ELR Citation: ELR 20622
No(s). 88-0469 (M.D. Pa. Dec 21, 1989)

The court, interpreting Pennsylvania law, holds that response costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) constitute "damages" under a comprehensive general liability (CGL) insurance policy, but recovery may not exceed the value of the property. The insurer sought declaratory relief to establish that it had no duty under its CGL insurance policies to indemnify the insured against response costs incurred in complying with CERCLA. The court first holds that the insurer did not waive its argument that CERCLA response costs were not covered by the policy, even though the insurer initially failed to expressly assert that such costs were not damages under the policy. The insurer's failure to make this assertion did not cause the insured to act to his detriment in reliance. The insurer agreed to provide the insured with a defense and paid to defend the action only under a reservation of rights. The court next holds that CERCLA response costs, like costs to repair property damage, are recoverable damages under CGL insurance policies. The measure of damages is the cost of repair unless such cost is equal to or exceeds the value of the property. In this case, the cost of these damages may not exceed the value of the property. The court next holds that the inclusion of pollution exclusion clauses in later policies does not bar coverage of the insured's CERCLA liability under earlier policies that did not contain pollution exclusion provisions. However, the court observes that under Pennsylvania law, the pollution exclusion plainly excludes gradual pollution. Here, the discharges occurred over a period of years. Thus, the insurer's only obligation is to provide coverage for the risks it contracts to cover. Finally, the court holds that settlements that extinquished contribution claims against the insured did not excuse the insurer from defending the underlying action.

Counsel for Plaintiff
Edward C. Toole Jr.
Clark, Ladner, Fortenbaugh & Young
1 Commerce Sq., 2005 Market St., Philadelphia PA 19103
(215) 241-1800

Counsel for Defendant
Thomas B. Schmidt III
Pepper, Hamilton & Sheetz
10 S. Market Sq., Ste. 400, P.O. Box 1181, Harrisburg PA 17108
(717) 258-1155

W. Edwin Jackson
Susquehanna Broadcasting Co.
140 E. Market St., York PA 17401
(717) 848-5500