Opinion ID: 1992368
Heading Depth: 1
Heading Rank: 6

Heading: The Coverage Question.

Text: That leads us to the first certified question: whether the response costs and the penalty are covered by the CGL policies here. There are persuasive arguments for and against permitting insurance against the costs of abating pollution. But we think these arguments are not relevant on the question of coverage. CERCLA expressly permits responsible parties to insure against the costs of relief under this legislation. See 42 U.S.C. § 9607(e). From this we conclude that Congress has already made the relevant public policy determinations. So our task is not to determine whether the policies may provide the coverage A.Y. McDonald seeks, but whether they do provide it according to their terms. The answer lies solely in the language of the policies, not in public policy considerations. The coverage question centers on the following language in the CGL policies: all sums which the insured shall become legally obligated to pay as damages because of ... property damage. Our task is to determine whether this language covers the response costs that A.Y. McDonald has incurred and will incur and the penalty assessed against it. Numerous state appellate courts have considered the response cost coverage issue. Nearly all have concluded that response or cleanup costs incurred under environmental protection statutes are indeed covered by policy language identical to the language under consideration. [5] The highest courts in Massachusetts, Minnesota, North Carolina, Washington, and Wyoming are included in the majority; the highest courts in Maine and New Hampshire are included in the minority. Some of these decisions deal with costs of reimbursing the government or third parties for their costs in remedying and mitigating environmental damage. In finding coverage for these costs, courts in these cases have relied on either one of two theories. Such costs are plainly damages that the insured is legally obligated to pay as compensatory damages because of property damage. See, e.g., Broadwell Realty Servs., Inc. v. Fidelity & Cas. Co. of New York, 218 N.J.Super. 516, 526, 528 A.2d 76, 81 (1987); Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wash.2d 869, 878, 784 P.2d 507, 511 (1990). Or these termsdamages and legally obligatedare ambiguous and therefore must be resolved in favor of coverage. See, e.g., AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 841, 799 P.2d 1253, 1278, 274 Cal.Rptr. 820, 845 (1990); United States Fidelity & Guar. Co. v. Specialty Coatings Co., 180 Ill.App.3d 378, 391, 129 Ill.Dec. 306, 315, 535 N.E.2d 1071, 1080, appeal denied, 127 Ill.2d 643, 136 Ill.Dec. 609, 545 N.E.2d 133 (1989); Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576, 583 (1990); Minnesota Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 179-81 (Minn.1990); C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng'g Co., 326 N.C. 133, 152, 388 S.E.2d 557, 569 (1990). Contra Braswell v. Faircloth, 300 S.C. 338, 344, 387 S.E.2d 707, 710 (S.C.App.1989). A more troublesome question concerns costs incurred in compliance with environmental injunctions. But even here, most state appellate courts have held that these costs are likewise covered. Some of these courts view such costs as fitting the ordinary meaning of damages. See, e.g., AIU Ins. Co., 51 Cal.3d at 825, 799 P.2d at 1267, 274 Cal.Rptr. at 834; Specialty Coatings Co., 180 Ill.App.3d at 390-93, 129 Ill. Dec. at 314-16, 535 N.E.2d at 1079-81; Boeing Co., 113 Wash.2d at 877, 784 P.2d at 511. And some are convinced that a contrary holding would unreasonably make coverage depend on the mere fortuity of which alternativesinjunction, reimbursement, or damages to natural resources the EPA chooses in enforcing CERCLA. See, e.g., AIU Ins. Co., 51 Cal.3d at 840, 799 P.2d at 1277, 274 Cal.Rptr. at 844; C.D. Spangler Constr. Co., 326 N.C. at 150, 388 S.E.2d at 568; United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 590, 336 N.W.2d 838, 843 (1983). Other courts reason that such costs are damages according to the reasonable expectations of the parties. See, e.g., AIU Ins. Co., 51 Cal.3d at 840, 799 P.2d at 1277-78, 274 Cal.Rptr. at 844-45; C.D. Spangler Constr. Co., 326 N.C. at 152, 388 S.E.2d at 568-69; Broadwell Realty Servs., Inc., 218 N.J.Super. at 524, 528 A.2d at 80. In contrast, federal courts are sharply divided on the question whether environmental response or cleanup costs are covered by the CGL policies. In their decisions, these courts purport to apply state law in resolving the issue. Like the majority of state courts, some federal courts see both forms of reliefrecovery of cleanup costs and costs of compliance with environmental injunctionsas constituting damages under the CGL policies. [6] For various reasons other federal courts have reached the opposite result regarding