Maryland Cas. Co. v. Armco, Inc.

• Decision Date: 08 September 1986
• Docket Number: Civ. No. Y-85-1396.
• Parties: The MARYLAND CASUALTY COMPANY v. ARMCO, INC.
• Court: U.S. District Court — District of Maryland

643 F. Supp. 430

The MARYLAND CASUALTY COMPANY v. ARMCO, INC.

Civ. No. Y-85-1396.

United States District Court, D. Maryland.

September 8, 1986.

Jonathan D. Smith, Stephen J. Immelt, Baltimore, Md., Thomas W. Brunner, Jeffrey F. Liss, Laura Foggan, Washington, D.C., for plaintiff.

Mark R. Engel, Benjamin Rosenberg, Robert J. Proutt, Baltimore, Md., for defendant.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

The Maryland Casualty Company seeks a declaratory judgment that it does not have a duty to defend a Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") suit brought against its insured, Armco, Inc., and a host of other defendants in the Western District of Missouri. United States v. Conservation Chemical Co., No. 82-0983-CV-W-5. Maryland Casualty issued general business insurance policies to Armco from 1966 to 1983. The parties do not dispute the terms of those insurance policies or the underlying facts in the Conservation Chemical Co. ("CCC") litigation, and have filed cross motions for summary judgment. No hearing is necessary. Local Rule 6.

The Environmental Protection Agency's complaint in the CCC case alleges that a toxic waste site in Kansas City, owned and maintained by the Chemical Conservation Company, is leaking hazardous substances into the water tables of the Missouri and Blue Rivers. The complaint names Armco as one of several defendants who generated hazardous wastes present at the site. The parties in this case have represented to the Court that Armco hired Conservation Chemical to dispose of its wastes, and that Conservation Chemical improperly stored Armco's wastes at the site over a period of years. Armco thus appears to be a "person who ... arranged with a transporter for transport for disposal or treatment, of hazardous substances ... at any facility owned or operated by another party" under 42 U.S.C. § 9607(a)(3). The EPA complaint alleges that, as such, Armco is strictly liable for "all costs of removal or remedial action incurred by the United States Government or a state" under 42 U.S.C. § 9607(a)(4)(A).

The contracts between Maryland Casualty and Armco do not specify whether the parties intended the contracts to be interpreted according to the law of a particular jurisdiction. In a diversity case such as this, the Court must look to the choice of law rules of Maryland, the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Maryland follows the rule of locus contractus, applying the law of "the place where the last act is performed which makes an agreement a binding contract." Grain Dealers Mutual Insurance Co. v. Van Buskirk, 241 Md. 58, 65-66, 215 A.2d 467 (1965); Sun Insurance Office, Ltd. v. Mallick, 160 Md. 71, 81, 153 A. 35 (1931); Haines v. St. Paul Fire & Marine Insurance Co., 428 F.Supp. 435 (D.Md.1977); Riviera Beach Volunteer Fire Co., Inc. v. Fidelity & Casualty Co. of New York, 388 F.Supp. 1114, 1119-20 (D.Md.1975).

Counsel for both parties have orally represented to the Court that the insurance contracts at issue were signed in Maryland, and agree that Maryland law applies. The Court finds no dispute of material fact on this issue, and will apply Maryland law. "Maryland has not adopted the rule, followed in many jurisdictions, that an insurance policy is to be most strongly construed against the insured. If the language of an insurance contract is ambiguous, however, construction is for the jury, and the ambiguity is to be resolved against the company who prepared the policy and in favor of the insured." National Grange Mutual Insurance v. Pinkney, 284 Md. 694, 705, 399 A.2d 877 (1979) (citations omitted), quoting Government Employees Insurance v. DeJames, 256 Md. 717, 720, 261 A.2d 747 (1970).

In its motions for summary judgment, Maryland Casualty argues that it is not obligated to defend Armco in the CCC litigation because the EPA's complaint does not assert claims for legal "damages" within the meaning of Maryland Casualty's policies. Because the Court finds that Maryland Casualty is entitled to summary judgment on this issue, it is unnecessary to consider the other contentions of the parties.

