Sauk County v. Employers Ins. of Wausau, 95-1388

• Decision Date: 10 April 1996
• Docket Number: No. 95-1388,95-1388
• Citation: 202 Wis.2d 433,550 N.W.2d 439
• Parties: SAUK COUNTY, a Wisconsin municipal corporation, Plaintiff-Appellant, v. EMPLOYERS INSURANCE OF WAUSAU and Wausau Underwriters, Defendants-Respondents. d . Oral Argument
• Court: Wisconsin Court of Appeals

Page 439

550 N.W.2d 439

202 Wis.2d 433

SAUK COUNTY, a Wisconsin municipal corporation, Plaintiff-Appellant, v. EMPLOYERS INSURANCE OF WAUSAU and Wausau Underwriters Defendants-Respondents. ^d

No. 95-1388.

Court of Appeals of Wisconsin.

Oral Argument April 10, 1996.

Opinion Released May 7, 1996.

Opinion Filed May 7, 1996.

For the plaintiff-appellant the cause was submitted on the briefs of Jeffrey L. Leavell and David R. Tennyck of Jeffrey Leavell S.C. of Racine. There was oral argument by Jeffrey L. Leavell.

For the defendants-respondents the cause was submitted on the briefs of Richard M. Hagstrom and Joseph P. Pozen of Zelle & Larson of Minneapolis, Minnesota and Timothy J. Strattner of Brookfield. There was oral argument by Joseph P. Pozen.

Before WEDEMEYER, P.J., and FINE and SCHUDSON, JJ.

WEDEMEYER, Presiding Judge.

Sauk County appeals from a judgment granting summary judgment to Employers Insurance of Wausau in an environmental insurance coverage dispute. Sauk County claims that Wausau is obligated to defend it with respect to certain counterclaims filed against Sauk County. Sauk County further claims that Wausau breached its duty to defend and seeks a ruling that the breach estops Wausau from contesting coverage under the policy. Because the counterclaims triggered Wausau's duty to defend, we reverse the judgment of the trial court and direct the trial court to enter judgment in favor of Sauk County; because Wausau did not breach its duty to defend, we reject Sauk County's estoppel argument; and because findings need to be made with respect to any outstanding duty to indemnify Sauk County, we remand this case to the trial court to conduct a damage hearing consistent with the directions of this opinion.

I. BACKGROUND

Sauk County owned and operated a landfill from 1973 to 1983. The landfill operated on a natural attenuation design where contaminants were to be filtered out as they drained from the landfill. Some pollutants escaped, however, and contaminated the groundwater.

In 1985, the United States Environmental Protection Agency investigated the then closed landfill site and reported that groundwater in the vicinity was contaminated. In May 1986, the Wisconsin Department of Natural Resources nominated the site for the Superfund National Priority List pursuant to the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9601, et seq. (CERCLA).

In October 1988, the DNR demanded that Sauk County conduct further investigation and clean up the site. The DNR presented Sauk County with a proposed contractual agreement, which would require Sauk County to conduct a remedial investigation/feasibility study and clean up the environmental damage pursuant to CERCLA and § 144.442, STATS.

Sauk County notified its comprehensive general liability insurer (Wausau) of the DNR's actions and tendered defense of the DNR claim. Wausau did not accept the tender of defense, reserved its rights, and asserted that coverage under its policies "was not intended for such events." Wausau made a request for additional information and asked Sauk County to sign a Non-Waiver Agreement.

Sauk County hired its own attorney to defend it against the DNR claim. Through its counsel, Sauk County settled with the DNR and began to clean up the environmental contamination. In December 1990, Sauk County filed suit in federal court against one of the primary waste contributors to the site, Grede Foundries. Sauk County eventually amended its complaint to join seven other waste contributors in the suit. The federal complaint alleged in various parts that: the defendants "contaminated the groundwater under and near the site;" that the defendants' actions contaminated "Sauk County's property and substantially impaired Sauk County's use of its property and the Site and its surrounding environs and property;" that the defendants' actions "caused contamination of the groundwater surrounding and under the site;" and the defendants' actions contaminated "the property in and near the site, and the groundwater under and near the site." (Emphasis added). The purpose of the suit was to recover costs of the clean-up from other potentially responsible parties.

Between January 1991 and March 1992, each of the defendants in the federal lawsuit filed counterclaims against Sauk County, either alleging that Sauk County was solely responsible for the contamination, or seeking contribution and/or indemnification from Sauk County. Upon receipt of the counterclaims, Sauk County tendered the defense of the counterclaims to Wausau. Wausau agreed to defend the counterclaims, pursuant to a full reservation of its rights under the insurance contract. Sauk County's attorney began to forward his legal bills to Wausau. Wausau paid one bill in 1991, but requested that the attorney separate his charges into "defense costs" and "prosecution costs." This request was made presumably because Wausau was not obligated to pay Sauk County's legal bills for prosecuting the federal court action, only for defending the counterclaims. In 1993, Sauk County eventually settled with all of the parties and Wausau paid 16.6% of the total legal bill.

