contain One Limit Per Occurrence Not Annualized  Limits
Hercules argues that the trial court erred in holding that liability limits
contained in the multi-year policies for the years 1964-1970 are limits per
occurrence.48  Hercules argues that these limits are annual limits.  Thus, instead
                                   
47 Post-Trial Opinion, at 7.  See, e.g., Endicott Johnson Corp. v. Liberty Mutual Ins. Co., N.D.N.Y., 928 F.Supp.
176, 181-82 (1996) (stating that the purpose of the non-cumulation clause is to prevent recovery exceeding the per
occurrence limit).
48 This issue applies to the three insurers liable under the Final Judgment Order:  LMI, Home, and American Home.
LMI has settled, however, and thus Hercules’ appeal of this issue is opposed only by Home.  American Home agrees
with Hercules that the liability limits and self-retention are annual not per occurrence, and has filed a cross-appeal
with respect to this issue.  In a separate cross-appeal, Allstate Insurance Co. also argues that the self-retention should
be annualized.  As noted below, our discussion of Hercules’ arguments also addresses the cross-appeals of American
Home and Allstate with respect to this issue.
- 21 -
of a collective limit of $25 million for the one occurrence found by the jury,
Hercules argues that the policies must pay up to $25 million for each of the
roughly six years during the 1964-1970 policy period, resulting in total coverage
up to $125 million.  The trial court held that, based on the language of the
policies, a single per occurrence limit applies.  We agree.
Our holding is based on unambiguous language in the policies.  The
policies provide for two different types of limits depending on the type of damage
for which recovery is sought.  With respect to “Products Liability,” and
“Personal Injuries,” there is a limit “in the aggregate for each annual period.”
With respect to “Automobile Liability,” “Aircraft Liability,” and “all [other]
occurrences” there is a limit “in all in respect of each occurrence.”  Similarly, in
describing the insured’s self-retention of $2 million, the policy differentiates
between a self-retention in respect of “each occurrence” and a self-retention “in
the aggregate in any policy year,” again according to the type of occurrence
involved.49  Finally, the term “occurrence,” to which the limits relate, refers to
                                                                                                                  
Hercules argues that this Court should also find annual limits in policies issued by AmRe and Highlands,
which follow form to the North River Policies.  These insurers had argued this issue to the trial court before trial, but
they were ultimately dismissed from the case because their policies were found not to provide coverage by virtue of
the pollution exclusions.  Therefore, the trial court did not make a ruling on this issue as to the AmRe and Highlands
policies, and we do not address those policies in this Opinion.
49 This discussion therefore applies to the argument made by Allstate and American Home in separate filings that
Hercules’ $2 million self-retention should be annualized.  The trial court apportioned the self-retention under a pro
rata allocation formula.  In light of our holding on the allocation issue and the policy language discussed in this
section, the self-retention operates on a per occurrence not an annualized basis.
- 22 -
damage during the “policy period,” with the “period” defined as “15th
December, 1964 to 31st July 1970.”50  This language setting forth the occurrence
limits unambiguously provides for annual limits in some cases and per occurrence
limits in others.51
In an attempt to demonstrate that the limits are annual limits, Hercules
points to the fact that the premiums were paid in annual installments.  Based on
this and other “mechanics” of the policies,52 Hercules argues that its “multi-year
policies were essentially no different than a series of single-year policies,”
characterizing the policies as “annual joint ventures.”  The fact that payments
and certain other activities occurred annually does not establish that the liability
limits are annual.53  To so hold would be to rewrite the unambiguous contract
                                   
50 In the LMI policy, that is.  The Home policy covers the years 1968-1970.
51 See, e.g., CSX Transportation, Inc. v. Commercial Union Ins. Co., D.C. Cir., 82 F.3d 478,483 (1996) (“We are
satisfied that the language setting for the coverage limitations is plain…. The coverage limitation is devoid of any
language suggesting that ‘each occurrence’ should be read as ‘each occurrence each year.’”); Diamond Shamrock
Chemicals Co. v. Aetna Casualty & Surety Co., N.J. Super. App. Div., 609 A.2d 440, 468-69 (1992) (interpreting
similar language and rejecting annualized limits “where none of the excess policies contained a provision for
annualization or included an aggregate limit on liability”).
52 Hercules argues that “(1) the policyholder had to submit new underwriting information each year; (2) the insurer
could, after reviewing the information, decide to cancel the coverage at the annual renewal date; (3) the premium
could change each year; and (4) the insurers’ individual percentage of particpation… could and did change.”
53 See CSX Transportation, 82 F.3d at 483.  Similarly unavailing is Hercules’ reliance on an affidavit from a former
Hercules executive and trial testimony from LMI underwriters allegedly supporting Hercules’ position. This
evidence appears to have been admitted under a previous ruling of the trial court that the limits provisions of the
AmRE and Highland’s policies—not at issue here, as explained above—were ambiguous.  In its Post-Trial Opinion,
however, the trial court issued a definitive ruling that the language of the Home and LMI policies are unambiguous.
- 23 -
language, expanding coverage above the intended limits.  Similarly, the fact that
the policy defines the term “policy year” and refers in some provisions to annual
periods does not convert all limits into annual limits.  As noted above, limits for
certain types of occurrences were specified as annual limits. 54  This explains why
the policy refers to “policy years.”  The policy language cited by Hercules
pertaining to annual periods does not apply to all “occurrences.”55
The 1963-1964 Pollution Exclusions Bar Coverage
Policies sold to Hercules covering the period 1960-1964 and 1970-1980
contain pollution exclusions.  The pollution exclusion in the 1970-1980 policies is
known as NMA 1685.  As more fully explained below, this exclusion bars
coverage for pollution unless caused by a “sudden, unexpected and unintended”
happening.  Because the jury did not find that the property damage for which
Hercules was found liable was the result of a “sudden” or “abrupt” event,
                                                                                                                  
