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 case where the insurance policy in question provides for national or world-wide coverage." Id. at 713-14. The court found support in an earlier case which stated:
the notion that the insured's rights under a single policy vary from state to state depending on the state in which the claim invoking the coverage arose contradicts not only the reasonable expectations of the parties but also the common understanding of the commercial community. It also seems to us anomalous, in conflict-of-law terms, to suggest that more than one body of law will apply to a single contract.
Id. at 714 (quoting Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 233 N.J. Super. 463, 559 A.2d 435, 442 (N.J. Super. Ct. 1989)). Accord Triangle Publications, Inc. v. Liberty Mutual Insurance Co., 703 F. Supp. 367 (E.D. Pa. 1989) (company headquartered in Pennsylvania, environmental damage occurred in New Jersey, court applied law of Pennsylvania.) But see Chesapeake Utilities Corp. v. American Home Assurance Co., 704 F. Supp. 551 (D. Del. 1989)(court applied Maryland law to pollution in Maryland, and Delaware law to pollution in Delaware).
We think the most reasonable course is to choose the headquarters of the insured as the location with the most substantial interest in the controversy. This is especially true in a case such as this where the headquarters of the insured is also the center of the insured's operations. See Carey Canada, Inc. v. Aetna Casualty & Sur. Co., 1988 U.S. Dist. LEXIS 8997 (D.D.C., 1988); Stevens v. American Service Mutual Ins. Co., 234 A.2d 305, 309 (D.C. 1967).
Another reason for choosing the headquarters of the insured as the source of law is that this is the location which appears to be most likely contemplated by the parties:
Common sense suggests that, knowing of the potential for claims in any number of states . . . the parties would consider the insured's principal headquarters as the one jurisdiction which ties all potential parties together.
CPC Int'l, 739 F. Supp. at 715. This view is consistent with that of the Restatement (Second) of Conflict of Laws which states that for a liability insurance contract
the local law of state which the parties understood was to be the principal location of the insured risk during the term of the policy [will be the source of law for the policy] unless with respect to the particular issue, some other state has a more significant relationship.
Restatement (Second) of Conflict of Laws § 193 (1971). Accord Independent Petrochemical Corp. v. Aetna Cas. and Sur. Co., 1988 U.S. Dist. LEXIS 15839 (D.D.C., 1988) at 9, rev'd, No. 89-5367 (D.C. Cir. Sept. 13, 1991).
Plaintiff has proffered sufficient evidence to prove that, if any one location was contemplated as she source of law for these policies, it was the District. The District of Columbia is where Pepco is headquartered, and it is also the center of its operations. The insurance policies in question listed Pepco's District of Columbia address as the location of the insured. For all of the foregoing reasons, we hold that the law of the District of Columbia will be applied to the issues in this case.
V. The Coverage of the Excess Policies at Issue
1. Plaintiff's Motion for Partial Summary Judgment to Recover Environmental Response Costs
We turn now to address the substantive issues raised in these motions. Plaintiff (and defendants) request summary judgment on the core issue of whether environmental response costs are covered by the liability policies issued by defendants. The term "environmental response costs" in this case refers to Pepco's expenditures for the cleanup and restoration of the United Rigging site, which Pepco undertook after entering into a consent order with the EPA and the State of Maryland. Pepco alleges it spent approximately $ 3.25 million dollars to clean up the United Rigging site, making these costs the largest single item for which Pepco seeks indemnity in this action.
Whether expenditures made by insureds in response to legal actions taken by environmental authorities are covered by CGL policies is not an easy issue to decide, and in fact is an issue which has divided courts around the country.
The liability clauses of the insurance policies at issue in this case are all essentially identical. A representative sample reads:
This policy is to indemnify the Named Insured . . . for any and all sums which the Insured shall become legally liable to pay, and shall pay, or by final judgment be adjudged to pay or assumed by the Insured under contract or agreement, as damages arising from personal injury and Advertising Injury or by reason of damage to or destruction of property, including loss of use thereof (other than property owned by the Insured) resulting from any activity, trade or business of the Insured. . . .