these two forms of relief. One reason centers on the separate provisions in CERCLA. One provision allows the EPA to recover for damages to natural resources, while another provision allows the EPA to recover response costs. See 42 U.S.C. §§ 9607(a)(4)(C), 9607(a)(4)(A). Because the statute makes such a distinction, several federal courts have reasoned that only damages to natural resources, and not response costs, can be considered as damages under the CGL policies. See, e.g., Aetna Cas. & Sur. Co. v. Gulf Resources & Chem. Corp., 709 F.Supp. 958, 961 (D.Idaho 1989); Verlan, Ltd. v. John L. Armitage & Co., 695 F.Supp. 950, 954-55 (N.D.Ill.1988); Travelers Ins. Co. v. Ross Elec. of Washington, Inc., 685 F.Supp. 742, 743-45 (W.D.Wash.1988); Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977, 986-87 (8th Cir.), cert. denied, 488 U.S. 821, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988) (NEPACCO); Mraz v. Canadian Universal Ins. Co., 804 F.2d 1325, 1329 (4th Cir.1986). Some federal courts have noted that under CERCLA the EPA can recover response costs without a showing that the agency has suffered harm to property or resources in which it has a proprietary interest. These courts reason that such a recovery is not for damages as that term has been traditionally defined in the law, and so have denied coverage. See, e.g., Aetna Cas. & Sur. Co., 709 F.Supp. at 961; Mraz, 804 F.2d at 1329. Several federal courts have concluded that the term damages under CGL policies has a legal, technical meaning that is unambiguous in the insurance context. Under this meaning these courts have found that the term damages does not include costs of complying with injunctive relief available under CERCLA and similar statutes. These courts note that the policies thereas hereobligate the insurer to pay all sums which the insurer shall become legally obligated to pay as damages because of ... property damage. They point out that if the term damages were given its ordinary meaning then the term would become mere surplusage, because any obligation to pay would be covered. The limitation implied by employment of the phrase `to pay as damages' would be obliterated. Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1352 (4th Cir.1987), cert. denied, 484 U.S. 1008, 108 S.Ct. 703, 98 L.Ed.2d 654 (1988); accord NEPACCO, 842 F.2d at 986; see also, Travelers Indem. Co. v. Allied-Signal, Inc., 718 F.Supp. 1252, 1255 (D.Md.1989); Aetna Cas. & Sur. Co., 709 F.Supp. at 961; Verlan, Ltd., 695 F.Supp. at 954; Ross Elec., 685 F.Supp. at 744. In reaching this conclusion, Armco and NEPACCO rely on several decisions involving injunctive relief. See NEPACCO, 842 F.2d at 986; Armco, 822 F.2d at 1353. All were decided before CERCLA, and all hold that an insured's costs of complying with mandatory injunctions are not damages under a liability insurance policy. See, e.g., Aetna Cas. & Sur. Co. v. Hanna, 224 F.2d 499, 503 (5th Cir.1955); Garden Sanctuary, Inc. v. Insurance Co. of N. Am., 292 So.2d 75, 77 (Fla.App.1974); Desrochers v. New York Cas. Co., 99 N.H. 129, 131, 106 A.2d 196, 198 (1954). Another reason given for denying such coverage lies in the distinction between equitable and legal relief. The two federal circuits that have given the term damages a legal, technical meaning look to whether the form of relief sought is legal or equitable. Both reason that legal damagespayments to third persons when those persons have a legal claim for damagesare substantially different from injunction, restitution, or other equitable remedies. They conclude, therefore, that the term damages in the legal sense does not include these equitable remedies. And they conclude that a reasonably prudent insurance purchaser would expect that an insurance policy limited to damages would not cover restitution or injunctive costs. See NEPACCO, 842 F.2d at 985-86; Armco, 822 F.2d at 1352; Cincinnati Ins. Co. v. Milliken & Co., 857 F.2d 979, 981 (4th Cir.1988); Mraz, 804 F.2d at 1329; United States Fidelity & Guar. Co. v. Morrison Grain Co., 734 F.Supp. 437, 449 (D.Kan.1990); Verlan, Ltd., 695 F.Supp. at 953; Ross Elec., 685 F.Supp. at 744-45. The eighth and the fourth circuits look upon response costs under CERCLA as either restitutionary (where the government seeks reimbursement) or injunctive (where the responsible party is ordered to clean up the site). Because of the way they view response costs, these courts would deny coverage for them under the CGL policies. NEPACCO, 842 F.2d at 986-87; Armco, 822 F.2d at 1352-54. To resolve the coverage question, we need to address two issues. First, are government mandated response costs under CERCLA damages within the meaning of the CGL policies? Second, are such costs the measure of property damage, that is, damages because of property damage? Before we can say there is coverage, we must answer both questions affirmatively.
