HELENA CHEMICAL v. ALLIANZ UNDERWRITERS, 25797.

• Court: United States State Supreme Court of South Carolina
• Citation: 594 S.E.2d 455,357 S.C. 631
• Docket Number: No. 25797.,25797.
• Parties: HELENA CHEMICAL COMPANY, Appellant, v. ALLIANZ UNDERWRITERS INSURANCE COMPANY, CIGNA Property and Casualty Insurance Company, Insurance Company of North America, Lexington Insurance Company, Lloyd's of London, Maryland Casualty Company, The Central National Insurance Company of Omaha, The Home Insurance Company, and United States Fire Insurance Company, Defendants, Of Whom Lexington Insurance Company, Lloyd's of London, and The Home Insurance Company are Respondents.
• Decision Date: 22 March 2004

357 S.C. 631
594 S.E.2d 455

HELENA CHEMICAL COMPANY, Appellant,
v.
ALLIANZ UNDERWRITERS INSURANCE COMPANY, CIGNA Property and Casualty Insurance Company, Insurance Company of North America, Lexington Insurance Company, Lloyd's of London, Maryland Casualty Company, The Central National Insurance Company of Omaha, The Home Insurance Company, and United States Fire Insurance Company, Defendants, Of Whom Lexington Insurance Company, Lloyd's of London, and The Home Insurance Company are Respondents

No. 25797.

Supreme Court of South Carolina.

Heard April 23, 2003.

Decided March 22, 2004.

357 S.C. 633

William B. Harvey, III, of Harvey & Battey, P.A., of Beaufort; and Kim K. Burke, of Taft, Stettinius & Hollister LLP, of Cincinnati, OH, for Appellant

A. Camden Lewis and Mary G. Lewis, both of Lewis, Babcock & Hawkins, L.L.P., of Columbia; Ellis B. Drew, III, of Wells Jenkins Lucan & Jenkins, of Winston-Salem, NC; Jay Russell Sever, of Phelps Dunbar, LLP, of New Orleans, LA; Michael P. Horger, of Horger & Horger, of Orangeburg; Richard Kuhl and Robert N. Kelly, both of Jackson & Campbell, P.C., of Washington, DC; and Thomas C. Salane, of

357 S.C. 634

Turner, Padget, Graham & Laney, of Columbia, for Respondents

Andrea C. Pope, of Barnes, Alford, Stork & Johnson, L.L.P., of Columbia; Laura A. Foggan, John C. Yang, and Kimberly M. Hrabosky, all of Wiley Rein & Fielding, LLP, of Washington, DC, for Amicus Curiae Insurance Environmental Litigation Association.

William B. Harvey, III, of Harvey & Battey, P.A., of Beaufort; Howard T. Weir, III, of Morgan Lewis & Bockius LLP, of Washington, DC; John E. Failla and Seth D. Amera, both of Morgan Lewis & Bockius LLP, of New York, NY, for Amicus Curiae Federal Pacific Electric Company.

Chief Justice TOAL:

This is an insurance coverage case in which appellant Helena Chemical Company (Helena) seeks, among other things, indemnification from its various primary and excess insurers for environmental cleanup costs. The trial court granted summary judgment for the insurers, and Helena appeals. We affirm in part and reverse in part.

FACTUAL/PROCEDURAL BACKGROUND

Helena is in the business of formulating, distributing, and selling agricultural chemicals, including pesticides, to the farming industry.¹ Helena began its South Carolina operations in 1970 when it merged with Blue Chemical Company. At issue in the instant case are three of Helena's South Carolina sites—Fairfax, Cameron, and Mayesville—where, in conjunction with the Environmental Protection Agency (EPA) and the South Carolina Department of Health and Environmental Control (DHEC), Helena conducted extensive cleanups of polluted soil.

The majority of the costs Helena is seeking relate to the Fairfax site. In December 1988, the EPA advised Helena in a letter that it considered Helena a "potentially responsible party" (PRP) for pollution at the Fairfax site. The EPA told Helena that pursuant to the Comprehensive Environmental

357 S.C. 635

Response, Compensation and Liability Act of 1980 (CERLA), it was "considering spending public funds to respond to the release and threatened release of hazardous substances and contaminated materials" at the Fairfax site, unless such action would be done "properly by a responsible party." The letter encouraged Helena to "undertake voluntary cleanup activities" and invited Helena to commence "formal negotiations" with the agency

In response to the letter, Helena entered into an agreement with the EPA and conducted a Remedial Investigation/Feasibility Study (RI/FS). The RI/FS revealed that there was significant environmental damage to the soil, and Helena conducted a major removal and off-site disposal action of pesticide-contaminated soil. In its complaint, Helena sought legal defense costs and over $8 million for "responding to and addressing" the claims made by the EPA and DHEC.

