Opinion ID: 2610834
Heading Depth: 5
Heading Rank: 2

Heading: Costs of compliance with injunctions

Text: (13) The statutes on which the third party suits are based provide that, in lieu of remedying contamination and seeking reimbursement, the agencies may obtain injunctions compelling responsible parties to both cease discharging hazardous waste and clean up damage already present. (See ante, p. 816.) As courts and commentators have recognized, government cleanup efforts are generally considerably more expensive than cleanups performed by the responsible party. (See, e.g., Intel, supra, 692 F. Supp. at p. 1183; Chemical Applications Co. v. Home Indemnity Co. (D.Mass. 1977) 425 F. Supp. 777, 778-779; Pendygraft et al., Who Pays for Environmental Damage: Recent Developments in CERCLA Liability and Insurance Coverage Litigation (1988) 21 Ind.L.Rev. 117, 151.) For this reason, federal and state governments generally seek voluntary and involuntary cleanup by the responsible party (pursuant to injunction if necessary) before performing it themselves and seeking reimbursement under CERCLA. (See, e.g., Intel, supra, 692 F. Supp. at p. 1193; Health & Saf. Code, § 25355.5, subd. (a) [prohibiting state Department of Health Services from spending state Superfund funds prior to determining that potentially responsible party has not complied with orders or agreements to take corrective action].) We now examine whether any or all of the costs of complying with injunctions issued under CERCLA and similar statutes are damages under the CGL policies. The costs of injunctive relief, whether incurred for prophylactic, mitigative, or remedial purposes, do not readily satisfy the statutory or dictionary definitions of damages. Because such costs are paid to employees or independent contractors rather than aggrieved parties, they do not directly compensate aggrieved persons for loss or detriment. (See ante, pp. 828-830.) To be sure, in economic terms it may make little difference whether cleanup is performed and paid for directly by the insured pursuant to injunction or undertaken by the agencies (who then seek reimbursement). Nonetheless, it is difficult to construe the two methods of payment as equally covered by the ordinary definition of the word damages, as we have described it above. If the costs of injunctive relief may be deemed damages, the as damages limitation contained in the policies seems to be rendered meaningless. The costs of injunctions are essentially sums to which the insured becomes legally obligated to pay ... because of property damage. Construing them also to be sums to which the insured becomes legally obligated to pay as damages because of property damage makes the italicized phrase redundant. Because we are obligated to give effect to every part of an insurance policy (Civ. Code, § 1641), we hesitate to reach this result. It is unlikely, however, 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. In this respect, we note that the relationship between the remedies authorized by CERCLA and similar statutes is not the same as that between damages and injunctive remedies traditionally available at common law and in equity. In ordinary tort actions, injunctive relief is generally available only if legal remedies (e.g., monetary compensation) are inadequate. (Code Civ. Proc., § 526; Civ. Code, § 3422; see generally 6 Witkin, Cal. Procedure (3d ed. 1985) Provisional Remedies, § 276, p. 576, and cases cited therein.) Thus, a plaintiff ordinarily may seek to enjoin conduct that constitutes a nuisance, even though the activity complained of does not cause him any cognizable property or personal damage. In such a situation, the defendant's costs of complying with an injunction might not be covered by CGL policies. (See, e.g., Hanna, supra, 224 F.2d 499; Desrochers v. New York Casualty Co., supra, 106 A.2d 196; Garden Sanctuary, Inc. v. Insurance Co. of No. Amer., supra, 292 So.2d 75; Ladd Const. Co. v. Ins. Co. of North America (1979) 73 Ill. App.3d 43 [391 N.E.2d 568].) In Hanna, supra, 224 F.2d 499, the leading case holding that the cost of complying with mandatory injunctions in tort actions is not damages under CGL policies, adjoining property owners brought suit against the insured, alleging trespass by boulders and debris from the insured's property. The owners sought no damages (and there was no evidence that the value of their property had decreased as a result of the encroachment). Instead, they sought, and obtained, an injunction ordering the insured to remove the debris. The Fifth Circuit Court of Appeals held the costs of complying with the injunction not covered under the insured's liability policy, which contained substantially the same coverage clause as those at issue here. Its reasoning, however, focused on the fact that, under Florida law, the owners' potential damages remedy was limited to the diminution in value of their property; injunctive relief, by contrast, required monetary payment whether or not the value of the owners' property had decreased. Because there was no evidence of any decrease in property value, the court reasoned, the costs of complying with the injunction were not damages. ( Hanna, supra, 224 F.2d at p. 503.) We need not here decide whether the reasoning of Hanna is persuasive as a matter of California law. [17] Unlike Florida, California does not, as is noted above, absolutely limit damages for trespass to the diminution in value of the plaintiff's property. (See ante, p. 834.) Moreover, the basic foundation of the Hanna decision  the interplay of legal and equitable remedies in tort actions in which it is entirely speculative whether the plaintiff has suffered compensable harm  differs from the relationship between the various remedies authorized by CERCLA, under which injunctive relief may be available even though legal or restitutive remedies are adequate. (See, e.g., United States v. Waste Industries (4th Cir.1984) 734 F.2d 159, 168 [injunction available under RCRA even if reimbursement under CERCLA would be adequate remedy]; United States v. Conservation Chemical Co. (W.D.Mo. 1985) 619 F. Supp. 162, 212-213 [injunction under CERCLA, 42 U.S.C. § 9606, not absolutely barred by availability of reimbursement under 42 U.S.C. § 9607(a)].) The mere fact that the agencies seek an injunction in an environmental protection action does not indicate an absence of cognizable property damage or personal injury. The prima facie case for injunctive relief is identical to that for reimbursement of response costs, with the single added element of imminent and substantial endangerment of public health or welfare or the environment. (See, e.g., United States v. Bliss (E.D.Mo. 1987) 667 F. Supp. 1298, 1313.) Moreover, in its remedial aspects, the injunction results in exactly the type of expenditures involved in reimbursement of response costs, whether or not the agencies have an adequate remedy in the form of reimbursement. (See, e.g., United States v. Price (D.N.J. 1983) 577 F. Supp. 1103, 1112 [Congress intended injunctive relief under 42 U.S.C. § 9606 to be a viable alternative or concurrent means of achieving the same goal as reimbursement under 42 U.S.C. § 9607].) For these reasons, it would exalt form over substance to interpret CGL policies to cover one remedy but not the other. Given the practical similarity of remedies available under the environmental statutes at issue here, we believe a reasonable insured would expect both remedies to fall within coverage as damages. Insofar as injunctive relief is an equivalent substitute for the goal of government remedial action, the distinction relied on by Hanna, supra, 224 F.2d 499, is inapposite in the CERCLA context. A majority of courts have also reached this conclusion. Some have reasoned that such costs are damages according to the reasonable expectations of the parties, even if they would not be damages under technical definitions. (See, e.g., C.D. Spangler Construction Co. v. Industrial Crankshaft & Engineering Co., Inc., supra, 388 S.E.2d 557, 565; Aerojet, supra, 211 Cal. App.3d at p. 228; Chesapeake Utilities Corp. v. American Home Assur., supra, 704 F. Supp. at pp. 559-560.) Others have stated this conclusion in terms of public policy: costs of compliance must be interpreted as damages in the environmental context, because to hold otherwise would make insurance coverage hinge on the mere fortuity of the way in which government agencies seek to enforce cleanup requirements, would unreasonably constrain the agencies' choice of cleanup mechanisms, and would introduce substantial inefficiency into the cleanup process. (See, e.g., C.D. Spangler Construction Co., supra, 388 S.E.2d 557, 566; Intel, supra, 692 F. Supp. at pp. 1183, 1193; Chemical Applications Co. v. Home Indemnity Co., supra, 425 F. Supp. at pp. 778-779; United States Aviex Co. v. Travelers Ins. Co., supra, 336 N.W.2d at p. 843.) We agree with the underlying rationale of these decisions. Under CERCLA and similar statutes, injunctive relief and reimbursement of response costs serve substantially the same purpose. For this reason, we find 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. (See ante, p. 822.) In contrast to our determination, two federal Courts of Appeals have concluded that the costs of injunctive relief under CERCLA and similar statutes are not covered by CGL policies. (See NEPACCO, supra, 842 F.2d at p. 986; Armco, supra, 822 F.2d at p. 1353.) One of these decisions essentially relies on an uncritical adoption of the Hanna result ( supra, 224 F.2d 499). ( NEPACCO, supra, 842 F.2d at p. 986 [stating that black letter insurance law holds that claims for equitable relief are not claims for `damages' under liability insurance contracts, while citing four cases supporting the proposition and three challenging it in the environmental context].) The other decision supports its conclusion by referring to the prophylactic, and therefore uninsurable, nature of injunctive relief. (See, e.g., Armco, supra, 822 F.2d at p. 1353.) Because the reasoning of the Hanna court is not compelling in the CERCLA context, and because it is incorrect to portray injunctive relief under CERCLA and related statutes as wholly prophylactic in nature, we decline to follow these decisions. [18] It is true that some costs required under environmental injunctions are prophylactic in nature (e.g., altering dumping practices to prevent recurrences of leakage). As we discuss below, these costs are not incurred because of property damage, and therefore are not covered by CGL policies. Nevertheless, environmental injunctions requiring remedial and mitigative action result in costs that constitute damages under CGL policies. Because an insured would reasonably expect equal coverage of the costs of equivalent or alternative remedies, the costs of injunctive relief under the statutes in question here are damages for CGL purposes. [19]