Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., RE-INSURANCE

• Decision Date: 30 December 1991
• Docket Number: 89-35287,RE-INSURANCE,Nos. 89-35286,s. 89-35286
• Citation: 948 F.2d 1507
• Parties: , 60 USLW 2351, 22 Envtl. L. Rep. 20,134 AETNA CASUALTY AND SURETY CO., INC., a Connecticut corporation, Plaintiff-Appellee, v. PINTLAR CORPORATION, a Delaware corporation; Gulf Resources and Chemical Company, a Delaware corporation, Defendants-Appellants. CONTINENTALCORP., a California corporation; Pacific Insurance Company, a California corporation; Fidelity & Casualty Co. of New York, a New York corporation, Plaintiffs-Appellees, v. PINTLAR CORPORATION, a Delaware corporation; Gulf Resources and Chemical Company, a Delaware corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1507

948 F.2d 1507

34 ERC 1604, 60 USLW 2351, 22 Envtl.

L. Rep. 20,134

AETNA CASUALTY AND SURETY CO., INC., a Connecticut

corporation, Plaintiff-Appellee, v. PINTLAR CORPORATION, a Delaware corporation; Gulf Resources and Chemical Company, a Delaware corporation,

Defendants-Appellants.

CONTINENTAL RE-INSURANCE CORP., a California corporation;

Pacific Insurance Company, a California

corporation; Fidelity & Casualty Co. of

New York, a New York

corporation, Plaintiffs-Appellees, v. PINTLAR CORPORATION, a Delaware corporation; Gulf Resources and Chemical Company, a Delaware corporation,

Defendants-Appellants.

Nos. 89-35286, 89-35287.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 10, 1990.

Submission Vacated June 5, 1990.

Resubmitted Oct. 31, 1991.

Decided Nov. 7, 1991.

As Amended Dec. 30, 1991.

Stephen W. Greiner, Richard Mancino, Melissa A. Robertson, Willkie Farr & Gallagher, New York City, Fred M. Gibler, Charles L.A. Cox, Evans, Keane, Koontz, Boyd, Simko & Ripley, Kellogg, Idaho, for defendants-appellants.

R.B. Kading, Jr., Warren E. Jones, Scott D. Hess, Eberle, Berlin, Kading, Turnbow & Gillespie, Boise, Idaho, for plaintiff-appellee Aetna Cas. & Sur. Co.

Robert T. Wetherell, Quane, Smith, Howard & Hull, Boise, Idaho, for the plaintiffs-appellees Continental Re-Insurance Corp. Pacific Ins. Co. and Fidelity & Cas. Co. of New York.

Appeal from the United States District Court for the District of Idaho.

Before WRIGHT, POOLE and BRUNETTI, Circuit Judges.

POOLE, Circuit Judge:

Gulf Resources & Chemical Corporation and its subsidiary Pintlar Corporation (collectively, Gulf) appeal the district court's grant of summary judgment absolving Aetna Casualty and Surety Company and Aetna Life Casualty Company (collectively, Aetna) and Continental Re-Insurance Corporation, Pacific Insurance Company, and Fidelity & Casualty Company of New York (collectively, Continental) from their duty to defend and indemnify Gulf in connection with Gulf's potential liability for environmental contamination. 709 F.Supp. 958.

I Facts and Procedural History

In October 1984, the Environmental Protection Agency (EPA) notified Gulf that it was deemed to be a potentially responsible party (PRP) in connection with the contamination of a twenty-one square mile area of northern Idaho known as the Bunker Hill Site. Gulf, its predecessors, or subsidiaries had owned and operated mining and smelting facilities at the Bunker Hill Site from approximately 1885 until 1982.

EPA did not immediately institute a civil action against Gulf. Instead, it pursued administrative remedies. In 1986, EPA initiated "Fast Track" removal actions at the Bunker Hill Site. The cost of these actions totaled $962,500.

In August 1986, EPA and Gulf commenced negotiations concerning Gulf's participation in a remedial investigation and feasibility study ("RI/FS") of the Bunker Hill Site. At that stage, should the PRP refuse to perform the RI/FS, EPA could order it to do so or perform the study itself and then sue for reimbursement.

In May 1987, in connection with an EPA administrative consent order, Gulf agreed to perform and pay for a RI/FS of the non-populated areas of the Site. Under 42 U.S.C. § 9606(a), the government is authorized to "secure such relief as may be necessary to abate such danger or threat" and the district court to "grant such relief as the public interest and the equities of the case may require." 42 U.S.C. § 9606(a).

