Federal Circuit Court Insurance Decisions Contaminate Superfund Policy

Peter E. Hapke

Editors' Summary: As Superfund litigation proliferates and cleanup costs soar, the extent to which comprehensive general liability (CGL) policies cover the liability of PRPs for response costs incurred in the cleanup of hazardous waste becomes increasingly crucial. Both state and federal courts typically regard this question as one to be decided under state insurance law, and many courts deny coverage based on their interpretations of policy terms such as "occurrence," "damages," and "property damage." Over the last few years several of these cases have been decided by federal courts of appeal, which have largely opted to interpret such contract terms narrowly and to hold that response costs are not covered by CGL policies. The author examines these federal appellate decisions, criticizing them for their failure to recognize CERCLA's national goals of prompt and adequate reimbursement of hazardous waste response costs. The author argues that the courts, rather than creating a patchwork quilt of inconsistent law across the country, should look to CERCLA's purposes and craft a federal common law that provides insurance coverage under CGL policies for CERCLA response costs.

Peter E. Hapke is an associate at Hart, Bruner & O'Brien in Minneapolis, Minnesota.

[19 ELR 10393]

Since the 1970s, the disposal of hazardous substances has come under increasing scrutiny from both federal and state governments. Given the heightened public concern over the dangers associated with these substances, stricter enforcement of the existing statutes and more stringent regulation will likely occur. Statutes such as the Resource Conservation and Recovery Act (RCRA) regulate prospectively the management of hazardous substances from cradle to grave. Conversely, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) seeks to remedy the mistakes of our scientifically misguided past disposal practices.

The reach of Superfund's net is wide: potential responsible parties (PRPs) under CERCLA may include anyone owning property or operating a facility where hazardous waste is located, in addition to waste transporters and generators.

These PRPs may face lawsuits for cleanup costs, as well as private personal injury and property damage suits. PRPs are often faced with claims totaling in the millions of dollars; therefore, the extent to which such environmental liabilities will be covered under comprehensive general liability (CGL) insurance policies has become increasingly important. The courts are now seeing a rash of declaratory judgment actions by PRPs against their insurers to procure defense costs and indemnification.

Although CGL policies have existed for years, their application in the hazardous waste context has been anything but certain. Liabilities imposed by CERCLA were not anticipated by either insurers or insureds at the time most policies were originally issued.¹ The broad scope of danger posed by hazardous wastes is a recent discovery, and awareness of the danger increases daily. To date, however, the state and lower federal courts have been split in determining whether coverage should be required or what scope the coverage should embrace. The cases often turn on labels or artificial distinctions and lack the guidance of clear analytical approaches. The upshot has been a patchwork quilt of precedent across the 50 states.

The meaning of the policy terms "occurrence" and "property damage" has been one of the primary focuses of the courts.² Federal courts interpreting these contract terms apply the insurance law of the state that had the most significant relationship with negotiation of the insurance contract terms because interpretation of private insurance contracts is deemed to be a substantive matter under the Erie Doctrine. Consequently, the federal courts have been hamstrung in uniformly effectuating the policies and liability scheme of CERCLA.

A similar choice of laws problem has arisen in the area of contribution under CERCLA. Because of congressional compromise during enactment, CERCLA does not provide for joint and several liability, nor does it provide for liability allocation in many cases.³ To fill this gap, the federal district courts have begun to create federal common law in § 107 cost recovery actions by adopting common law principles of joint and several liability if the defendants have caused an indivisible harm.⁴ The courts base their creation of federal common law on CERCLA's national scope and importance, which implicate uniquely federal interests. The courts have identified two such [19 ELR 10394] federal interests: (1) the improper disposal or release of hazardous wastes is a complex national problem that crosses state boundaries;⁵ and (2) the United States' ability to protect its financial interest in the Superfund trust fund is directly related to the scope of liability under CERCLA.⁶

This reasoning concerning contribution applies to judicial interpretation of CGL policy terms as well. The same uniquely federal interests identified above are implicated in questions concerning insurance coverage for CERCLA response costs. As one commentator asserts, Congress intended CERCLA to supplement existing state laws for hazardous waste cleanup,⁷ rather then to relegate hazardous waste cleanup solely to state law. Nevertheless, the federal courts have continued to look to state insurance law to determine coverage issues in the CERCLA context.

Three recent federal circuit court decisions that interpret "occurrence" and "property damage" illustrate this narrow state law judicial focus, which ignores CERCLA's comprehensive liability scheme and its underlying policy: Mraz v. Canadian Universal Insurance Company,⁸ Maryland Casualty Company v. Armco, Inc.,⁹ and Continental Insurance Companies v. Northeastern Pharmaceutical Chemical Company (NEPACCO II).¹⁰ The NEPACCO II case was a rehearing en banc of an earlier Eighth Circuit panel decision (NEPACCO I).¹¹ In contrast to the other three decisions, the panel decision brought together previous case law and adopted a new, highly commendable approach for interpreting "occurrence" and "property damage" in CGL policies for insurance coverage of hazardous waste contamination.

This Article first examines important terms in standard CGL insurance contracts, and their traditional interpretations. Next, the Article focuses on special issues concerning whether CGL policies cover claims under Superfund for reimbursement of the cost of cleaning up environmental contamination. The Article analyzes the three recent federal appellate decisions that address the most controversial and problematic issues involved in the application of CGL policies to Superfund cost recovery claims. Finally, the Article considers the policy implications of these important decisions.

The CGL Policy Terms in Context

"Occurrence"

The widely used CGL policy protects the insured against claims arising because of damages to the property or person of someone other than the insured. The insurer promises not only to pay such claims but also to defend against them. Prior to 1966, the term "accident" triggered insurance coverage under the CGL policy. The term was not usually defined in the policy, thus giving rise to litigation involving the question whether the "accident" language required that the insurable event have occurred suddenly,¹² or whether it could encompass events occurring over time.¹³

In 1966, the term "occurrence" replaced the term "accident" in the CGL policy. The typical CGL policy now contains a provision:

The Company will pay on behalf of the insured all sums which the Insured shall become legally obligated to pay as damages because of A) bodily injury or B) property damage to which this insurance applies caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage.¹⁴

The typical CGL policy defines occurrence:

Occurrence means an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

In 1973, the occurrence definition was modified to make clear that an occurrence included "continuous or repeated exposure to conditions":

Occurrence means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

Further, the policy generally contains a clause:

The policy applies only to bodily injury or property damage which occurs during the policy period.¹⁵

Therefore, for coverage to exist, the insured must establish the existence of either bodily injury or property damage that is caused by an occurrence within the policy period.

Depending on the jurisdiction, pre-1966 policies may or may not require that the injury giving rise to the insured's liability occurred suddenly. Since the purpose of CGL coverage in any sort of accident is to protect insureds against the risk of liability for unanticipated damages to third parties, and not to insure them against liability for intentional injuries, courts have looked to see whether the insured "intended" or "expected" the damaging consequences to flow from its conduct.¹⁶ So long as the resulting [19 ELR 10395] damage is "unexpected" and "unintended," it will be deemed to be caused by "accident" or be an "occurrence."¹⁷

If the insured crosses this initial threshold, the court must then apply state law to determine whether the time of an occurrence within the meaning of a policy is the time when damage was sustained or the time when the negligent or wrongful act was committed.¹⁸ The majority of courts hold that the time of an occurrence is when damage is sustained.¹⁹ Determining when damage occurs can be difficult — is it when the act that causes the harm takes place, or when the damage is discovered?