We find the language unambiguous as a matter of law.  See Pellaton v. The Bank of New York, Del. Supr., 592 A.2d
473, 478 (1991) ("The proper interpretation of language in a contract, while analytically a question of fact, is treated
as a question of law both in the trial court and on appeal.") (citing  Klair v. Reese, Del.Supr., 531 A.2d 219, 222
(1987) (citations omitted)). Therefore we will not consider the extrinsic evidence Hercules relies on.  See id. (noting
that extrinsic evidence should not be considered unless a contract is uncertain in its meaning or application).
54 To the extent Hercules argues that there is a relationship between policy “mechanics” and limits, this might also
explain why the mechanics described by Hercules operate on an annual basis.  Some limits, but not all, are annual.
55 In its Reply Brief, Hercules argues that Home should be judicially estopped from arguing against annual limits,
because at trial it sought (and received) the jury verdict form requiring the jury to determine whether property
damage occurred within each policy year covered by Home’s multi-year policy.  As we have discussed above,
however, this relates to whether a policy is triggered, not to coverage limits.
- 24 -
coverage was barred for those years.56  The pollution exclusion in the 1963-1964
policies is known as NMA 1333 and is not identical to NMA 1685.57  The trial
court ruled on summary judgment, however, that NMA 1333 is functionally
equivalent to NMA 1685,58 thus barring Hercules from attempting to prove
coverage for those years on a separate basis.  Hercules argues that the trial court
erred in not instructing the jury that the NMA 1333 exclusion could provide
coverage in instances where the NMA 1685 exclusion does not.  Thus, Hercules
argues that it was erroneously deprived of potential coverage for the years 1963-
64.
The analysis begins with NMA 1685, which this Court interpreted in E.I.
du Pont de Nemours & Co. v. Allstate Ins. Co. (“Allstate II”).59  NMA 1685
excludes coverage for property damage caused by “seepage, pollution or
contamination” except:  “Where such seepage, pollution or contamination is
caused by a sudden, unintended and unexpected happening during the period of
Insurance.”
                                   
56 See Final Judgment Order, at 3-4.
57 “NMA” refers to the Lloyd’s Non-Marine Association, which drafted these exclusions.
58 Based on this ruling and certain submissions to the trial court made by Hercules we reject the insurers’ assertion
that Hercules has waived its right to appeal this issue by not raising it below.
59 Del. Supr., 693 A.2d 1059 (1997).
- 25 -
We held that the term “happening” refers to a causative event; in the terms
of the exclusion, a sudden, unintended, and unexpected event causing seepage,
pollution or contamination.60  “In essence, the term ‘happening’ is the cause and
the ‘seepage, pollution, or contamination’ is the effect.”61  This defeats the
argument, made by the insureds in Allstate II, “that the migration of
contaminants, and not DuPont’s routine discharges into the environment, caused
the contamination….”62  Under NMA 1685 the insured cannot argue that seepage
itself is a covered event, without showing that the migration of contaminants
(i.e., seepage) was caused by a “sudden, unexpected and unintended happening.”
The holding in Allstate II was based on the unambiguous language of NMA
1685.63
NMA 1333, like NMA 1685, excludes coverage for property damage
caused by “seepage, pollution or contamination…  [u]nless such seepage,
pollution, or contamination is caused by a sudden, unintended and unexpected
                                   
60  Allstate II, 693 A.2d at 1061-62.
61 Id. at 1062 (quoting the trial court’s analysis).
62 As the trial court explained, “The term ‘happening’ in the exception to NMA 1685 refers to the initial discharge of
contaminants into the environment.”  E.I. du Pont de Nemours and Co. v. Admiral Ins. Co., Del. Super., 711 A.2d
45, 64-65 (1995) (containing the opinion of the trial court that we affirmed in Allstate II).  Viewing the migration of
contaminants as the “cause” of the seepage, pollution or contamination would render the exclusion meaningless.
See  id. at 65 (“The running streams’ currents carried the chemicals away from the point of the initial discharge to
contaminate other property; however, it not reasonable to focus on the stream’s current as the cause of the pollution
in order to interpret the exception to the pollution exclusion.”).
63 Allstate II, 693 A.2d at 1061.
- 26 -
happening during the period of this Insurance.”  But NMA 1333 goes on to
provide:
but this paragraph (3) shall not be construed as excluding any
liability which would otherwise be covered under this Insurance for
property damage caused by a sudden, unintended and unexpected
happening during the period of this Insurance arising out of seepage,
pollution or contamination.
The first paragraph quoted above is identical to the exception to the
exclusion found in NMA 1685.  The issue in this case is the effect of the second
clause, which the trial court referred to as “the exception to the exception.”
We are not required to decide whether these differently worded exclusions
provide identical coverage in all cases.64  Hercules’ assignment of error in this
case is based on an untenable reading of NMA 1333 which could not lead to
coverage on any theory it proposes.  Therefore, we find no error in the trial
court’s treatment of the two exclusions as functional equivalents when it
instructed the jury in this case.
NMA 1333 begins by excluding coverage for damage caused by seepage,
pollution, or contamination.  Next, the first paragraph of NMA 1333 makes an
exception to the exclusion where the seepage, pollution, or contamination is
caused by a sudden, unintended, and unexpected happening.  Therefore, just like
                                   
64 See Phillips Home Builders, Inc. v. The Travelers Ins. Co., Del. Supr., 700 A.2d 127, 129 (1996) (noting that
proper interpretation requires giving “full effect to all of the contract language”).
- 27 -
NMA 1685, NMA 1333 unambiguously requires that the damage for which
coverage is sought have been caused by a “sudden, unintended, and unexpected”
happening.  The plain language65 of the “exception to the exception” then
provides coverage for damage caused by a sudden, unintended, and unexpected
happening if the happening itself is caused by seepage, pollution, or
contamination.
Hercules, however, advances an interpretation of the “exception to the
exception” that does not comport with its plain language:
That language surely should be read to mean that a happening, such
as damage to groundwater that was caused by seepage, pollution or
contamination at the site, is covered to the extent that the pollution
damage to the groundwater is sudden, unintended, and unexpected.
Such a scenario is completely different from the operation of the
form NMA 1685, as construed by this Court in DuPont, when this
Court required the cause of the pollution to be sudden, unintended
and unexpected.  Indeed, form NMA 1333 specifically provides for
coverage of property damage when the cause is seepage, pollution or
contamination.66
This reading is untenable because, as stated explicitly in the last sentence
of the above excerpt, it allows coverage for seepage, pollution, or contamination.
It does so on the theory that the migration of a molecule of contaminant into
                                   
