The opinion of the court was delivered by: PRATT
The plaintiff, a large electric utility which primarily serves the District of Columbia and parts of Maryland, purchased twenty-one excess comprehensive general liability ("CGL") policies from the nine insurance companies which are the defendants in this case.
This lawsuit arises from the defendants' refusal to indemnify The Potomac Electric Power Company ("Pepco") for approximately $ 3.25 million Pepco spent to remedy environmental damage caused in the dismantling of obsolete electrical transformers it had sold as scrap metal to United Rigging and Hauling, Inc. ("United Rigging").
Suit was filed on July 28, 1988 and, following extensive discovery, a barrage of summary judgment motions have been filed by the parties. This opinion will address the following five motions: 1) Plaintiff's Motion for Partial Summary Judgment concerning whether plaintiff's expenditures to clean up the United Rigging site are covered by the CGL policies; 2) Defendants' Joint Motion for Summary Judgment as to Environmental Response Costs; 3) Certain Defendants' Motion for Summary Judgment as to Environmental Response Costs; 4) Defendants' Joint Motion for Summary Judgment as to the Pollution Exclusion; and 5) California Union's Motion for Summary Judgment Based on the "Seepage and Pollution" Clauses That Do Not Include the Word "Sudden." Other remaining motions will be addressed in a future opinion and order.
Between 1980 and 1983, Pepco sold a large quantity of used electrical equipment to United Rigging. Specifically, during this time Pepco sold United Rigging approximately 2,200 used electrical transformers.
Prior to selling the transformers for scrap metal, Pepco was expected to drain the transformers of excess mineral oil and dispose of this oil, because the oil contained dangerous chemicals known as polychlorinated biphenyls ("PCBs").
United Rigging, using its own equipment, would pick up the transformers from Pepco's Benning Road location in the District of Columbia, and transport them to its salvage yard in Beltsville, Maryland. The transformers contained some residual oil contaminated with PCBs, and this residual oil eventually spilled into the environment at United Rigging's Beltsville site.
There were different causes of this spillage; part of it vas caused by United Rigging in dismantling the transformers, which resulted in residual oil spilling onto the ground. United Rigging employees also collected some of this oil, and poured it over large areas of the ground to suppress dust. These activities seem to have occurred on a fairly regular basis over a period of years.
In the spring of 1985, the United States Environmental Protection Agency ("EPA") and environmental officials from the State of Maryland, after the discovery of PCBs in a stream adjacent to United Rigging, began to investigate United Rigging's Beltsville site for PCB contamination. It was discovered on testing that the soil in some areas was contaminated to a depth of six feet. Eventually, they closed the site. In July of 1985, Pepco and United Rigging entered into a consent agreement with the Maryland officials and with EPA, under which Pepco and United Rigging agreed to clean up the United Rigging property. Under this plan, the soil which was contaminated with PCBs was to be removed from the site, transported, and properly disposed of. Pepco was to pay for this cleanup, and United Rigging was to supply the heavy equipment and operators for use in the removal of the polluted soil.
In December 1985, the cleanup was substantially completed at a cost of approximately 23.25 million to Pepco, and $ 400,000 to United Rigging.
In October 1985, before the cleanup was completed, United Rigging and its owner, Charles E. Sloan, sued Pepco in the United States District Court for the District of Columbia, seeking damages for losses incurred by United Rigging as a result of its purchase of Pepco transformers. The case was dismissed for one year, while the parties attempted to settle. In November 1986, United Rigging and Sloan filed a second suit for the same injuries and damages and two additional causes of action. Pepco counterclaimed for damages, and part of its counterclaim was based on the $ 3.25 million it spent in cleaning up the Beltsville site. On August 17, 1987, Pepco settled with United Rigging and Sloan. Under the terms of this agreement, Pepco agreed to pay United Rigging $ 850,000 and to dismiss its counterclaim.
The excess liability insurance policies at issue in this case cover the years 1980 to 1985. Under these policies, Pepco is self-insured for the first million dollars in liability; these policies cover amounts in excess of the self-insured limit. The specific policies that are involved are described in Appendix One attached.
