Harley-Davidson, Inc. v. Minstar, Inc., HARLEY-DAVIDSO

• Citation: 41 F.3d 341
• Decision Date: 28 December 1994
• Docket Number: P,No. 94-2171,HARLEY-DAVIDSO,INCORPORATE,94-2171
• Parties: , 63 USLW 2383, 25 Envtl. L. Rep. 20,176 laintiff-Appellee, v. MINSTAR, INCORPORATED, and AMF Incorporated, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 341

41 F.3d 341

39 ERC 1926, 63 USLW 2383, 25 Envtl.

L. Rep. 20,176

HARLEY-DAVIDSON, INCORPORATED, Plaintiff-Appellee, v. MINSTAR, INCORPORATED, and AMF Incorporated, Defendants-Appellants.

No. 94-2171.

United States Court of Appeals Seventh Circuit.

Argued Oct. 24, 1994.

Decided Nov. 30, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied Dec.

28, 1994. ^*

Scott W. Hansen, Anne Morgan Hlavacka, Jeffrey P. Clark (argued), Reinhart, Boerner, Vandeuren, Norris & Rieselbach, Milwaukee, WI, for plaintiff-appellee.

Gerard D. Kelly, J. Andrew Schlickman (argued), Sidley & Austin, Chicago, IL, John W. Hein, David J. Edquist, Gibbs, Roper, Loots & Williams, Milwaukee, WI, for defendants-appellants.

Before POSNER, Chief Judge, BAUER, Circuit Judge, and WILL, District Judge. ^**

POSNER, Chief Judge.

Harley-Davidson, the plaintiff in this CERCLA suit (the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Secs. 9601 et seq., commonly known as the Superfund statute), owns a manufacturing plant in York, Pennsylvania. Its predecessor had bought the plant from a predecessor of Minstar, Inc. and AMF Inc., related corporations that are the defendants-appellants. The buyer had agreed to indemnify the seller against all liabilities relating to the division of the seller (called the AMF York Division) that owned the plant. Later the land on which the plant was located was found to be contaminated and Harley-Davidson was forced to incur clean-up costs. CERCLA entitles the owner of contaminated land to seek contribution from other persons who are responsible in whole or part for the contamination, so Harley-Davidson brought this suit against Minstar, AMF, and others. Minstar and AMF set up the indemnity agreement in defense, but the district judge ruled that the agreement was invalid under CERCLA and therefore was not a defense to Harley-Davidson's claim for contribution. 837 F.Supp. 978 (E.D.Wis.1993). Although this was an interlocutory ruling, the district judge certified it for an immediate appeal under 28 U.S.C. Sec. 1292(b), and we accepted the certification.

Section 107(e) of CERCLA states, in subsection (1): "No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from ... any person who may be liable ... under this section, to any other person the liability imposed under this section. Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section." 42 U.S.C. Sec. 9607(e). Harley-Davidson directs our attention to the first sentence, which appears to invalidate indemnification agreements made by "responsible parties" (in the lingo of CERCLA), such as Minstar and AMF, while Minstar and AMF direct us to the second sentence, which appears to authorize precisely such agreements. The subsection taken as a whole is notably obscure, but we agree with every other appellate court that has been called on to interpret it that it does not outlaw indemnification agreements, but merely precludes efforts to divest a responsible party of his liability. E.g., John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 405 (1st Cir.1993); United States v. Hardage, 985 F.2d 1427, 1433 (10th Cir.1993). The first sentence speaks of "transfer[ring] ... liability," that is, of shifting liability from one person to another. Indemnification does not do that. The indemnified party remains fully liable to whomever he has wronged; he just has someone to share the expense with. The second sentence clearly permits sharing, just as the first forbids shifting.

It would be extraordinary if the draftsmen had wanted to bar insurance against CERCLA liability (insurance is just a form of indemnification). Public policy does on occasion demand that a wrongdoer be forbidden to shift the cost of liability to another through insurance or some other form of indemnification, but that is in cases of deliberate wrongdoing. Truck Ins. Exchange v. Ashland Oil, Inc., 951 F.2d 787, 790 (7th Cir.1992); Western Casualty & Surety Co. v. Western World Ins. Co., 769 F.2d 381, 385 (7th Cir.1985). Individuals and firms are normally allowed to insure against the consequences of their negligence; what else is automobile liability insurance? Proof of CERCLA liability does not require proof even of negligence, let alone of deliberate wrongdoing; CERCLA liability is strict. In re Chicago, Milwaukee, St. Paul & Pacific R.R., 974 F.2d 775, 779 (7th Cir.1992); New York v. Shore Realty Corp., 759 F.2d 1032, 1042 (2d Cir.1985); see Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 325-26 (7th Cir.1994). Harley-Davidson flinches from the implications of its position, and, fastening on the word "insure" in the subsection's second sentence (it does not appear in the first sentence), argues that contracts of insurance are the one and only form of indemnification that the statute allows. But what sense would that make? Why would rational draftsmen allow a polluter to shift the cost of his liability to an insurance company but not to another polluter? Even the semantic argument is weak, since "insure" does not stand alone; the words are "to insure, hold harmless, or indemnify." Harley-Davidson wants us to strike words from the statute, and it had better have compelling reasons for such disfiguring surgery.

It points out that if indemnification (we would add, in the form of insurance as otherwise) is allowed, potential polluters will have less incentive to take steps to avoid CERCLA liability, since they will be able to hand off all or part of the cost to the indemnitor. That of course is a problem with any form of insurance or indemnification. It is what is called moral hazard. When the problem is especially acute, insurance companies will not write insurance. Western Casualty & Surety Co. v. Western World Ins. Co., supra, 769 F.2d at 385. The law may even, as we noted, bar indemnification, as in cases of deliberate wrongdoing. The venerable requirement that an insured have an "insurable interest," the requirement that for example prevents a person from buying life insurance on the life of a stranger, Connecticut Mutual Life Ins. Co. v. Schaefer, 94 U.S. 457, 460, 24 L.Ed. 251 (1877), illustrates the concern with moral hazard. One can imagine, if barely, a decision by Congress that pollution is such an awful menace to society that polluters--even involuntary polluters--should be forbidden to insure. But there is no evidence of such a decision and it would be inconsistent with the second sentence, as well as with Harley-Davidson's concession that Minstar and AMF could have protected themselves with an insurance contract.

That leaves the first sentence unexplained. And it is mysterious. Indemnification does not, as we have already explained, "transfer" liability from the person indemnified. The latter remains fully liable to the victims of his wrongdoing. If a person buys automobile liability insurance and later is sued for damages arising out of an automobile accident, he cannot defend by saying, "I have insurance, so am not...