65 We do not agree with Hercules that NMA 1333 is “so profoundly ambiguous as to be incomprehensible.”  We
decline to consider the extrinsic evidence offered by Hercules consisting largely of drafting history and minutes of
the Special Committee of the Lloyd’s Underwriter’s Non-Marine Association pertaining to NMA 1333.
66 Appellant’s Opening Brief at 45.
- 28 -
groundwater is a happening that causes damage.  Hercules argues:  “[T]he jury
also reasonably could have found that when the pollution first came in contact
with third-party property, such as groundwater, such a ‘happening’ was abrupt.”
As explained above, however, the “contact” is not a happening.  The migration
of contaminants is seepage, and cannot be parsed out to be either a cause or an
effect of seepage.  Allowing coverage for the migration of contaminants on the
theory proposed by Hercules would vitiate the entire exclusion and is inconsistent
with the plain meaning of its provisions as interpreted by this Court.  Therefore,
the jury was properly instructed on the meaning of NMA 1685 and NMA 1333.
Failure to File Certain Exclusions with Delaware Insurance Commissioner
Before trial, Hercules filed a motion styled as a motion in limine seeking to
preserve the ability to “present factual evidence to the jury to prove that the
North River JU policy provisions, including form NMA 1685 had not been filed
[with the Delaware Insurance Commissioner].”67  The trial court rejected this
motion on several grounds.  First, Hercules’ motion in limine was in reality a
motion for summary judgment and hence untimely under the scheduling order.68
                                   
67 The filing requirement is codified at 18 Del. C.§ 2712(a).  Although North River Insurance Co. has settled with
Hercules, certain policies issued for the years 1973-1980 follow form to the North River policy.
68 A “Case Management” order dated November 4, 1996 required motions for summary judgment and partial
summary adjudication to be filed by April 30, 1997.  Hercules’ “motion in limine” was filed on January 20, 1998.
Trial started on January 21.
- 29 -
Second, filing of NMA 1685 is not required.  Third, even if filing were required,
the exclusion would be enforced under the savings provision in the statute69
because it was not against public policy.  Fourth, the insurance commissioner had
not sought to contest the provision’s validity and “it would be inappropriate to
attempt to vindicate the law through a one-sided application of the statute.”
The Superior Court’s denial of Hercules’ “motion in limine” regarding the
NMA 1685 pollution exclusion on the ground that it was untimely under the
operative case management order is reviewed for an abuse of discretion.70  Under
Super. Ct. Civ. R. 16(e), pretrial orders “shall control the subsequent course of
the action.”71  Pretrial orders “shall not be modified except by leave of the Court
upon a showing of good cause.”72  We review de novo the trial court’s initial
determination that the motion in limine was actually a motion for summary
judgment.73
                                   
69 See 18 Del.C. § 2718.
70 See McLain v. General Motors Corp., Del. Supr., 569 A.2d 579, 582 (1990).
71 Super. Ct. R. 16(e); Cebenka v. The Upjohn Co., Del. Supr., 559 A.2d 1219, 122-23 (1989).
72 See Super. Ct. R. 16(b)(5); cf. McLain, 583 A.2d at 581-82 (holding that the trial court did not abuse its discretion
under the Rule 16 “manifest injustice” standard when it granted a party’s motion to present new evidence on the first
day of trial, because the plaintiff had recently changed his theory of the case in a “significant way”).
73 Cf. Williams v. Geier, Del. Supr., 671 A.2d 1368 1375-76 (1996) (holding that this Court’s review of a summary
judgment determination is de novo).
- 30 -
We hold that the trial court’s characterizations of Hercules’ motion as a
summary judgment motion was correct as a matter of law.  Hercules styled the
motion as a “Memorandum of Law in Support of Hercules’ Motion in Limine on
North River’s Failure to Comply with the Delaware Insurance Code.”  The
motion states that North River “has admitted, for the first time, that North
River’s JU policy forms, including the NMA 1685 pollution exclusion language”
had not been filed with the Delaware Insurance Commissioner.  Hercules’ motion
therefore sought a ruling that “nothing in the Court’s [Summary Judgment
Opinion] precludes the presentation of evidence of North River’s violation of the
Delaware Insurance Code, thereby providing the basis for excluding these
exclusions from consideration by the jury.”  Hercules added, “this Court should
hold that Hercules is entitled to prove at trial that North River… fail[ed] to file…
and therefore the exclusions are unenforceable….” (emphasis added).
It will quickly be seen that this is not a motion in limine.  A motion in
limine typically concerns the admissibility of evidence and is a preliminary
motion directed at establishing the “ground rules applicable at trial.”74  In
contrast, a “summary judgment motion is a determination by the court
concerning a case or aspect of a case made prior to trial that obviates the need for
                                   
74 3 Moore’s Federal Practice § 16.77[4][d] (3d ed. 1997); 1033 Black’s Law Dictionary (7th ed. 1999) (defining
Motion in Limine as “a pretrial request that certain inadmissible evidence not be referenced at trial”).
- 31 -
trial of the matter.”75  In that sense it is not preliminary; it is dispositive of a
substantive legal issue.  With this in mind, the trial court was correct that
Hercules’ motion was in reality a motion for summary judgment or partial
summary adjudication.  There was no dispute about whether the exclusion was
filed.  The parties agreed that it was not.  Therefore the question was an entirely
legal one concerning the effect, if any, of the failure to file NMA 1685.
Contrary to the language in the motion, there was no issue for the jury to decide
and therefore no evidentiary issue.
Hercules next argues that it should be relieved of any violation of the Case
Management order because North River’s admission of its failure to file, which
was made in a submission to the trial court on December 24, 1997, was “newly-
discovered information.”76  Hercules argues that before this admission it “could
not show” that North River had failed to file.77  The insurers argue that
“Hercules has been intimately involved with litigating the validity of the NMA
1685 pollution exclusion for years” and was on notice of the failure to file.
                                   
75 11 Moore’s Federal Practice at § 56.02 (emphasis added).
76 See McLain, 583 A.2d at 582 (holding that trial court’s modification of pre-trial orders was not an abuse of
discretion).
77 Similarly, an affidavit attached to its briefing on this issue in the trial court avers that before North River’s
admission Hercules “did not have proof” of the failure to file.
- 32 -
Based on the record submitted to this Court by Hercules, we hold that the
trial court did not abuse its discretion in ruling Hercules’ motion untimely under
its previous order.78  Hercules’ previous involvement as an amicus curiae in
litigation over the exclusion is not disputed.  Previous case law available within
the relevant deadline (and concerning the case in which Hercules was involved)
gave some indication that NMA 1685 was not filed in Delaware.79  We pay
particular attention to Hercules’ admission that it had “asked the Delaware
insurance regulators about the… exclusion” but were told that the regulators
“were unable to ascertain” whether a filing had taken place because it did not
keep the relevant records.  On these facts, the trial court could reasonably
conclude that Hercules was not unfairly surprised by North River’s admission
and could not show cause for filing its motion on the eve of trial.80  We cannot
                                   
