Continental Ins. Companies v. Northeastern Pharmaceutical & Chemical Co., Inc.

• Decision Date: 04 May 1988
• Docket Number: No. 85-1940,85-1940
• Citation: 842 F.2d 977
• Parties: , 56 USLW 2502, 18 Envtl. L. Rep. 20,819 CONTINENTAL INSURANCE COMPANIES, Appellee, v. NORTHEASTERN PHARMACEUTICAL & CHEMICAL COMPANY, INC., Milton Turkel, Edwin B. Michaels, and John W. Lee, Appellees, State of Missouri, Intervenor-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 977

842 F.2d 977

27 ERC 1233, 56 USLW 2502, 18 Envtl.

L. Rep. 20,819

CONTINENTAL INSURANCE COMPANIES, Appellee, v. NORTHEASTERN PHARMACEUTICAL & CHEMICAL COMPANY, INC., Milton Turkel, Edwin B. Michaels, and John W. Lee, Appellees State of Missouri, Intervenor-Appellant.

No. 85-1940.

United States Court of Appeals Eighth Circuit.

Submitted May 12, 1987.

Decided Feb. 26, 1988.

Rehearing and Rehearing En Banc Denied May 4, 1988.

Shelly A. Woods, Atty. Gen., Jefferson City, Mo., for appellant.

Karen Florini, Washington D.C., for amicus U.S.

Gary R. Long, Kansas City, Mo., for appellee.

Before LAY, HEANEY, ROSS, ^* McMILLIAN, FAGG, BOWMAN, WOLLMAN, and MAGILL, Circuit Judges, en banc.

McMILLIAN, Circuit Judge.

This is an appeal from an order entered in the District Court ¹ for the Western District of Missouri granting summary judgment in favor of Continental Insurance Cos. (Continental) on count I of its complaint and on the counterclaim filed by the state of Missouri and granting Continental's motion to dismiss without prejudice count II of its complaint. Continental Insurance Cos. v. Northeastern Pharmaceutical & Chemical Co., No. 84-5034-CV-S-4, slip op. at 11, 16 (W.D.Mo. June 25, 1985) (hereinafter district court order). On appeal, a panel of this court affirmed in part and reversed in part. Continental Insurance Cos. v. Northeastern Pharmaceutical & Chemical Co., 811 F.2d 1180 (8th Cir.1987) (hereinafter panel opinion). ² Subsequently, the court granted the petitions for rehearing en banc filed by Continental and the state. 815 F.2d 51 (1987).

For the reasons discussed below, we hold that the term "damages" in the standard-form comprehensive general liability (CGL) policy does not include cleanup costs and accordingly affirm the order of the district court.

FACTUAL BACKGROUND

The following factual summary is taken in large part from the panel opinion, 811 F.2d at 1182-84. A more detailed statement of the factual background of the Denney farm site can be found in the underlying liability decisions, United States v. Northeastern Pharmaceutical & Chemical Co., 579 F.Supp. 823 (W.D.Mo.1984) (EPA ), aff'd in part, rev'd in part and remanded, 810 F.2d 726 (8th Cir.1986), cert. denied, --- U.S. ----, 108 S.Ct. 146, 98 L.Ed.2d 102 (1987).

From 1970 to 1972 the Northeastern Pharmaceutical & Chemical Co. (NEPACCO) manufactured hexachlorophene in a factory in Verona, Missouri. (NEPACCO effectively ceased doing business sometime in 1974.) The manufacturing process produced a variety of hazardous wastes, including the highly toxic chemical, dioxin. In July 1971 NEPACCO disposed of about eighty-five 55-gallon drums of hazardous wastes by burying them in a trench on a farm near Verona (hereinafter the Denney farm site). Many of the drums had deteriorated and were in poor condition at the time of disposal; many broke open when they were dumped into the trench. A strong chemical odor persisted in the immediate area of the Denney farm site for several months thereafter.

In 1971 or 1972 NEPACCO hired Independent Petrochemical Corp. (IPC) to dispose of more hazardous wastes containing dioxin. IPC in turn hired Russell Bliss to actually dispose of NEPACCO's hazardous wastes. In 1971-1973 Bliss allegedly transported and sprayed the hazardous wastes, mixed with waste oil, as a dust suppressant on the grounds of the Bubbling Springs Stables in Fenton, Missouri, and on the roads of Times Beach, Missouri. In 1974 an individual named Minker bought dirt contaminated with NEPACCO hazardous wastes from the Bubbling Springs Stables to use as landfill on his property located in nearby Imperial, Missouri (the Minker/Stout/Romaine Creek site).

