Maryland Cas. Co. v. Armco, Inc.

• Decision Date: 04 August 1987
• Docket Number: No. 86-3125,86-3125
• Citation: 822 F.2d 1348
• Parties: , 56 USLW 2067, 17 Envtl. L. Rep. 21,277 The MARYLAND CASUALTY COMPANY, Plaintiff-Appellee, v. ARMCO, INC., Defendant-Appellant, Lumbermens Mutual Casualty Company; AT & T Technologies, Inc.; State of Missouri; Insurance Environmental Litigation Association; Keith Rayment, Amici Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1348

822 F.2d 1348

26 ERC 1281, 56 USLW 2067, 17 Envtl.

L. Rep. 21,277

The MARYLAND CASUALTY COMPANY, Plaintiff-Appellee, v.ARMCO, INC., Defendant-AppellantLumbermens Mutual Casualty Company; AT & T Technologies Inc.; State of Missouri; Insurance Environmental Litigation Association; Keith RaymentAmici Curiae.

No. 86-3125.

United States Court of Appeals Fourth Circuit.

Argued March 2, 1987.

Decided July 6, 1987.

Rehearing and Rehearing In Banc Denied Aug. 4, 1987.

Benjamin Rosenberg(Craig E. Smith, James R. Moxley, III, Baltimore, Md., Marc R. Engel, Washington, D.C., W. Warren Hamel, Venable, Baetjer & Howard, Baltimore, Md., on brief), for defendant-appellant.

Thomas William Brunner(Steven C. Kahn, Jeffrey F. Liss, Laura A. Foggan, John W. Cavilia, Piper & Marbury, Washington, D.C., on brief), for plaintiff-appellee.

Robert N. Sayler, John E. Heintz, William F. Greaney, Frederick G. Herold, Covington & Burling, Washington, D.C., on brief, for amicus curiaeAT & T Technologies, Inc., The Boeing Co., Carter Day Industries, Inc., Chemical Mfrs. Associations, Ex-Cell-O Corporations, Intern. Business Machines Corp., Key Pharmaceuticals, Inc., SCM Corp., Stauffer ChemicalCo. and 3M Co., (Richard L. Blatt, Richard S. Borland, Ellen J. Kerschner, Robert W. Hammesfahr, Peterson, Ross, Schloerb & Seidel, Patrick M. Sweeney, Chicago, Ill., Beverley L. Crump, Douglas M. Palais, McSweeney, Burtch & Crump, Richmond, Va. on brief), for amicus curiaeKeth Rayment.

William L. Webster, Atty. Gen., Shelley A. Woods, Asst. Atty. Gen., Jefferson City, Mo., on brief, for amicus curiaeState of Missouri.

Timothy C. Russell, Thomas S. Schaufelberger, Drinker, Biddle & Reath, Washington, D.C. on brief, for amicus curiaeLumbermens Mut. Cas. Co.

Roger E. Warin, Virginia L. White-Mahaffey, Helen D. Irvin, Michael J. Markoff, Steptoe & Johnson, Washington, D.C. on brief, for amicus curiae Ins. Environmental Litigation Assn.

Before WIDENER, SPROUSE, and CHAPMAN, Circuit Judges.

CHAPMAN, Circuit Judge:

The appellee, The Maryland Casualty Company, sought a declaratory judgment concerning its liability to its insured, Armco, Inc., arising out of a suit brought against Armco by the United States.The underlying suit is a claim against Armco for reimbursement and injunctive relief because of an alleged endangerment to the environment at a hazardous waste site in Missouri.The question presented is whether the claim brought against Armco in Missouri constitutes a claim for "damages" as defined in the insurance agreement between Armco and Maryland Casualty.We hold that the claim seeking compliance with regulatory directives of a federal agency, which compliance takes the form of obedience to injunctions and reimbursement of remedial costs, does not constitute a claim for "damages" under the insurance policy.We affirm the decision of the district court that Maryland Casualty is not obligated to indemnify nor defend Armco in the Missouri litigation.

I

At issue is a general comprehensive liability policy first negotiated between Maryland Casualty and Armco in 1966.Modified periodically, it remained in effect until June 1, 1983.Totaling one hundred and fifty-eight pages, the policy is "manuscript" in several instances: that is, some provisions are negotiated and specifically written for this insured.In pertinent part, the policy obligates Maryland Casualty:

[T]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by an occurrence; [and]

[To] defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent....