After discovering it was a PRP and following negotiations with the EPA, Gulf turned to its insurers for defense and indemnity costs in connection with the EPA's claims. The insurers in turn brought declaratory judgment actions seeking relief from any liability. The district court granted the insurers' motions for summary judgment, finding that as a matter of law the comprehensive general liability (CGL) policies could not be interpreted to provide coverage for CERCLA-related claims.

Aetna had issued Gulf the policies for policy periods beginning November 1, 1967 and extending to April 15, 1972. Continental issued Gulf seven policies of insurance for the January 1, 1972 to April 15, 1978 time period. The terms of the policies are not disputed. Aetna's policies provide:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies ... caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient....

The policies define "occurrence" as follows:

"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.

"Policy period" is defined as follows:

IV. Policy Period; Territory.

This insurance applies only to bodily injury or property damage which occurs during the policy period within the policy territory.

The policies define "damages" as:

damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage.....]

The policies exclude coverage for, inter alia:

property damage to ... property owned or occupied by or rented to the insured.

Continental's policies contain similar language.

The district court granted the insurers' motions for summary judgment on four grounds. First, it held that there was no duty to defend. The court found that the policies specifically state that the duty to defend is triggered by a "suit" and a complaint had not yet been filed in this case.

Second, the district court held that response costs ¹ are equitable relief and as such are not payments to third parties "as damages." Third, the court held that even if response costs are equitable in nature, they are not sums payable "because of ... property damage" since under 42 U.S.C. § 9607(a)(4)(A) liability for response costs may be imposed without a finding of property damage.

Fourth, relying on Idaho v. Bunker Hill Co., 647 F.Supp. 1064 (D.Idaho 1986) (Ryan, J.) ("Bunker Hill II"), Judge Ryan in the instant case held that there is no coverage for natural resource damage claims ² under the policies in question. Bunker Hill II had held that the state cannot recover for "natural resource damage" occurring prior to December 11, 1980 because the policies provide coverage only when the release of the hazardous substance and "property damage" both occur during the policy period. Idaho v. Bunker Hill Co., 647 F.Supp. 1064, 1069-70 (D.Idaho 1986).

This court has jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. The appeal was timely filed. We reverse.

II Standard of Review

This court reviews de novo a grant of summary judgment. Kruso v. International Telephone and Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). Viewing the evidence in the light most favorable to the nonmoving party, we inquire whether there exist genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Fu-Kong Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989).

We also review de novo principles of contract interpretation applied to the facts, including whether contract language is ambiguous. L.K. Comstock & Co. v. United Engineers and Constructors, Inc., 880 F.2d 219, 221 (9th Cir.1989).

III Discussion

Appellants raise four issues on appeal: (1) whether response costs under 42 U.S.C. § 9607(a)(4)(A) are considered "damages" under the CGL policies; (2) whether the response costs are sums sought "because of ... property damage" as that phrase is used in the insurance contracts; (3) whether the CGL policies provide coverage for claims the United States may assert against the insureds for natural resource damages; and (4) whether EPA's administrative claims against the insureds trigger the insurers' duty to defend under the CGL policies. We will deal with these issues seriatim.

1. Whether response costs under 42 U.S.C. § 9607(a)(4)(A) are covered as "damages" under the CGL policies in question

The policies state that "[t]he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence....". According to the policies, an occurrence exists if there is an accident which includes injurious exposure to conditions and which causes property damage during the policy period which is neither expected nor intended by the insured.

Thus, we must determine the nature of response costs; the question presented is whether response costs are "sums which the insured shall become legally obligated to pay as damages." Insurers contend that when the government seeks cleanup costs it is really seeking restitution and/or mandatory injunctive relief, and therefore coverage is not available. Insureds answer that response costs are "damages" from the perspective of an ordinary person and thus are covered.

Courts are by no means uniform in the resolution of this dispute. Three United States circuit courts that have addressed the issue under the laws of four different states have held that response costs are not covered damages under the CGL policies. See, e.g., A. Johnson & Co. v. Aetna Casualty & Surety Co., 933 F.2d 66, 69 (1st Cir.1991) (noting in dicta that under Maine law, administrative or cleanup costs are not "damages" within the meaning of a CGL policy); Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977, 985 (8th Cir.1...