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19 ELR 21169 | Environmental Law Reporter | copyright © 1989 | All rights reserved Jones Truck Lines v. Transport Insurance Co.No. 88-5723 (E.D. Pa. May 9, 1989)The court holds that although the costs the insured voluntary incurred in cleaning up its dioxin contaminated land are "damages" as that term is used in its general comprehensive liability insurance coverage, the "owned property exclusion" clause precludes coverage for expenses incurred in remedying damage to the insured's property not necessary to prevent off-site contamination. The insured voluntarily incurred approximately $ 320,000 in the investigation and cleanup of its trucking terminal facility in Missouri after learning that the Environmental Protection Agency (EPA) had listed the site as possibly contaminated with dioxin. The court first holds that because the insurance policy at issue does not have a choice of law provision, Missouri substantive law controls because the insured site is located in Missouri and Missouri has the most significant interest in the outcome of this litigation. The court next holds that plaintiff's cleanup costs constitute "damages" under the policy. The court holds that it will defer to the Eighth Circuit's holding that damages do not include cleanup costs under Missouri law only if the Eighth Circuit did not ignore clear signals from state courts and clearly read state law. The court hold that based on Missouri case law the term "damages" includes cleanup costs, which is consistent with a meaning that would ordinarily be understood by a layperson buying and paying for such a policy. The court next holds that the policy's owned property exclusion does not preclude coverage of costs for abatement actions on the insured's property designed to prevent damage to third parties, but elements of the claim that relate solely to remedying damage confined to the insured's property and not to prevent off-site contamination are not covered. The court finds evidence that the groundwater was not contaminated and that migration to adjoining properties was highly unlikely, and holds that genuine issues of material fact exist as to whether remedial measures relate solely to damage to the insured's property. The court next holds that the "legally obligated to pay" clause does not bar the insured from coverage for voluntarily assuming cleanup costs, because EPA had sent a draft consent order to the insured indicating the pending Comprehensive Environmental Response, Compensation, and Liability Act and the Resource Conservation and Recovery Act based cleanup, and the insured's prompt remedial action was more expeditious and cost effective than EPA could have done. Finally, the court holds that the assignment of the coverage occurred after the contamination and cleanup, and thus the general "no assignment" clause in the policy is not applicable because the loss accrued first. Counsel for Plaintiffs Counsel for Defendant Newcomer, J.: The matter is before the court on defendants' motion for summary judgment. Plaintiff Jones Truck Lines (Jones) is an Arkansas corporation with its principal place of business in Springdale, Arkansas. Jones and or its affiliates own and operate trucking equipment and terminal facilities throughout the country. Triad Carriers (Triad) is a Pennsylvania corporation with its principal place of business in Radnor, Pennsylvania. Plaintiffs claim that in 1986 Triad became subrogated to the relevant insurance policies between Jones and Transport Insurance Company (Transport). Transport is an Iowa corporation with its principal place of business in Dallas, Texas. Transport specializes in providing insurance coverage for long-haul truckers and other common carriers nationwide. In 1969 representatives of Transport met with the president of Jones in Arkansas to discuss provisions of insurance policies. On December 8, 1969, Transport and Jones entered into the policies; Transport executed them in Texas and they were countersigned by Transport's authorized agent and Jones in Arkansas. The two policies at issue in this action covered the period from January 1, 1970, to January 1, 1973 and were issued as followed: (1) an Occupational Comprehensive Liability and Comprehensive Physical Damage Policy which provided Jones with up to $ 15,000 of coverage, and (2) an excess Occupational Comprehensive Liability and Comprehensive Physical Damage Policy which provided Jones with up to $ 4,985,000 of coverage. At the time, Jones had three terminals in Missouri (including the "Hall Street facility"), three in Arkansas, and one in Texas. The Hall Street facility was owned by Harber Incorporated of Missouri1 from 1958 until 1975, at which time it sold the terminal to Jones. Between January 1, 1970, and January 1, 1973, Russell Bliss, Bliss Waste Oil Company, or other Bliss-related companies sprayed the Hall Street facility with oil for purposes of dust control on the unpaved roads around the facility. As was later discovered, the oil was dioxin-contaminated. After 1974 the Hall Street facility was partially paved, and in 1978 it was completely paved. In 1982 Jones learned that the