AIU Ins. Co. v. Superior Court (FMC Corp.)

Decision Date07 September 1989
Docket NumberNo. H005467,H005467
Citation213 Cal.App.3d 1219,262 Cal.Rptr. 182
CourtCalifornia Court of Appeals Court of Appeals
PartiesPreviously published at 213 Cal.App.3d 1219 213 Cal.App.3d 1219 AIU INSURANCE CO. et al., Petitioners, v. The SUPERIOR COURT of Santa Clara County, Respondent, FMC CORPORATION, Real Party in Interest.

Buchalter, Nemer, Fields & Younger, Robert A. Zeavin, Los Angeles, Deborah A. Pitts, Laguna Hills, Victor Rabinowitz, John J. Moura, San Jose, Susan Hoffman, and Kirk C. Chamberlin, Los Angeles, Morrison & Foerster and Marc P. Fairman, Michael M. Carlson, Annette P. Carnegie, and Elizabeth Kuczynski, San Francisco, for petitioners.

Ropers, Majeski, Kohn, Bentley, Wagner & Kane and Michael J. Brady, Red Wood City, Hufstedler, Miller, Kaus & Beardsley and Peter O. Israel, Los Angeles, Wiley, Rein & Fielding and Thomas W. Brunner, Robert R. Lawrence and Sharon Rau Dissinger, Washington, D.C., for amicus curiae in support of petitioners.

No appearance for respondent.

Paul, Hastings, Janofsky & Walker, David W. Steuber, Kirk A. Pasich and Glenn Warner, Los Angeles, Bowen H. Tucker, Anderson, Russell, Kill & Olick and Eugene R. Anderson, John H. Gross, Finley Harckham, and Barbara A. Curran, New York City, for real party in interest.

Heller, Ehrman, White & McAuliffe and Robert T. Haslam, Palo Alto, Covington & Burling and Joanne B. Grossman, William F. Greaney, Washington, D.C., and Jennifer S. Divine, for amici curiae in support of real party in interest.

AGLIANO, Presiding Justice.

When governmental agencies acting by authority of provisions of environmental law compel a toxic polluter to clean up the pollution it has caused, does the polluter's liability insurance provide coverage for the costs of such remedial action? This is the issue which the parties tender to us for resolution, after the trial court refused to grant the insurers a partial summary adjudication that there was no coverage for such liability. We hold, for reasons we shall state in greater detail, that the liability policies of insurance before us here do not cover the insured's costs of having to remedy toxic pollution under governmental compulsion. Our principal reason for this holding is that the policies' language unambiguously defines the insured's liability as that for "damages" because of injury to property; and until the recent spate of environmental pollution cases, no authority held that such liability insurance policies provide coverage for the costs of compliance with governmental exercise of the police power, nor for the costs of responding to an injunction. Accordingly the parties to these policies cannot reasonably have expected that there was such coverage.

This case does not involve liability of FMC for damages for injury to property owned by any governmental agency or private third party. We deal here only with so-called response and remediation costs incurred as a result of governmental exercise of the police power. For example, this lawsuit does not determine the liability of FMC's insurers for any liability FMC may incur under the "damages" section of the federal Comprehensive Environmental Response Compensation Liability Act ("CERCLA"). (42 U.S.C. § 9601 et seq., specifically, 42 U.S.C. § 9607(a)(4)(C).) Nor does this case present the issue whether the insurers are required to indemnify FMC to the extent that any payment by FMC of response costs may serve indirectly to compensate any person or entity for injury to or loss, destruction, or loss of use of property. Insofar as the record before us shows, no owner of damaged or destroyed property is party to this declaratory relief action or to any underlying action to recover response costs only. In short we express no opinion on coverage of traditional actions against FMC for damages for injury to property, even where those damages may coincidentally be measured by the costs of cleanup or remediation. We address only the question of coverage of the costs of compliance with an exercise of the police power.

History of the Action

FMC Corporation ("FMC") brought this declaratory relief action to establish that certain liability insurance policies provide coverage for FMC's potential liability in environmental actions brought against it by federal and state agencies. In those environmental actions the governmental agencies seek to compel FMC to reimburse the agencies for their costs of investigation and remediation of toxic pollution allegedly caused by FMC on various sites nationwide, as well as to compel FMC to itself take preventive and remedial action.

