Continental Insurance Companies v. Northeastern Pharmaceutical & Chemical Co.

842 F.2d 977, 1988 WL 13480

• Court: Court of Appeals for the Eighth Circuit
• Decided: February 26, 1988
• Docket: No. 85-1940
• Status: Published

Opinions

McMILLIAN, Circuit Judge.

This is an appeal from an order entered in the District Court¹ for the Western District of Missouri granting summary judgment in favor of Continental Insurance Cos. (Continental) on count I of its complaint and on the counterclaim filed by the state of Missouri and granting Continental’s motion to dismiss without prejudice count II of its complaint. Continental Insurance Cos. v. Northeastern Pharmaceutical & Chemical Co., No. 84-5034-CV-S-4, slip op. at 11, 16 (W.D.Mo. June 25, 1985) [Available on WESTLAW, 1985 WL 6419] (hereinafter district court order). On appeal, a panel of this court affirmed in part and reversed in part. Continental Insurance Cos. v. Northeastern Pharmaceutical & Chemical Co., 811 F.2d 1180 (8th Cir.1987) (hereinafter panel opinion).² Subsequently, the court granted the petitions for rehearing en banc filed by Continental and the state. 815 F.2d 51 (1987).

For the reasons discussed below, we hold that the term “damages” in the standard-form comprehensive general liability (CGL) policy does not include cleanup costs and accordingly affirm the order of the district court.

FACTUAL BACKGROUND

The following factual summary is taken in large part from the panel opinion, 811 F.2d at 1182-84. A more detailed statement of the factual background of the Den-ney farm site can be found in the underlying liability decisions, United States v. Northeastern Pharmaceutical & Chemical Co., 579 F.Supp. 823 (W.D.Mo.1984) (EPA), aff'd in part, rev’d in part and remanded, 810 F.2d 726 (8th Cir.1986), cert. denied, — U.S. —, 108 S.Ct. 146, 98 L.Ed.2d 102 (1987).

From 1970 to 1972 the Northeastern Pharmaceutical & Chemical Co. (NEPAC-CO) manufactured hexachlorophene in a factory in Verona, Missouri. (NEPACCO effectively ceased doing business sometime in 1974.) The manufacturing process produced a variety of hazardous wastes, including the highly toxic chemical, dioxin. In July 1971 NEPACCO disposed of about eighty-five 55-gallon drums of hazardous wastes by burying them in a trench on a farm near Verona (hereinafter the Denney farm site). Many of the drums had deteriorated and were in poor condition at the time of disposal; many broke open when they were dumped into the trench. A strong chemical odor persisted in the immediate area of the Denney farm site for several months thereafter.

In 1971 or 1972 NEPACCO hired Independent Petrochemical Corp. (IPC) to dispose of more hazardous wastes containing dioxin. IPC in turn hired Russell Bliss to actually dispose of NEPACCO’s hazardous wastes. In 1971-1973 Bliss allegedly transported and sprayed the hazardous wastes, mixed with waste oil, as a dust suppressant on the grounds of the Bubbling Springs Stables in Fenton, Missouri, and on the roads of Times Beach, Missouri. In 1974 an individual named Minker bought dirt contaminated with NEPACCO hazardous wastes from the Bubbling Springs Stables to use as landfill on his property located in nearby Imperial, Missouri (the Mink-er/Stout/Romaine Creek site).

From 1970-1972 NEPACCO was insured under three standard-form CGL insurance policies issued by Continental. The first policy was in effect from August 5, 1970, to August 5, 1971, the second policy from August 5, 1971, to August 5, 1972, and the third policy from August 5, 1972, to November 17, 1972, when it was cancelled. Each policy was slightly different, but each provided that Continental would

pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies caused by an occurrence, and [Continental] shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage.

The policies defined “property damage” as

(1) Physical injury or destruction of tangible property which occurs during the policy period, including the loss of use thereof at anytime resulting therefrom,

(2) Loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period....

The policies further provided that “[t]his insurance applies only to ... property damage which occurs during the policy period” and defined “occurrence” as “an accident, including continuous or repeated exposure to conditions, injury or property damage neither expected nor intended from the standpoint of the insured.” Only the second and third policies contained the following pollution exclusion clause:

It is agreed that the insurance does not apply to ... property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden or accidental.

For general information about standard-form CGL insurance policies, see American Home Products Corp. v. Liberty Mutual Insurance Co., 565 F.Supp. 1485, 1500-03 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984), and Note, The Pollution Exclusion Clause Through the Looking Glass, 74 Geo.LJ. 1237 (1986).

