Chesapeake Utils. Corp. v. American Home Assurance Co.
Citation: 19 ELR 20786
No. No. 86-501-JLL, 704 F. Supp. 551/28 ERC 1888/(D. Del., 01/09/1989)
The court rules that under Maryland and Delaware law the term "damages" in a comprehensive general liability (CGL) insurance policy may include environmental cleanup costs. The court first holds that claims arising from contamination of the insured's Maryland and Delaware sites will be resolved under Maryland and Delaware law respectively. The court sits in Delaware, and follows the Delaware Supreme Court which has recently applied the Restatement (Second) of Conflict of Laws §188 to contract disputes. under §188, where a contract is silent the law of the state with the most significant relationship should apply. Although the evidence concerning where the contracts were negotiated and performed is conflicting, the crucial factor under the Restatement analysis is the location of the subject matter, which in this case is the two sites. Section 193 of the Restatement, which dictates choice of law in insurance disputes, also provides that location is the primary factor in determining the applicable law. The court holds that there are no choice of law provisions incorporated into the insurance policies requiring the application of Delaware law.
Turning first to the Maryland site, the court rules that the term "damages" within the meaning of a CGL policy does not, as a matter of law, exclude environmental cleanup costs, expressly rejecting the Fourth Circuit's decision in Maryland Casualty Co. v. Armco, Inc., 17 ELR 21277. The meaning of "damages" in the CGL policies is ambiguous, since an ordinary definition of the word makes no distinction between actions at law and actions in equity. Under Maryland law, disputes involving ambiguous language are to be resolved against the insurance company that prepared the contract. The Fourth Circuit in Armco cites only one Maryland state court decision for its conclusion that environmental cleanup costs are not damages, and that decision is cited for the proposition that an insurance policy is to be construed according to the meaning that a reasonably prudent layperson would give it. A definition of "damages" grounded on an ancient distinction between law and equity is hardly the accepted meaning that an ordinary layperson would give the term. The Fourth Circuit's policy argument that insurers should not have to cover voluntary prophylactic measures is also inappropriate, at least to this litigation, since the evidence indicates that the insured undertook remedial measures only out of necessity as a result of pressure from the state. The insured's cleanup efforts were for the purpose of mitigating or reducing groundwater contamination, and thus may well have helped to minimize its liability, rather than being overly cautious and wasteful. Moreover, a growing number of courts have rejected the Fourth Circuit's reasoning.
With respect to the Delaware site, the court first holds that summary judgment is inappropriate on the question of whether the insured's disposal of coal tar, a byproduct of coal gas manufacture and the cause of the Delaware site contamination, is covered by several of its insurance policies. The policies provide that the insurers shall pay for damages arising out of the insured's operations, and further state that the insured's operations cover the manufacture and sale of enriched propane gas. The definition of operations includes "other goods and all operations related" to enriched propane gas production, as well as other expansive language; a reasonable factfinder could conclude that the disposal of coal tar is included. Moreover, although Delaware law provides that insurance contracts are usually construed against the insurer, there is a genuine issue of fact as to whether the insured or the insurer drafted the language in question. The court next holds that under Delaware law, the term "damages," if not otherwise defined in an insurance policy, includes equitable remedies such as environmental cleanup costs. The court declines to reconsider a ruling it made on this issue a little over a year ago. The court rejects the insurers' suggestion that Delaware and Maryland law should be consistent on this issue, since the states are separate sovereigns and, in any case, the court has now held that cleanup costs may be recoverable under Maryland law.
Finally, the court holds that environmental response costs relating to the Maryland site are "property damage" within the meaning of the CGL insurance policies, disagreeing with the Fourth Circuit's holding in Mraz v. Canadian Universal Insurance Co., 16 ELR 20372, that either the federal or state government must have a property interest in the site. It is not necessary that the governmental entities that brought the underlying claim against the insured have themselves suffered property damage to trigger coverage under the policies.
Counsel for Plaintiff
William A. Denman, Douglas B. Catts
Schmittinger & Rodriguez
414 S. State St., Dover DE 19901
Counsel for Defendants
William F. Taylor, Anthony G. Flynn
Young, Conaway, Stargatt & Taylor
11th Fl., Rodney Sq. N., P.O. Box 391, Wilmington DE 19899-0391
James P. Schaller, M. Elizabeth Medaglia, Richard W. Bryan
Jackson & Campbell
Ste. 300 S., One Lafayette Center, 1120 20th St. NW, Washington DC 20036
James W. Semple
Morris, James, Hitchens & Williams
222 Delaware Ave., P.O. Box 2306, Wilmington DE 19899