Hall Street facility was on a list prepared by the United States Environmental Protection Agency of sites that might be contaminated with dioxin. Samples taken in 1983 confirmed the presence of existence of dioxin in the soil at Hall Street. Cleanup and contamination control work at the site was substantially completed in 1984 by a private firm hired by Jones, and the firm continues to monitor the site. Plaintiff's claim to have incurred approximately $ 320,000 in connection with the investigation and cleanup of the Hall Street facility. II. Relevant Policy Provisions In relevant part, the insurance policies at issue provide: INSURING AGREEMENTS (1) To pay on behalf of the insured all sums which the insured shall become legally obligated to pay for damages, arising out of the occupation of the named insured, as stated in the declarations, as a result of personal injury, bodily injury, sickness, disease or death to persons and for loss of or damage to property of others. (2) To pay for loss of or damage to owned automobiles except that resulting from wear, tear and gradual deterioration. (4) to any liability arising out of damage of real property of others in charge of the insured except with respect to liability assumed under "Railroad Sidetrack Agreements." (9) Action Against Company — Applies only to Coverage Clause 1. No action shall lie against the Company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the Company. . . . III. Summary Judgment Standard A trial court may enter summary judgment if, after a review of all evidentiary material in the record, there is no genuine issue as to any material facts, and the moving party is entitled to judgment as a matter of law. White v. Westinghouse Electric Co., 862 F.2d 56, 59 (3d Cir. 1988). The evidence presented must be viewed in the light most favorable to the nonmoving party. White, 862 F.2d at 59. Where no reasonable resolution of the conflicting evidence and inferences therefrom could result in a judgment for the nonmoving party, the moving party is entitled to summary judgment. Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879, 883 (3d Cir.), cert. denied, 454 U.S. 893 (1981). The moving party has the initial burden of identifying evidence which it believes shows an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Childers v. Joseph, 842 F.2d 689, 694 (3d Cir. 1988). The moving party's burden may be discharged by demonstrating that there is an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325. Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond its pleading and designate specific facts by use of affidavits, depositions, admissions, or answers to interrogatories showing there is a genuine issue for trial. Celotex, 477 U.S. at 324. Moreover, when the nonmoving party bears the burden of proof, it must "'make a showing sufficient to establish [every] element essential to that party's case.'" Equimark Commercial Fin. Co. v. C.I.T. Fin. Servs. Corp., 812 F.2d 141, 144 (3d Cir. 1987) (quoting Celotex, 477 U.S. at 322). Summary judgment must be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." White, 862 F.2d at 59 (quoting Celotex, 477 U.S. at 322). Because the insurance policy at issue does not contain a choice of law provision, the court must first decide which state's substantive law governs this dispute. It is well settled that a district court in a diversity action should apply the choice of law rules of the forum state in determining which state's law will be applied to the substantive issues before it. Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988) (citing Klaxon Co. v. Stentor electric Manufacturing Co., 313 U.S. 487, 496 (1941)). Accordingly, I will examine Pennsylvania law to determine which state's substantive law will apply in the case before me. Plaintiffs claim that Arkansas law is applicable, while defendants argue that Missouri law applies. Pennsylvania courts have adopted a flexible choice-of-law rule that permits analysis of the policies and interests underlying the particular issue before the court. Shuder, 859 F.2d at 269 (citing Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964)). As explained by the Third Circuit, Pennsylvania's approach combines the approaches of both Restatement II [Conflicts of Laws] (contacts establishing significant relationships) and "interest analysis" (qualitative appraisal of the relevant States' policies with respect to the controversy). It takes into account both the grouping of contacts with the various concerned jurisdictions and the interests and policies that may be validly asserted by each jurisdiction. Blakesley v. Wolford, 789 F.2d 236, 239 (3d Cir. 1986) (quoting Melville v. American Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978)). This approach is applicable to contract actions. Triangle Publications v. Liberty Mut. Insur. Co., 703 F. Supp. 367, 369 (E.D. Pa. 1989) (citing American Contract Bridge v. Nationwide Mutual Fire Insur. Co., 752 F.2d 71 (3d Cir. 1985); Melville)). In applying this approach to contract actions, Pennsylvania looks to the Restatement (Second) of Conflicts of Laws. Lindenbaum v. 1928 Company, No. 87-8000 (E.D. Pa. March 1, 1989) (citing Knauer v. Knauer, 323 Pa. Super. 