Johnson Controls v. Employers Ins. of Wausau

Decision Date11 July 2003
Docket NumberNo. 01-1193.,01-1193.
Citation665 N.W.2d 257,2003 WI 108,264 Wis.2d 60
PartiesJOHNSON CONTROLS, INC., Plaintiff-Appellant-Petitioner, v. EMPLOYERS INSURANCE OF WAUSAU, a mutual company (f/n/a Employers Mutual Liability Insurance Company of Wisconsin), Affiliated FM Insurance Company, AIU Insurance Company, Allstate Insurance Company (as successor to Northbrook Excess and Surplus Insurance Company), American Employers' Insurance Company, American Home Assurance Company, American Motorists Insurance Company, Central National Insurance Company of Omaha, Employers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, First State Insurance Company, Granite State Insurance Company, Highlands Insurance Company, Landmark Insurance Company, London Market (certain underwriters at Lloyd's London and London Market Insurance Companies), National Union Fire Insurance Company of Pittsburgh, PA, Northbrook Excess and Surplus Insurance Company (as predecessor to Allstate Insurance Company), Puritan Insurance Company (f/n/a Manhattan Fire and Marine Insurance Company), Stonewall Insurance Company, Transamerica Premier Insurance Company, Travelers Indemnity Company, United National Insurance Company, Zurich Insurance Company, International Insurance Company, and Westchester Fire Insurance Company, Defendants-Respondents, ALLIANZ UNDERWRITERS INSURANCE COMPANY, American Centennial Insurance Company, American Insurance Company, Associated International Insurance Company, California Union Insurance Company, Continental Insurance Company, Fireman's Fund Insurance Company, Harbor Insurance Company, North Star Reinsurance Corporation, and Republic Insurance Company, Defendants.
CourtWisconsin Supreme Court

For plaintiff-appellant-petitioner there were briefs by Matthew J. Flynn, Jeffrey O. Davis, Rachel A. Schneider, Keith A. Bruett, and Quarles & Brady LLP, Milwaukee, and John P. Kennedy, General Counsel, Johnson Controls, Inc., Milwaukee, and oral argument by Matthew J. Flynn.

For defendant-respondent, Travelers Indemnity Company, there was a brief by Barry R. Ostrager, David W. Woll, Jonathan K. Youngwood, and Simpson Thacher & Bartlett, New York, New York and Janice A. Rhodes and Kravit, Gass, Hovel & Leitner, S.C., Milwaukee, and oral argument by David W. Woll.

For defendant-respondent, Employers Insurance of Wausau, there was a brief by Keith A. Dotseth, Scott J. Ryskoski, Patrick J. Boley, and Larson King, LLP, St. Paul, Minnesota; and Timothy J. Muldowney, Todd G. Smith, and LaFollette Godfrey & Kahn, Madison, and Michael J. Cohen and Meissner Tierney Fisher & Nichols, S.C., Milwaukee, and oral argument by Scott J. Ryskoski. For defendant-respondent, Transamerica Premier Insurance Company, there was a brief by George N. Kotsonis, Gregory A. Kotsonis and Law Offices of George Kotsonis, Milwaukee, and Edwin J. Hull III, David P. Cutler and Cutler & Hull, Chicago, Illinois.

An amicus curiae brief was filed by Eric J. Nystrom and Lindquist & Vennum, PLLP, Minneapolis, Minnesota; Eugene R. Anderson, William G. Passannante, Gail Eckstein and Anderson Kill & Olick, P.C., New York, New York; and Amy Bach, Mill Valley, California, on behalf of United Policyholders.

An amicus curiae brief was filed by Eric Englund, Madison, on behalf of the Wisconsin Insurance Alliance.

An amicus curiae brief was filed by Heidi L. Vogt and Cook & Franke, S.C., Milwaukee, and Laura A. Foggan, John C. Yang, Thomas S. Garrett and Wiley Rein & Fielding LLP, Washington, D.C., on behalf of the Complex Insurance Claims Litigation Association.

An amicus curiae brief was filed by William J. Mulligan, Michael A. Dodge, Amy B. Tutwiler and Davis & Kuelthau, S.C., Milwaukee, and John D. Shugrue, Daniel J. Struck and Zevnik Horton, Chicago, Illinois, on behalf of Kraft Foods North America, Inc., and Kohler Company.

An amicus curiae brief was filed by Robert H. Friebert, Shannon A. Allen and Friebert, Finerty & St. John, S.C., Milwaukee, and Mark J. Plumer, Stephen T. Raptis and Swidler Berlin Shereff Friedman, LLP, Washington, D.C., on behalf of the Wisconsin Utilities Association.


