Opinion ID: 575203
Heading Depth: 4
Heading Rank: 2

Heading: Application of AIU to consent decrees

Text: 86 Under AIU, costs incurred to comply with an injunction mandating cleanup or to reimburse a government agency for cleanup expenses the agency has incurred are damages within the meaning of the insurance policy. We must now determine, however, whether the California Supreme Court would extend this holding and find that costs incurred to comply with a consent decree are damages. We conclude that it would. 6 87 The first issue is whether such costs are sums the insured are legally obligated to pay. That the insured voluntarily assumed the obligation to conduct cleanup, rather than forcing the government to assume the expenses of a coercive suit or of cleanup itself, should not change the analysis that a legal obligation to be responsible for cleanup does exist. 88 Our analysis of whether consent decree costs are damages parallels the AIU court's discussion of injunctive relief. Consent decrees are an alternative means for government agencies to ensure that cleanup takes place. They are a favored method, as they provide for more rapid, and less costly, cleanup than does full scale litigation. See 42 U.S.C. § 9622(a) (authorizing the President to facilitate agreements with potentially responsible persons in order to expedite effective remedial actions and minimize litigation). Faced with an obligation that it will have to meet, sooner or later, an insured would reasonably expect that, if it acts responsibly and cooperates with government agencies, it will not forego coverage to which it would be entitled if it forced the agencies to expend their resources in filing suit, particularly where cooperation will probably result in compliance at a lower cost to the insured (and thus to the insurer). Cf. AIU, 274 Cal.Rptr. at 845 (it is unlikely parties to CGL policies intended to cover reimbursement of response costs, but not costs of injunctive relief under which the parties arrive at the same result at a lower total cost); Globe Indem. Co. v. People, 43 Cal.App.3d 745, 118 Cal.Rptr. 75, 79 (1974) (where insured is covered for damage to property of third parties, insured could reasonably expect coverage would also exist for costs of mitigating such damage). Coverage of cleanup costs should not turn on the fortuity of the form in which the offending company fulfills its cleanup responsibilities. See AIU, 799 P.2d at 1278 (espousing rationale that making insurance coverage hinge on  'mere fortuity'  of the government's choice of enforcement methods would introduce substantial inefficiency in the cleanup process). Thus, we hold that the damages language is ambiguous as to coverage of this alternative means of CERCLA enforcement as well and, construing the clause, as we must, against the insurer, Hanson v. Prudential Insurance Co., 783 F.2d 762, 764 (9th Cir.1985), we find costs incurred pursuant to a consent decree are covered damages. 89 Public policy supports this holding. If consent decree compliance costs did not constitute damages, insureds would be discouraged from entering into consent decrees, and the EPA's task would be made more time consuming and more costly. Cleanup would be delayed until the government expended its resources to investigate contamination, and perhaps even to conduct cleanup itself, and finally sought relief from the insured. See Stephen Mountainspring, Insurance Coverage of CERCLA Response Costs: The Limits of damages in Comprehensive General Liability Policies, 16 Ecology L.Q. 755, 797-98 (1989) (insurance coverage of response costs would encourage PRP cooperation and thus contribute to conserving government resources). The policy arguments on the other side are not persuasive. Arguably, insureds, confident of the deep pockets of the insurer, will have no incentive to minimize their liability by finding the least costly means of decontamination, assuming cleanup obligations only when they are clearly responsible, and preventing contamination in the first place. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348, 1355 (4th Cir.1987) (insured would tend to overuse free resource of insurance), cert. denied, 484 U.S. 1008, 108 S.Ct. 703, 98 L.Ed.2d 654 (1988). However, certain checks remain in place. The insured will always be concerned that the insurer might deny coverage under an exclusion, and thus will have an incentive to minimize decontamination costs and to prevent pollution. Also, it defies common sense to suggest that a party ever has an incentive voluntarily to assume liability for contamination for which it does not strongly believe it is responsible. Finally, we rely on the good faith of insureds to conduct responsibly their negotiations with government agencies. 90 Potentially more troubling is the difference between consent decrees and suits for injunctive relief or reimbursement. Such suits have a coercive dimension not present in the context of a consent decree. A consent decree is more akin to a settlement. Generally, insurers have an active role in any settlement by the insured. In the case before us, though, the insured has had no such participation. As we have just noted, however, we believe insureds have adequate incentives to protect their own, and thus their insurers', interests when they negotiate consent decrees. Insureds are unlikely carelessly to enter into overbroad consent decrees. Moreover, our holding here will give insurers incentives to do what Hartford has failed to do in this case: to follow more closely the insured's efforts to meet its cleanup obligations.