The CGL policies obligate the defendants to pay all sums which the insured shall become legally obligated to pay as damages because of ... property damage. The defendants say this provision does not obligate them to pay all sums which the insured shall become legally obligated to pay. To the contrary, the defendants say they have agreed to indemnify the insured for all sums the insured is legally obligated to pay as damages. They argue that the term damages therefore limits the all sums provision in the policy. In the defendants' view, the term damages provides the key to their obligation to pay all sums imposed upon the insured by law due to property damage. The defendants want us to give the term damages the narrow, technical definition given to it by NEPACCO and Armco. Because the policies do not define damages, we are left with the task of interpreting its meaning. And, as the federal district court found, this interpretation question is one controlled by state law. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188, 1194, cert. denied, 305 U.S. 637, 59 S.Ct. 108, 83 L.Ed. 410, reh'g denied, 305 U.S. 673, 59 S.Ct. 229, 83 L.Ed. 436 (1938). The federal district court also found that Iowa law controls. None of the parties dispute this finding. Construction of an insurance policythe process of determining its legal effectis a question of law for the court. Interpretationthe process of determining the meaning of words usedis also a question of law for the court unless it depends on extrinsic evidence or a choice among reasonable inferences to be drawn. Farm Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 107-08 (Iowa 1981). Because there is no extrinsic factual record before us, the meaning of the term damages in the policies is for us to decide. In the construction of insurance policies, the cardinal principle is that the intent of the parties must control; and except in cases of ambiguity this is determined by what the policy itself says. Cairns v. Grinnell Mut. Reinsurance Co., 398 N.W.2d 821, 823 (Iowa 1987); Iowa R.App.P. 14(f)(14). Ambiguity exists if, after the application of pertinent rules of interpretation to the policy, a genuine uncertainty results as to which one of two or more meanings is the proper one. Fraternal Order of Eagles v. Illinois Cas. Co., 364 N.W.2d 218, 221 (Iowa 1985). Because insurance policies are in the nature of adhesive contracts, we construe their provisions in a light favorable to the insured. Cairns, 398 N.W.2d at 824. So an insurer should clearly and explicitly define any limitations or exclusions to coverage expressed by broad promises. Id. When words are left undefined in a policy we do not give them a technical meaning. Rather we give them their ordinary meaning, one which a reasonable person would understand them to mean. Farm & City Ins. Co. v. Potter, 330 N.W.2d 263, 265 (Iowa 1983). We do not give them the meaning only a specialist or expert would understand. City of Spencer v. Hawkeye Sec. Ins. Co., 216 N.W.2d 406, 408-09 (Iowa 1974). And if such words are susceptible to two interpretations, the interpretation favoring the insured is adopted. North Star Mut. Ins. Co. v. Holty, 402 N.W.2d 452, 454 (Iowa 1987). But a mere disagreement on the part of the parties as to the meaning of terms does not automatically establish an ambiguity. Id. In this circumstance the test is an objective one: Is the language fairly susceptible to two interpretations? Id. In searching for the ordinary meaning of undefined terms in a policy, we commonly refer to dictionaries. See, e.g., Witcraft v. Sundstrand Health & Disability Group Benefit Plan, 420 N.W.2d 785, 788 (Iowa 1988) (for meaning of illness); North Star, 402 N.W.2d at 455 (for meaning of apparatus). We agree with those courts that have viewed the term damages in CGL policies as ambiguous because it is susceptible to more than one reasonable interpretation. As one court put it, the ordinary meaning of damages as defined by the dictionary supports this conclusion: The policy language, all sums which the insured shall become legally obligated to pay as damages because of property damage, can reasonably be interpreted to cover any claim asserted against the insured arising out of property damage, which requires the expenditure of money, regardless of whether the claim can be characterized as legal or equitable in nature. This interpretation is supported by the dictionary definition of damages which makes no distinction between damages at law and actions in equity. See Webster's Third New International Dictionary 571 (P. Gove ed. 1961) (damages are the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for