In 1980 Congress adopted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), popularly known as "Superfund," to promote the cleanup of hazardous waste. The Act empowered the federal government, through the Environmental Protection Agency (EPA), to identify hazardous waste sites and pursue remedial activities. As part of the remedial process, the government was authorized to clean up properties and seek compensation from responsible parties or to require polluters and other responsible parties to perform the cleanup themselves. 42 U.S.C. §§ 9601-9675 (2000).1

s 2. CERCLA outlines a range of remedial procedures, beginning with requests to furnish information or documents, and ending with stringent enforcement actions to impose fines for noncompliance with orders or costs to recover the government's own expenditures. 42 U.S.C. §§ 9606, 9607.2 For responsible parties, there is strict liability.

s 3. Nine years ago, this court considered its first case dealing with the insurance issues raised by CERCLA. In City of Edgerton v. General Casualty Co. of Wisconsin, 184 Wis. 2d 750, 517 N.W.2d 463 (1994),cert. denied, 514 U.S. 1017 (1995), we were asked to interpret key terms in the standard Comprehensive General Liability (CGL) policy in relation to CERCLA environmental damage claims.3 A divided court decided that the issuance of letters by the EPA or the Wisconsin Department of Natural Resources (DNR), which either requested or directed an insured to participate in the environmental cleanup of contaminated property, did not constitute a "suit" sufficient to trigger the insurer's duty to defend. Id. at 771. We also held that cleanup and remediation costs under CERCLA did not constitute "sums that the insured may become legally obligated to pay as damages" within the indemnification provisions of CGL policies. Id. at 782.

s 4. Today the problems created by the Edgerton decision have become so obvious and so acute that they cannot be ignored. The court is convinced that we did not correctly analyze the term "damages" in the standard CGL policy in relation to environmental cleanup costs under CERCLA. We relied too heavily on a previous decision of this court involving very different facts and laws. We also created an unworkable interpretation of the insurer's duty to defend in the specialized context of CERCLA letters and orders. The process of restoring consistency and coherence to the law must begin by overruling the Edgerton decision.

[1, 2]

s 5. We hold that an insured's costs of restoring and remediating damaged property, whether the costs are based on remediation efforts by a third party (including the government) or are incurred directly by the insured, are covered damages under applicable CGL policies, provided that other policy exclusions do not apply. We also conclude that receipt of a potentially responsible party (PRP) letter4 from the EPA or an equivalent state agency, in the CERCLA context, marks the beginning of adversarial administrative legal proceedings that seek to impose liability upon an insured. A PRP letter significantly affects legal interests of the insured. Therefore, a reasonable insured would expect this letter to trigger its CGL insurer's duty to defend.


s 6. This case involves a CGL policy coverage dispute between Johnson Controls, Inc.,5 the plaintiff-insured, and more than 30 of its general liability insurance carriers (the insurers). The case has a long history. It began almost three years before this court decided School District of Shorewood v. Wausau Insurance Cos., 170 Wis. 2d 347, 488 N.W.2d 82 (1992), and it has been buffeted ever since by a succession of contentious, inconsistent appellate decisions.

s 7. In November 1989 Johnson Controls brought suit in the Milwaukee County Circuit Court against its liability insurers seeking a declaratory judgment and coverage for various costs relating to the environmental cleanup of 21 property sites. These sites are located in 16 different states where Johnson Controls and/or Globe Union faced liability under CERCLA.6 Most of the sites are lead smelting plants to which Johnson Controls and/or Globe Union delivered spent lead acid batteries and plant scrap for recycling. Some are contaminated landfills. Three of the 21 sites were owned and operated by Johnson Controls.7 At 2 of the 21 sites, the coverage issues became moot because Johnson Controls ultimately incurred no costs or liability.

s 8. For 8 sites, Johnson Controls is seeking coverage for cleanup costs that it incurred in complying with a pre-suit demand from a federal agency, a state agency, or a non-government third-party to remediate the sites in accord with CERCLA.8 These include the 3 sites that Johnson Controls owned.

s 9. For the remaining 11 sites, Johnson Controls was either sued or settled prior to suit for part of the costs of cleanup performed by another party. In some of these cases, the party seeking reimbursement for cleanup was a government agency. In the others, one or more private parties sought a contribution from Johnson Controls for contamination cleanup. Johnson Controls claims that in 6 of these 11 cases, its first awareness of any environmental problem was a lawsuit or demand from a government agency for money to pay costs for cleanup activities that had already been performed by other parties.9

s 10. Johnson Controls avers that in every instance it promptly notified its applicable CGL insurer or insurers of the CERCLA liability claims being made. In every instance the insurers refused to defend Johnson Controls or to indemnify it for any cleanup costs flowing from CERCLA or CERCLA-type claims. The insurers justified their refusal on grounds that the CGL policies did not cover the costs...

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