206, 470 A.3d 553 (1983); Melville v. American Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978); DeSesoi v. United Refining Co., 540 F. Supp. 1260 (W.D. Pa. 1982); Gillan v. Gillan, 236 Pa. Super. 147, 345 A.2d 742 (1975)). The Restatement (Second) provides that in the absence of a choice of law provision, the contacts to be taken into account in applying the principles of § 62 to determine the applicable law in a contract action include: (b) the place of negotiation of the contract, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties. Restatement (Second) of Conflict of Laws § 188(2). With regard to insurance contracts, the Restatement provides: The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied. Restatement (Second) of Conflict of Laws § 193. The location of the insured risk is to be given greater weight than any other single contact in determining which state's law is applicable. Id., comment b.3 I turn now to consideration of the relevant factors. The insurance contracts at issue were executed by Transport in Texas and they were countersigned by Transport's authorized agent and Jones in Arkansas. Standing alone, the place of contracting is a relatively insignificant factor. Lindenbaum v. 1928 Company, No. 87-8000 [19 ELR 21171] (E.D. Pa. March 1, 1989) (citing Restatement (Second) of Conflicts of Laws § 188, comment e). Negotiations regarding the contracts took place at Jones' headquarters in Arkansas when representatives of Transport met with the president of Jones to discuss provisions of the policies. At the time the policies were issued, Jones had three terminals in Missouri (including the "Hall Street facility" which is the dioxin-contaminated site at issue), three in Arkansas, and one in Texas. With regard to citizenship, Jones is an Arkansas corporation with its principal place of business in Arkansas. Triad is a Pennsylvania corporation with its principal place of business in Pennsylvania. Transport is an Iowa corporation with its principal place of business in Texas. Based on consideration of the relevant factors as outlined above, and mindful that the location of the insured risk is to be given greater weight than any other single contact, the court concludes that Missouri substantive law is the correct choice of law in this action. This conclusion is consistent with the Restatement's teaching that multiple risk policies are to be construed as though they involve separate policies each insuring an individual risk.4 Additionally, the court finds that Missouri, as the site of the insured (and now dioxin-contaminated) property involved, has the most significant interest in the outcome of this litigation. See Jewelcor Inc. v. St. Paul Fire & Marine Insur. Co., 499 F. Supp. 39 (M.D. Pa. 1980) (under Pennsylvania choice-of-law principles, Pennsylvania law applied in an action involving a multi-state insurance policy when insured property was located there, even though policy had been written and negotiated in New York); see also Continental Insur. Cos. v. Northeastern Pharm. & Chem. Co., Inc., 842 F.2d 977, 985 [18 ELR 20819] (8th Cir. 1988) (en banc) (under most significant relationship test of Restatement (Second) § 188, Missouri law applied in action dealing with cleanup of dioxin-contaminated site located in Missouri); Independent Petrochem. Corp. v. Aetna Casualty & Surety Co., 654 F. Supp. 1334, 1355-57 (D.D.C. 1986) (under "more substantial interest" test, Missouri law applied in insurance coverage action dealing with cleanup of dioxin-contaminated site in Missouri, citing Restatement (Second) §§ 188, 193); Crown Center Redevel. Corp. v. Occidental Fire and Casualty Co., 716 S.W.2d 348 (Mo. Ct. App. 1986) (under Restatement (Second) § 193 and comment b, in a dispute involving a multi-risk policy, Missouri law applied when the site of the risk was located there); cf. Triangle Publications v. Liberty Mut. Insur. Co., 703 F. Supp. 367 (E.D. Pa. 1989) (under Pennsylvania choice-of-law principles, Pennsylvania law applied in an action involving cleanup of toxic waste site in New Jersey; Pennsylvania was domicile of insured, place of negotiation and execution of the policy, and location of insured's property, citing Restatement (Second) § 193 comment b). Furthermore, when dealing with a contract insuring multiple fixed locations, such a determination is logical and predictable, and promotes certainty and uniformity of result. See Restatement (Second) of Conflicts of Law § 6. Finally, that the dioxin contamination occurred in Missouri was by no means fortuitous: it occurred at a site owned and operated by the insured which itself was the subject matter of the policy at issue.5 Transport seeks summary judgment on three specific grounds: (A) that any costs incurred by plaintiffs in connection with the Hall Street facility are not damages to property or personal or bodily injury as contemplated by the relevant policies and, therefore, are not covered by the policies; (B) that any costs incurred by plaintiffs in connection with the Hall Street facility are not covered by the relevant policies since such costs were incurred in