Some courts have held that this type of liability clause, which makes specific reference to "damages," does not cover environmental response costs because these costs are the result of regulatory actions by the government. These courts have reasoned that regulatory actions represent equitable, not legal remedies, and that the relief stemming therefrom is not "damages" in the common sense meaning of the term.
Whether environmental response costs are "damages" has not yet been addressed by District of Columbia courts. Therefore, it is necessary to apply the general principles of insurance contract interpretation existing under District of Columbia law, and to look for guidance in cases from other jurisdictions which apply similar principles of interpretation.
In the District of Columbia, the terms of an insurance agreement are to be given "the meaning which common speech imports." Belland v. American Automobile Ins. Co., 101 A.2d 517, 518 (D.C. 1953); Old American Ins. Co. v. Tucker, 223 A.2d 334, 336 (D.C. 1966). This rule is to be followed unless it is obvious that the term is intended to have a technical connotation. Oler v. Liberty Mutual Ins. Co., 297 A.2d 333, 335 (D.C. 1972); Great American Indem. Co. v. Yoder, 131 A.2d 401, 403 (D.C. 1957). The rule protects insureds against legalistic interpretations of insurance contracts. As one District of Columbia court has stated, "public policy dictates against permitting insurance companies to engage in 'obscurantism which conveys one meaning of their contracts to lawyers and another meaning to laymen.'" Holt v. George Washington Life Ins. Co., 123 A.2d 619, 622 (D.C. 1956) (quoting with approval Buchanan v. Mass. Protective Ass'n, 96 App. D.C. 144, 223 F.2d 609, 611 (D.C. Cir.), cert. denied, 350 U.S. 833, 76 S. Ct. 67, 100 L. Ed. 2d 743 (1955)). The insurer also has a duty to "spell out in the plainest terms any exclusionary or delimitating policy provisions." Loffler v. Boston Ins. Co., 120 A.2d 691, 693 (D.C. 1356) (quoted with approval in Nationwide Mutual Ins. Co. v. Schilansky, 176 A.2d 786, 788 (D.C. 1961)). Finally, any ambiguities in an insurance policy must be construed against the insurer. Loffler v. Boston Ins. Co., 120 A.2d at 693; Meade v. Prudential Ins. Co., 477 A.2d 726, 728 (D.C. 1 984).
Courts in jurisdictions which similarly protect the insured against legalistic interpretations of provisions in insurance policies have found that environmental response costs are "damages" and therefore are covered under this type of liability clause. For example, the rules in New York governing the interpretation of the provisions of insurance contracts are similar to those in the District of Columbia.
The Second Circuit, applying New York law in Avondale Industries, Inc. v. Travelers Indemnity Co., 887 F.2d 1200 (2d Cir. 1989), cert. denied, 110 S. Ct. 2588 (1990), found environmental response costs are covered as "damages" under a standard CGL policy. The court stated:
Here the term damages is not defined in [the applicable] policy. Damages not being given any more limited definition in the policy must be construed to include the remedial costs that may be imposed on [plaintiff] by the [state].
Id. at 1207. The court rejected the insurance company's argument that environmental response costs should not be covered because such costs stem from equitable, rather than legal, actions and further found that "an ordinary businessman reading this policy would have believed himself covered for the demands and potential damage claims now being asserted in the [state] administrative proceeding." Id. Given the similar approach used by New York and District of Columbia courts in their interpretations of insurance contracts, we find this case to be strongly persuasive. See also Aerojet-General Corp. v. Superior Court, 209 Cal. App. 3d 973, 257 Cal. Rptr. 621, 628 (Cal. Ct. App. 1989) (a reasonable person would not expect insurance coverage to be denied because a suit was in equity rather than in law).
Defendants place great reliance on the reasoning of 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 "), which held that environmental remediation costs were not covered under a CGL policy.