Recently, in United States v. Conservation Chemical Company,²⁰ a federal district court, applying Missouri law, followed a logical trigger of coverage approach in which no determination regarding coverage can be made until extrinsic factual evidence has been considered. The Conservation Chemical court held that an insurer's duty to indemnify a waste site operator against CERCLA hazardous waste site cleanup liability is triggered during any policy period in which it is determined that exposure to waste material released by the operator actually resulted in damage to the off-site environment. The court held that such damage may occur upon exposure, at manifestation, or at some point after exposure but before manifestation.

If the damages occur over a period of time, many courts have taken the Conservation Chemical approach by treating the coverage issue as fact-specific and postponing consideration of the issue until the factual questions have been resolved.²¹ In addition, some courts have held that an insurer may be jointly and severally liable under a policy that only covers a portion of the damage period.²²

The number of "occurrences" is significant for the insured because the amount of coverage available, as well as the amount of the deductible, is tied to the "occurrence." Therefore, if each separate injury to property is found to be a separate occurrence, coverage limits will be greater, but so will corresponding deductibles. Conversely, if numerous damages are found to be caused by a single occurrence, both coverage limits and deductibles will be reduced. Courts have generally focused on the cause of the damage or injury in determining the number of occurrences. Under this analysis there is only one occurrence where there was one proximate, uninterrupted, and continuing cause that resulted in all the injuries and damage.²³

"Damages" and "Property Damage"

The typical CGL policy language states in pertinent part:

The insurer will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

a. bodily injury or

b. property damage

to which this insurance applies …²⁴

Property damage is defined in pertinent part as "physical injury to or destruction of tangible property which occurs during the policy period." Thus, the insurer's duty to indemnify arises when property damage occurs during the policy period. By implication, judicial interpretation of whether property damage has occurred in a specific case cannot be separated from the "occurrence" definition of the policy.

If the court finds that property damage during the policy period has occurred, then the court must decide whether "damages" incurred by the insured are covered by the policy. Although there is state and federal district court authority to the contrary,²⁵ the Fourth and Eighth Circuits hold that only legal damages are "damages" covered by the typical CGL policy. These circuits exclude injunctive or equitable relief, including cleanup or response costs, as compensable "damages."²⁶

CGL Policies and Hazardous Waste Response Costs

Today there is an explosion of litigation concerning the scope of coverage under CGL insurance policies. Federal and state governments increasingly assert liability against waste generators, transporters, and operators pursuant to CERCLA and RCRA. The overriding issues for all parties continue to be whether cleanup costs are covered by the CGL policies. Because most cleanups today involve disposal practices and contamination that began many years ago, the coverage issues focus on insurance policies drafted before 1980. Post-1980 policies, such as claims-made policies, are more precise in defining the scope of coverage,²⁷ and accordingly have not been the subject of significant litigation to date.

"Property damage" and "occurrence" are policy terms [19 ELR 10396] that concern the nature of the liability for which the insured is seeking coverage. They were drafted over a decade before CERCLA was enacted in 1980, and the terms were obviously designed to address the types of liability for which insureds had traditionally sought coverage. Superfund, however, has created a new form of liability, one that does not easily fit into the definitions and categories established by the preexisting policy language.

Superfund permits the government to take measures to protect the environment from damage caused by pollutants and contaminants. Section 107(a) of CERCLA establishes liability for:

(1) all costs of removal or remedial action incurred by the United States Government or a state not inconsistent with the national contingency plan;

(2) any other necessary costs of response incurred by any other person consistent with the national contingency plan; and

(3) damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction, or loss resulting from such a release.²⁸

The government can invoke its authority to sue for response costs even where the damages or threat of damages is confined to the responsible party's own facility or property. This contrasts with CGL language, which generally excludes coverage for damage to the insured's own property. In addition, the government, in response to an actual or threatened release, can either incur costs itself and seek reimbursement, or else seek equitable relief through an injunction ordering the responsible party to remedy the harm.

Insurers have often disclaimed coverage for Superfund response cost liability.²⁹ Insurance companies have generally asserted three defenses to coverage for Superfund liability: (1) that no property damage has occurred; (2) that lawsuits seeking equitable relief do not constitute suits for "damages"; and (3) that the policies do not cover measures taken to prevent the threatened release of hazardous substances.³⁰

The definition of "occurrence" has generally not proven to be a roadblock to litigants seeking coverage. By the early 1960s, many courts had held that "accident" policies provided coverage for damages that took place over time. This scope of coverage under the pre-1966 accident policies is significant for environmental contamination claims because often such contamination and resulting harm took place during the terms of such policies, potentially triggering their coverage. The 1973 amendment to the occurrence definition which added "continuous or repeated exposure to conditions" merely reinforced judicial findings that environmental contamination fit within the occurrence definition.

The courts have not been as liberal, however, in finding that damage to the environment constitutes "property damage" as defined in the CGL policy or that claims for response costs seek "damages." The latter question — the issue of what constitutes a suit for "damages" — is perhaps the most important insurance issue in the Superfund context. Although Superfund was enacted in 1980, none of the early 1980s' decisions that held cleanup cost claims to be covered damages or property damage was based on claims under state or federal superfund statutes.³¹ Rather, the cases that have found coverage were interpreting other environmental statutes and generally based their rationale on the right of the state to obtain damages for an injury to public resources in the environment.³²

These early cases finding coverage are not directly applicable to later coverage suits based on Superfund because the early cases turned on whether public natural resources constitute "property damage," not on whether cleanup costs constitute "damages."

Moreover, courts may implicitly fear that a flood of litigation will ensue if barriers to coverage are overridden. Insurers have asserted successfully that cleanup cost claims either constitute claims for equitable relief, or seek costs for preventive measures, and thus are not covered by CGL policies. The courts have been receptive to this argument, as evidenced by the line of cases holding that Superfund cleanup cost actions assert claims for restitution, an equitable remedy for which there is no right to a jury trial.³³ In addition, insurers argue that § 107 cleanup cost claims do not arise out of damage to an insured's property, but constitute "economic losses" that are not covered by CGL policies. Most courts, however, have denied coverage on the basis that cleanup or response cost claims are claims for equitable relief, which are not damages under the standard CGL policy.

A state appellate court in United States Aviex Co. v. Travelers Insurance Co.,³⁴ the first of a line of cases to reject this equitable/legal distinction, reasoned that "damages" should include all sums that the insured is obligated to pay by reason of liability imposed by law, including costs of complying with equitable or injunctive orders. Aviex had a liability policy with Travelers for a Michigan plant that handled toxic chemicals. After chemicals from the plant contaminated the local groundwater, the State of Michigan threatened to sue under a Michigan water pollution statute unless Aviex cleaned up the site. Aviex sought a declaratory judgment that Travelers was obligated to defend against and pay for any claims arising out of the spill, including cleanup costs. Travelers refused, arguing that because the state sought an injunction rather than its alternate statutory remedy of damages equal to [19 ELR 10397] the cost of cleanup, Travelers was not obligated by its CGL policy.³⁵

The Aviex court recognized the illogic of basing coverage on whether the lawsuit sought injunctive relief against the insured as opposed to legal, monetary damages.³⁶ The court expressed what has since become a minority position in both the state and federal courts that even when the cleanup claim is for injunctive relief, the policy covers the costs of the insured's compliance with the injunction.³⁷

Courts like the one in Aviex adopt this position because a state or federal government could just as easily remedy the contamination itself and sue the company for cleanup costs, rather than force the company to clean up the site through a court injunction or administrative order.³⁸ This position also reflects the statutory scheme of Superfund that requires governmental cleanup and allows subsequent cost recovery should the insured fail to comply with the request or order to clean up the site.³⁹

Significantly, at least fivefederal district courts have adopted the Aviex reasoning in the CERCLA context.⁴⁰ These courts, in deciding coverage under state insurance law, hold that CERCLA response costs are compensatory "damages" for "property damage" under the standard CGL policy. These federal district courts based their finding of coverage on state cases such as Aviex, where insureds have sought coverage for claims seeking environmental cleanup costs under other environmental statutes such as the Federal Water Pollution Control Act or a state environmental statute. As noted earlier, however, the Aviex reasoning represents a minority position in both state and federal courts for insurance coverage of CERCLA claims.