FMC's liability insurers ("Insurers") moved for summary adjudication that claims such as these (sometimes referred to as response costs) are not covered under policies obligating Insurers to indemnify FMC for sums which FMC may become liable to pay "as damages." The trial court denied Insurers' motion. Insurers petition for statutory mandate review. (Code Civ.Proc., § 437c, subd. (l ).)

The Actions Against FMC

The United States government here proceeds against FMC under CERCLA, specifically, sections 9607(a)(4)(A) and (B) of that statute, which sections provide for so-called remediation and response costs to remedy toxic pollution upon sites other than governmentally owned property. CERCLA also gives the United States Attorney General authority to require abatement of a hazard or threat of pollution. (42 U.S.C. § 9606) In contrast, a separate section of CERCLA, section 9607(a)(4)(C), imposes liability for "damages" for injury to, destruction of, or loss of natural resources, where the government has a proprietary interest in the property. The United States Department of the Interior distinguishes between response actions under subsections (A) and (B), supra, "which have as their primary purpose the protection of human health," and subsection (C) which attempts to determine "proper compensation to the public for injury to natural resources." (51 Fed.Reg. 27674.) This case does not involve any question of insurance coverage of any liability of FMC under the "damages" provision of CERCLA, § 9607(a)(4)(C), supra.

In addition to the federal actions, local governmental agencies also proceed against FMC under analogous provisions of local environmental law. FMC's complaint describes the environmental actions as to which it seeks coverage as lawsuits in which the "governmental claimants ... typically seek to recover monies expended to investigate, monitor, survey, test, and gather information to identify and evaluate the existence of contamination and of danger to the public health and welfare and to recover costs incurred in corrective actions taken to date. They also seek orders compelling FMC and others to take any actions necessary to remedy conditions at the site. Claims asserted by governmental agencies include claims pursuant to federal laws and laws of various states, ..." The complaint goes on to describe many federal and state statutes under which claims are brought. (E.g., Health & Saf.Code, §§ 25300-25395, the Cal.Carpenter-Presley-Tanner Hazardous Substance Account Act; see also the Clean Water Act, 33 U.S.C. § 1364; The Resource Conservation & Recovery Act (RCRA) 42 U.S.C. § 6973; and the Safe Drinking Water Act, 42 U.S.C. § 300i.)

Contentions of Insurers

The insurers' arguments that there is no coverage for such expenses may be summarized as follows: (1) the weight of Federal decisions on the issue holds there is no coverage of a party's obligation to reimburse the government for the costs of cleaning contaminated sites, because that obligation is one to make equitable restitution, not to pay damages at law, and the liability insurance policies cover "damages"; (2) the trial court erred in applying rules of construction to resolve ambiguity because the term "damages" in the policies is not ambiguous; (3) a recent provision of California insurance law, Insurance Code section 533.5, forbids insuring against payment of any fine, penalty or restitution order, and here makes unlawful the coverage FMC argues for, since the agencies seek against FMC compensation in the nature of equitable restitution.

Contentions of FMC

FMC makes the following arguments in favor of coverage: (1) The cases denying coverage for such costs are not cogently reasoned and rest on technical distinctions of damages at law versus equitable restitution. California makes no such distinctions. (2) Principles of insurance contract construction in California require effectuating the parties' reasonable expectations and construing in favor of coverage. These principles are violated by the out of state authority denying coverage based on a technical definition of "damages." (3) At least some of the policies contain very broad language of coverage going beyond damages at law. (4) Environmental cleanup actions are not analogous to criminal or quasi-criminal actions for fines and penalties (against which it is illegal to insure oneself). The pollution was not deliberate. Finding coverage will not tend to encourage wrongdoing.

The Language of the Insurance Policies

The provisions of the various insurance policies which were tendered for judicial construction on the motion for summary adjudication all contain language substantially similar to the following: the insurer will pay "on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of injury to or loss, destruction or loss of use of property." Some policies further define "damages" as damages because of personal injury or property damage to which the policy applies; or, as personal injuries, property damage, or advertising liability; or, as damages, direct or consequential, and expenses, defined as "ultimate net loss," which term is in turn defined as "the total sum which the Assured ... becomes obligated to pay by reason of ... property damage ... claims, either through adjudication or compromise, and shall also...

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