Opinion ID: 575203
Heading Depth: 4
Heading Rank: 1

Heading: AIU Ins. Co. v. FMC Corp.

Text: 69 FMC was insured by AIU under a series of policies which contained damages language identical or similar to the clause in Intel's policy with Hartford. The U.S. and local administrative agencies (collectively, the agencies) filed suit against FMC for alleged violations of CERCLA and other environmental statutes. The agencies sought injunctive relief compelling decontamination of FMC waste disposal sites, and reimbursement for the agencies' costs of investigating and monitoring waste disposal and initiating cleanup. FMC sought recovery from its insurer for costs incurred pursuant to these suits. 70 The California Supreme Court held that FMC's costs of complying with the injunction and the reimbursement it was required to pay were sums ... [FMC became] legally obligated to pay as damages because of ... property damage. It looked first at the phrase legally obligated, and found that although both injunctions and awards of response costs under CERCLA reasonably can be viewed as equitable relief, as a matter of plain meaning, the term 'legally obligated' covers injunctive relief and recovery of response costs. AIU, 799 P.2d at 1266. 71 The court then examined the two forms of relief the agencies sought. It first explored more generally the term damages. It noted that, while statutory and dictionary definitions of damages were relatively straightforward, the application of this term to the remedies available to the agencies under CERCLA creates some ambiguity: 72 [T]he policies necessarily present some ambiguity in light of statutory schemes that by their very operation tend to eliminate the formal distinction between compensation paid to an aggrieved party and sums expended by the insured under compulsion of injunction. 73 . . . . . 74 To the extent that policy language is ambiguous in light of the way environmental statutes authorize relief, our goal remains to protect the objectively reasonable expectations of the insured. 75 Id. at 1268-69. 76 The court then held that reimbursement of government response costs constituted damages within the meaning of the policy: 77 The ordinary, nontechnical meaning of damages, as stated by statute and dictionaries and used by the courts in related contexts, encompasses reimbursement of response costs. The agencies' expenditure of federal funds to investigate and initiate cleanup of hazardous waste constitutes loss or detriment. Furthermore, reimbursement by responsible parties is monetary compensation for such loss. 78 Id. at 1269. 79 The court rejected several arguments against its holding. In particular, it rejected the argument that the distinctions or definitions contained in CERCLA with regard to the types of available relief were relevant to its determination: at issue was the interpretation of the insurance policy under state law. It also rejected the argument that the agencies' remedial action was prophylactic in nature: 80 Because the third party suits here rest on allegations of past and present damage to land and water on and surrounding hazardous waste sites, they concern reimbursement not for prophylactic purposes, but rather for remedial mitigative actions. 81 . . . . . 82 Thus, even if government response costs are incurred largely to prevent damage previously confined to the insured's property from spreading to government or third party property (ie., the costs are mitigative in character), reimbursement of such costs constitutes damages in ordinary terms. 83 Id. at 1272. 84 The court then turned to the issue of the costs of compliance with injunctions. It acknowledged that [t]he costs of injunctive relief, whether incurred for prophylactic, mitigative, or remedial purposes, do not readily satisfy the statutory or dictionary definitions of 'damages.'  Id. at 1276. However, it observed that the relationship between injunctive and reimbursement relief under CERCLA is not the same as that between damages and injunctive remedies traditionally available at common law and in equity. Id. Government agencies seek injunctive relief rather than incur costs themselves because government cleanup efforts are generally considerably more expensive than cleanups performed by the responsible party. Id. at 1275. Under CERCLA and similar statutes, injunctive relief and reimbursement of response costs serve substantially the same purpose. Id. at 1278. It is unlikely ... that the parties to CGL policies intended to cover reimbursement of response costs but not the costs of injunctive relief, at least where the latter costs are incurred--generally at a lower total cost--for exactly the same purposes addressed through governmental expenditure of response costs. Id. Thus, the court found: CGL policy language is ambiguous as applied to remedial and mitigative costs incurred pursuant to injunction under CERCLA and similar statutes, and therefore must be construed in favor of coverage to satisfy the reasonable expectations of the insured. Id. It would apply this construction regardless of any formal or technical difficulties this reading poses. Id. at 1278 n. 18. 85 In concluding, the court interpreted the phrase because of property damage. It held that all costs arising from the contamination at issue were incurred  'because of' property damage, whether the cleanup took place on the property of FMC or of third parties: The provisions at issue here do not specify that coverage hinges on the nature or location of property damage. We therefore construe them to encompass damages because of property damage in general, regardless of by whom it is suffered. Id. at 1279. However, the court also noted one exception to the insurer's obligation to cover cleanup costs: costs incurred to pay for prophylactic measures, measures taken in advance of any release of hazardous waste, were not covered by the policies. Id.