The Recent Federal Appellate Cases: Defining "Occurrence," "Property Damage," and "Damages"

The interpretation of the terms of a CGL policy in the context of Superfund response cost claims has been addressed by three recent federal appellate decisions. All three decisions, interpreting state law, denied coverage. The implications of this line of authority are far-reaching, making it more difficult to fund Superfund cleanups and refill depleted Superfund coffers.

Mraz v. Canadian Universal Insurance Co.

In August 1969, a company buried 1,300 barrels of chemical waste in a clay-lined pit known as the Leslie site. The disposal was done in cooperation with state and county health department officials. After the passage of CERCLA, the Environmental Protection Agency (EPA) and the State of Maryland investigated the site. On September 27, 1982, after the investigation, EPA informed Paul and Sally Mraz, the company owners, that the buried drums were leaking and in violation of the law. When Mraz refused to clean up the site or pay the expenses, EPA and Maryland removed the buried drums, disposed of the contaminated soil, treated the contaminated water, and took other cleanup measures. Soon thereafter, in 1983, the United States and Maryland sued Mraz and others in district court for their cleanup costs. The complaint alleged environmental damage to the Leslie site and nearby area and injuty to the health of residents near the site.⁴¹

Mraz sought coverage under the liability policy in effect at the time the barrels were buried. Canadian Universal refused to defend or indemnify Mraz on the grounds that the policy was no longer in effect. Mraz filed an action in state court seeking a declaratory judgment that Canadian Universal had a duty to defend and indemnify. Canadian Universal removed the action to federal court on the basis of diversity of citizenship. The district court held that the insurer had a duty to defend Mraz in the underlying action.⁴²

On appeal, the Fourth Circuit, applying Maryland insurance law, disagreed. The primary issues before the court were the definitions of "occurrence" and "property damage." The court first faced the question of when coverage for an occurrence would be triggered, and held that an occurrence takes place when the injuries first manifest themselves, or in the context of hazardous waste cases, when the leakage and damage are first discovered. The court reasoned that where the scope of damage remains concealed or uncertain for a period of time even though damage is occurring, such as with the leakage of hazardous waste, determining precisely when damage begins can be "difficult, if not impossible."⁴³

The policy defined "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage, neither expected nor intended from the standpoint of the insured."⁴⁴ This was the standard pre-1973 definition of "occurrence." The policy was only in effect in 1969. The court denied coverage because the complaint in the underlying case did not indicate that the release was discovered any earlier than 1981. Nor did the complaint allege any damage to the government plaintiffs occurring before 1981. Thus, the court found that there was no "occurrence" as the term was defined in the policy.⁴⁵

On the property damage issue, the district court had concluded that the complaint alleged property damage because it alleged that the release caused contamination of soil and water resulting in the need for the cleanup.⁴⁶ The Fourth Circuit, however, disagreed with the lower court on this [19 ELR 10398] issue as well. The court first reviewed CERCLA's liability provisions,⁴⁷ and determined that "natural resources" are limited to "resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States … [,] any State or local government, or any foreign government."⁴⁸ The court thus concluded that the United States and Maryland had not sought recovery for damage to natural resources under CERCLA. The court implied in dictum that it would have held for the government had its pleading alleged damage to the land or natural resources.⁴⁹

The court went on to reason that, although the complaint alleged that property damage had occurred, plaintiffs did not allege that they themselves had sustained property damage or that they had the requisite interest in the Leslie site.⁵⁰ Rather, the court found that the plaintiffs had only alleged response costs for cleanup of the site. Under CERCLA, the court noted, property damage and response actions are independent. For instance, the government may take response actions in cases of a substantial threat of a release of hazardous substances before any damage occurs. Without citing any case authority, the court concluded that response costs are an economic loss that cannot be equated with "injury to or destruction of tangible property," the Canadian Universal policy's definition of property damage.⁵¹

Maryland Casualty Co. v. Armco, Inc.

Another recent Fourth Circuit case, Maryland Casualty Company v. Armco, Inc., also rejects including government cleanup costs under the property damage definition. Maryland Casualty sought a declaratory judgment concerning its liability to its insured, Armco, arising out of a suit brought against Armco by the United States. The underlying suit was a claim against Armco for reimbursement and injunctive relief because of the alleged contamination to the environment at a Missouri hazardous waste site.

The Maryland Casualty panel, applying Maryland law, used different reasoning from that of the Mraz opinion. The court focused strictly on Maryland insurance law decisions and stated that "damages," as distinguished from claims for injunctive or restitutionary relief, includes "only payments to third persons when those persons have a legal claim for damages…."⁵²

The court reasoned that to give damages a broad interpretation would render its usage in the insurance contract as mere surplusage, since any obligation to pay would be covered. By adopting this narrow, technical definition of damages, the court ineluctably reached its conclusion to reject coverage. The court did not even address the CERCLA statutory language in reaching this decision.⁵³

Continental Insurance Companies v. NEPACCO

In July 1971, NEPACCO arranged to have at least 85 55-gallon drums of various chemical wastes, including dioxin, dumped in a trench on a farm near Verona, Missouri. When the deteriorated drums were dumped in the trench, a "strong odor" shortly emerged, persisting for several months.⁵⁴ On appeal of the insurance coverage issues to the Eighth Circuit, the court faced the same issues decided by the Mraz court: whether hazardous waste cleanup costs under CERCLA are recoverable under a liability policy that covers "property damages" that occur during the life of the policy, where disposal and environmental contamination took place during the policy period but cleanup costs were incurred later.

The Eighth Circuit held, in its panel decision, that in a CERCLA cost recovery action the date of the "occurrence" is the date when the hazardous wastes were improperly disposed of.⁵⁵

The en banc court in NEPACCO II adopted this same analysis regarding the definition of occurrence.⁵⁶ Unlike the Mraz court, the NEPACCO court had before it strong evidence of a starting point for the occurrence of property damage, since the district court in the underlying CERCLA litigation had found that chemical leakage occurred in July 1971 upon the dumping of the wastes. The district court had based its finding on the geological and hydrological unsuitability of the site for the disposal of hazardous waste, and the fact that the hazardous wastes had been stored in drums that at the time of disposal already were in a deteriorated condition.⁵⁷ That a strong odor was emitted shortly after disposal of the drums was evidence that leakage had already occurred.

The two appellate NEPACCO decisions diverged in their interpretations of "damages." In the panel decision, the majority held that, in addition to the actual owners of the polluted land, water, or air, the federal and state governments also sustained property damage because of their quasi-sovereign "interest [in natural resources] independent of and behind the titles of its citizens in all the earth and air within [their] domain."⁵⁸ The majority expressly rejected the argument raised by amicus curiae American Insurance Association that even if environmental contamination had caused "property damage," cleanup costs under CERCLA were not in themselves recoverable as "damages." After reviewing the statutory policy and language, the majority concluded that "cleanup costs [19 ELR 10399] under CERCLA are compensatory damages for 'property damage' within the meaning of the CGL policies."⁵⁹

In contrast with the panel decision, the en banc court analyzed "damages" strictly in the insurance context. The court recognized that case law on the issue of whether "damages" includes cleanup costs is sharply divided.⁶⁰ Relying on Maryland Casualty and similar authorities, the court noted that although "damages" is not defined in the CGL policies, black letter insurance law provides that claims for equitable relief do not constitute claims for "damages" under liability contracts. The court reasoned that the insurance company, Continental, did not agree to pay all sums that the insured shall become legally obligated to pay. Rather, Continental agreed to pay only sums that the insured shall become legally obligated to pay as damages. Quoting Maryland Casualty, the court stated: "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."⁶¹

To buttress this rationale, the court relied on the district court opinion in Maryland Casualty for the proposition that "[t]raditionally, 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."⁶² Further, the court rejected the Aviex rationale and found that the distinction between cleanup costs and recovery of damages is not "merely fortuitous" as the Aviex court had reasoned, because the cost of cleaning up a hazardous waste site often exceeds its original property value.⁶³ Conversely, the court noted, some natural resources are of exceptional value and their destruction could greatly exceed the cost of cleaning up any hazardous waste contamination.⁶⁴ Thus, reasoned the court, a significant difference in value could determine whether the government sues for cleanup costs or natural resource damages.

The court went on to say, however, that even if the dollar amount at issue does not differ under either claim, the type of relief sought is critical because under the CGL policies, the insurer is liable only for legal damages, not for equitable monetary relief such as cleanup costs.⁶⁵ From an insurer's point of view, investigative and remedial or cleanup action taken by the government concerning toxic contamination constitutes a safety measure because the government seeks to stop the future spread of hazardous waste contamination in an aquifer or other environmental medium, rather than repair or clean up present damage.

Legal Analysis of the Cases

"Occurrence"

The Mraz holding as to the definition of "occurrence" is poorly reasoned and improperly relies on inapplicable case law. The Mraz court held that an insurer that had issued a policy during the time the wastes were deposited, but that had cancelled the policy more than 10 years before any chemical releases were discovered, had not duty to defend or indemnify its insured against the government's CERCLA cost recovery claims. The court correctly distinguished hazardous waste leakage from ordinary negligence, where the tort is not deemed to have been committed until some damage occurs. The court recognized that in hazardous waste cases "damage remains concealed or uncertain for a period of time even though damage is occurring."⁶⁶ Nevertheless, the Mraz court rejected a trigger of coverage based on the time of the release of the chemical (the exposure rule) and instead adopted the manifestation of injury or damage rule, which is more appropriate for a personal injury negligence case where the negligence is not accompanied by immediate damage or injury. The three federal cases that the Mraz court relied on for adoption of the manifestation rule involve personal injury asbestos exposure rather than hazardous waste contamination.⁶⁷ Nevertheless, the court does not distinguish between the two types of cases. In asbestos exposure cases, the negligence is not accompanied by immediate damage or injury.

The district court in Mraz took a more satisfying analytical approach, similar to that of the Conservation Chemical court, by requiring further factfinding to determine whether "environmental damage began to take place immediately in 1969 upon dumping at the Leslie site creating the potential for liability within the scope of the 1969 policy."⁶⁸ Significantly, the district court held that the broader duty to defend is triggered by the existence of any potential for liability on the face of the complaint.⁶⁹ In contrast, other courts have adopted a narrower approach by holding that only insurers with policies active during the time period when hazardous wastes were "released" into the surrounding soil and groundwater have a duty to defend.⁷⁰

In NEPACCO both the panel and en banc courts also expressly applied the exposure rule in determining whether there had been an occurrence. It should be noted that NEPACCO is factually distinguishable from Mraz, since the NEPACCO holdings were premised on the factual finding that actual leakage began to occur during the term of the insurance contract, at the time of disposal of the waste.⁷¹

"Property Damage" and "Damages"

The judicial interpretations of "property damage" and [19 ELR 10400] "damages" in Mraz, Maryland Casualty, and the en banc decision in NEPACCO II reflect poor analysis. In contrast, the panel decision in NEPACCO I provides a correct and useful analytical framework for deciding these coverage issues.

The Fourth Circuit in Mraz equated response costs with economic loss, without citing any case law, and thereby rejected any property damage coverage under the policy.⁷² The court's position on economic loss has been adopted by the courts in NEPACCO II and Maryland Casualty.⁷³ The Mraz court's finding that no property damage occurred because the federal plaintiffs in the underlying CERCLA action made no allegations that they sustained property damage or had any interest in the Leslie site is equally misguided, given CERCLA's goal of providing for recovery of federally expended cleanup costs.⁷⁴ Further, the Fourth Circuit in Mraz did not recognize that case law on the response cost issue is divided by addressing the Aviex minority position that cleanup costs are recoverable.

The Maryland Casualty court did address the Aviex line that damages to natural resources are measured simply as the cost of restoration and whether a plaintiff sues for the damages or the cost should not determine the coverage under the insurance policy. The Maryland Casualty court rejected Aviex for two reasons. First, restitution or restoration might cost far more in restoring or cleaning up a contaminated marsh than it would to pay damages for its loss. Second, because insurance companies traditionally reimburse only damages arising from actual, tangible injury, courts should not construe insurance policies to cover costs of compliance with injunctive and reimbursement relief.⁷⁵

The NEPACCO I panel arrived at a better result. Relying on Supreme Court and lower court case law, the language of CERCLA § 107, the CGL policy language, and the common meaning of property damage, the NEPACCO I panel held that cleanup costs under CERCLA are compensatory damages for "property damage" within the meaning of the CGL policies. The Eighth Circuit first conducted a detailed analysis of the quasi-sovereign doctrine, concluding that the hazardous waste contamination injures the interests of the government. The court's reasoning was supported by Supreme Court case law and statutes showing that state and federal governments have property interests in wildlife,⁷⁶ interstate and intrastate navigable waters,⁷⁷ and natural resources in general.⁷⁸

Moreover, the court reasoned, "property damage" can include damage to land, trees, air, and water. Otherwise, CGL policies would not contain "pollution exclusion" clauses excluding environmental damage from coverage for property damage. If such coverage were not contemplated, then, logically, such exclusion clauses would be surplusage.⁷⁹

The court's reliance on the quasi-sovereign doctrine is problematic because all of the cases to which the court refers, except Missouri v. Holland,⁸⁰ deal exclusively with state rather than federal rights, or refer specifically to interstate navigable waters. Federal common law interests in natural resources are extremely limited. The NEPACCO I panel ignores this federal/state dichotomy concerning natural resources, except for quoting some unpersuasive language from some federal statutes.⁸¹ To the extent that state governments seek cleanup costs in Superfund claims, this argument gains cogency. When the federal government alone seeks such response costs, the quasi-sovereign doctrine loses its force.

The NEPACCO I panel court also disagreed with the Mraz court's position that only CERCLA § 107's natural resource damage provision authorizes recovery for property damages. The court found that "although subsection (C) directly provides for recovery for damage to natural resources, subsections (A) and (B), which include removal, remedial, and response costs, are also measures of the damages which governments may recoup for hazardous waste damage to natural resources."⁸² The court cited the Third Circuit's opinion in Riehl v. Travelers Insurance Co. which held logically that the measure of damages to groundwater and streams caused by seepage of waste from an insured's landfill "is not precisely calculable but includes abatement costs relative to preventing further pollution."⁸³

[19 ELR 10401]

Further, the NEPACCO I court asserted that the language of the CGL policies at issue supports the proposition that cleanup costs are a measure of recoverable damages. The language of the policies specifically required 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."⁸⁴ The court reasons that "this language suggests that once there is property damage — here, environmental contamination — then the damages that flow from that property damage — here, cleanup costs — are recoverable."⁸⁵

The majority en banc opinion in NEPACCO II is consistent with the panel decision except for interpretation of the "damages" term. The panel held that under Missouri law "damages" in the standard CGL policy includes cleanup costs, while the majority in the en banc opinion ruled otherwise. While the majority's construction of "damages" in the insurance context forms the basis of the en banc decision, the well-reasoned dissenting opinion undercuts this insurance definition rationale.⁸⁶ The dissent first asserts that the meaning of "damages" is an issue of Missouri law, which dictates that if insurance contract language is ambiguous, then it will be construed against the insurer and the language will be viewed in light of "the meaning that would ordinarily be understood by the layperson who brought and paid for the policy."⁸⁷

The dissent points out that the majority even concedes that "from the view point of the lay insured, the term "damages" could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs or losses."⁸⁸ The dissent also notes that the legal definition of "damages" under Missouri law includes the cost of restoring real property to its pre-damaged condition.⁸⁹ Further, the dissent recognizes that given the conflict in the lower courts on the hazardous waste damages issue in the insurance context, the majority is wrong to assert that black letter law holds that claims for equitable relief are not claims for damages.⁹⁰ Finally, the dissent correctly criticizes the majority's reliance on Maryland Casualty. Such reliance is misplaced because Maryland law is inconsistent with established Missouri law: Maryland adopts a narrow, technical definition of "damages," while Missouri accords the meaning a lay person would give it.⁹¹

In short, the en banc court discusses "damages" in a vacuum that ignores Missouri insurance law and, perhaps more importantly, CERCLA's crucial national goal of hazardous waste cleanup and reimbursement of response costs. Consequently, the impact of the decision on the other federal courts may be limited.⁹² The NEPACCO II court opinion underscores the inadequacy of relying on state law and reinforces the need for the federal courts to create federal common law for CGL insurance coverage of hazardous waste response costs.

Policy Implications

These three cases illustrate the difficulties involved when insurance contract issues arise in the context of CERCLA § 107 claims. The dissent in the NEPACCO II decision highlighted the essence of the problem: in interpreting CGL policy terms for coverage of hazardous waste contamination, federal courts apply state insurance law rather than federal environmental law. Because the coverage issue is a matter of contract interpretation, courts view themselves as compelled to ignore both the letter and underlying policy of CERCLA in their consideration of the coverage issue. Whether cleanup costs are covered by CGL policies turns on the insurance law of the state where the insurance contract was negotiated.

For example, the cases supporting the NEPACCO II majority decision that response costs are not "damages" apply state insurance law which adopts a narrow technical definition;⁹³ in contrast, those cases applying state law requiring that words in an insurance policy be given their ordinary, nontechnical definition usually hold that response costs are covered "damages."⁹⁴ A state-by-state and federal circuit-by-circuit checkerboard of precedent results.

The artificial distinction adopted by some courts between a complaint seeking injunctive relief and one explicitly asserting a claim for legal "damages" should be eliminated.⁹⁵ This rule, as exemplified by Mraz, Maryland Casualty, [19 ELR 10402] and the NEPACCO II decision, creates a disincentive for insureds to cooperate with EPA or state pollution agencies in cleaning up a site. To avoid the costs of litigation and preserve limited Superfund money, federal and state governments often enter into a consent decree or settlement that requires the PRP to clean up a site. Such settlements, which contain injunctive orders, usually result in a denial of coverage. As a strategy to avoid losing CGL insurance coverage, the insured might refuse to enter into a consent decree and wait for the government to sue the PRPs for legal "damages" after cleanup. Although insurers and courts often deny coverage for such government cleanup or response cost claims, the insured may decide that it is preferable to wait and hope for coverage for its judicially imposed liability.

Application of the federal appellate courts' approach not only fails to consider federal Superfund policy, which promotes cooperation among PRPs and speedy cleanup, but induces the government to pursue the deep-pocket polluter without regard to PRPs' proportional liability. The result is inequitable, since the PRP with the most liability may not have a deep pocket or insurance coverage. Because the PRP with the most liability may not have any financial resources, the deep-pocket PRP may not have viable contribution claims. If all PRPs had insurance coverage, then the government could pursue PRPs based on their degree of responsibility at the site.

Where complaints seek injunctive relief, or where insureds have entered into consent decrees, one commentator suggests that courts, in deciding on coverage, should query whether actual hazardous waste contamination, including contamination of surface water and groundwater, has taken place.⁹⁶ If so, costs of complying with the injunction or consent decree should be covered by a CGL policy even though the act of cleaning up pursuant to the injunction also protects against future property damage. In contrast, the CGL policy should not cover costs of complying with an injunction that only requires the insured to take preventive measures, because in such a case there has been no "property damage."⁹⁷ An example would be a Superfund cleanup order based only on a threat of property damage. This same reasoning should apply to a response cost complaint.

Both Maryland Casualty and NEPACCO II interpret "damages" narrowly as "a form of substitutional redress which seeks to replace the loss in value with a sum of money."⁹⁸ Regarding themselves as constrained by the definition of damages under the applicable state insurance law, these courts reject cleanup or response costs as within the ambit of "damages." The courts reason that the insurance company in its contract with the insured did not bargain to insure such a broad definition of damages; for example, it might cost far more to clean up a contaminated marsh than it would be to pay market value damages for its loss.

It is arguable that "damages" covered under CGL policies should be measured according to the traditional tort measure of recovery — diminution in market value or restoration costs, whichever is less. From a scientific and legal standpoint, the cleanup of a marsh or groundwater aquifer pursuant to a state or federal superfund statute is equivalent to its restoration. This approach to "damages" recognizes no artificial distinction between pleading for restoration and pleading for damages. Further, even if cleanup costs exceeded market value, this definition would seemingly provide a sum of money up to the market value of the property.

This approach, however, raises serious difficulties. Market value is inherently flawed as a measure of "damages" because society cannot easily measure seemingly intangible damages to a "public good" such as an underground aquifer or river or marsh. The private insurance industry could not profitably underwrite such imprecise damages as the market value of marsh land or an underground aquifer. The insurance industry depends upon actuarial certainty in drafting contracts, valuing potential liabilities and setting premiums; if required to calculate and include the value of public goods in CGL policies, insurance companies would likely stop underwriting such policies. American business would be profoundly affected, unless the federal or state government stepped in or self-insurance filled the vacuum.

Because of the difficulty in determining the market value of public resources, the remaining element of traditional tort recovery — the cost of restoration — should control what constitutes "damages." However, the insurance industry raises a number of objections to CGL coverage for cleanup costs. Insurers are very reluctant to construe insurance policies to encompass costs of compliance with injunctions and reimbursement for response costs because they see many of such costs as essentially prophylactic measures, similar to safety precautions. A natural system that is contaminated must purify itself over time; a government cleanup generally includes measures designed to stop or limit the flow of contamination to allow the natural system to restore itself. The insurance industry characterizes such cleanups as preventive measures, which are usually excluded from coverage.

This reasoning simply begs the question: how do you measure seemingly intangible injury or damage to groundwater or land? Basic restoration or cleanup of a drinking water aquifer may provide some measure, but any cleanup cannot eliminate all hazardous substances. Consequently, measures to prevent the spread of contamination are an essential part of any cleanup. Until society arrives at a way to measure the value of public resources, cleanup costs, including the cost of stopping the spread of contamination, provide a reasonable measure of damages.