Each one of the policies contains a liability clause that indemnifies the insured for "damages" arising from the destruction of property. This clause is the subject of the first set of motions we will address in this opinion.
A choice of law determination is of fundamental importance in a case such as this where there is a division of authority on certain dispositive issues. Since this case is before the Court as a result of diversity jurisdiction, we must apply the law of the District of Columbia to determine the applicable law. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477 , 61 S. Ct. 1020 , 49 U.S.P.Q. (BNA) 515 (1941); Eli Lilly & Co. v. Home Insurance Co, 246 App. D.C. 243, 764 F.2d 876, 882 (D.C. Cir. 1985), cert. denied, 479 U.S. 1060, 93 L. Ed. 2d 991 , 107 S. Ct. 940 (1987). It seems to be undisputed that the law to be applied is either that of the District of Columbia or of Maryland.
Plaintiff contends that the law of the District of Columbia should apply to this case, since the District is the headquarters and principal place of business of Pepco.
Defendants urge us to apply Maryland law, Maryland being the site of pollution contamination and also the largest source of revenue of any of the three jurisdictions in which plaintiff operates.
Our first determination concerns whether a conflict of laws in fact exists. Eli Lilly & Co., 764 F.2d at 882 (citing Fowler v. A & A Co., 262 A.2d 344, 348 (D.C. 1970)); Gaither v. Myers, 131 App. D.C. 216, 404 F.2d 216, 222 (D.C. Cir. 1968)). If Maryland law were to govern this action, we would be required to decide whether a decision favorable to defendants, Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987), cert. denied, 484 U.S. 1008, 98 L. Ed. 2d 654 , 108 S. Ct. 703 (1988) ("Armco"), is binding on this Court. Armco is the Fourth Circuit's interpretation of Maryland law on one critical issue in this case: whether environmental response costs are covered in a Comprehensive General Liability ("CGL") policy. Since there is no District of Columbia law directly on point, there is therefore a potential or actual conflict between Maryland law and the law of the District of Columbia. See Carey Canada, Inc. v. Aetna Casualty & Sur. Co., 1988 U.S. Dist. LEXIS 8997, (D.D.C., 1988) (Pratt, J.) (when the law of one jurisdiction is clear and the other is uncertain, a conflict exists). Given this conflict, it is necessary to make a choice of the law which is applicable.
To decide whether Maryland or District of Columbia law should apply, we turn to conventional criteria which includes a determination as to which jurisdiction has the "more substantial interest" in the resolution of this controversy. Fowler v. A & A Co., 262 A.2d 344, 348 (D.C. 1970); Blair v. Prudential Insurance Co. of America, 153 App. D.C. 281, 472 F.2d 1356, 1359 (D.C. Cir. 1972). Maryland claims that it has an interest in the case because Maryland is where the pollution occurred. Maryland is also the site of the largest portion of plaintiff's revenues. However, plaintiff points out that it sold transformers as scrap to fourteen other companies located in nine different states. Therefore, although the damage in this case in fact occurred in Maryland, it is equally possible the environmental damage could have also occurred in these other states. Defendants have not established any causal connection between plaintiff's business as an electric utility serving customers in Maryland and the damage caused in Maryland by the transformers sold as scrap to United Rigging. Thus we consider it fortuitous that Maryland was the state where Pepco's used and obsolete transformers caused environmental damage.
A holding that the location of the environmental damage dictates the choice of law would lead to anomalous results. Given the strict liability imposed on companies for, inter alia,9 the sale of toxic waste, such a rule could result in a single insurance contract being interpreted in a multitude of different ways, depending on the law of the jurisdiction where environmental damage occurred.
The irrationality of such an approach was recently recognized in CPC Int'l, Inc. v. Northbrook Excess & Surplus Insurance Co., 739 F. Supp. 710 (D.R.I. 1990). In CPC Int'l, plaintiff was headquartered in New Jersey, and had manufacturing operations in seven states. Id. at 711. The case was a declaratory judgment action whereby plaintiff sought to recover from its insurance company monies which a subsidiary of CPC had paid to environmental authorities as a result of pollution which had occurred in Rhode Island. The court declined to apply a "place of pollution" approach, stating "using a place of pollution approach will prove impractical in any ...