connection with the cleanup of plaintiffs' own property only and such property is not covered under the policies; and (C) that any costs incurred by plaintiffs in connection with the Hall Street facility are not covered by the relevant policies since neither Jones nor Triad was legally obligated to pay for such cleanup costs by any judgment or agreement. A. Whether Cleanup Costs Incurred by Plaintiffs are "Damages" As stated above, cleanup and contamination control work at the site was substantially completed in 1984 by a private firm hired by Jones, and the firm continues to monitor the site. Plaintiffs claim to have incurred approximately $ 320,000 in connection with the investigation and cleanup of the Hall Street facility. The policies at issue obligated Transport to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay for damages, . . ." (emphasis added). The threshold question then is whether under Missouri substantive law, the cleanup costs incurred by plaintiffs are "damages" as that term is used in the policy.6 1. Precedential Value of Eighth Circuit Decision Applying Missouri Substantive Law In Continental Insur. Cos. v. Northeastern Pharm. & Chem. Co., 842 F.2d 977, 979 [18 ELR 20819] (8th Cir. 1988) (en banc), the Eighth Circuit held that the term "damages" in a standard-form general comprehensive liability (GCL) policy does not include cleanup costs. I must determine whether the Eighth Circuit's prediction of how the Missouri Supreme Court would interpret the term "damages" in an insurance contract is binding on my decision in the instant matter. Because neither the court's nor the parties' research has uncovered a Third Circuit case discussing the precedential value of another circuit court's interpretation of the substantive law of a state within that other circuit, I will look to decisions from other circuits on this issue. In Abex Corp. v. Maryland Casualty Co., 790 F.2d 119 (D.C. Cir. 1986), the District of Columbia Circuit stated that it would "defer to the local circuit's view of the law of a state in its jurisdiction when that circuit has made a reasoned inquiry into state law, unless we are convinced that the court has ignored clear signals emanating from the state courts. Only when we are certain that the pertinent circuit has clearly misread state law would it makesense to reject that circuit's view of state law." Id. at 125-26 (emphasis in original). In so concluding, that court expressly followed a similar conclusion reached by the Second Circuit in Factors Etc., Inc. v. Pro Arts, Inc., 652 F.2d 278 (2d Cir. 1981), cert. denied, 456 U.S. 927 (1982). See also Hammermill Paper Co. v. Pipe Sys., Inc., 581 F. Supp. 1189 (W.D. Pa. 1984) (district court is generally bound by prediction of state law by a court of appeals when that holding has not been disturbed by the state legislature or state courts and the court of appeals has not overlooked or misapplied available authority). Because the court finds the standards adopted by the Second and District of Columbia Circuits to be sound and well-founded, I will in the instant matter defer to the Eighth Circuit's view of Missouri law unless I find that it "ignored clear signals emanating from the state courts" or "clearly misread state law." 2. Eighth Circuit Decision in Continental Insur. Cos. v. Northeastern Pharm. & Chem. Co. The facts underlying the dispute in Continental Insur. Cos. v. Northeastern Pharm. & Chem. Co., 842 F.2d 977 [18 ELR 20819] (8th Cir. 1988) (en banc), arise from the cleanup of dirt which was sprayed with oil contaminated with toxic waste in Missouri during the period 1971-1973. Spraying by the same persons and or business entities also caused the contamination at the Hall Street facility in the instant case. In 1984 Continental filed the action seeking a declaratory judgment concerning its liability to Northeastern as a result of various lawsuits concerning cleanup costs related to Northeastern sites. After a district court decision and an appellate decision, the [19 ELR 21172] Eighth Circuit held rehearing on the matter. On rehearing, the "dispositive issue" was "whether the term 'damages' in the standard-form GCL policy includes cleanup costs."7 Id. at 983. This issue had been the only significant point of disagreement between the majority and dissenting opinions in the panel opinion. Id. at 984-85. At the outset, the court stated that under Missouri Law:8 [t]he rules of construction applicable to insurance contracts require that the language used be given its plain meaning. If the language is unambiguous the policy must be enforced to such language. If the language is ambiguous it will be construed against the insurer. Language is ambiguous if it is reasonably open to different constructions; and language used will be viewed in light of "the meaning that would ordinarily be understood by the lay[person] who bought and paid for the policy." Id. at 985 (quoting Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc)). The court next acknowledged that case law on the meaning of the term "damages" was "sharply divided." Beginning its analysis, the court stated that because the term "damages" is reasonably open to