Insurers are also reluctant to cover cleanup costs because they fear that companies or the government will be more likely to overutilize preventive measures as part of a site cleanup if an insurance company is paying the bill. These fears are unfounded. Corporations are not likely to undertake voluntarily or agree through a consent decree to preventive measures that are not necessary to stop the spread of contamination. Superfund monies are stretched to the limit; despite Superfund's strict language and lofty goals, governments and corporations will continue to cut costs in cleaning up sites.

[19 ELR 10403]

Although some insurers might argue that a broader interpretation of "damages" might create a disincentive for corporations and individuals to internalize their pollution costs, this argument is also a red herring. Given the panoply of environmental statutes and strict federal and state enforcement of environmental laws, most American corporations, regardless of the depth of their insurance coverage, are already complying with environmental regulations and internalizing pollution costs. One of the best incentives for companies to comply with environmental regulations is the multitude of citizen suit provisions in environmental laws and the attendant sting of adverse local media attention on the knowing corporate polluter. Insurance coverage should not be available for the intentional polluter; however, given that our federal environmental laws are almost 20 years old, such a truly knowing polluter is becoming rarer.

Conclusion

A balance should be struck between the concerns of the insurance industry and the public policy goals of the federal and state superfund laws that ensures that adequate monies are available to clean up our nation's hazardous waste sites. Unfortunately, the federal appellate courts have upset that balance in favor of the insurance carrier. In so doing, they are undercutting federal and state superfund policy to the detriment of the American public.

Given the constraints of state law in allowing courts to find CGL coverage, the federal courts should create federal common law in this area so that CERCLA's national goals are not submerged. The federal courts have already paved the way for such federal common law in recognizing joint and several liability and the right to contribution under CERCLA. The availability of insurance coverage for CERCLA response costs should also be part of the liability allocation equation to ensure that the fairest cost allocation occurs. Given the enormous societal and private costs of CERCLA hazardous waste cleanup, it is imperative that the courts consider CERCLA and its underlying policy in reaching CGL policy decisions. Such a body of federal case law would help to ensure the most cost efficient liability allocation and go a long way toward speeding up the cleanup of America's hazardous waste sites.

1. See Rosenbaum, Insurance, Hazardous Waste, and the Courts: Unforeseen Injuries, Unforeseen Law, 13 ELR 10204 (July 1983).

2. See United States v. Conservation Chemical Co., 653 F. Supp. 152, 195 (W.D. Mo. 1986). The other CGL terms that have been the subject of significant litigation are the "pollution exclusion" and the "owned property exclusion." This Article will not address these policy terms, however. See infra note 23.

3. In 1986, CERCLA § 113 was amended to allow PRPs to seek contribution from each other. The provision is effective for lawsuits filed on or after October 17, 1986. 42 U.S.C. § 9613, ELR STAT. 44041. Thus, many existing CERCLA PRPs cannot avail themselves of this statutory remedy.

4. See United States v. Stringfellow, 14 ELR 20385 (C.D. Cal. Apr. 5, 1984); United States v. South Carolina Recycling Disposal, Inc., 653 F. Supp. 984, 14 ELR 20272 (D.S.C. 1984). See also Note, A Right of Contribution Under CERCLA: The Case for Federal Common Law, 71 CORNELL L. REV. 668 (1986).

5. Note, A Right of Contribution, supra note 4, at 675 (citing United States v. Chem-Dyne Corp., 572 F. Supp. 802, 13 ELR 20986 (S.D. Ohio 1983)). The district court's rationale for creating federal common law rests on the rule that such law may be created to protect uniquely federal interests. Here, hazardous waste pollution is analogous to the federal interest in interstate water pollution discussed in Illinois v. City of Milwaukee, 406 U.S. 91, 2 ELR 20201 (1972).

6. Chem-Dyne Corp., 572 F. Supp. at 808, 13 ELR at 20988; Stringfellow, 14 ELR at 20387.

7. Note, A Right of Contribution, supra note 4, at 685.

8. 804 F.2d 1325, 17 ELR 20372 (4th Cir. 1986).

9. 822 F.2d 1348, 17 ELR 21277 (4th Cir. 1987), cert. denied, 108 S. Ct. 703 (1988).

10. 811 F.2d 1180, 17 ELR 20616 (8th Cir. 1987), rehearing en banc, 842 F.2d 977, 18 ELR 20819 (8th Cir. 1988), cert. denied sub nom. Missouri v. Continental Insurance Cos., 57 U.S.L.W. 3230 (U.S. Oct. 3, 1988) (No. 87-1953).

11. 811 F.2d 1180, 17 ELR 20616 (8th Cir. 1987).

12. See, e.g., Canadian Radium & Uranium Corp. v. Indemnity Insurance Co., 411 Ill. 325, 333, 104 N.E.2d 250, 255 (1952); City of Kimball v. St. Paul Fire & Marine Insurance Co., 190 Neb. 152, 161, 206 N.W.2d 632, 637 (1973).

13. See, e.g., American Casualty Co. v. Minnesota Farm Bureau Service Co., 270 F.2d 686, 690-91 (8th Cir. 1959).

14. Emphasis added.

15. Emphasis added.

17. See California Union Insurance Co. v. Landmark Insurance Co., 193 Cal. Rep. 461 (Cal. App. 1983); Bartholomew v. Insurance Co. of North America, 502 F. Supp. 246 (D.R.I. 1980), aff'd sub. nom. Bartholomew v. Appalachian Insurance Co., 655 F.2d 27 (1st Cir. 1981); United States Fidelity & Guaranty Co. v. American Insurance Co., 345 N.E.2d 267 (Ind. App. 1976).

18. See, e.g., United States v. Conservation Chemical Company, 653 F. Supp. 152, 195 (W.D. Mo 1986).

19. See, e.g., Mraz v. American Universal Insurance Co., 616 F. Supp. 1173, 15 ELR 21025 (D. Md. 1985), rev'd sub nom. Mraz v. Canadian Universal Insurance Co., 804 F.2d 1325, 17 ELR 20372 (4th Cir. 1986).

20. 653 F. Supp. 152, 197 (W.D. Mo. 1986). This injury-in-fact approach was established in American Home Products v. Liberty Mutual Insurance Co., 565 F. Supp. 1485 (S.D.N.Y. 1983), aff'd as modified, 748 F.2d 760 (2d Cir. 1984).

21. See, e.g., Michigan Chemical Corp. v. Travelers Indemnity Co., 530 F. Supp. 147 (W.D. Mich. 1982), rev'd on other grounds sub nom. Michigan Chemical Co. v. American Home Assurance Co., 728 F.2d 374, 14 ELR 20290 (6th Cir. 1984) (reserving the coverage issue until fact questions resolved). See also Mraz v. American Universal Insurance Co., 616 F. Supp. 1173, 1178-79 , 15 ELR 21025, 21027-28 (D. Md. 1985), rev'd sub nom. Mraz v. Canadian Universal Insurance Co., 804 F.2d 1325, 17 ELR 20372 (4th Cir. 1986).

22. California Union Insurance Co. v. Landmark Insurance Co., 193 Cal. Rep. 461 (Cal. App. 1983); Gruol Construction Co. v. Insurance Co. of North America, 524 P.2d 427 (Wash. App. 1974).