78 Our review of this issue is hampered by the fact that the trial court, in its bench ruling, did not discuss Hercules’
contention that it was reacting to “newly-discovered information.”  Obviously, in ruling the motion untimely, the
trial court implicitly rejected this assertion.  Our ruling, however, is based on undisputed facts and the arguments
submitted by Hercules.
79 See E.I. du Pont de Nemours & Co. v. Admiral Ins. Co., Del. Super., C.A. No. 89C-AU-99, 1996 WL 769627,
Steele, J. (Dec. 24, 1996) (Mem. Op.), aff’d sub nom. E.I. du Pont de Nemours & Co. v. Allstate Ins. Co. Del. Supr.,
693 A.2d 1059 (1997) (“Du Pont agrees that no filings were made in Delaware regarding the NMA 1685 exclusion.
Pl.'s Mem. Addressing Supr. Ct.'s Remand Order at 8. The State agrees that NMA 1685 was neither filed nor
required to be filed in Delaware. Brief of Amicus Curiae State of Del. in Sup. of Appellant at 11 n.7 ("Amicus
Brief").”)  This statement, however, does not indicate that North River was not required to file the exclusion.
80 Cf. E.I. du Pont de Nemours & Co., Del. Super., No. 89C-AU-99, 1995 WL 465148 at * 2, Steele, J. (July 11,
1995) (Mem. Op.) (extending discovery deadline where “no party knew or had reason to believe that” a witness still
lived).
- 33 -
say that the trial court abused its discretion in declining to modify its case
management order.
As an alternative ground, we agree with the trial court’s holding that under
the circumstances of this case it would be improper and inequitable to void NMA
1685 in the circumstances present here.81  Since North River has settled, voiding
the exclusion could affect only the several excess following form insurers, whom
Hercules does not contend were required to make a filing.  Assuming this effect
(which the following form insurers dispute on various grounds), Hercules would
receive millions of dollars of coverage for which it had not bargained.  Most
important, extensive litigation over NMA 1685 has resulted in definitive
interpretations of the pollution exclusion, which we have determined is
“unambiguous”82 and not contrary to public policy.83  Accordingly, there is little
                                   
81 We express no opinion, however, regarding the trial court’s holding that filing was not required to begin with.
82 Allstate II, 693 A.2d at 1061-62; see also E.I. du Pont de Nemours and Co. v. Admiral Ins. Co, Del. Super., 711
A.2d 45, 62 (1995) (“Therefore, the exceptions to the pollution exclusions are clear and unambiguous.”).
83 Allstate II, 693 A.2d at 1062.
- 34 -
basis for invalidating NMA 1685.84  Under these unique circumstances, we
decline to invalidate NMA 1685 notwithstanding North River’s failure to file.
Recovery of Costs Relating to Incineration of Barrels of Waste
When Vertac abandoned the site, it left behind 29,000 barrels containing
hazardous materials.  The EPA had the barrels repacked, but later determined
that incineration was necessary.85
Hercules contends that the trial court erred when it granted summary
judgment for the insurers on whether Hercules could recover for costs incurred in
connection with the EPA-ordered incineration of the more than 29,000 drums of
waste.  The trial court excluded coverage based on its conclusion that these costs
                                   
84 See Clark Equipment Co. v. Liberty Mutual Ins. Co., Del. Super., C.A. No. 89C-10-173-VAB, Bifferato, J.
(February 7, 1997) (Let. Op.) Let. Op. at 3 (upholding endorsement that had not been shown to be approved because
it was “valid and unambiguous”; applying Michigan law).  In a similar context in the DuPont litigation, the Superior
Court explained why NMA 1685 should be enforced notwithstanding the State’s argument that regulatory estoppel
should apply because of allegedly misleading representations insurers had made concerning the application of NMA
1685:
The State can have no regulatory interest in policy language never required to be submitted for
approval by its regulators. To put it differently, the State implicitly has already indicated its lack
of interest in the interpretation of NMA 1685 by its decision to exempt NMA 1685 from the
regulatory process.
Moreover, the general policy considerations undergirding the regulatory process are not implicated
here either. In particular, through its insurance regulatory process the State seeks to protect the
public generally from the take-it-or-leave-it policies offered by the industry. But no such interest is
present where, as here, the insured bargained for and received the particular language of the
policy.
E.I. du Pont de Nemours & Co. v. Admiral Ins. Co., Del. Super., C.A. No. 89C-AU-99, 1996 WL 769627 at *
2, Steele, J. (Dec. 24, 1996) (Mem. Op.), aff’d sub nom. E.I. du Pont de Nemours & Co. v. Allstate Ins. Co.
Del. Supr., 693 A.2d 1059 (1997).
85 See United States v. Vertac, E.D. Ark., 33 F.Supp.2d 769, 772 (1998).
- 35 -
were incurred for preventative measures.  Alternatively, the trial court found that
“owned property” and pollution exclusions barred coverage.  Because we agree
that the costs associated with incinerating the barrels were for preventative
measures, we affirm.  We need not, and do not, address whether the “owned
property” and pollution exclusions would also bar coverage.
This Court must determine “whether the record shows that there is no
genuine, material issue of fact and the moving party is entitled to judgment as a
matter of law.”86  This Court’s review is “de novo, not deferential, both as to the
facts and the law.”87  “The facts of record, including any reasonable hypotheses
or inferences to be drawn therefrom, must be viewed in the light most favorable
to the non-moving party.”88
As described above, Hercules purchased the Jacksonville Site in 1961.  In
1976, the site was purchased by Vertac Chemical Corp.  Vertac owned and
operated the site until 1987, when it abandoned the site due to bankruptcy.89     
                                   
86 Williams v. Geier, Del. Supr., 671 A.2d 1368, 1375 (1996) (citing Arnold v. Society For Sav. Bancorp, Del. Supr.,
650 A.2d 1270, 1276 (1994)).
87 Id.
88 Id. (citing Bershad v. Curtiss-Wright Corp., Del. Supr., 535 A.2d 840, 844 (1987)).
89 See United States v. Hercules, Inc., 8th Cir., 247 F.3d 706, 711-13 (2001).
- 36 -
From 1961 until 1986, manufacturing processes at the plant produced
several hazardous wastes, including dioxin. In 1964 Hercules began storing the
dioxin in solid form in steel drums that were buried in a landfill on the site.90
This practice continued until 1975, at which time Vertac began storing the waste
in barrels above ground at the site with the hope that it might someday be
recycled.  Most of the waste that was the subject of the incineration efforts was
accumulated between 1979 and 1986, when Hercules had no involvement with
the site.91
In 1987, after Vertac had abandoned the site,92 EPA initiated a removal
action because “the wastes on the site posed a threat to public health and welfare
and the environment.”93  Eventually, the EPA ordered incineration of the barrels,
a lengthy and multi-layered process that accounts for most of the $100 million
incurred thus far in cleaning up the site.94  As explained earlier, Hercules was
initially found liable to the United States government for almost all of these costs,
                                   
