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

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: Before HEANEY and McMILLIAN; HEANEY; McMILLIAN
• Citation: Continental Ins. Companies v. Northeastern Pharmaceutical and Chemical Co., Inc., 811 F.2d 1180 (8th Cir. 1987)
• Decision Date: 30 March 1987
• Docket Number: No. 85-1940,85-1940
• Parties: , 55 USLW 2417, 17 Envtl. L. Rep. 20,616 CONTINENTAL INSURANCE COMPANIES, Appellee, v. NORTHEASTERN PHARMACEUTICAL AND CHEMICAL COMPANY, INC., Milton Turkel, Edwin B. Michaels and John W. Lee, Appellees, State of Missouri, Intervenor-Appellant.

Page 1180

811 F.2d 1180

25 ERC 1521, 55 USLW 2417, 17 Envtl.

L. Rep. 20,616

CONTINENTAL INSURANCE COMPANIES, Appellee, v. NORTHEASTERN PHARMACEUTICAL AND 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 Jan. 15, 1986.

Decided Jan. 22, 1987.

Rehearing En Banc Granted March 30, 1987. ^*

Shelley A. Woods, Asst. Atty. Gen., Jefferson City, Mo., for State of Missouri.

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

Gary R. Long, Kansas City, Mo., for Continental Ins. Co.

Thomas W. Brunner, Washington, D.C., for amicus American Ins. Association.

William D. Iverson, Washington, D.C., for amicus IBM.

Jerome T. Wolf, Carl H. Helmstetter, James T. Price, Spencer, Fane, Britt & Browne, Kansas City, Mo., for amicus AT&T Technologies, Inc.

Before HEANEY and McMILLIAN, Circuit Judges, and MURPHY, ^* District Judge.

HEANEY, Circuit Judge.

This appeal raises the question of whether hazardous waste cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Secs. 9601-9657 (1982) (CERCLA) are recoverable under a liability policy that covers "property damage" that "occurs" during the life of the policy, where disposal and environmental contamination took place during the policy period but cleanup costs were incurred later. We reverse the district court's order on Count I of Continental's complaint, affirm its dismissal of the State of Missouri's counterclaim, and hold that state and federal governments suffer "property damage" at the time hazardous wastes are improperly "released" into their environment and that cleanup costs are a recoverable measure of damages for this environmental property damage. We also affirm the district court's dismissal without prejudice of Count II of Continental Insurance Company's complaint relating to coverage for private individuals' personal and property damage due to improper hazardous waste disposal.

I. FACTS.

From 1970 to 1972, the Northeastern Pharmaceutical and Chemical Company (NEPACCO) produced hexachlorophene at a chemical plant in Verona, Missouri. The process produced a variety of wastes, among which was dioxin, a highly toxic chemical. In July, 1971, NEPACCO made arrangements to dispose of at least eighty-five fifty-five-gallon drums of these wastes in a trench on a farm near Verona, Missouri (the "Denny farm" site). When the deteriorated drums were dumped in the trench in July, 1971, a "strong odor" shortly emerged, persisting for several months. United States v. Northeastern Pharm. & Chem. Co., 579 F.Supp. 823, 828-30 (W.D.Mo.1984). Later in 1971 or 1972, NEPACCO hired Independent Petrochemical Corporation (IPC) which, in turn, hired Russell Bliss to dispose of more dioxin-contaminated wastes. In 1971, 1972, and 1973, Bliss allegedly spread thousands of gallons of these wastes on the premises of the Bubbling Springs Stables in Fenton, Missouri, and on the roads of Times Beach, Missouri. ¹ Later, in 1974, a Mr. Minker purchased twenty truckloads of contaminated dirt from the Bubbling Springs Ranch and used it as landfill on his property at West Rock Creek Road, Missouri (the "Minker/Stout/Romaine Creek" site).

During the two-year period from 1970 to 1972 that NEPACCO was in business, it was insured under a Comprehensive General Liability Policy (CGL), ² issued by Continental. Three somewhat different policies were in effect from August 5, 1970, to August 5, 1971; August 5, 1971, to August 5, 1972; and August 5, 1972, to November 5, 1972. ³ Each policy requires Continental to: pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage ⁴ to which this insurance applies caused by an occurrence, ⁵ and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage.

All three provide that: "[t]his insurance applies only to bodily injury or property damage which occurs during the policy period."

In 1980, the EPA investigated the Denny farm site and found that the NEPACCO wastes in the trench and underlying soil contained "alarming[ly] high concentrations of dioxin." Id. at 831. It cleaned up the site, and then sought to recover its costs through a lawsuit against NEPACCO and others. United States v. Northeastern Pharm. & Chem. Co., 579 F.Supp. 823 (the "EPA " suit). The district court found NEPACCO and the other defendants jointly and severally liable under CERCLA for the cost of the cleanup. ⁶ A separate appeal in that action is now pending before another panel of this Court.