In 1980 the Environmental Protection Agency (EPA) investigated the Denney farm site. The EPA took soil and water samples and found “alarming[ly] high concentrations of dioxin” and other toxic chemicals. EPA, 579 F.Supp. at 831. The EPA secured and then “cleaned up” the Denney farm site. In August 1980 the federal government filed a lawsuit (the EPA lawsuit) against NEPACCO and others, seeking abatement costs, pursuant to § 7003(a) of the Resource Conservation and Recovery Act of 1976 (RCRA) (also known as the Solid Waste Disposal Act), as amended, 42 U.S.C. § 6973(a). In August 1982 the federal government filed an amended complaint adding claims for injunctive relief and reimbursement of its response costs pursuant to §§ 104, 106, 107 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) (commonly known as Superfund), 42 U.S.C. §§ 9604, 9606, 9607 (reauthorized and amended in part by the Superfund Amendments and Reauthorization Act of 1986, Pub.L. No. 99-499, 100 Stat. 1613 (1986) (effective Oct. 17, 1986)).³ We will use the descriptive term “cleanup costs” to refer to both “abatement costs” under RCRA and “response costs” under CERC-LA.

In January 1984 the district court held NEPACCO and several other defendants, jointly and severally, strictly liable for cleanup costs under CERCLA, but not RCRA. EPA, 579 F.Supp. at 834-37, 839-52. On appeal, a panel of this court affirmed in part, reversed in part and remanded the case to the district court for further proceedings. 810 F.2d at 749-50. The majority held that the federal government could recover cleanup costs under both RCRA and CERCLA. Id. at 732-46. The dissent did not agree that past non-negligent off-site generators or transporters of hazardous waste could be held liable for cleanup costs under the 1984 RCRA amendments or that the corporate officer defendants could be held liable for cleanup costs under RCRA as generators and transporters. Id. at 750-51 (J.R. Gibson, J., dissenting in part).

The EPA lawsuit prompted the filing of several other, related lawsuits, including the present case.

In March 1983 several former residents of the communities of Times Beach and Imperial filed an action in Missouri state court against NEPACCO and other defendants, seeking damages for present and future personal injury and property damage allegedly caused by the transportation and spreading of hazardous wastes and dirt, contaminated by dioxin and other toxic chemicals produced by NEPACCO, on the roads of Times Beach and at the Mink-er/Stout/Romaine Creek site. The plaintiffs also sought recovery of the costs of cleaning up the contaminated sites and punitive damages but asserted no RCRA or CERCLA claims. Capstick v. Independent Petrochemical Corp., No. 832-00453 (Mo.Cir.Ct. filed Mar. 7, 1983) (Capstick).

In November 1983 the state filed a lawsuit in federal district court against NEP-ACCO and other defendants, seeking declaratory judgment and recovery of present and future response costs, pursuant to CERCLA and the common law of public nuisance, in connection with the state’s cleanup of the Minker/Stout/Romaine Creek site. Missouri v. Independent Petrochemical Corp., No. 83-2670-C (E.D.Mo. filed Nov. 23, 1983) (IPC).

Somewhat later, in February 1985 the federal government filed a garnishment action in federal district court against Continental, as NEPACCO’s liability insurer, to collect the CERCLA cleanup costs the federal government had been awarded in the EPA lawsuit. United States v. Continental Insurance Cos., No. 85-3069-CV-S-4 (W.D.Mo. filed Feb. 25, 1985) (garnishment action). Discovery was consolidated in the garnishment action and in the IPC lawsuit. On June 25, 1985, the same day judgment was entered in the case on appeal, the district court also entered judgment in favor of Continental in the garnishment action. The district court later granted the federal government’s motion for reconsideration and the case was held in abeyance pending disposition of the EPA appeal.

In the meantime, in February 1984 Continental filed this action seeking a declaratory judgment concerning its liability to NEPACCO arising out of the underlying EPA and Capstick lawsuits. Continental Insurance Cos. v. NEPACCO, No. 84-5034-CV-S-4 (E.D.Mo. filed Feb. 9, 1984). Count I sought declaratory judgment concerning the federal government’s EPA lawsuit (cleanup costs for the Denney farm site); count II sought declaratory judgment concerning the Capstick lawsuit (cleanup costs and damages for personal injury and property damage in Times Beach and at the Minker/Stout/Romaine Creek site). NEP-ACCO and the other defendants failed to enter an appearance or file an answer. As noted earlier, in 1974 NEPACCO had ceased operations; its corporate assets had been liquidated and the proceeds distributed to its shareholders. Thus, by 1984 NEPACCO had been “defunct” for ten years. In November 1984 Continental moved for summary judgment.

In December 1984 the state filed a motion for leave to intervene in the present case in order to protect its interests in its related IPC lawsuit. In January 1985 the district court granted the state’s motion to intervene, and the state filed an answer and a counterclaim alleging that Continental, as NEPACCO’s liability insurer, was obligated to indemnify NEPACCO for any judgment against NEPACCO in the IPC lawsuit. In March 1985 the state filed suggestions in opposition to Continental’s motion for summary judgment. Continental later filed a motion to dismiss count II without prejudice; the state filed suggestions in opposition.