23. Courts, in analyzing CGL insurance coverage, must also address other policy terms that are often raised by insurers as defenses to coverage. These terms include: (1) the pollution exclusion, (2) an exclusion for damages to property owned by the insured, or in the care, custody, or control of the insured, and (3) an exclusion for damages arising from completed operations and product hazards.

24. Emphasis added.

25. See, e.g., United States Aviex Co. v. Travelers Insurance Co., 336 N.W.2d 838, 13 ELR 20577 (Mich. App. 1983).

26. Maryland Casualty v. Armco, Inc., 822 F.2d 1348, 17 ELR 21277 (4th Cir. 1987), cert. denied, 108 S. Ct. 703 (1988); NEPACCO II, 842 F.2d 977, 18 ELR 20819 (8th Cir. 1988).

27. The claims-made policy, as distinct from the occurrence policy, requires that the claim be made against the insured and reported to the insurer within the policy period.

28. 42 U.S.C. § 9607(a), ELR STAT. 44024.

29. In contrast, insurers do not generally contest damages to natural resources pursuant to § 107(a)(4)(C). See, e.g., Conservation Chemical, 653 F. Supp. at 188.

30. As a general matter, it should be noted that a basic principle of insurance law holds that the duty to defend is separate from and broader than the duty to indemnify. An insurer must defend multiple-count complaints if any one of the counts contains allegations that fall within the policy's coverage. Courts readily find an obligation to defend even where the duty to indemnify is questionable or clearly excluded. Thus, the insured, in defending a CERCLA cost recovery action, may find the insurer bearing its defense costs, while reserving its right to indemnify for the cleanup costs.

31. See, e.g., Lansco, Inc. v. Department of Environmental Protection, 145 N.J. Super. 433, 368 A.2d 363 (N.J. Super. Ct. App. Div. 1976), cert. denied, 73 N.J. 57, 372 A.2d 322 (N.J. 1977); Kutsher's Country Club Corp. v. Lincoln Insurance Co., 119 Misc. 2d 889, 465 N.Y.S.2d 136 (N.Y. Sup. Ct. 1983).

32. See, e.g., Lansco, 145 N.J. Super. 433, 368 A.2d 363.

33. See, e.g., United States v. Northeastern Pharmaceutical and Chemical Co., 810 F.2d 726, 749 (8th Cir. 1986).

34. 336 N.W.2d 838, 13 ELR 20577 (Mich. App. 1983).

35. Id. at 842, 13 ELR at 20578.

36. Id. at 843, 13 ELR at 20578-79.

37. See, e.g., Lansco, 145 N.J. Super. 433, 368 A.2d 363; Fireman's Fund Insurance Co. v. Ex-Cell-O Corp., 662 F. Supp. 71 (E.D. Mich. 1987).

38. See, e.g., Lansco, 145 N.J. Super. 433, 368 A.2d 363; Kutsher's County Club Corp. v. Lincoln Insurance Co., 119 Misc. 2d 889, 465 N.Y.S.2d 136 (N.Y. Sup. Ct. 1983).

39. See CERCLA § 107(a), 42 U.S.C. § 9607(a), ELR STAT. 44024.

40. New Castle County v. Hartford Accident and Indemnity Co., 673 F. Supp. 1359 (D. Del. 1987); Fireman's Fund Insurance Co. v. Ex-Cell-O Corp., 662 F. Supp. 71 (E.D. Mich. 1987); Conservation Chemical, 653 F. Supp. 152 (W.D. Mo. 1986); United States Fidelity & Guaranty Co. v. Thomas Solvent Co., 683 F. Supp. 1139, 1168-70 (W.D. Mich. 1988) (applying Michigan law); Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394, 18 ELR 20084 (D.N.J. 1987) (applying New Jersey law); Avondale Industries, Inc. v. Travelers Indemnity Co., 697 F. Supp. 1314, 1318-19, 19 ELR 20509 (S.D.N.Y. 1988) (applying New York law).

41. Mraz, 804 F.2d at 1326, 17 ELR at 20373.

42. Mraz v. American Universal Insurance Co., 616 F. Supp. 1173, 15 ELR 21025 (D. Md. 1985).

43. 804 F.2d at 1327-28, 17 ELR at 20373.

44. Id. at 1327, 17 ELR at 20373 (emphasis added by court).

45. Id. at 1328, 17 ELR at 20373.

46. 616 F. Supp. at 1179, 15 ELR at 21028.

47. See supra note 28 and accompanying text.

48. CERCLA § 101(16), 42 U.S.C. § 9601(16), ELR STAT. 44006.

49. This is the artificial distinction that the Aviex court sought to eliminate. See supra notes 33-39 and accompanying text.

50. In a response-cost lawsuit brought by a private party, this problem will generally not arise because the proponent will have a sufficient property interest.

51. 804 F.2d at 1329, 17 ELR at 20374. The Fourth Circuit also held that Mraz had released Canadian Universal from liability for all future claims in the settlement of another lawsuit in 1973. Id. at 1329-30, 17 ELR at 20374. A concurring judge would have decided the case solely on this ground without reaching the "occurrence" or "property damage" issues. Id. at 1330, 17 ELR at 20374 (Ervin, J., concurring).

52. 822 F.2d at 1352, 17 ELR at 21279.

53. In another case, Cincinnati Insurance Co. v. Milliken and Co., 857 F.2d 979, 19 ELR 20118 (4th Cir. 1988), the Fourth Circuit has interpreted South Carolina law to construe the word "damages" in the insurance context to mean legal damages, not including response costs.

54. NEPACCO I, 811 F.2d at 1182, 17 ELR at 20616.

55. Id. at 1191-92 n.29, 17 ELR at 20621 n.29.

56. NEPACCO II, 842 F.2d at 984, 18 ELR at 20822.

57. See United States v. Northeastern Pharmaceutical and Chemical Co., 579 F. Supp. 823, 830, 14 ELR 20212, 20214 (W.D. Mo. 1984).

58. 811 F.2d at 1187, 17 ELR at 20619 (citing Georgia v. Tennessee Copper Co., 206 U.S. 230 (1907)).

59. Id. at 1189, 17 ELR at 20620.

60. 842 F.2d at 985, 18 ELR at 20823.

61. Id. at 986, 18 ELR at 20823.

62. Id. (citing Maryland Casualty Co. v. Armco, Inc., 643 F. Supp. 430, 434, 17 ELR 20143, 20145 (D. Md. 1986)).

63. Id. at 986-87, 18 ELR at 20824.

64. Id.

65. Id. at 987, 18 ELR at 20824.

66. Mraz, 804 F.2d at 1328, 17 ELR at 20373.

67. The cases are Appalachian Insurance Co. v. Liberty Mutual Insurance Co., 676 F.2d 56 (3d Cir. 1982); Bartholomew v. Appalachian Insurance Co., 655 F.2d 27 (1st Cir. 1987); and Aetna Casualty & Surety Co. v. PPG Industries, 554 F. Supp. 290 (D. Ariz. 1983).

68. 616 F. Supp. at 1179, 15 ELR at 21027.

69. Id.

70. See, e.g., Buckeye Union Insurance Co. v. Liberty Solvents and Chemicals Co., 477 N.E.2d 1227, 1233 (Ohio Ct. App. 1984).

71. 811 F.2d at 1191-92 n.29, 17 ELR at 20621 n.29. The court relies on Kissel v. Aetna Casualty & Surety Co., 380 S.W.2d 497 (Mo. Ct. App. 1964), to evidence that Missouri would follow this majority view. The court also cites Note, Developments in the Law, Toxic Waste Litigation, 99 HARV. L. REV. 1458, 1581-83 (1986).