a wrong or injury caused by [a] violation of a legal right). Minnesota Mining, 457 N.W.2d at 179-80; accord AIU Ins. Co., 51 Cal.3d at 825-26, 799 P.2d at 1267, 274 Cal.Rptr. at 834; C.D. Spangler Constr. Co., 326 N.C. at 152, 388 S.E.2d at 568-69; Boeing Co., 113 Wash.2d at 877, 784 P.2d at 511. Even insurance dictionaries define damages in the same broad manner. See, e.g., Merit, Glossary of Insurance Terms 47 (1980) (damages defined as the amount required to pay for a loss); Rubin, Barrons Dictionary of Insurance Terms 71 (1987) (damages defined as the sum the insurance company is legally obligated to pay an insured for losses incurred); Davids, Dictionary of Insurance 72 (1977) (damages defined as the estimated reparation in money for injury sustained). Interestingly enough, NEPACCO and Armco concede that the ordinary meaning of the term damages is broad and all inclusive: The dictionary definition does not distinguish between legal damages and equitable monetary relief. Thus, from the viewpoint of the lay insured, the term damages could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs, or losses. NEPACCO, 842 F.2d at 985 (citations omitted); Armco, 822 F.2d at 1352 (citations omitted). This is not the first time our court has been asked to interpret the term damages in a CGL policy. We have interpreted the term damages broadly to include punitive as well as compensatory damages. City of Cedar Rapids v. Northwestern Nat'l Ins. Co., 304 N.W.2d 228, 231 (Iowa 1981), overruled on other grounds, 440 N.W.2d 377 (1989). We adopted the following language from a case decided by the Missouri Court of Appeals: Clearly the language of the policy before us does not limit recovery to actual or compensatory damages but undertakes to pay for all losses. Id. (citing Colson v. Lloyd's of London, 435 S.W.2d 42, 43-44, 47 (Mo.App.1968) (emphasis added). Several years later we said it again: Damages include punitive as well as compensatory damages. See Skyline Harvestore Sys. Inc. v. Centennial Ins. Co., 331 N.W.2d 106, 107 (Iowa 1983). We interpreted the term damages from the standpoint of what an ordinary man would believe the term to mean. Id. Clearly, we gave damages its ordinary meaning rather than any technical, legalistic meaning. We did not restrict its meaning to compensation paid to a third party for injuries or property damage sustained. Punitive damages are clearly not compensatory damages. Rather they are smart money permitted by the law to deter similar wrongful conduct in the future. Id. at 108. In City of Cedar Rapids, we cited with approval a definition of damages that obligates the insurer to pay for all losses. 304 N.W.2d at 231 (citing Colson v. Lloyd's of London, 435 S.W.2d 42, 43-44, 47 (Mo. App.1968)). This definition is certainly consistent with the ordinary meaning of damages adopted by the Minnesota court in Minnesota Mining: the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for a wrong or injury caused by a violation of a legal right. Minnesota Mining, 457 N.W.2d at 180. This ordinary meaning is broad enough to encompass payments used to clean up hazardous materials released due to the prior mishandling of such materials. Mountainspring, Insurance Coverage of CERCLA Response Costs: The Limits of Damages in Comprehensive General Liability Policies, 16 Ecology L.Q. 755, 791 (1989). In short we agree with the majority of courts which hold that the ordinary meaning of damages is broad enough to include government mandated response or cleanup costs under CERCLA and similar state environmental protection statutes. Consistent with our approach in City of Cedar Rapids and Skyline Harvestore Systems, Inc., we reject the defendants' suggestion that we give damages a technical, legalistic meaning. Rather, we give damages its ordinary meaning, a meaning the ordinary reasonable person would believe the term to mean. That meaning is this: the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for a wrong or injury caused by a violation of a legal right. Webster's Third New International Dictionary 571 (P.Gove ed. 1961). Under this meaning we think a reasonable person purchasing a CGL policy like the one here would expect government mandated response costs under CERCLA to be covered. These are costs A.Y. McDonald has become legally obligated to pay as compensation imposed by law for a wrong. As we shall shortly discuss, these costs are also the result of injuries sustained by the government. As one court observed, [the insureds] have become legally obligated to clean up their pollution by virtue of the polite but puissant compulsion of CERCLA. At least to the reasonable insured, this