From 1970-1972 NEPACCO was insured under three standard-form CGL insurance policies issued by Continental. The first policy was in effect from August 5, 1970, to August 5, 1971, the second policy from August 5, 1971, to August 5, 1972, and the third policy from August 5, 1972, to November 17, 1972, when it was cancelled. Each policy was slightly different, but each provided that Continental would

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 [Continental] shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage.

The policies defined "property damage" as

(1) Physical injury or destruction of tangible property which occurs during the policy period, including the loss of use thereof at anytime resulting therefrom (2) Loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period....

The policies further provided that "[t]his insurance applies only to ... property damage which occurs during the policy period" and defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, injury or property damage neither expected nor intended from the standpoint of the insured." Only the second and third policies contained the following pollution exclusion clause:

It is agreed that the insurance does not apply to ... property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden or accidental.

For general information about standard-form CGL insurance policies, see American Home Products Corp. v. Liberty Mutual Insurance Co., 565 F.Supp. 1485, 1500-03 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984), and Note, The Pollution Exclusion Clause Through the Looking Glass, 74 Geo.L.J. 1237 (1986).

In 1980 the Environmental Protection Agency (EPA) investigated the Denney farm site. The EPA took soil and water samples and found "alarming[ly] high concentrations of dioxin" and other toxic chemicals. EPA, 579 F.Supp. at 831. The EPA secured and then "cleaned up" the Denney farm site. In August 1980 the federal government filed a lawsuit (the EPA lawsuit) against NEPACCO and others, seeking abatement costs, pursuant to Sec. 7003(a) of the Resource Conservation and Recovery Act of 1976 (RCRA) (also known as the Solid Waste Disposal Act), as amended, 42 U.S.C. Sec. 6973(a). In August 1982 the federal government filed an amended complaint adding claims for injunctive relief and reimbursement of its response costs pursuant to Secs. 104, 106, 107 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) (commonly known as Superfund), 42 U.S.C. Secs. 9604, 9606, 9607 (reauthorized and amended in part by the Superfund Amendments and Reauthorization Act of 1986, Pub.L. No. 99-499, 100 Stat. 1613 (1986) (effective Oct. 17, 1986)). ³ We will use the descriptive term "cleanup costs" to refer to both "abatement costs" under RCRA and "response costs" under CERCLA.

In January 1984 the district court held NEPACCO and several other defendants, jointly and severally, strictly liable for cleanup costs under CERCLA, but not RCRA. EPA, 579 F.Supp. at 834-37, 839-52. On appeal, a panel of this court affirmed in part, reversed in part and remanded the case to the district court for further proceedings. 810 F.2d at 749-50. The majority held that the federal government could recover cleanup costs under both RCRA and CERCLA. Id. at 732-46. The dissent did not agree that past non-negligent off-site generators or transporters of hazardous waste could be held liable for cleanup costs under the 1984 RCRA amendments or that the corporate officer defendants could be held liable for cleanup costs under RCRA as generators and transporters. Id. at 750-51 (J.R. Gibson, J., dissenting in part).

The EPA lawsuit prompted the filing of several other, related lawsuits, including the present case.

In March 1983 several former residents of the communities of Times Beach and Imperial filed an action in Missouri state court against NEPACCO and other defendants, seeking damages for present and future personal injury and property damage allegedly caused by the transportation and spreading of hazardous wastes and dirt, contaminated by dioxin and other toxic chemicals produced by NEPACCO, on the roads of Times Beach and at the Minker/Stout/Romaine Creek site. The plaintiffs also sought recovery of the costs of cleaning up the contaminated sites and punitive damages but asserted no RCRA or CERCLA claims. Capstick v. Independent Petrochemical Corp., No. 832-00453 (Mo.Cir.Ct. filed Mar. 7, 1983) (Capstick ).

In November 1983 the state filed a lawsuit in federal district court against NEPACCO and other defendants, seeking declaratory judgment and recovery of present and future response costs, pursuant to CERCLA and the common law of public nuisance, in connection with the state's cleanup of the Minker/Stout/Romaine Creek site. Missouri v. Independent Petrochemical Corp., No. 83-2670-C (E.D.Mo. filed Nov. 23, 1983) (IPC ).

Somewhat later, in February 1985 the federal government filed a garnishment action in federal district court against Continental, as NEPACCO's liability insurer, to collect the CERCLA cleanup costs the federal government had been awarded in the EPA lawsuit. United States v. Continental Insurance Cos., No. 85-3069-CV-S-4 (W.D.Mo. filed Feb. 25, 1985) (garnishment action). Discovery was consolidated in the garnishment action and in the IPC lawsuit. On June 25, 1985, the same day judgment was entered in the case on appeal, the district court also entered judgment in favor of Continental in the garnishment action. The district court later granted the federal government's motion for reconsideration and the case was held in...