In the Missouri litigation, United States v. Conservation Chemical Company, 653 F.Supp. 152(W.D.Mo.1986)("CCC "), the United States brought suit against both the owners of the waste storage facility and the "original waste generator"defendants, which latter group included Armco.The complaint alleged that improper maintenance techniques utilized in storing the hazardous waste resulted in the seepage of toxic chemicals into the soil and groundwater surrounding the site and surface flows off the site and onto adjoining property.The complaint also alleged that the chemicals have migrated from the site as leachate into the Missouri and Blue Rivers and thus pose a threat to persons living in communities downriver who use the rivers for crop irrigation, livestock and wildlife watering, boating, industrial water supply and as a source of drinking water.

The suit was brought pursuant to the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Secs. 6901-91, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, Pub.L. No. 96-510,94 Stat. 2767(1980)("CERCLA").Among its CERCLA claims the government sued under Sec. 106 and under Sec. 107,42 U.S.C. Sec. 9607(a)(4)(A) seeking to compel the responsible parties to implement a comprehensive remedial action program and seeking reimbursement for all of its investigatory and other response costs and enforcement activities related to the site and for the costs incurred or to be incurred in cleaning up the affected area.

CERCLA Sec. 107, 42 U.S.C. Sec. 9607 reads in pertinent part:

(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for--

(A) all costs of removal or remedial action incurred by the United States Government or a State not inconsistent with the national contingency plan;

(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan; and

(C) damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction, or loss resulting from such a release.¹

In January 1986, the original waste generator defendants in the CCC litigation, including Armco, filed an amended third-party complaint against the site operator defendants' primary and excess insurers, including Maryland Casualty, alleging that the third-partyplaintiffs were intended and/or creditor beneficiaries of the site operator defendants' insurance policies.The complaint asserted that the insurers were obligated to indemnify the original waste generator defendants against all damages, costs and fees which they had incurred or would incur.The insurance policy between Maryland Casualty and the CCC operator defendants contained nearly identical language to the Maryland Casualty--Armco policy at issue in this case.

The special master appointed in CCC found that Maryland Casualty was under an obligation to indemnify and defend Armco in the CCC litigation.Specifically, the master determined that environmental harm constitutes "property damage" as defined in the insurance policy, and that environmental response costs constitute "damages" as contained in the policy.The district judge in CCC signed an order which adopted, in substantial part, the recommendations of the special master.Immediately thereafter, Maryland Casualty and two other insurers informed the judge that they wished to complete a settlement with the original generator defendants, including Armco.The district judge stated that he would set aside his order nunc pro tunc as to any settling insurers.The settlement was reached, and the order was vacated.

The district court in the present litigation found that the action taken by the Missouri district court did not render the present controversy res judicata, and did not give rise to collateral estoppel.Addressing the case on the merits, the court held that Armco was not entitled to defense costs and indemnity from Maryland Casualty in the CCC litigation.Maryland Casualty Company v. Armco, Inc., 643 F.Supp. 430(D.Md.1986).The court stated that "[b]lack letter insurance law holds that claims for equitable relief are not claims for 'damages' under liability insurance contracts."Id. at 432.The district court then inquired into whether CCC involved a claim for equitable relief.The court considered whether the nature of that claim was a "legal" or "equitable" claim as historically defined, and analogized to judicial interpretations of the Seventh Amendment right to a jury trial.Because "[e]very court that has considered the question has held that CERCLA response cost suits fall on the equity side of the line,"id. at 435, the CCC claim was not a legal claim, and therefore was not a suit for damages against which Maryland Casualty must defend and indemnify.

II

Maryland Casualty's obligations under the terms of the insurance agreement arise only where the insured has become "legally obligated to pay as damages because of injury to or destruction of property...."It is black-letter law that the terms of an insurance policy are to be construed according to the meaning a reasonably prudent layman would infer.Pacific Indemnity Company v. Interstate Fire & Casualty Company, 302 Md. 383, 488 A.2d 486, 488(1985).Under this standard, Armco and its amici AT & T, et al., argue that the term "damages" connotes virtually any claim for monetary relief.

Judicial decisions, although not rejecting the rule of construction that terms of an insurance contract are to be given their ordinary meaning, have nevertheless limited the breadth of the definition of "damages" somewhat more narrowly than the appellant suggests."Damages," as distinguished from claims for injunctive or restitutionary relief, includes "only payments to third persons when those persons have a legal claim for damages...."Aetna Casualty and Surety Company...