Id. at 1350. The court in Armco came to this conclusion after determining that the term "damages" in the liability clause only encompassed legal, and not equitable, remedies. "Damages," the Fourth Circuit stated, "as distinguished from claims for injunctive or restitutionary relief, includes only payments to third persons when those persons have a legal claim for damages." Id. at 1352 (quotations and citations omitted). Thus damages, according to the court in Armco, are given a "somewhat narrow, technical definition" in insurance contracts. Id ; see also Continental Ins. Cos. v. Northeastern Pharmaceutical & Chemical Co., 842 F.2d 977, 986-87 (8th Cir.)(en banc), cert. denied, 488 U.S. 821, 102 L. Ed. 2d 43, 109 S. Ct. 66 (1988) ("NEPACCO") (establishing a similar definition for "damages"). More recently, our Court of Appeals has refused to follow the 8th Circuit's decision in NEPACCO stating in pertinent part that:
Our research reveals that with the exception of NEPACCO, in every case in which the operative state's rules of insurance contract interpretation required - as Missouri does - resort to the common and ordinary understanding of language, the word "damages" has been construed to cover reimbursement for environmental response costs insured by a government.
Independent Petrochemical Corporation, et.al. v. Aetna Casualty & Surety Co., et al., 944 F.2d 940, 1991 U.S. App. LEXIS 21337, slip op. at 11 (D.C. Cir., 1991). We see no reason to differentiate between environmental response costs incurred by a government or, as is the present case, by a private party such as plaintiff.
Given the spirit of District of Columbia insurance law, we disagree with the result in Armco and its holding that the term "damages" should have a "narrow, technical definition." Such an interpretation would contravene well-established principles of insurance contract interpretation which require that the terms of an insurance policy be construed according to "the understanding of the ordinary person, that is to say they will be given the meaning that common speech imparts." American Ins. Co. v. Tutt, 314 A.2d 481, 485 (D.C. 1974). Consequently, we decline to hold that the term "damages" is limited to those obligations that are incurred in actions at law. We agree with the long line of judicial decisions that have found both legal and equitable remedies to be covered by the term "damages."
See New Castle County v. Hartford Accident and Indem. Co., 673 F. Supp. 1359, 1365 (D. Del. 1987) ("an ordinary definition of the word 'damages' makes no distinction between actions at law and actions in equity"), aff'd in pertinent part, 933 F.2d 1162 (3d Cir. 1991); Chesapeake Utilities Corp. v. American Home Assurance Co., 704 F. Supp. 551, 559-560 (D. Del. 1989) (a definition of damages which "is grounded upon the ancient division between law and equity" would not be an ordinary and accepted meaning in the context of insurance policy interpretation); National Indem. Co. v. U.S. Pollution Control, Inc., 717 F. Supp. 765 (W.D. Okla. 1989) (ordinary definition of damages makes no distinction between legal and equitable remedies, therefore coverage should be provided for environmental clean-up and response costs); Intel Corp. v. Hartford Accident and Indem. Co., 692 F. Supp. 1171, 1186-93 (N.D. Cal. 1988)(reasonable and normal expectation of the parties is that polluter would be reimbursed by insurance company for costs incurred in cleaning up pollution site pursuant to a consent decree entered into between polluter and the EPA); Boeing Co. v. Aetna Cas. and Sur. Co., 113 Wash. 2d 869, 784 P.2d 507 (Wash. 1990) (same); C.D. Spangler Construction Co. v. Industrial Crankshaft & Engineering Co., 326 N.C. 133, 388 S.E.2d 557, 568 (N.C. 1990) (same; stating if "the insurer intended that 'damages' have [only the meaning of legal damages] it should have so indicated on the policy").
To distinguish between legal and equitable remedies makes little sense in the context of environmental response costs. Although suits for environmental response costs are traditionally considered equitable because they seek restoration or restitution for damage to property, they are still fundamentally concerned with damage to property. When an insured seeks indemnification for environmental response costs, the insured is seeking reimbursement of funds paid to remedy that damage. As another district court has stated:
In this context the argument concerning the historical separation of damages and equity is not convincing and it seems to be that the insured ought to be able to rely on the common sense expectation that property damage within the meaning of the policy includes a claim which results in causing him to pay sums of money because his acts or omissions affected adversely the rights of third parties. While such claims might be characterized as seeking "equitable relief," the cleanup costs are essentially compensatory damages for injury to [property]. . . .