obligation is no less a legal sanction than that of a monetary judgment. Indeed, having purchased insurance to cover them for damages because of property damage, [the insureds] would be surprised indeed to learn that coverage depended on whether the proceeding employed to obtain recompense was defined as legal or equitable. An insured reading the coverage clause before us would reasonably conclude it provided coverage for any economic outlay compelled by law to rectify and mitigate property damage caused by the insured's pollution.... It would come as an unexpected, if not incomprehensible, shock to the insureds to discover that their insurance coverage was being denied because the plaintiff chose to frame his complaint in equity rather than at law. Aerojet-General Corp. v. Superior Court, 211 Cal.App.3d 216, 228, 257 Cal.Rptr: 621, 628 (1989). If the defendants intended a narrow technical definition of the term damages ..., it was their duty to make that intention clear. The insureds purchased these comprehensive general liability policies expecting coverage against most legal liabilities which could arise out of their own acts or omissions, including liabilities which were unknown at the time. The standard language used in the policy is broad. The insurers agreed that they will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies caused by an occurrence. The utility of the policy would be seriously called into question if coverage is permitted to hinge on such a fortuitous event as whether a plaintiff bringing an action against the insured has framed his complaint in equity rather than at law. Clearly the insureds under these policies contemplated greater certainty when they purchased the policies. They could reasonably expect the policy to provide coverage for any economic outlay compelled by law to rectify or mitigate damage caused by the insured's acts or omissions. Minnesota Mining, 457 N.W.2d at 181-82. See also, Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 368 F.Supp. 1098, 1118-19 (S.D.N.Y.1973), aff'd, 505 F.2d 989 (2d Cir.1974). We hold that the term damages in these CGL policies includes government mandated response costs under CERCLA. According to two commentators our conclusion would not surprise the insurance industry. These commentators have reviewed the history of the CGL policy, the insurance industry's interpretation of the word damages in the industry's internal memoranda, the industry's published literature, and the industry's representations to the courts and to Congress. Based on this review the commentators conclude that until Armco, the insurance industry virtually always construed and used the word damages in the broadest sense. The industry clearly understood its standard form CGL policy to cover cleanup costs, whether imposed by CERCLA, common law, legislation analogous to CERCLA, or otherwise. Stanzler & Yuen, Coverage for Environmental Cleanup Costs: History of the Word Damages in the Standard Form Comprehensive General Liability Policy, 3 Colum.Bus.L.Rev. 449, 456 (1990). These authors cite to industry publications touting the fact that the CGL policy was so broad in coverage that no new coverage was needed to encompass unknown hazards. The unknown hazards were automatically covered. Id. at 462-65. According to the authors, [t]he insurance industry's original intent to incorporate into the insuring agreements and into the word damages wide, flexible coverage for unknown hazards conflicts with the Armco decisions. The industry valued and relied upon the reach of the policy to protect the policy-holder against unanticipated changes in circumstances.... [T]he insurance industry anticipated CERCLA liability. Liability under CERCLA fits well within the concept of the unknown hazard the industry designed the standard form CGL to cover. Id. at 464-65; see also D. Bickelhaupt, General Insurance 522 (1983) (CGL policy provides full automatic coverage ... for the so-called unknown perils, about which the insured knows nothing, or which would usually not be covered by any named-perils policy) (emphasis added); D. Ratcliffe, General Liability Insurance Handbook 159 (1959) (The CGL policy is designed to cover automatically the business hazards that come under the head of General Liability.) (emphasis added). Our inquiry on the coverage question does not end with our conclusion that government mandated response costs under CERCLA are damages within the meaning of the CGL policies. We must next determine whether such costs are the proper measure of property damage. In other words, are these damages because of property damage within the meaning of the policies?
