Opinion ID: 1356228
Heading Depth: 2
Heading Rank: 1

Heading: Background to the Insurance Coverages

Text: To understand the issues in this case fully, it is necessary to describe how the parties agreed to the insurance coverage provided and the nature of the coverage obtained. As befits a large, sophisticated, multinational enterprise, Alcoa had its own internal insurance or risk management department. Wishing to procure property insurance for its far-flung operations for the periods 1977-80, 1980-83, and 1983-84, Alcoa prepared submissions that described the nature of Alcoa's business, its properties, and the insurance coverages Alcoa sought. Attached to the submissions were manuscript forms, actual proposed insurance policies prepared by Alcoa and its insurance brokers. The manuscript forms included both CGL and DIC coverages. Large insurance brokerage firms shopped the submissions and manuscript forms to various insurers. The insurers responded with price quotations for the layers of coverage they offered to Alcoa. Upon the placement of coverage, the insurers sent policy jackets, standard policy language, to the brokers for inclusion in the formal policies. Ultimately, the first layer of CGL coverage for the period 1977-84 was placed with Commercial Union. Lexington covered the first layer of DIC coverage for 1977-80, but various other insurers provided the initial coverage for 1980-84. Numerous insurers provided excess layers of coverage. In the mid-1980s, pressed by state and federal regulators to clean up environmental hazards on its own property and elsewhere, Alcoa incurred substantial expenses to remediate these hazards. The essence of the problem with Alcoa's insurance coverage claims here rested with the retroactive liability imposed on potentially responsible parties by CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act of 1980), 42 U.S.C. § 9607(a)(2). See, e.g., Combined Properties/Greenbriar Ltd. Partnership v. Morrow, 58 F.Supp.2d 675 (E.D.Va.1999) (retroactive application of CERCLA does not violate due process). At the time the coverages were placed in this case, it is unlikely any of the parties anticipated CERCLA's imposition of retroactive liability on Alcoa. To compound the complexity of the issues here, a significant portion of the harm was to Alcoa's own property. Central to understanding the insurers' defenses is recognition of the two different types of insurance involved in this case: CGL insurance (third-party insurance), and a special type of property coverage known as DIC insurance (first-party insurance). Some of the insurers issued both types of policies to Alcoa. Third party insurance involves protection for the policyholder for liability it incurs to someone else, while first party insurance involves protection for losses to the policyholder's own property. Olds-Olympic, Inc. v. Commercial Union Ins. Co., 129 Wash.2d 464, 479, 918 P.2d 923 (1996). Generally, a CGL policy insures against injury or damage to a third party; the insurer agrees to defend and indemnify the insured against liability for risks identified in the policy. A DIC policy, by contrast, is generally a first-party insurance policy that indemnifies the insured for damage to its own property. Harold Meeks, a former manager of Alcoa's casualty and property insurance division, testified Alcoa purchased DIC insurance to cover damage to Alcoa's property not covered by other property damage policies Alcoa had in place. In particular, the DIC policies were all-risk policies [4] that acted either as excess coverage to risks covered by other Alcoa property damage policies, or primary coverage for property damage not covered by Alcoa property damage policies. Trial Ex. 431 at 6 (perils insured), 10 (other insurance). [5] According to the trial court, DIC policies were written for only a short period of time (the late 1970s to the early 1980s), so there is either no authority or only sparse authority for their interpretation. Clerk's Papers at 050753. [6] The trial court granted summary judgment dismissing Alcoa's claims against the CGL insurers on the basis of the pollution exclusion clause for 33 of the 35 sites at issue. The interpretation of the pollution exclusion clause is the single issue on appeal arising from the CGL policies. The DIC policies presented many issues that were not, like the CGL policies, susceptible to summary judgment. Consequently, the case was tried in the King County Superior Court on issues relating to the DIC coverage.