United States Fidelity and Guar. Co. v. Thomas Solvent Co., 683 F. Supp. 1139, 1168 (W.D. Mich. 1988), vacated, No. K85-415, 1988 U.S. Dist. Lexis No. 3560 (W.D. Mich. March 16, 1988)
In the instant case, there is a clear allegation of property damage. Pepco sold United Rigging the transformers for scrap. Oil from the transformers containing PCBs at the United Rigging site clearly caused damage to property. This damage does not change in nature just because United Rigging and Pepco cleaned up the polluted site in order to avoid becoming liable to state and federal environmental authorities under environmental legislation.
In sum, we find that the sums Pepco expended to remediate the United Rigging site constitute "damages" as the term is used in the CGL policies issued to plaintiff by the defendants.
We therefore grant Plaintiff's Motion for Partial Summary Judgment on this issue.
2. Defendants' Joint Motion for Summary Judgment as to Environmental Response Costs
This motion filed concurrently with plaintiff's similar motion for partial summary judgment opposes plaintiff's motion on several of the grounds previously discussed in connection with plaintiff's motion. In summary, defendants contend that Maryland law is applicable to the issues presented because Maryland has the most substantial interest, that this litigation is controlled by the 4th Circuit's decision in Armco, and that the 4th Circuit in Armco determined that under Maryland law the environmental response costs paid by plaintiff are not sums that plaintiff was "legally liable to pay as damages." We have previously considered each of these issues in deciding plaintiff's motion. Relying on the reasons already stated, we deny Defendant's Joint Motion for Partial Summary Judgment.
3. Motion of Certain Defendants
for Summary Judgment as to Environmental Response Costs
While participating in the joint motion of all defendants for summary judgment as to environmental response costs, this separate motion was filed in order to emphasize the position of these particular defendants that the policies for which plaintiff seeks coverage do not cover "restitutionary relief such as the cost of complying with government-mandated environmental remediation requirements." Memorandum of Certain Defendants in Support of their Motion for Summary Judgment as to Environmental Response Costs, p. 1.
This separate motion repeats the claim by all defendants that the excess liability policies do not cover restitutionary or equitable relief ordered against an insured and that environmental response costs are equitable in nature. We have previously considered this position in dealing with plaintiff's Motion for Partial Summary Judgment and find no need for further discussion.
Defendants also claim that the public policy underlying CERCLA which authorizes the government to require parties to remediate pollution weighs against finding that such costs are insurable. Finally, defendants claim that environmental response costs cannot be insured by the excess liability policies at issue.
With respect to the policy of CERCLA, which grants certain powers of remediation to the federal government, we hold that such policy arises from a statute of recent origin (1980) and has no relevance to the matter at issue, i.e., the interpretation of private insurance contracts. On the contrary, numerous cases have held that environmental response costs are insurable.
4. Defendants' Joint Motion for Summary Judgment as to the Pollution Exclusion.
5. Defendant California Union's Summary Judgment based on Seepage and Exclusion Clauses that do not Include the Word "Sudden".
In the second set of summary judgment motions, defendants argue that plaintiff's expenditures in cleaning up the United Rigging site are not reimbursable under the policies as a matter of law because these expenditures are covered by pollution exclusion clauses contained in each of the twenty-one general liability policies at issue in this case. Plaintiff contends that the pollution exclusion clauses do not apply because of certain exemptions to said clauses.
The parties admit that plaintiff's claims were caused either directly or indirectly by "seepage, pollution or contamination," and that these losses therefore fall within the pollution exclusion clauses of the applicable policies.
The dispute here is whether these losses arose from events for which coverage should be provided because the events fall under certain exceptions in the pollution exclusion clauses. It appears courts are divided over whether it is the insured or the insurer who has the burden of proving that an exception to an exclusion clause applies to a claim. Fireman's Fund Ins. Cos. v. Ex-Cell-O Corp., 702 F. Supp. 1317, 1328-29 (E.D. Mich. 1988)(quoting 19 Couch, Insurance, § 79:385 at 338 (2d ed. 1983). It is not necessary at this point that we decide this question.
By way of explanation, there are two general types of pollution exclusion clauses at issue in this case. The first general type is comprised of pollution exclusion clauses which contain the word "sudden." These clauses exempt pollution damages from coverage unless the "discharge, dispersal, release or escape is sudden and accidental."
The second type does not contain the word "sudden" in the exception. These policies deny coverage under seepage and pollution exclusion unless the "happening" which caused the pollution was "unintended" and "unexpected."
Cal Union, the only insurance company that issued a clause in the second category, has filed a second summary judgment motion for those clauses which do not contain the word "sudden."
The applicability of any stated exception to an exclusion clause is complicated in the instant case by the fact that there are two parties which were legally responsible for the environmental damage: Pepco, which sold the scrap transformers to United Rigging; and United Rigging, whose subsequent handling of the transformers caused the environmental damage.
To decide whether the stated exception to the pollution exclusion clause applies in this case, we must determine whether the exception applies only to pollution that is unexpected and unintended from the point of view of Pepco, or unexpected and unintended from the point of view of United Rigging. The same determination must be made with respect to the two policies whose exceptions are for pollution which is "sudden or accidental."
The pollution exclusion clauses do not give any guidance as to whose point of view should be considered when considering the nature of these happenings. The above two motions which concern the seepage and pollution exclusions and the exception to said exclusions also put in issue a number of disputed facts including, but not limited to, the circumstances of plaintiff's original processing and sale of transformers for scrap, whether plaintiff expected the spillage of oil containing PCBs by the employees of United Rigging, the circumstances under which the property of United Rigging became polluted, when plaintiff became aware of such events, and whether plaintiff gave proper notification. It is clear that these are genuine issues of material fact which preclude the granting, at this time, of defendants' motions relating to the pollution exclusion clauses.
An order reflecting our actions on the several motions considered in this memorandum has been entered this day.
POTOMAC ELECTRIC & POWER COMPANY
EXCESS LIABILITY FIRST LAYER POLICY SUMMARY
POLICY PERIODS 1980-85
POLICY PERIOD LAYER LIABILITY CARRIER
10/31/84- 1st $ 4.5M California Union
10/31/83- 1st $ 4.5M California Union
10/31/82- 1st $ 4M California Union
10/31/81- 1st $ 4M North River
03/01/81 1st $ 5M Lloyd's & Various Ins Cos
03/01/80- 1st $ 4M North River
03/01/81 American Centennial
10/31/84- 2nd $ 20M California Union
10/31/85 Transit Casualty
10/31/83- 2nd $ 20M California Union
10/31/84 Transit Casualty
10/31/82- 2nd $ 20M California Union
10/31/83 Transit Casualty
10/31/81- 2nd $ 20M California Union
10/31/82 First State
03/01/81- 2nd $ 5M Lloyd's & Various Ins Cos
03/01/80- 2nd $ 5M North River
03/01/81 California Union
National Union Fire
%OF SELF-INSURED MAXIMUM
POLICY NO. PARTICIPATION RETENTION COVERAGE
ZCV006749 100.0 $ 500,000 $ 4.5M
ZCV006559 100.0 $ 500,000 $ 4.5M
ZCV006231 100.0 $ 1M $ 4M
JU1064 50.0 $ 1M $ 2M
573200100260 50.0 $ 1M $ 2M
ULL1282147 100.0 $ 1M $ 5M
JU0817 67.5 $ 1M $ 2.7M
CC001216 25.0 $ 1M $ 1M
XG860075 7.5 $ 1M $ 300,000
ZCX007419 50.0 $ 5M $ 10M
FXS960559 50.0 $ 5M $ 10M
ZCX006733 50.0 $ 5M $ 10M
FXS960455 50.0 $ 5M $ 10M
ZCX006389 50.0 $ 5M $ 10M
FXS960365 50.0 $ 5M $ 10M
ZCX006015 50.0 $ 5M $ 10M
914197 25.0 $ 5M
FXS960281 25.0 $ 5M
UKL1702147 100.0 $ 6M
JU0818 70.0 $ 5M $ 3.5M
ZCX003992 20.0 $ 5M $ 1M
9782536 10.0 $ 5M $ 500,000
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