The pertinent language in the policies all sums which the insured shall become legally obligated to pay as damages because of ... property damageclearly requires that damages must occur because of property damage. The policies here define property damage in identical or substantially similar language: Property damage means injury to, loss of use of or destruction of tangible property. A number of cases that have considered the question have held that contamination of the environment constitutes property damage as that term is used in the CGL policies. [7] In addition many courts recognize that the improper release of toxic wastes may cause property damage not only to the actual owner of the land, but also to the government. The government, these courts point out, has an interest independent of and behind the titles of its citizens in all the air and earth (that is, its natural resources) within [its] domain. [8] Response or cleanup costs are essentially compensatory damages for injury to [government] property. United States Fidelity & Guar. Co. v. Thomas Solvent Co., 683 F.Supp. 1139, 1168 (W.D.Mich. 1988); Specialty Coatings Co., 180 Ill. App.3d at 392, 129 Ill.Dec. at 315, 535 N.E.2d at 1080. In other words, the damages to natural resources is simply measured in the cost to restore them to their original state. Ohio v. United States Dep't of the Interior, 880 F.2d 432, 441-45, 459 (D.C.Cir.) (holding that cost of restoration is the proper measure of damages under CERCLA, even if greater than the diminution in value of the damaged property), reh'g denied, 897 F.2d 1151 (D.C.Cir. 1989); Aerojet-General Corp., 211 Cal. App.3d at 231, 257 Cal.Rptr. at 630; United States Aviex Co., 125 Mich.App. at 589, 336 N.W.2d at 843; Waste Management of Carolinas, Inc. v. Peerless, Ins. Co., 72 N.C.App. 80, 93, 323 S.E.2d 726, 735 (1984), rev'd on other grounds, 315 N.C. 688, 340 S.E.2d 374, reh'g denied, 316 N.C. 386, 346 S.E.2d 134 (1986). This court has likewise allowed reasonable costs of restoration of property, including cleanup costs. See, e.g., Conrad v. Board of Supervisors, 199 N.W.2d 139, 142 (Iowa 1972). In Conrad, farm owners sued the county for polluting their farm pond. Lignin sulfite, which the county had used on a crushed rock road to reduce the loss of rock and hold down the dust, had found its way to the pond after heavy rains. This court held that the plaintiffs were entitled to recover the reasonable and necessary costs to restore the pond to its previous condition. Id. at 142. The reasonable cost to restore property to its status quo is but one proper measure of damage to property which is harmed because of pollution. Another proper measure is the difference between the market value of the property before contamination and the market value after contamination. Mel Foster Co. Properties, Inc. v. American Oil Co., 427 N.W.2d 171, 174 (Iowa 1988) (owner of property which was contaminated by leakage of gasoline brought nuisance action against owners of sources). This measure of damages is analogous to one codified at 42 U.S.C. § 9607(c) which is used when the EPA sues for damages for injury to, destruction of, or loss of natural resources. 42 U.S.C. § 9607(a)(4)(C). Case law has generally held that damages in the CGL policy includes costs of preventive measures taken to prevent or halt continuing damages. See, e.g., American Economy Ins. Co. v. Commons, 26 Or.App. 153, 156, 552 P.2d 612, 613 (1976); Globe Indem. Co. v. People, 43 Cal.App.3d 745, 751-52, 118 Cal.Rptr. 75, 79-80 (1974). In Commons, a fire that broke out on the insured's property subsequently spread to adjacent property. The State put out the fire and sought to recover its fire suppression costs from the insureds. The court noted that [t]he policy does not limit coverage to property damage but instead covers damages because of property damage. This latter language is broader and more inclusive than the former. Because the fire spread to forest land on the corporate farm, the state entered and fought the fire. The liability of the property owners, the insureds, for the suppression costs arose because the state fought the fire, and the state did so because there was property damage. It follows that the insurers are liable for the suppression costs since the insureds' liability arose because of the state's action. Commons, 26 Or.App. at 156-57, 552 P.2d at 613. There are limitations. For example, [p]reventive measures taken to prevent property damage from occurring at some point in the future, in the absence of past or current property damage, are the obligation of the insured as part of its cost of doing business; preventive measures taken in response to continuing property damage that was unexpected and unintended are within the coverage provided by the policy. Chesler, Rodburg & Smith, Patterns of Judicial Interpretation of Insurance Coverage for Hazardous Waste Site Liability, 18 Rutgers L.J. 9, 67 (1986-87). Courts have applied the preventive measures principle in pollution cases. See, e.g., Broadwell Realty Servs., Inc., 218 N.J.Super. at 516, 528 A.2d at 76. In Broadwell, the insured's underground tank seeped gasoline into adjacent properties. The insurer argued that the property owned exclusion foreclosed coverage for work done on the insured's own property to prevent continued seepage onto the property of third parties. The court rejected the insurer's argument, concluding that the policy covered costs for work done on the property owned by the insured to prevent further gasoline seepage on to the property of others. Id. at 528, 528 A.2d at 82. It is not surprising that recent pollution cases have placed limitations