With regard to pollution at Helena's Cameron site, DHEC informed Helena in 1994 that it considered Helena to be a "potentially responsible party" (PRP) under CERCLA. Although Helena did not enter into any formal agreement, it did conduct a removal of pesticide-contaminated soil at the Cameron site, incurring over $1 million in costs.

With regard to pollution at Helena's Mayesville site, DHEC notified Helena in 1995 that it had found pesticide contamination, and Helena conducted a cleanup there as well.

The insurers denied Helena coverage for the monies expended for the cleanups. Helena instituted this declaratory judgment action seeking reimbursement for all costs incurred. The trial court granted summary judgment in the insurers' favor. Specifically, the trial court found there was no insurance coverage because: (1) Helena's cleanup costs were not "damages" and (2) Helena's claims fell under the insurance policies' pollution exclusion. Additionally, the trial court granted summary judgment on Helena's bad faith claims, holding that the insurers had a reasonable basis to deny coverage.

Helena now appeals, asking this Court to consider the following issues:

357 S.C. 636

I. Did the trial court err in finding that the costs incurred by Helena were not "damages" within the meaning of the insurance policies?

II. Did the trial court err in finding that the pollution releases were not "sudden and accidental," and therefore Helena's claims were barred under the policies' pollution exclusion?

III. Did the trial court err in granting summary judgment on Helena's bad faith claims?

LAW/ANALYSIS

I. "DAMAGES"

Each insurance policy issued to Helena specifies that the insurer will pay the insured for all sums the insured is "legally obligated to pay" as "damages" because of property damage.² Helena argues the trial court erred when it decided as a matter of law that the environmental cleanup costs did not qualify as "damages." We agree.

The trial court found that the plain, ordinary, and popular meaning of the term "damages" does not include environmental cleanup costs because these costs are not sums payable to a third party as a result of a lawsuit brought by that party. The trial court relied primarily on two Fourth Circuit cases: Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987) and Cincinnati Ins. Co. v. Milliken and Co., 857 F.2d 979 (4th Cir.1988).

In Armco, the Fourth Circuit was predicting Maryland law. The Armco court noted Maryland's rule of construction for insurance contracts that the policy terms should be given their ordinary meaning. Armco, 822 F.2d at 1352. Nonetheless, the court held that the term "`damages' is to be construed in consonance with its `accepted technical meaning in law.'" Id. (emphasis added, citation omitted). The court explained there was a difference between legal and equitable damages, and this technical meaning of "damages" encompassed only legal damages, i.e., payments to a third party who has a legal claim for damages. Id. (citation omitted).

357 S.C. 637

The underlying lawsuit in Armco was an action brought by the United States against Armco for reimbursement of remedial costs and injunctive relief in connection with the cleanup of a hazardous waste site. Because the relief sought by the United States was equitable and remedial in nature, the Armco court held there was no insurance coverage: "The general comprehensive liability policy ... covers `damages,' but not the expenditures which result from complying with the directives of regulatory agencies." Id. The court noted that if "damages" were given a broad meaning, then the term "damages" in the contract "would become mere surplusage, because any obligation to pay would be covered." Id.

In Milliken, the Fourth Circuit applied South Carolina law and followed Armco's reasoning:

We perceive no material distinctions between the South Carolina and Maryland laws in the construction and interpretation of insurance policies that should cause us to deviate from Armco .... Absent ambiguity, in South Carolina the language of an insurance policy is given its plain, ordinary, and popular meaning.... In the insurance context the word "damages" is not ambiguous. It means legal damages.... We have no doubt that South Carolina law, in concert with Maryland and Missouri, would recognize that a general comprehensive liability policy which obligated the insurer to pay "all sums which the insured shall become legally obligated to pay as damages" would not cover claims for which the insured is equitably obligated to pay.

857 F.2d at 980-81 (citations omitted).

But when faced with the same issue presented in the instant case, the highest state court in Maryland flatly rejected the reasoning and holding of Armco. See Bausch & Lomb Inc. v. Utica Mut. Ins. Co., 330 Md. 758, 625 A.2d 1021 (1993). The Bausch & Lomb court held that the ordinary and accepted meaning of damages was not a narrow, technical one, but instead was a broad one, encompassing environmental response costs, even when those costs are incurred without a government directive. The Maryland court stated as follows:

To the extent it suggests that the term "damages" imports a distinctively legal meaning in insurance matters, Armco misperceives the law of Maryland.... [W]e accord to words

357 S.C. 638

their usual and accepted signification. "Damages" in common usage means the reparation in money for a detriment or injury sustained. The reasonably prudent layperson does not cut nice distinctions between the remedies offered at law and in equity. Absent an express provision in the document itself, insurance policy-holders surely do not anticipate that coverage will depend on the mode of relief, i.e. a cash payment rather than an injunction, sought by an injured party. Policy-holders will, instead, reasonably infer that the insurer's pledge to pay damages will apply generally to compensatory outlays of various kinds, including expenditures made to comply with administrative orders or formal injunctions. The ordinary person understands "damages" as meaning money

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