90 See United States v. Vertac Chemical Corp., E.D. Ark., 489 F.Supp. 870, 875 (1980).
91 See United States v. Vertac Chemical Corp., E.D. Ark., 79 F.Supp.2d 1034, 1035-36 (1999).
92 The district court noted that Hercules was “left ‘holding the bag’ for Vertac, who at least arguably caused the
greatest amount of harm.”  Id. at 1036.  The court also noted that Hercules had shown concern for the safety and
cleanliness of the site, stating, “[T]here is no doubt that Hercules’ safety and environmental programs are to be
commended.” Id. at 1040.
93 See United States. v. Vertac Chemical Corp., E.D. Ark., 33 F.Supp.2d 769, 772 (1998).
94 See id. at 884-775 (describing steps taken to incinerate barrels).
- 37 -
but the Eighth Circuit recently reversed and remanded the judgment against
Hercules.95  Thus the full extent of Hercules’ current and future liability is not
yet clear.
These facts are preliminary to the issue whether the trial court erred in
granting summary judgment to the insureds on the ground that Hercules’ costs
were incurred for non-covered preventative measures.  Under Delaware law,
coverage is excluded for preventative measures even in the absence of a
mitigation clause in the insurance policies.96  “Strong public policy concerns”
favor placing a duty on insureds to act before environmental damage
accumulates, rather than allowing insureds to recover under their policies after
pollution has already occurred.97  Moreover, the “duty to mitigate gives meaning
to the distinction between sums expended for prevention and those expended
‘because of property damage.’”98  Coverage is available for sums spent for
“remediating property damage” but not for sums spent to “prevent further
                                   
95 See United States v. Hercules, Inc., 8th Cir., 247 F.3d 706 ( 2001).
96 E.I. du Pont de Nemours & Co. v. Allstate Ins. Co., Del. Supr., 686 A.2d 152, 156 (1996) (“Allstate I”); Rhone-
Poulenc Basic Chemicals v. American Motorists Ins., Del. Supr., 616 A.2d 1192, 1197 (1992).
97 See Rhone-Poulenc, 616 A.2d at 1197.
98 See Allstate I, 686 A.2d at 156 (citing Rhone-Poulenc, 616 A.2d at 1197).
- 38 -
damage.”99  The issue in this case is whether the barrel incineration operation
was remedial or preventative.
Cases examining this distinction provide useful guidance.  In New Castle
County v. Hartford Accident and Indemnity Co,100 the underlying claims against
the insured were for three remedies:  “(1) compensation for injury suffered by
the respective plaintiffs; (2) injunctive relief forcing the County to cleanup the
contaminants released by the landfill, or compensation for costs expended by
plaintiffs to do the same; and/or (3) injunctive relief forcing the County to take
the actions necessary to prevent the further release of contaminants from the
landfill, or compensation for the costs incurred by the plaintiffs in doing the
same.”101  The court held the insurer liable for the first two categories of costs,
but denied coverage for the last category, which were “essentially the costs
required to remedy those ‘faults’ in the landfills which lead to the release of
contaminants.”102  Turning to the specifics of the underlying complaints, the
court held that costs sought for “(1) covering and grading of the landfill; (2)
                                   
99 Id.  Hercules argues that this rule does not apply here because it is not a “wrongful insured,” having been saddled
with a mess created primarily by Vertac.   Hercules cites Wise v. Western Union Telegraph Co., Del. Super., 181 A.
302 (1935) and Slay Warehousing Co. v. Reliance Ins. Co., 8th Cir., 471 F.2d 1364 (1973).  These authorities do not
support its argument.
100 D. Del., 685 F.Supp. 1321 (1988).
101 Id. at 1331-32.
102 Id. at 1332.
- 39 -
digging a drainage ditch around the landfill; and (3) treatment of the leachate
prior to its discharge into [a creek]” were all excluded preventative measures.103
The court found coverage for costs for “removal of escaped contaminants,104 but,
significantly, excluded coverage for costs “for cleanup of the landfill to prevent
the future escape of contaminants.”105
In this case, the federal court opinions in the underlying litigation could not
be clearer that the reason why the barrels were repacked and then incinerated was
the immediate threat of future harm.106  As noted by the federal district court, the
still bottom wastes had already been stored in barrels, which were “stored in
deteriorated sheds, on uncurbed concrete pads, and in open fields,” with some of
                                   
103 Id.
104 Id. (emphasis added).
105 Id. (emphasis added).  Similarly, in Rhone-Poulenc, coverage was denied for “the cost of measures taken to
prevent the further release of contaminants from a landfill.”  616 A.2d at 1198.  In that case, “[t]he sludge was
transported to the landfill in open 55-gallon drums and was poured directly into the ground.”  Id. at 1194.  See also
The Boeing Co. v. Aetna Cas. and Surety Co., Wash. Supr., 784 P.2d 507, 515-16 (1990) (distinguishing, in
hypothetical example, between Tank # 1 that has already leaked and Tank # 2 that “could eventually leak unless
corrective measures are taken;” stating that Tank 1 costs are covered but not Tank 2 costs).
106 See United States. v. Vertac Chemical Corp., E.D. Ark., 33 F.Supp.2d 769, 772-775, 783-75 (1998).  For
example, explaining why the EPA intervened to complete the incineration, the court found :  “EPA determined that
an imminent threat to the community existed given that over 16,000 drums remained containing highly corrosive
and hazardous wastes.”  Id. at 774. See also id. at 783 (“The action memoranda reveal that before the drums were
stabilized EPA was concerned with the risk of fire and explosion, tornadoes, exposure of nearby residents, and the
environment to the hazardous substances, and the release of contaminants to the soil.  These threats, and EPA’s
concern, continued even after completion of the drum stabilization.  According to EPA, the mere presence of the
drums posed threats of fire and explosion and release of hazardous substances to nearby residents.”) (emphasis
added); id. at 784 (“In sum, the Court finds that the EPA appropriately performed the response action as a series of
removal actions to mitigate the imminent threat posed by the leaking drums.  The administrative record adequately
documents the continuing risk to human health and the environment of the drummed wastes.”); Arkansas Peace
Center v. Arkansas Dept. of Pollution, 8th Cir., 999 F.2d 1212, 1214 (1993) (“The memorandum emphasized in
several statements the risk of exposure to nearby populations….”); id. at 1214 (“The EPA overpacked the drums and
placed them in temporary storage to mitigate hazards the deteriorating drums posed.”).
- 40 -
the drums “stacked three high on deteriorating wooden pallets.”107  As in New
Castle County, the wastes have been already been stored.  The incineration
actions are essentially the same as actions taken to clean up a landfill or dig a
drainage ditch around a landfill to prevent further contamination.  Hercules is
simply paying for “the costs required to remedy those ‘faults’” in the current
containment scheme that threaten nearby areas.108  The storage of the wastes in
barrels is analogous to storage in a landfill.  Hercules has a duty to pay for
measures taken to ensure safe disposal or safekeeping of waste that has already
been stored but threatens to cause future damage.
Hercules argues that there is a factual dispute regarding the nature of the
incineration costs, precluding summary judgment.  We disagree.  What is at issue
is not a factual dispute, but the legal conclusion to be drawn from the undisputed
facts.  For example, Hercules argues that a jury could find that the incineration
costs were cleanup costs because “the incineration cleaned or neutralized the
hazardous material in the double-packed Vertac barrels by destroying all
significant traces of dioxin that may have been contained in them.”  In a slightly
different vein, Hercules argues that a jury could find that “the mere presence of
                                   