on the preventive measures principle. Property damage must occur before response or cleanup costs are covered. Costs incurred to pay for preventive measures taken in advance of pollution are not damages because of property damage. But costs for preventive measures taken after such pollution are damages because of property damage and so are covered. See AIU Ins. Co., 51 Cal.3d at 842, 799 P.2d at 1279, 274 Cal.Rptr. at 846; Aerojet-General Corp., 211 Cal.App.3d at 237, 257 Cal.Rptr. at 635; Minnesota Mining, 457 N.W.2d at 184; Boeing Co., 113 Wash.2d at 887, 784 P.2d at 515-16. The following hypothetical taken from Aerojet-General Corp., illustrates the limitations: Petitioners have two underground storage tanks for toxic waste. Tank # 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment. Tank # 2 has not leaked, but government inspectors discover that it does not comply with regulatory requirements, and could eventually leak unless corrective measures are taken. Response costs associated with Tank # 1 will be covered as damages, because pollution has occurred. Tank # 2 would not be covered. Likewise, the expense of capital improvements to prevent pollution in an area of a facility where there is none, or improvements or safety paraphernalia required by government regulation and not causally related to property damage, would not be covered as damages. 211 Cal.App.3d at 237-38, 257 Cal.Rptr. at 635. We too think the government's interest in protecting its natural resources is a form of property right. We hold that any injury to the environment resulting from contamination by hazardous waste constitutes property damage within the meaning of the CGL policies. We further hold that any injury to the environment resulting from contamination is incurred because of property damage and represents the measure of damages to the property. This is true whether such costs are incurred on property owned by the insured, the state or federal government, or third parties. We reach this last conclusion because the coverage provision before us does not specify that coverage depends on the nature or location of property damage. We construe such provision to include damages because of property damage in general, regardless of by whom it is suffered. Cf. Chesapeake Utils. Corp. v. American Home Assurance Co., 704 F.Supp. 551, 556 (D.Del.1989) (reaching same conclusion under facts similar to those here); AIU Ins. Co., 51 Cal.3d at 843, 799 P.2d at 1279, 274 Cal.Rptr. at 846 (same). In addition we hold that response costs for preventive measures employed after pollution has taken place are incurred because of property damage under the CGL policies. However, costs incurred to pay for preventive measures taken in advance of pollution are not incurred because of property damage. We think the recordthough sparseis sufficient to raise a genuine issue of material fact concerning damage to the environment resulting from A.Y. McDonald's past practices. As we noted, lead is a hazardous substance under the pertinent regulations. It has been contaminating the foundry site for over thirty years. We think, however, the record is not sufficient for us to determine whether the remedial measures required by the EPA decision and the consent decree were and will be necessary because of property damage. So we cannot precisely say which costs in connection with those measures are covered as damages. Undoubtedly, some part of those costs may be covered because they constitute legally compelled expenses for the cleanup of existing pollution. The EPA decision and the consent decree may, however, require expenditures to prevent future pollution that has not yet occurred, or to prevent pollution from a source that has not yet caused pollution. These costs would not be causally related to property damage and so would not be covered as damages under the policies. Cf. Aerojet-General Corp., 211 Cal.App.3d at 237, 257 Cal.Rptr. at 634-35 (reaching same conclusion in similar circumstances). In summary, we think the record is sufficient to generate a material fact question concerning coverage under the insuring language: all sums which the insured shall become legally obligated to pay as damages because of ... property damage. A.Y. McDonald has polluted the environment by contaminating the soil, a natural resource that constitutes government property. This pollution is injury or damage to such property. Because of this property damage, A.Y. McDonald is legally obligated to clean up the pollution and to prevent further damage. In doing so, A.Y. McDonald has, and will, incur response costs. These costs are compensation for an injury sustained. Or, in the words of the policy, they are damages. These response costs are not, as the defendants and some amici claim, economic costs or costs of doing business to comply with some governmental regulation like OSHA's. Costs resulting from compliance with governmental safety regulations are not incurred because of property damage. Rather they are incurred to insure safety. As we said, preventive measures are not covered under the CGL policies in the absence of property damage. See Minnesota Mining, 457 N.W.2d at 184. Nor do we see our interpretation of the term damages as rendering that term superfluous in the CGL policies. This argument, as espoused in NEPACCO and Armco, ignores our holding that only damages incurred because of property damage are covered. When read as a whole, the language of the policy ... indicates that sums which the insured becomes legally obligated to pay are not covered unless related to `property damage caused by an occurrence.' Minnesota Mining, 457 N.W.2d at 180 n. 4. In