On March 7, 1983, a number of former residents of Times Beach and Imperial, Missouri, filed an action against NEPACCO and others which seeks recovery for personal injuries and property damage allegedly caused by the dumping of NEPACCO's wastes at the Minker/Stout/Romaine Creek site and on the streets of Times Beach. Capstick v. Independent Petrochemical Corp., No. 832-0453 (Cir.Ct., City of St. Louis, Mo. filed Mar. 7, 1983) (the "Capstick " suit).

To protect against potential liability arising out of its status as insurance carrier for NEPACCO during the time NEPACCO's hazardous wastes were improperly disposed of, Continental filed this action against NEPACCO and its former officers and directors. Count I seeks a declaration that Continental is under no duty to defend or indemnify NEPACCO for liability arising out of the EPA ⁷ suit. Count II seeks the same declaration with respect to the Capstick suit. On November 14, 1984, Continental moved for summary judgment. NEPACCO and the other defendants failed to enter an appearance or file an answer. ⁸

The State of Missouri was then granted leave to intervene to protect its interests arising out of claims that it had made against NEPACCO and the other defendants in a third hazardous-waste lawsuit filed in the United States District Court for the Eastern District of Missouri. Missouri v. Independent Petrochemical Corp., No. 83-3670 (E.D.Mo. filed Nov. 23, 1983) (the "IPC " suit). The complaint in IPC alleges that NEPACCO, its officers, and others are liable under CERCLA for costs incurred by the state in excavating and removing dioxin-contaminated soil from the Minker/Stout/Romaine Creek site. The state filed an answer to Continental's complaint and a counterclaim alleging that Continental is obligated to indemnify the state for the amount of any judgment imposed on NEPACCO in the underlying IPC lawsuit.

On June 25, 1985, the district court granted summary judgment to Continental on Count I of its complaint (no insurance coverage for the EPA claims), and against the state on its counterclaim (no coverage for the IPC claims). The court reasoned that the cleanup costs sought by the United States and the state in the EPA and IPC suits are not "property damage" as that term is defined in the CGL policies and that "no * * * damages were incurred by the government entities during the policies' effective dates" because the policies were only in effect from 1970 to 1972, and the cleanup costs were incurred later. The court also granted Continental's motion to dismiss without prejudice Count II of its complaint (the Capstick claims), stating that "more specific findings of bodily injury and property damage" were needed first. The State of Missouri appeals. ⁹

II. DISCUSSION.

A. EPA and IPC Claims.

The first issue is whether the district court erred in holding that cleanup costs under CERCLA are not "property damage" as defined in the CGL policies. ¹⁰ Although the district court cited no case and gave no explanation for its holding, Continental and amicus AIA advance two arguments in support.

Continental argues that only the actual owners of the land on which hazardous wastes are improperly disposed of sustain "property damage," and that any injury suffered by governmental entities from the improper disposal is merely an economic injury. ¹¹ We disagree.

The Supreme Court of the United States has held that state and federal governments suffer injury to their "quasi-sovereign" interests when pollutants are released into the soil, water, and air within their jurisdiction. See Georgia v. Tennessee Copper Co., 206 U.S. 230, 237, 27 S.Ct. 618, 619, 51 L.Ed.2d 1038, 1044 (1907) (state); cf. Illinois v. City of Milwaukee, 406 U.S. 91, 101-07, 92 S.Ct. 1385, 1391-94, 31 L.Ed.2d 712, 722-26 (1972) (federal). The question here is whether this injury to governmental "quasi-sovereign" interests constitutes "property damage" within the meaning of an insurance policy. Although the Supreme Court has not squarely confronted the issue, two thoughts expressed in cases decided by the Court lead us to reject Continental's argument. First, it has implied that an injury to a government's quasi-sovereign interest in natural resources is a form of property damage. Second, it has held that the government has power, in its quasi-sovereign capacity, to seek redress for the environmental property damage suffered by the actual owners of the land affected by pollution.

In Georgia v. Tennessee Copper Co., 206 U.S. 230, 27 S.Ct. 618, 51 L.Ed. 1038, for example, the State of Georgia brought suit against certain Tennessee copper companies to enjoin the discharge of noxious gases over its territory. In holding that it had jurisdiction and that Georgia was entitled to an injunction, the Court stated:

The state owns very little of the territory alleged to be affected, and the damage to it capable of estimate in money, possibly, at least, is small. This is a suit by a state for an injury to it in its capacity of quasi-sovereign. In that capacity the state has an interest independent of and behind the titles of its citizens, in all the earth and air within its domain. It has the last word as to whether its mountains shall be...