Subsequently, Sauk County commenced this action against Wausau, seeking a declaration from the court as to Wausau's duty to defend and indemnify it for the claims brought by the DNR and the federal counterclaimants. Both Sauk County and Wausau filed motions for summary judgment. The trial court granted Wausau's motion, concluding that no duty to defend existed based on the Wisconsin Supreme Court's determination in City of Edgerton v. General Casualty Co., 184 Wis.2d 750, 517 N.W.2d 463 (1994), cert. denied,514 U.S. 1017, 115 S.Ct. 1360, 131 L.Ed.2d 217 (1995). Sauk County now appeals.

II. DISCUSSION

Our standard of review of summary judgments is de novo. Park Bancorporation, Inc. v. Sletteland, 182 Wis.2d 131, 140, 513 N.W.2d 609, 613 (Ct.App.1994). Moreover, interpretation of an insurance policy is a question of law that this court decides independently of the trial court. Smith v. Atlantic Mut. Ins. Co., 155 Wis.2d 808, 810, 456 N.W.2d 597, 598 (1990).

The issues in this case are: (1) whether Wausau had a duty to defend Sauk County against the DNR claim; (2) whether Wausau had a duty to defend Sauk County against the federal counterclaims; and (3) whether Wausau breached its duty to defend. We address each seriatim.

A. Duty to Defend against the DNR claim.

Although this issue was argued at the trial court level and in the appellate briefs, Sauk County implicitly conceded on oral argument that Wausau did not have a duty to defend Sauk County in response to the DNR's request that Sauk County remediate the property. Sauk County's concession is appropriate in light of the Wisconsin Supreme Court's decision in Edgerton. In Edgerton, the supreme court concluded that a comprehensive general liability insurer is not obligated to defend or provide coverage in a situation where federal and state agencies are demanding that the insured conduct an environmental cleanup, unless there is an actual "suit seeking damages." Edgerton, 184 Wis.2d [202 Wis.2d 439] at 786, 517 N.W.2d at 479. It is undisputed in the instant case that the DNR claim did not involve a "suit seeking damages," as those terms are defined in Edgerton. Further, there is no argument that the pertinent language of the insurance policies at issue in this case are distinguishable in some manner from the language of the policies in Edgerton.

Based on the foregoing, we conclude that the DNR's claim did not trigger Wausau's duty to defend under the insurance policies at issue.

B. Duty to Defend Sauk County against the Federal Counterclaims.

This issue is presented to us in a somewhat unusual procedural posture. Duty to defend issues generally arise when an insured is sued. In this case, Sauk County, as plaintiff, initiated a suit against other potentially responsible parties in an attempt to distribute the costs it incurred in cleaning up the contamination. The duty to defend question only arises in this instance because the party defendants that Sauk County sued filed counterclaims against Sauk County. Pursuant to the insurance contract at issue, Wausau does not have a duty to prosecute Sauk County's third-party claims in the federal case.

The issue presented to this court is whether Wausau had a duty to defend Sauk County against the counterclaims. In accordance with Edgerton, our analysis begins with determining whether the counterclaims constitute a "suit seeking damages." Edgerton defines a "suit" as:

[A]ny proceeding by one person or persons against another or others in a court of law in which the plaintiff pursues, in such court, the remedy which the law affords him for the redress of an injury or the enforcement of a right, whether at law or equity.

Id. at 774, 517 N.W.2d at 474. The key factor is whether the parties to the action are involved in "actual court proceedings." Id. at 775, 517 N.W.2d at 474. It is clear that the counterclaims on file in federal court satisfy this definition.

The next question is whether the counterclaims seek "damages" as that term is defined. Edgerton defined damages to mean "legal damages" and specifically held that "[r]esponse costs assigned either under CERCLA or [state statutes] are by definition, considered to be equitable relief." Id. at 784, 517 N.W.2d at 478. The court concluded that "as an equitable form of relief, response costs were not designed to compensate for past wrongs; rather, they were intended to deter any future contamination by means of injunctive action, while providing for remediation and cleanup of the affected site." Id. at 785, 517 N.W.2d at 478. Hence, the court held that this type of damage did not constitute "legal damages," and, therefore, was not covered under the policies. Id.

This "damages" definition was further refined by subsequent case law in a situation...