107 Vertac, 33 F.Supp.2d at 772.
108 New Castle County, 685 F.Supp. at 1332.
- 41 -
those barrels… constituted property damage to the Vertac real estate,” and that
therefore the incineration “restored the damaged property of a third party,
Vertac, even though (as is usually the case with repair of existing property
damage) it had the collateral effect of preventing further third-party injury.”
Hercules also claims that “[O]nce the materials in the Vertac drums and the soils
those drums had contaminated were double-packed into the secure Vertac barrels
and warehoused, any threat of leaking or causing further third party property
damage was eliminated.”
These arguments are at odds with the undisputed facts.  As demonstrated
above, the EPA cleanup for which the United States has sought to hold Hercules
liable was overwhelmingly—not collaterally—concerned with removing the
danger of future harm to nearby populations posed by the conglomeration of
barrels.109  It was certainly not a matter of restoring the soil in the barrels, as
Hercules argues.  Based on the undisputed facts, any restorative effect to third-
party property was incidental to the preventative purposes of the incineration.
                                   
109 See Vertac,  33 F.Supp.2d at 772 (“EPA determined that the wastes on the site posed a threat to public health and
welfare and the environment.  Resident in the area could be exposed to hazardous substances and should a large
release occur, in the event of a tornado, fire, or continued poor maintenance, the toxic waste would contaminate the
environment.”); id. at 773-73 (“The Regional Administrator determined that immediate federal removal action was
necessary to complete the incineration and there was the risk of exposure to the population by the threat of release,
fire or explosion if the waste was not incinerated.”); see also New Castle County, 685 F. Supp. at 832 (excluding
coverage for sums spent to clean landfill to prevent escape of contaminants).
- 42 -
Home Defense Costs
In its Post, Post-Trial Opinion, the Superior Court held that Home is not
required to cover Hercules’ defense costs.110  The Superior Court relied on the
plain language of Home’s Ultimate Net Loss provision, which defines Ultimate
Net Loss as:
the amount payable in settlement of the liability of the Insured after
making deductions for all recoveries and for other valid and
collectible insurances, excepting however the policy(ies) of the
Primary Insurer(s) and shall exclude all expenses and Costs.
“Costs” are defined as:
interest accruing after entry of judgment, investigation, adjustment
and legal expenses (excluding, however, all office expenses of the
Insured, all expenses for salaried employees and general retainer
fees for counsel normally paid by the Insured).
Hercules argues that this language is ambiguous, because it appears to
exclude legal expenses from coverage, but then, by virtue of the parenthetical
exception in the definition of costs, includes as covered general retainer fees for
legal counsel and other expenses.  Hercules argues that the exclusion of “legal
expenses” and the inclusion of “general retainer fees for counsel normally paid
by the Insured” are in conflict, and that the provisions must be read in its favor
                                   
110 The Superior Court implicitly rejected Hercules’ argument that the Home policy follows form to the LMI policy
and must provide the same coverage that the LMI policy would provide.  We hold that the Home policy does not
incorporate by reference the same terms as the LMI policy with respect to defense costs.  Rather, by its terms, “the
Home policy controls Home’s obligations if there is any conflict between the two insuring agreements.”  Home Ins.
Co. v. American Home Products, 2d Cir., 902 F.2d 1111, 1113 (1990).
- 43 -
to include defense costs.111  Hercules argues that an interpretation that flatly
excludes defense costs necessarily disregards the parenthetical, instead of
properly giving effect to all of the language in the insurance contract.
We have concluded that the under the plain language of the provision at
issue there is no coverage for the defense costs sought by Hercules.  This is a
result supported by substantial authority.  In Continental Casualty v. Pittsburgh
Corning Corp.,112 the Seventh Circuit explained that the seeming inconsistency in
the language is “easily solved” by reading the parenthetical not as an exception to
the exclusion, but as a result of “modular” drafting of insurance contracts by
virtue of which not just outside “legal expenses” but also associated in-house
legal expenses are excluded.113  Interpreting identical language, the Second
Circuit has likewise held, “We agree with Home’s interpretation that post-
judgment interest and legal expenses (in particular outside counsel fees) are
                                   
111 Hercules does not embrace a reading of the provision that would simply provide coverage for “general retainer
fees,” perhaps because, in the language of the provision itself, all agree that such fees are “normally paid by the
Insured” and Hercules did not contract otherwise.  In any event, Hercules seeks coverage for “defense costs” without
qualification, not merely some subset of costs defined as “general retainer fees.”
112 See Continental Casualty Co. v. Pittsburgh Corning Corp., 7th Cir., 917 F.2d 297, 298-99 (1990).
113 Id. at 299. Thus, in contracts where the insured purchased coverage for legal expense, the exclusion was intended
to limit coverage by allocating inhouse legal costs to the insured.  But where, as in this case, legal expenses are
excluded, the parenthetical does not provide coverage for those inhouse costs.  See id.
- 44 -
excluded under the plain language of the policy.”114  We are persuaded by the
analysis in these cases that the defense costs are not covered.
We are not persuaded by Hercules’ attempt to create ambiguity in the
provisions at issue.  An ambiguity exists when the contractual provisions are
“reasonably or fairly susceptible” of different interpretations or two different
meanings.115   Both interpretations must be reasonable. 116  The provision at issue
is not a model of drafting.  Nevertheless, the only reasonable interpretation of the
language is that it excludes coverage for defense costs.
The argument that the provisions are inconsistent appears to rest on the
premise that the excluded “legal expenses” and the seemingly included “general
retainer fees” are the same or substantially the same set of expenses.117  Hercules
offers an alternative reading of the provision in order to deal with this perceived
                                   