different constructions, it is ambiguous "when viewed outside the insurance context." From the viewpoint of the "lay insured," the court continued, "the term damages could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs, or losses." Continental, 842 F.2d at 985. In the insurance context, however, the court found that the term "damages" is not ambiguous and its plain meaning in the insurance context refers to "legal damages and does not include equitable monetary relief." Id. (citing Maryland Casualty Co. v. Armco, 822 F.2d 1348, 1352 [17 ELR 21277] (4th Cir. 1987) (holding that under Maryland law, "damages" does not cover cleanup costs)). The court noted further that the term "damages" "has an accepted technical meaning in law," id. at 986 (quoting Aetna Casualty & Surety Co. v. Hanna, 224 F.2d 499, 503 (5th Cir. 1955)), which is that claims for equitable relief are not claims for damages under liability insurance contracts, citing Maryland Casualty Co. v. Armco, 643 F. Supp. 430, 432 [17 ELR 20143] (D. Md.), aff'd, 822 F.2d 1348 [17 ELR 21277] (4th Cir. 1987) (applying Maryland law). Having decided that such a limited construction of the term "damages" was appropriate, the court went on to note that this construction was consistent with the contract provisions defining the insurer's obligations as a whole, with the distinction drawn in insurance law between money damages and injunctive relief, and with the statutory scheme of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (commonly known as Superfund), 42 U.S.C. §§ 9601-9657. The court further noted that under the GCL policies at issue, Continental was liable "only for legal damages, not for equitable monetary relief, such as cleanup costs." Because the suits underlying the action were "essentially equitable actions for monetary relief in the form of restitution or reimbursement of costs," the court found that the claims for cleanup costs did not constitute "damages" under the GCL policies.9 Continental, 842 F.2d at 987. In a dissenting opinion, three judges of the Eighth Circuit opined that the majority's holding that the term "damages" in the standard-form GCL policy does not include cleanup costs disregarded established Missouri law. The dissenters began by agreeing with the majority that ambiguities should be construed against the insurer and should be viewed in a manner consistent with the ordinary understanding of a layperson who bought the policy. Id. at 988 (quoting Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc)). Moreover, the dissent noted that the Eighth Circuit had previously pointed out that Missouri courts: do not necessarily accept the construction accorded to policy terms by astute insurance specialists or perspicacious counsel but rather are concerned with the meaning which the ordinary insured of average intelligence and common understanding reasonably would give to the words or language under consideration. Id. at 988 (quoting McMichael v. American Insur. Co., 351 F.2d 665, 669 (8th Cir. 1965) (quoting Hammontree v. Central Mutual Insur. Co., 385 S.W.2d 661, 666-67 (Mo. Ct. App. 1965))). The majority's concession that from the viewpoint of the "lay insured" the term "damages" could reasonably include all monetary claims (whether described as damages, expenses, costs, or losses) should have been dispositive, in the dissenters' view. The dissenters found no basis in Missouri law for the majority's substitution of a "technical insurance" definition in place of the meaning of the term as defined in the dictionary and as understood by the lay insured. Based on their review of Missouri insurance contract law, the dissenters concluded that the legal definition of "damages" under Missouri law "includes the cost of restoring real property to its pre-damaged condition." Continental, 842 F.2d at 988 (Heaney, J., dissenting) (emphasis added) (citing Jack L. Baker Companies, Inc. v. Pasley Mfg. and Distribut. Co., 413 S.W.2d 268, 273 (Mo. 1967)).10 Such construction, the minority concluded, is in accordance with Missouri case law that holds that words in an insurance policy are to be given their ordinary meaning. Id. at 990. 3. Is the Eighth Circuit's Decision in Continental Controlling? As stated above, I will defer to the Eighth Circuit's view of Missouri law unless I find that it "ignored clear signals emanating from the state courts" or "clearly misread state law." The court has reviewed the majority and dissenting opinions in Continental, applicable Missouri caselaw, and the arguments advanced by the parties to the instant litigation. As noted by both the Eighth Circuit majority and dissent, under Missouri law, the rules of construction applicable to insurance contracts require that the language used be given its plain meaning. Thus: [i]f the language is unambiguous the policy must be enforced to such language. If the language is ambiguous it will be construed against the insurer. Language is ambiguous if it is reasonably open to different constructions; and language used will be viewed in light of "the meaning that would ordinarily be understood by the lay[person] who bought and paid for the policy." Id. at 985 (quoting Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc)); see also Greer v. Zurich Insur. Co., 441 S.W.2d 15, 27 (Mo. 1969) (any conflict in meaning of a term in an insurance policy between a technical definition and a meaning which would normally be understood by the average layman should be resolved in favor of the layman's definition unless it plainly appears that the technical definition was intended). As the majority noted, from the viewpoint of the "lay insured," the term "damages" could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs, or losses." Continental, 842 F.2d at 985. Based on Missouri case law, I conclude that the term "damages" must be given a meaning that would ordinarily be understood by a layperson buying and paying for such a policy. See Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc). This is also consistent with the Eighth Circuit's view that Missouri courts: do not necessarily accept the construction accorded to policy [19 ELR 21173] terms by astute insurance specialists or perspicacious counsel but rather are concerned with the meaning which the ordinary insured of average intelligence and common understanding reasonably would give to the words or language under consideration. McMichael v. American Insur. Co., 351 F.2d 665, 669 (8th Cir. 1965) (quoting Hammontree v. Central Mutual Insur. Co., 385 S.W.2d 661, 666-67 (Mo. Ct. App. 1965)). Although the majority in Continental concluded that the term "damages" is not ambiguous in the insurance context and has a plain meaning that refers to "legal damages and does not include equitable monetary relief," this conclusion was not based on Missouri caselaw or applicable rules of construction under Missouri law. In fact, in adopting a technical, insurance industry definition of the term, the majority cited a fourth circuit case applying Maryland substantive law. See Maryland Casualty Co. v. Armco, 822 F.2d 1348, 1352 [17 ELR 21277] (4th Cir. 1987). Thus, because "under Missouri law the rules of construction applicable to insurance contracts require that the language used be given its plain meaning," Continental, 842 F.2d at 985 (quoting Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc)), and because I am unable to discern any basis for the majority's decision under existing Missouri caselaw, I conclude that under Missouri law the term "damages" in the standard-form general comprehensive liability policy includes cleanup costs. Accordingly, defendant's motion for summary judgment on this point will be denied. B. "Damage to Property to Others" Provision The insurance policy provides that Transport will: pay on behalf of the insured all sums which the insured shall become legally obligated to pay for damages, arisingout of the occupation of the named insured, . . . for loss of or damage to property of others. (emphasis added). The parties dispute both the construction of this provision and whether the remedial measures taken were for the protection of the Hall Street facility only, or also for the benefit of adjacent properties of others. Plaintiffs argue that the provision only bars coverage when none of the measures taken were implemented with the intent of minimizing contamination of adjacent or underlying property, and that environmental cleanup costs incurred to prevent migration of contaminants are not barred by the provision. Defendants, on the other hand, argue that because the contamination affected only the Hall Street facility and because the remedial measures taken were for the protection of that facility only (and not adjacent property or ground water), Transport has no obligation under the policy to plaintiffs. I turn now to an examination of how Missouri law treats such contract exclusions. In United States v. Conservation Chem. Co., 653 F. Supp. 152, 199-201 (W.D. Mo. 1986), the court considered the effect of standard-form liability insurance policy provisions that purport to exclude coverage for damage to property owned by the insured. The insured sought coverage for hazardous waste cleanup costs, claiming that the "owned property" exclusion was inadequate as a matter of law to bar coverage for remedial measures taken at the insured's property. Noting that Missouri courts have held that property damage occurring to property owned by he insured is excluded from coverage by GCL policies, id. at 200 (citing Estrin Const. Co. v. Aetna Casualty & Surety Co., 612 S.W.2d 413 (Mo. App. 1981)),11 the court stated that the issue was whether the property damage is limited to the insured's property or whether other property is affected. The court stated further: [C]overage of the abatement remedy on the [insured's property] designed to prevent damage or further damage to third parties cannot be denied on the basis of the owned property exclusion. This does not, however, include elements of the claim which relate to a remedy for damage confined to the [insured's property] itself. To the extent that all or a portion of the remedy relates solely to damage to the [insured's property] itself and not to prevent off-site contamination, the "Owned Property Exclusion" clearly applies, and such damage is not within the coverage provided. