Court Opinion

ID: 8959204
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:29:49.616835+00
Date Added: 2024-06-11T17:10:08.922251
License: Public Domain

REHEARING EÑ BANC
Both Continental and the state filed petitions for rehearing en banc. Both petitions for rehearing en banc were granted, and the parties, and several amici curiae, including the federal government, several “hazardous waste generators,” the AIA, and several other insurers, filed supplemental briefs.
For reversal the state argues that (1) the district court erroneously held “property damage” did not occur until the federal and state governments actually incurred cleanup costs; (2) the plain meaning of the policy term “damages” includes “equitable” monetary relief such as cleanup costs or, alternatively, the policy term “damages” is ambiguous and should be construed against the insurer to include payment of cleanup costs; (3) cleanup costs are merely a measurement of “damages” for “property damage,” and the characterization of cleanup costs as equitable for purposes of seventh amendment analysis is inapplicable to questions involving insurance coverage; and (4) finally, the public interest in mitigating environmental pollution and cleaning up hazardous waste sites strongly supports imposing liability for the cleanup costs on the polluters and their insurers. The state also argues that, although it is not necessary to reach the “trigger” of coverage issue on appeal, if the court reaches that issue, Missouri courts would adopt the “injury-in-fact” theory, not the “exposure” theory.
Continental argues that (1) the district court correctly held that “property damage” did not occur until the federal and state governments actually incurred cleanup costs; (2) cleanup costs are equitable costs, not legal “damages,” and thus are not recoverable under the CGL policies; and (3) cleanup costs constitute economic losses, not “property damage,” and thus are not recoverable under the CGL policies. Continental agrees with the state that it was not necessary to reach the “trigger” of coverage issue, but argues that if the court reaches that issue, there was no “occurrence” of property damage within the policy periods because cleanup costs were not incurred until sometime in 1980 at the earliest.
The amici curiae have advanced similar arguments. The federal government filed an amicus brief in support of the state, arguing that (1) for purposes of insurance coverage, “property damage” occurs at the time of injury or physical damage to the property itself, not at the time cleanup costs are incurred, and (2) under Missouri law cleanup costs are “damages” which NEPACCO is legally obligated to pay because of “property damage.” Several “hazardous waste generators” also filed an amicus brief in support of the state, arguing that insurers are liable for cleanup costs because such costs are “damages.” The AIA and several London insurance underwriters filed amicus briefs in support of Continental, arguing that, under the CGL policies in question, (1) cleanup costs are not legal “damages” and (2) cleanup costs constitute only economic losses, not “property damage.”
The dispositive issue is whether the term “damages” in the standard-form CGL policy includes cleanup costs. We need not reach the other issues raised on appeal, such as whether environmental contamination caused by improper disposal of hazardous wastes constitutes “property damage” or whether Missouri would adopt the “exposure” theory of coverage. However, we agree that environmental contamination caused by improper disposal of hazardous wastes can constitute “property damage.” See Port of Portland v. Water Quality Insurance Syndicate, 796 F.2d 1188, 1195-*98496 (9th Cir.1986) (oil pollution of water constitutes damage to tangible property); Maryland Casualty Co. v. Armco, Inc., 643 F.Supp. 430, 433 (D.Md.) (holding toxic waste dumps that contaminate the environment cause “property damage”; also distinguishing “property damage” from “damages”), aff'd, 822 F.2d 1348 (4th Cir.1987), petition for cert. filed, 822 F.2d 1348 (1987); Lansco, Inc. v. Department of Environmental Protection, 138 N.J.Super. 275, 350 A.2d 520, 524 (Ch.Div.1975) (oil spill into water caused damage to identifiable physical property), aff'd, 145 N.J.Super. 433, 368 A.2d 363 (App.Div.1976), cert. denied, 73 N.J. 57, 372 A.2d 322 (1977); Kutsher’s Country Club Corp. v. Lincoln Insurance Co., 119 Misc.2d 889, 465 N.Y.S.2d 136, 139 (Sup.Ct.1983) (oil spill into water constituted property damage). But see Mraz v. Canadian Universal Insurance Co., 804 F.2d 1325, 1328-29 (4th Cir.1986) (governmental claims for cleanup costs are not claims for damages due to “property damage”), rev'g Mraz v. American Universal Insurance Co., 616 F.Supp. 1173, 1177 (D.Md.1985).
We also agree that Missouri would probably adopt the “exposure” theory of coverage. See, e.g., Hawkeye-Security Insurance Co. v. Iowa National Mutual Insurance Co., 567 S.W.2d 719, 720 (Mo.Ct.App.1978), citing Kirchner v. Hartford Accident & Indemnity Co., 440 S.W.2d 751 (Mo.Ct.App.1969); Kissel v. Aetna Casualty & Surety Co., 380 S.W.2d 497, 509 (Mo.Ct.App.1964). However, application of either the “exposure” or “injury-in-fact” theory of coverage would make little difference because of the specific facts presented in the EPA and IPC cases. Cf. Abex Corp. v. Maryland Casualty Co., 252 U.S.App.D.C. 297, 790 F.2d 119, 125 (1986) (asbestos tort cases; following “injury-in-fact” theory adopted in American Home Products Corp. v. Liberty Mutual Insurance Co., 748 F.2d 760, 765 (2d Cir.1984) (coverage triggered when injury actually occurs during policy period, whether or not diagnosable during policy period)). Under the specific facts presented, the crucial events— the improper disposal of the hazardous wastes (wrongful act), the release of hazardous wastes into the environment (exposure), the contamination of the environment (injury-in-fact), — all happened virtually simultaneously. For example, in the EPA case, the improper disposal of the hazardous wastes immediately resulted in their release into the environment in July 1971. Because by definition hazardous wastes are extremely harmful, there was clearly both “exposure” and “injury-in-fact” during the first policy period. In the IPC case the contaminated dirt was not used as landfill at the Minker/Stout/Ro-maine Creek site until 1974, and thus there was no exposure or injury-in-fact until after the expiration of the third policy period. But cf. Eagle-Picher Industries, Inc. v. Liberty Mutual Insurance Co., 523 F.Supp. 110 (D.Mass.1981), modified, 682 F.2d 12, 17 (1st Cir.1982) (“manifestation” theory; coverage triggered if asbestos-related disease became “reasonably capable of medical diagnosis” during policy period), cert. denied, 460 U.S. 1028, 103 S.Ct. 1280, 75 L.Ed.2d 500 (1983).
As a threshold matter, the state argues that we should not consider the “damages” issue because it was raised by the AIA on appeal and was not raised by a party until Continental filed its supplemental brief for rehearing en banc. Ordinarily, we consider only issues argued in the briefs filed by the parties and not those argued in the briefs filed by interested nonparties. See, e.g., Preservation Coalition, Inc. v. Pierce, 667 F.2d 851, 861-62 (9th Cir.1982). Nonetheless, we can consider issues not raised in the briefs or in oral argument, particularly when substantial public interests are involved. See, e.g., Consumers Union v. FPC, 166 U.S.App.D.C. 276, 510 F.2d 656, 662 & nn. 9-10 (1974) (per curiam on petition for rehearing).
The “damages” issue is properly before the court en banc. It was expressly raised by the AIA in its initial amicus brief, and the state responded to the AIA’s argument in its reply brief. The “damages” issue was considered and discussed at length by the panel majority, 811 F.2d at 1187-89, and the panel dissent, id. at 1193-*98595, and in fact was the only point of significant disagreement between the majority and dissenting opinions. Moreover, the broad issue of the availability of liability insurance coverage under standard-form CGL policies for the costs of cleaning up hazardous waste sites is a question of substantial importance not only to liability insurers and their insureds, but to the public as well.
This case involves the construction of standard-form CGL insurance policies. “An insuring obligation is a contract, and coverage exists only if assumed by the terms of the policy.” Aetna Casualty & Surety Co. v. Hanna, 224 F.2d 499, 503 (5th Cir.1955) (Hanna). The district court correctly applied the law of Missouri, the forum state. See Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Missouri has adopted the most significant relationship test set forth in the Restatement (Second) Conflict of Laws § 188 (1971). See American Institute of Marketing Systems, Inc. v. Brooks, 469 S.W.2d 932 (Mo.Ct.App.1971) (contracts), and is the state with the most significant contacts with the parties and the CGL policies. See, e.g., Havenfield Corp. v. H & R Block, Inc., 509 F.2d 1263, 1267-68 (8th Cir.), cert. denied, 421 U.S. 999, 95 S.Ct. 2395, 44 L.Ed.2d 665 (1975).
Under Missouri law
[t]he rules of construction applicable to insurance contracts require that the language used be given its plain meaning. If the language is unambiguous the policy must be enforced according to such language. If the language is ambiguous it will be construed against the insurer. Language is ambiguous if it is reasonably open to different constructions; and language used will be viewed in light of “the meaning that would ordinarily be understood by the lay[person] who bought and paid for the policy.”
Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo.1982) (banc) (citations omitted); see also Pearce v. General American Life Insurance Co., 637 F.2d 536, 539 (8th Cir.1980) (Missouri law); Bellamy v. Pacific Mutual Life Insurance Co., 651 S.W.2d 490, 495-96 (Mo.1983) (banc).
Case law on this issue is sharply divided. Compare Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352-55 (under Maryland law, holding “damages” does not cover cleanup costs; citing cases), with New Castle County v. Hartford Accident & Indemnity Co., 673 F.Supp. 1359, 1365-67 (D.Del.1987) (under Delaware law, holding “damages” covers cleanup costs; citing cases). For the reasons discussed below, we hold that the term “damages” is not ambiguous in the insurance context and that the plain meaning of the term “damages” used in the CGL policies refers to legal damages and does not cover cleanup costs.
Viewed outside the insurance context, the term “damages” is ambiguous: it is reasonably open to different constructions. Webster’s Third New International Dictionary 571 (1971) defines “damages” as “the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for wrong or injury caused by a violation of a legal right.” The dictionary definition does not distinguish between legal damages and equitable monetary relief. E.g., New Castle County v. Hartford Accident & Indemnity Co., at 1366. 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.
In the insurance context, however, the term “damages” is not ambiguous, and the plain meaning of the term “damages” as used in the insurance context refers to legal damages and does not include equitable monetary relief. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352. The CGL policies require Continental to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies caused by an occurrence.” (Emphasis added.) “The obligation of the insurer to pay is limited to ‘damages,’ a *986word which has an accepted technical meaning in law.” Hanna, 224 F.2d at 503. Although not defined in the CGL policies, “[t]he word ‘damages’ is not ambiguous in the insurance context. Black letter insurance law holds that claims for equitable relief are not claims for ‘damages’ under liability insurance contracts.” Maryland Casualty Co. v. Armco, Inc., 643 F.Supp. at 432, citing Haines v. St. Paul Fire & Marine Insurance Co., 428 F.Supp. 435, 439-41 (D.Md.1977) (applying Maryland law), Hanna, 224 F.2d at 503-04, and Desrochers v. New York Casualty Co., 99 N.H. 129, 106 A.2d 196, 198-99 (1954). But see, e.g., New Castle County v. Hartford Accident & Indemnity Co., at 1365-67 (applying Delaware law; citing cases); United States Aviex Co. v. Travelers Insurance Co., 125 Mich.App. 579, 336 N.W.2d 838, 843 (1983); Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J.Super. 516, 528 A.2d 76, 82-83 (App.Div.1987) (citing cases).
This limited construction of the term “damages” is consistent with the provision defining the insurer’s obligation as a whole. Continental did not agree to pay “all sums which the insured shall become legally obligated to pay.” Continental agreed to pay “all sums which the insured shall become legally obligated to pay as damages.” The expansive reading of the term “damages” urged by the state would render the term “all sums” virtually meaningless. “If the term ‘damages’ is given the broad, boundless connotations sought by the [insured], then the term ‘damages' in the contract ... 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 Casualty Co. v. Armco, Inc., 822 F.2d at 1352.
Such a limited construction of the term “damages” is also consistent with the distinction drawn in insurance law between money damages and injunctive relief. “Traditionally, courts have found no insurance coverage for the costs of complying with an injunction even in cases where the suits could have been brought for damages.” Maryland Casualty Co. v. Armco, Inc., 643 F.Supp. at 434. See also Hanna, 224 F.2d at 503-04; Garden Sanctuary, Inc. v. Insurance Co. of North America, 292 So.2d 75, 77-78 (Fla.Ct.App.1974); Ladd Construction Co. v. Insurance Co. of North America, 73 Ill.App.3d 43, 29 Ill.Dec. 305, 307-08, 391 N.E.2d 568, 570-73 (1979).
The limited construction of the term “damages” is also consistent with the statutory scheme of CERCLA § 107(a)(4), 42 U.S.C. § 9607(a)(4), which differentiates between cleanup costs and damages. Under CERCLA cleanup costs are not substantially equivalent to compensatory damages for injury to or destruction of the environment. Some cases have overlooked the difference between recovery of cleanup costs under CERCLA § 107(a)(4)(A) (by governments), (B) (by “any other person”), 42 U.S.C. § 9607(a)(4)(A), (B), and recovery of damages for injury, destruction or loss of natural resources under CERCLA § 107(a)(4)(C), 42 U.S.C. § 9607(a)(4)(C). For example, in United States Aviex Co. v. Travelers Insurance Co., 336 N.W.2d at 843 (citations omitted), the court was persuaded that the distinction between recovery of cleanup costs and recovery of damages for damage to natural resources was “merely fortuitous from the standpoint of either [the insured] or [the insurer].” The court reasoned that whether the government chooses to cleanup the pollution itself and then sue to recover its cleanup costs, or sues to recover damages for the damage to natural resources, “[t]he damage to the natural resources is simply measured in the cost to restore the [environment] to its original state,” and rejected the argument that the term “damages” should be limited to legal damages and should not include equitable costs. Id.
Moreover, the distinction between recovery of cleanup costs and recovery of damages is not “merely fortuitous” to either the insured as a CERCLA and RCRA defendant or to the insurer. The cost of cleaning up a hazardous waste site often exceeds its original value. On the other hand, some natural resources are of excep*987tional value and their destruction could greatly exceed the cost of cleaning up any hazardous waste contamination. A significant difference between the measurement of liability for cleanup costs and for damage to natural resources could determine whether the government sues for cleanup costs or for damages. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1353, citing Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla.1962) (restoration of strip-mined land cost four times its potential value), cert. denied, 375 U.S. 906, 84 S.Ct. 196, 11 L.Ed.2d 145 (1963); cf. Jack L. Baker Cos. v. Pasley Manufacturing & Distributing Co., 413 S.W.2d 268, 273-74 (Mo.1967) (under Missouri law, measure of damages to real property is lesser of either difference in value before and after injury or cost of restoring property to original condition).
Whether the government seeks recovery of cleanup costs, damages for destruction or loss of natural resources, or both, may make little difference to the insured as a CERCLA or RCRA defendant. As noted above, there may be little difference between the dollar amount the insured may have to pay as cleanup costs under CERC-LA § 107(a)(4)(A), 42 U.S.C. § 9607(a)(4)(A), and the dollar amount the insured may have to pay as damages under CERCLA § 107(a)(4)(C), 42 U.S.C. § 9607(a)(4)(C). Nonetheless, the type of relief sought is critical to the insured and the insurer, because under the CGL policies the insurer is liable only for legal damages, not for equitable monetary relief, such as cleanup costs. “The insurance contract, which controls the obligations between the parties and therefore centers the focus of this court, is written in terms of the relief sought....” Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352. Here, the federal and state governments seek recovery of cleanup costs under CERCLA § 107(a)(4)(A), 42 U.S.C. § 9607(a)(4)(A) (costs of removal or remedial action), and RCRA § 7003(a), 42 U.S.C. § 6973(a) (abatement costs). These lawsuits are essentially equitable actions for monetary relief in the form of restitution or reimbursement of costs. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352-53; cf. EPA, 810 F.2d at 749 (for purposes of determining seventh amendment jury trial issue; cases cited). The federal and state governments have not sought recovery of “damages for injury to, destruction of, or loss of natural resources,” pursuant to CERCLA § 107(a)(4)(C), 42 U.S.C. § 9607(a)(4)(C).
Accordingly, we hold that the federal and state governments’ claims for cleanup costs under CERCLA § 107(a)(4)(A), 42 U.S.C. § 9607(a)(4)(A), and RCRA § 7003(a), 42 U.S.C. § 6973(a), are not claims for “damages” under these CGL policies.
The issues in the Capstick litigation require additional factfinding and analysis and are therefore unsuitable for summary disposition. The private individuals in Cap-stick seek, in part, recovery of damages for personal injury and property damage due to the improper disposal of hazardous wastes. Cf. CERCLA § 107(a)(4)(C) (damages for damage to natural resources), 42 U.S.C. § 9607(a)(4)(C). These claims are claims for “damages,” not cleanup costs, and are covered within the terms of the CGL policies. We express no opinion on the issue of the insurer’s liability for claims for damages under the CGL policies.
The order of the district court is affirmed.