72. 804 F.2d at 1329, 17 ELR at 20374.

73. NEPACCO II, 842 F.2d at 984-87, 18 ELR at 20823-24; Maryland Casualty, 822 F.2d at 1352, 17 ELR at 21279-80.

74. In addition, states that sue to recover cleanup costs can advance the argument that they have a property right in their natural resources and may suffer injury to their quasi-sovereign property interests when pollutants are released into the soil, water, and air within their jurisdiction. It is questionable whether this argument is applicable to the federal government. See infra text accompanying note 79.

75. 822 F.2d at 1353, 17 ELR at 21279-80. The court's reliance on Haines v. St. Paul Fire and Marine Insurance Co., 428 F. Supp. 435 (D. Md. 1977) is flawed because the Haines court, like the Mraz court, does not rely on Maryland law even though state law must be consulted in construing the insurance policy.

76. 811 F.2d at 1186, 17 ELR at 20618 (citing Geer v. Connecticut, 161 U.S. 519 (1896) (state has property interest in and police power over wild game within its jurisdiction because of its sovereign capacity as representative of the people and their common ownership of wild game) and Missouri v. Holland, 252 U.S. 416 (1920) (the federal government's interest in wildlife is implicitly characterized as a form of property right)).

77. 811 F.2d at 1186, 17 ELR at 20618 (citing United States v. Chicago M., St. P. & P. R. Co., 312 U.S. 592, 596 (1941)(interstate navigable waters and their watersheds are "public property of the nation"); McCready v. Virginia, 94 U.S. 391, 394 (1876) ("[The] principle has long been settled in this Court, that such State owns the beds of all tide-waters within its jurisdiction … in like manner, the states own the tide-waters themselves, and the fish in them, so far so they are capable of ownership while running. For this purpose the state represents its people and the ownership is that of the people in the united sovereignty."); and United States v. Turner, 175 F.2d 644, 647 (5th Cir. 1949), cert. denied, 338 U.S. 85 (1949) (state has property interest in intrastate navigable waters)).

78. 811 F.2d at 1186, 17 ELR at 20618 (citing MO. CONST., art. 4, § 12 (establishment of department of conservation and department of resources); MO. ANN. STAT. § 67.870-.910 (Vernon Supp. 1986) (open space conservation); MO. ANN. STAT. § 253.010 (Vernon 1963) (state's interest in "land" includes "every estate, interest and right, legal or equitable, in land or water"); MO. ANN. STAT. § 260.435-.550 (Vernon Supp. 1986) (state's interest in preventing harm to property and people by abandoned hazardous waste dump)).

The court cited additional support in the following federal statutes: Clean Air Act, 42 U.S.C. §§ 7401-7642, ELR STAT. CAA 001-051 (protection of "nation's air resources"); National Environmental Policy Act, 42 U.S.C. §§ 4321-4396, ELR STAT. NEPA 001-012 (protection of "nation's environment"); Federal Water Pollution Control Act, 33 U.S.C. §§ 1251-1376, ELR STAT. FWPCA 001-065 (protection of "nation's waters"); CERCLA, 42 U.S.C. § 9601(16), ELR STAT. 44006.

79. The NEPACCO I court noted "the inclusion in the latter two of the three policies at issue of clauses generally excluding environmental damage from coverage for property damage." 811 F.2d at 1186-87, 17 ELR at 20619.

80. 252 U.S.416 (1920).

81. See supra note 78.

82. 811 F.2d at 1188, 17 ELR at 20619.

83. 15 ELR 20004 (W.D. Pa. Aug. 7, 1984), rev'd on other grounds, 772 F.2d 19, 15 ELR 20859 (3d Cir. 1985). The court also cited: Chemical Application Co. v. Indemnity Co., 425 F. Supp. 777, 778 (D. Mass. 1977) (cleanup and removal expenses incurred by insured measure the "damages" for which indemnification is available.); Waste Management of Carolinas, Inc. v. Peerless Insurance Co., 323 S.E.2d 726, 735 (N.C. App. 1984), rev'd on other grounds, 315 N.C. 688, 340 S.E.2d 374, 17 ELR 20145 (N.C. 1986) (cleanup costs are "essentially compensatory damages for injury to common property," the groundwater of the state of North Carolina); Kutsher's County Club Corp. v. Lincoln Insurance Co., 119 Misc. 2d 889, 465 N.Y.2d 136 (N.Y. Sup. Ct. 1983); and Lansco, 145 N.J. Super. 433, 368 A.2d 363.

84. 811 F.2d at 1188-89, 17 ELR at 20620.

85. Id. at 1189 n.21, 17 ELR at 20620 n.21. The court adds that to the extent the term "property damages" is ambiguous as applied to environmental property damage, the ambiguities must be construed against the insurer and in favor of finding coverage for the insured. Id. (citing Hon v. Director, Office of Workers' Compensation Programs, 699 F.2d 441, 443 (8th Cir. 1983)).

Finally, the court recognized that the United States Supreme Court's decision in St. Paul Fire and Marine Insurance Company v. Barry, 438 U.S. 531 (1978), supports the state's claim that under an "occurrence" policy like that at issue here, only the property damage rather than the claim for compensation for this damage must occur during the policy period: "an 'occurrence' policy protects the policyholder from liability for any act done while the policy is in effect, whereas a 'claims made' policy protects the holder only against claims made during the life of the policy." Id. at 535. See 811 F.2d at 1189 n.21, 17 ELR at 20620 n.21.

86. 842 F.2d at 987-990, 18 ELR at 20824-26 (Heaney, J., dissenting).

87. Id. at 988-89, 18 ELR at 20824 (Heaney, J., dissenting) (quoting Robin v. Blue Cross Hospital Services, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc) (citations omitted)).

88. Id. at 985, 18 ELR at 20823.

89. Id. at 988, 18 ELR at 20825.

90. Id. at 988-89, 18 ELR at 20825.

91. Id. at 989-90, 18 ELR at 20825.

92. Indeed, two recent federal district courts have rejected the approach taken in NEPACCO II, Mraz, and Maryland Casualty. See Jones Truck Lines, Inc. v. Transport Insurance Co., No. 88-5723 (E.D. Pa. May 9, 1989) (interpreting Missouri law); Chesapeake Utilities Corp. v. American Home Assurance Co., 704 F. Supp. 551, 19 ELR 20786 (D. Del. 1989) (interpreting Maryland and Delaware law).

93. The NEPACCO II dissent recognized this distinction. 842 F.2d at 990, 18 ELR at 20825 (Heaney, J., dissenting). See Maryland Casualty Co. v. Armco, 822 F.2d 1180, 17 ELR 20616 (8th Cir. 1987); Aetna Casualty & Surety Co. v. Hanna, 224 F.2d 499, 503-04 (5th Cir. 1955). These cases apply state law with a restrictive definition of "damages."

94. See NEPACCO II, 842 F.2d at 990, 18 ELR at 20823. See also New Castle v. Hartford Accident and Indemnity Co., 673 F. Supp. 1359 (D. Del. 1987), for a case that applies state law requiring that words in an insurance policy be given their ordinary, nontechnical meaning.

95. For a good discussion of this legal/equitable relief issue, see Hadzi-Antich, Coverage for Environmental Liabilities Under the Compliance General Liability Insurance Policy: How to Walk a Bull Through a China Shop, 17 CONN. L. REV. 769 (1985).

96. See Hadzi-Antich, supra note 95, at 802.

97. Id.

98. Maryland Casualty, 822 F.2d at 1353, 17 ELR at 21279.