addition, we are not impressed by the hypertechnical distinction between legal and equitable forms of relief made in NEPACCO and Armco. Although purporting to rely on cases holding that injunctive costs are not damages under the CGL policies, we note neither case mentioned Doyle v. Allstate Insurance Co., 1 N.Y.2d 439, 136 N.E.2d 484, 154 N.Y.S.2d 10 (1956). In Doyle the insured who was covered by a CGL policy sued his insurer for costs of successfully defending an injunction suit against the insured. The insurer refused to defend the insured in the suit which was instituted by a neighbor to enjoin the insured from operating a dog kennel on the insured's property. Holding for the insured, the court recognized that if the insured proved he was entitled to equitable relief, equity could grant damages in addition to or as an incident of some other special equitable relief. Doyle, 1 N.Y.2d at 443, 136 N.E.2d at 486, 154 N.Y.S.2d at 13. Had damages been awarded in the injunction action, the court concluded the insurer would have been obligated to pay. Id. at 443, 136 N.E.2d at 487, 154 N.Y.S.2d at 13. In so holding, the court said: [T]here can be no doubt that the insurer here undertook (1) to pay on behalf of the insured all sums which the insured became legally obligated to pay as damages by reason of his operating a kennel for dogs, and (2) to defend any suit in which the insured might be legally obligated to pay damages by reason of his operating a kennel for dogs. The policy does not draw any distinction between damages awarded by a court of law and those awarded by a court of equity. The insured was justified in expecting that if suit was instituted against him wherein he might be legally obligated to pay a sum of money as damages because of his operating a dog kennel, the insurer would defend. Id. at 443, 136 N.E.2d at 487, 154 N.Y.S.2d at 14; see also Johnson v. Carter, 143 Iowa 95, 100, 120 N.W. 320, 322 (1909) (where equity has obtained jurisdiction, and one of the parties has applied for specific relief found impossible or impracticable, the court will give damages or decree other proper relief). Our conclusion that CERCLA response costs are a measure of environmental damage renders minor any distinction between equitable and legal damages. The EPA could have cleaned up the site and sued A.Y. McDonald for its response costs. In these circumstances there would have been a clear duty under the policies to pay. See United States Aviex Co., 125 Mich.App. at 589, 336 N.W.2d at 843. From the insured's standpoint it also makes little difference. Whether the damages are legal or equitable, the insured still has to pay. Finally, we reject any notion that there is any significance in the fact that CERCLA makes a distinction between harm to natural resources and response costs. As one court noted, [h]owever damages and response costs are measured, we do not believe ... that CERCLA intended that reimbursement of response costs be treated as definitionally or conceptually distinct from recovery of damages. Congress clearly intended considerable overlap between the two forms of recovery. It is clear that response costs can, in certain situations, be recovered as damages to natural resources .... Seen in this light, whether recovery of remedial costs is sought under the response cost subdivision or that allowing recovery for damages to natural resources, it can be construed to fall within the scope of the insurance policies at issue here. Moreover, we fail to see how the distinction made by CERCLA between response costs and damages to natural resources forecloses response costs from being characterized as damages in a generic sense under CGL policies. More significantly, our ultimate conclusion as to whether reimbursement of response costs is damages for insurance purposes is ... predominantly a question of how, under state law, insurance policies should be interpreted. AIU Ins. Co., 51 Cal.3d at 830-31, 799 P.2d at 1270-71, 274 Cal.Rptr. at 837-38 (citations omitted).
That leaves us to decide whether the penalty imposed by the RCRA decision constitutes damages under the policy. Section 6928(g) of RCRA provides: Any person who violates any requirement of this subchapter shall be liable to the United States for a civil penalty in an amount not to exceed $25,000 for each such violation. Each day of such violation shall, for purposes of this subsection, constitute a separate violation. The record leaves no doubt that the civil penalty was imposed because of A.Y. McDonald's failure to comply with notification, permit, and groundwater monitoring regulations under RCRA. This is far different from government mandated response costs resulting from property damage. We hold that the term damages under the CGL policies does not include the civil penalty imposed. See Travelers Ins. Co. v. Waltham Indus. Laboratories Corp., 883 F.2d 1092, 1099 (1st Cir.1989) (affirming federal district court finding that because the amount paid by the defendants in state court suit was for civil penalties and not damages, the payment was not covered by the insurance policy's damages clause; insurer had no duty to indemnify the defendants for all nor any part of the $27,000 paid in settlement to plaintiff); Township of Gloucester v. Maryland Cas. Co., 668 F.Supp. 394, 401-02 (D.N.J.1987) (fines and civil penalties under state environmental statute held not to constitute damages under CGL policy; plaintiff's remedy limited to contractual recovery); Detrex Chem. Indus., Inc. v. Employers Ins. of Wausau, 681 F.Supp. 438, 451-52 (N.D.Ohio 1987) (no showing that civil penalty was sought because of property damage to environment).