114 Home Ins. Co. v. American Home Products, 2d Cir., 902 F.2d 1111, 1114 (1990).
115 Rhone-Poulenc Basic Chems. Co. v. American Motorist Ins. Co., Del. Supr., 616 A.2d 1192, 1196 (1992).
116 Phillips Home Builders, Inc. v. Travelers Ins. Co., Del. Supr., 700 A.2d 127, 130 (1997) (“We conclude that the
policy language at issue is ambiguous.  Both sides offer reasonable, though problematic, interpretations of
provisions that lack consistency and specificity.”).
117 See Continental Casualty, 917 F.2d at 298-99 (“But the parenthetical, to begin with it, carves out of ‘legal
expenses’ the expense of ‘retained counsel,’ and most of the defense costs incurred by defendants… are the legal
fees of the counsel whom they have ‘retained’ to defend them…. Yet if the term ‘retained counsel’ is read as broadly
as this, the exclusion of ‘legal expenses’ from the coverage of the policy will have no force, since there are few legal
expenses that cannot be fitted within ‘all expense for retained counsel of the insured.’”); Affiliated FM Ins. Co. v.
Owens-Corning Fiberglas Corp., 6th Cir., 16 F.3d 684, 687 (1994) (stating that it is “incongruous” to carve out
expenses for retained counsel from the exclusion for legal expenses).  Cf. id. (“The parenthetical does not contradict
the other provision in the policy but it nevertheless creates an ambiguity.”); Rohm and Haas Co. v. Continental Cas.
Co., Pa. Ct. C.P., No. 3449, slip. op. at 8, Jaffe, J. (Philadelphia County, Dec. 30, 1996).
- 45 -
inconsistency.  Under its alternative, the “Ultimate Net Loss” provision
determines whether the coverage falls within the “Ultimate Net Loss” limits.
Hercules argues that “only ‘Ultimate Net Loss’ payments—that is, settlements or
judgments, exhaust the limits of the Home policy,” whereas “expenses and costs
are covered outside of the Home policy’s Ultimate Net Loss limits, except for
Hercules in-house costs and general retainer fees that are not covered.”  Thus,
some legal expenses are covered but do not erode the policy limits, but general
retainer fees are not covered at all.
Hercules offers no convincing support for its reading in the terms of the
contract itself.118  There are cases that support Hercules’ position that the
language is ambiguous, and which consequently find coverage, but those cases do
not embrace its alternative interpretation of that language.119  We find that
Hercules’ interpretation makes little sense.  For example, it presupposes a
practical distinction between “legal expenses” and “general retainer fees.”
Hercules argues that latter are not covered at all and the former are covered
outside the “Ultimate Net Loss” limits.   If this distinction is a sound one,
                                   
118 See Home Ins., 902 F.2d at 1114 (rejecting identical argument, noting that “[t]here is no explicit support in the
text of the Home policy for AHP’s construction of this key definition”).
119 See Affiliated FM, 16 F.3d at 687 (“[R]emand[ing] for consideration of extrinsic evidence as to the parties’ intent
regarding coverage of defense costs….” ), Rohm and Haas Co. v. Continental Cas. Co., Pa. Ct. C.P., No. 3449, slip.
op. at 7, 8, Jaffe, J. (Philadelphia County, Dec. 30, 1996) (finding “the policy language to be inconsistent” and
construing against the insurer “in the absence of clear and convincing evidence to the contrary”).
- 46 -
however, as explained above there is no ambiguity in the provision to begin with:
it simply defines costs as including “legal expenses” and excluding “general
retainer fees.”  Under this reading, there is no need to posit that the provision
does not have to do with coverage.  In any event, as noted above, Hercules is not
seeking “general retainer fees” (or, for that matter, “expenses for salaried
employees,” which are also addressed in the parenthetical.)
Furthermore, Hercules’ explanation of the parenthetical is inconsistent with
its focus on ultimate net loss limits.  As noted above, it proposes that the costs in
the parenthetical are not covered at all.  But it could just as easily be argued that
the costs excluded in the parenthetical are covered but are treated differently
simply in that they are subject to the Ultimate Net Loss limits.  Hercules’
argument, after all, is that the definition of costs operates not to create or deny
coverage but to determine whether limits are eroded.  Under this theory (which
we reject based on the plain language of the provision), a natural reading of the
parenthetical would be that the “general retainer fees” are covered, and are
treated differently only in that they do erode the policy limits.  Yet, Hercules
reads the parenthetical as an exclusion of coverage.120
                                   
120 Again, Hercules appears to be struggling to avoid a reading under which, for example, employee salaries are
covered.
- 47 -
Hercules has not advanced a coherent interpretation of the provision at
issue sufficient to create ambiguity.  As explained above, the only reasonable
interpretation of the language is that defense costs are not covered.
Prejudgment Interest
In its Post-Trial Opinion, the trial court held that prejudgment interest did
not begin to accrue until Hercules filed its comprehensive coverage action in
October 1992.  The trial court held that the payment was not due until actual
demand was made.121  The trial court concluded that no demand was made until
the complaint was filed.
Hercules argues that sufficient “notice” was given to insurers before that
time and that interest accrues “after Hercules had given notice to its insurers,
exhausted its $2 million dollar self-retention, and exhausted any underlying
coverage for a particular year.”  Hercules argues that this occurred between 1984
and 1987 for the various policies.122  Hercules argues, in essence, that an explicit
request for payment was not required in this case and that its notices were
                                   
121 In this connection, the trial court also found that “Loss Payable” clauses in the policies require a “definite
demand.”  We do not address whether reliance on this clause was proper in the context of calculating prejudgment
interest.  Since no demand was made until the complaint was filed, Citadel controls and the application of this policy
language is unnecessary.
122 In addition to rejecting this argument on the ground that no demand had been made by this point, the trial court
reasoned that Hercules could not choose these dates as the date of defendant’s breach for the purposes of calculating
interest yet choose a later date for the purpose of tolling the three-year statute of limitations in contract cases.  The
trial court reasoned that if breach occurred in 1986 then Hercules’ complaint filed in 1992 would be time-barred.
Because we agree that no demand was made for the purposes of accruing interest until the complaint was filed, we
do not need address to this issue.
- 48 -
sufficient.  Its “notice” argument is based on various letters sent to the excess
insurers through its broker.  Some of these notices provide updates on pending
litigation and provide cost estimates.  Some of them state that there is “reason to
believe the claims were of such a magnitude that your policies could be
implicated” and further state, “Kindly direct your acknowledgment and coverage
determination to my attention as soon as possible.”  None of them makes a
request for payment of any sum.
A party is entitled to prejudgment interest running from the date payment
is due.123  The determination of the date when payment is due is a matter of law
subject to plenary review.124  “Where the underlying obligation to make payment
arises ex contractu, we look to the contract itself to determine when interest
should begin to accrue.”125  In Citadel, a case involving advancement of funds to
a former director of a corporation under an indemnification agreement with the
corporation, we held that “[u]nder this contractual scenario” interest should
accrue “from the date of demand.”  We noted that date to be the “date when [the
                                   
123 See Citadel Holding Corp. v. Roven, Del. Supr., 603 A.2d 818, 826 (1992).
124 See id.
125 Id.
- 49 -
director] specified the amount of reimbursement demanded and produced his
written promise to repay.”126
Although Hercules sent various forms of notice regarding potential
liability, Hercules does not contend that it ever made a demand.  In its Reply
Brief it argues that an explicit request for payment is not required, and that “the
facts in Citadel do not establish a rule of law that applies… when different
contract provisions apply.”  This argument must fail.  In this case, as in Citadel,
no payment was due until Hercules made an unequivocal request for payment.127
The trial court found that “Hercules consistently corresponded with Defendants
with respect to its potential, and building liability” and that Hercules notified its
insurance broker and certain defendants of liability actions filed against Hercules
in the 1980s.128  The trial court held that “it is not clear at what point” the
policies attached and that it was only with filing of the complaint that the insurers
“undeniably knew that Hercules was making a claim and undeniably decided not
                                   
126 Id. at 826, 826 n. 10.
127 See also Ripsom v. State, Del. Super., 1998 WL 32071, * 22, Poppiti, J. (April 26, 1988) (ORDER) (choosing the
date an amended complaint was filed to determine when interest began to accrue; citing cases supporting this view);
Cf. Moskowitz v. Mayor and Council of Wilmington, Del. Supr., 391 A.2d 209, 211 (1978) (“The prevailing rule in
those jurisdictions permitting recovery of interest, which we adopt, is that interest is awarded from the date the
taxpayer gave notice to the governmental entity that the taxpayer considered  the tax payment unlawful or improper.
The rationale underlying this rule is that money is not due and payable, and thus not in default, until there has been a
demand therefore.”) (citations omitted).
128 Post-Trial Opinion, at 21.
- 50 -
to pay.”129  Hercules points to nothing in the record that suggests that this view
was in error.   We hold that in this case payment cannot be said to have been due
until Hercules made a request for payment.
Allstate’s Cross-Appeal Concerning Denial of Attorney’s Fees and Costs
Allstate Insurance offered to settle with Hercules for $5,000.  Hercules
rejected the offer, and Allstate was subsequently dismissed from the suit.
Allstate now seeks to recover costs and attorneys fees under Superior Court Civil
Rule 68.130
Allstate’s argument must fail.  Rule 68 does not authorize an award of
costs unless the plaintiff obtains a judgment that is “not more favorable” than the
offer.  In Delta Airlines, Inc. v. August,131 the United States Supreme Court ruled
                                   
129 Hercules argues that the trial court erroneously required Hercules to make a demand for a “sum certain.”  This
issue is not before us, however, since Hercules did not make any request for payment.
130 Rule 68 provides:
At any time more than 10 days before the trial begins a party defending against a claim may serve
upon the adverse party an offer to allow judgment to be taken against the defending party for the
money or property or to the effect specified in the offer, with costs then accrued.  If within 10 days
after the service of the offer the adverse party serves written notice that the offer is accepted, either
party may then file the offer and notice of acceptance together with proof of service thereof and
thereupon the Clerk shall enter judgment.  An offer not accepted shall be deemed withdrawn and
evidence thereof is not admissible except in a proceeding to determine costs.  If the judgment
finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs
incurred after the making of the offer.  The fact that an offer is made but not accepted does not
preclude a subsequent offer.  When the liability of one party to another has been determined by
verdict or order or judgment, but the amount or extent of the liability remains to be determined by
further proceedings, the party adjudged liable may make an offer of judgment, which shall have
the same effect as an offer made before trial if it is served within a reasonable time not less than 10
days prior to the commencement of hearings to determine the amount or extent of liability.
131 450 U.S. 346, 350-56 (1981).
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that where, as here, the plaintiff obtains no judgment from the defendant seeking
costs (i.e., judgment is for the defendant), Rule 68 does not apply.132  This is true
even when the plaintiff obtains a judgment from defendants other than the one
whose offer is rejected.133  Even if Rule 68 were to apply, it does not authorize
recovery of attorneys fees.134
Conclusion
The ruling of the trial court applying modified pro rata allocation to
determine liability is reversed, and the Final Judgment Order is vacated.  We
affirm the rulings of the trial court on all other issues.  This case is remanded for
further proceedings consistent with this Opinion.
                                   
132 Id. at 350-56.  The federal rule is identical to Delaware’s.  See also Roberts v. Bullard, Del. Super., C.A. No.
96C-02-089-VAB, Quillen, J. (Dec. 22, 1998).  Unless there is “good reason” to adopt a contrary construction, it is
desirable to follow the interpretation placed upon the Rule by the federal courts.  See Cebenka v. The Upjohn Co.,
Del. Supr., 559 A.2d 1219, 1225 n.17 (1989).
133 Louisiana Power & Light Co. v. Kellstrom, 5th Cir., 50 F.3d 319, 333-34 (1995), cert. denied sub nom. L.K.
Comstock & Co. v. Louisiana Power & Light Co., 516 U.S. 862 (1995).
134 See, e.g., Big Yank Corp. v. Liberty Mutual Fire Ins. Co., 2d Cir., 139 F.3d 325, (1998) (holding that “the rule
only provides for an award of costs and not for an award of attorneys fees”); 13 Moore’s Federal Practice § 68.02[4]
(3d. ed. 1999) (“If no exception to the American Rule applies, neither an offeree’s acceptance of a Rule 68 offer
including ‘costs then accrued’ nor a rejection followed by a failure to win a more favorable judgment… can create
any entitlement to or liability for an attorney-fee award.”).