DISTRICT COURT DECISION

In June 1985 the district court granted summary judgment in favor of Continental on count I (no liability insurance coverage for Denney farm site cleanup costs sought in the EPA lawsuit) and on the state’s counterclaim (no liability insurance coverage for cleanup costs for the Mink-er/Stout/Romaine Creek site sought in the IPC lawsuit). First, the district court held that, under Missouri law, the time of an “occurrence” is the time the loss or damage is sustained, not the time the wrongful act is committed. District court order at 8 (citations omitted). The district court held that the claims for cleanup costs were not claims for compensation for “property damage.” Id. at 10. Although the wrongful acts occurred in 1971-1973, when the policies were in effect, cleanup costs were not incurred until 1980 and 1982, many years after the policies expired. The district court held that the federal and state governments did not suffer any “loss” or “damage” until the cleanup costs were actually incurred. Id. Thus, because there was no “occurrence” of loss or property damage during the policy periods, the district court held there was no coverage. Id. at 11.

The district court also decided that summary judgment was not appropriate on count II, with respect to the Capstick lawsuit, because more information was necessary in order to determine whether there was an “occurrence” of bodily injury or property damage, or both, within the policy periods and whether the pollution exclusion applied, and granted Continental’s motion to dismiss without prejudice count II of its complaint. Id. at 11-17. The state appealed.

PANEL DECISION

The panel decision reversed in part and affirmed in part. The majority first held the policy definition of “property damage” included contamination of the environment by hazardous wastes, 811 F.2d at 1184-87, and rejected Continental’s argument that any “injury” suffered by the federal and state governments from environmental pollution constituted only economic loss. Id. at 1184-89. The majority held that, in addition to the actual owners of the polluted land, water or air, the federal and state governments also sustained “property damage” “because of their ‘[quasi-sovereign] interest [in natural resources] independent of and behind the titles of its citizens in all the earth and air within [their] domain.’ ” Id. at 1187 & n. 17, citing Georgia v. Tennessee Copper Co., 206 U.S. 230, 237, 27 S.Ct. 618, 619, 51 L.Ed. 1038 (1907).

The majority also expressly rejected the argument raised by amicus curiae American Insurance Association (AIA) that even if environmental contamination had caused “property damage,” cleanup costs under CERCLA § 107(a)(4)(A), 42 U.S.C. § 9607(a)(4)(A), were not in themselves recoverable as “damages.” 811 F.2d at 1187-90. The majority reviewed the policy language and the statutory language and concluded that “cleanup costs under CERC-LA are compensatory damages for ‘property damage’ within the meaning of the CGL policies.” Id. at 1189 & n. 21; see also id. at 1187-88 & n. 17 (citing cases). Cf. EPA, 810 F.2d at 737-40 (abatement costs under RCRA § 7003(a), 42 U.S.C. § 6973(a)).

The remaining issue was whether there had been an “occurrence” of “property damage” during the period when the policies were in effect. Although the wrongful acts allegedly occurred during the early 1970’s, the federal and state governments did not actually incur any cleanup costs until the early 1980’s, many years after the third and last policy had been cancelled. The majority disagreed with the district court’s view that the federal and state governments did not suffer any loss or damage until cleanup costs were actually incurred. 811 F.2d at 1190-91 & n. 28 (distinguishing Kirkham, Michael & Assocs. v. Travelers Indemnity Co., 361 F.Supp. 189 (D.S.D.1973), aff'd, 493 F.2d 475 (8th Cir.1974) (per curiam)). The majority predicted that Missouri courts would follow the majority view and adopt the “exposure” theory of coverage, 811 F.2d at 1191-92 & n. 29, and accordingly held that “environmental damage occurs at the moment that hazardous wastes are improperly released into the environment and that a liability policy in effect at the time this damage is caused provides coverage for the subsequently incurred costs of cleaning up the wastes.” Id. at 1189 (footnotes omitted).

Applying the “exposure” theory, the majority determined that “property damage” occurred at the Denney farm site in July 1971, when the first CGL policy was in effect, when NEPACCO improperly disposed of the hazardous wastes by dumping the barrels in the trench. Id. at 1191. Accordingly, the majority reversed the grant of summary judgment in favor of Continental on count I and remanded for further proceedings to determine whether Continental was liable to indemnify NEP-ACCO for the award of cleanup costs in the EPA lawsuit. Id. at 1192.

Because contaminated dirt from the Bubbling Springs Stable was not used as landfill at the Minker/Stout/Romaine Creek site until 1974, two years after the third CGL policy had been cancelled, the majority held that Continental was under no duty to defend or indemnify NEPACCO for liability arising out of the IPC lawsuit and affirmed the grant of summary judgment in favor of Continental on the state’s counterclaim. Id. Finally, the majority agreed with the district court that factual issues in the Capstick lawsuit precluded summary judgment and affirmed the district court’s dismissal without prejudice of count II. Id. at 1193.

The dissent disagreed with the panel majority only on the issue of whether cleanup costs are “damages” within the meaning of the CGL policies. Id. at 1193-95 (McMillian, J., concurring in part and dissenting in part).

1 . The Honorable Russell G. Clark, United States District Judge for the Western District of Missouri.

2 . The panel opinion was withdrawn and vacated by order of the court when rehearing en banc was granted. The following discussion refers to and cites the panel opinion because the analysis set forth in the panel opinion is necessary to an understanding of the development of the issues.

3 . The 1986 Superfund Amendments do not af-feet this appeal.