The insurance contracts limit Maryland Casualty's duty to defend to a "suit against the insured ... seeking damages," and limit the duty to indemnify to "sums which the insured shall become legally obligated to pay as damages." Policy No. 31R-0038550, Defense, Settlement, Supplementary Payments, Subsection (a); Coverage C—Property Damage Liability—Except Automobile. The word "damages" is not ambiguous in the insurance context. Black letter insurance law holds that claims for equitable relief are not claims for "damages" under liability insurance contracts. See, e.g., Haines v. St. Paul Fire & Marine Insurance Co., 428 F.Supp. 435 (D.Md.1977) (Blair, J.); Aetna Casualty and Surety Co. v. Hanna, 224 F.2d 499 (5th Cir.1955); Desrochers v. New York Casualty Co., 99 N.H. 129, 106 A.2d 196 (1954).

The government's CCC complaint sought injunctive relief against Armco, as well as reimbursement for "all costs of removal or remedial action incurred by the United States Government or a State not inconsistent with the national contingency plan," under 42 U.S.C. § 9607(a)(4)(A). Judge Wright of the Western District of Missouri appointed a special master, Professor Robert H. Freilich of the University of Missouri at Kansas City, to help resolve the CCC litigation. The special master recommended that a CCC defendant's request for a jury trial be denied, on the grounds that the government's suit for response costs were analogous to an equitable claim for restitution. See Special Master's Recommendation Regarding General Dynamics Corporation's Demand for a Jury Trial (April 29, 1985). Judge Wright approved the special master's recommendation by Order dated May 14, 1985.

The Seventh Amendment does not provide a right to a jury trial "if viewed historically the issue would have been tried in the courts of equity...." 9 Wright & Miller, Federal Practice and Procedure, Civil § 2302, p. 15 (1971). Judge Wright's Seventh Amendment analysis of the CERCLA statutory scheme followed the unanimous decisions of other courts faced with the same issue. This Court has also denied a demand for a jury trial in a CERCLA case. See United States v. Dickerson, 640 F.Supp. 448, 453 (1986); see also United States v. Mottolo, 605 F.Supp. 898, and cases cited at 913 (D.N.H.1985).

Recently, the special master recommended that the government's CCC complaint alleges claims for "damages" for purposes of comprehensive general liability insurance policies. See Special Master's Recommendations on Motions for Summary Judgment Regarding Insurance and Indemnification, memo. op. at 132 (June 27, 1986) (hereafter "Special Master's Recommendations"). Maryland Casualty has represented to the Court that Judge Wright entered an order adopting the special master's recommendations on July 10, but said that he would vacate the order as to Maryland Casualty and two other insurers who had settled before entry of the order. Judge Wright apparently has deferred entry of that order to vacate pending further settlement negotiations between all parties still involved. See letter to the Court from counsel for Maryland Casualty, July 18, 1986, pp. 1-2.

In this posture, the special master's recommendations are not res judicata against Maryland Casualty. They are also unpersuasive as precedent. Professor Freilich, in some detail, explained why actions to recover response costs alleged "property damage" under the insurance contracts. Special Master's Recommendations at pp. 63-81. This Court agrees with the special master's common sense conclusion that toxic waste dumps that contaminate the environment cause "property damage;" it reached the same result in Mraz v. American Universal Insurance Co., 616 F.Supp. 1173, 1177 (D.Md.1985), appeal filed, No. 85-2399 (4th Cir. November 26, 1985). The "property damage" issue is distinct from the "damages" issue, however. As Professor Freilich noted, the typical business liability policy reads: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage...." Special Master's Recommendations at p. 70. In the unambiguous wording of the policy, even if a lawsuit against the insured alleges "property damage," it must also make claims for "damages" before the insurer becomes obligated to defend or indemnify.

This Court was not presented with the "damages" issue in the Mraz litigation. See Pretrial Order filed June 26, 1985, section 2(c), pp. 8-10. Maryland Casualty squarely presented Special Master Freilich with the "damages" issue in the CCC litigation, and he acknowledged that it was different than the "property damage" issue noting:

To the extent that Maryland Casualty's argument once again raises the question of whether "cleanup costs" constitute "property damage" for purposes of liability insurance coverage, the Special Master rejects Maryland's argument. The special master had already rejected that argument at pp. 63-81 of his memorandum. To the extent that Maryland's argument interprets "damages" as compensation for injury or loss and excludes the cost of complying with equitable or injunctive orders, the Special Master believes the argument interprets "damages" too narrowly. The Special Master interprets "damages" to be sums which the insured is obligated to pay by reason of liability imposed by law, and adopts the reasoning of the Court in United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 336 N.W.2d 838 (1983).

Special Master's Recommendations at 132.

To adopt the reasoning of the Aviex decision is to adopt no reasoning at all. In that case, the insured operated a chemical plant in Niles, Michigan that had been destroyed by fire. Chemicals from the plant mixed with water used to put out the fire...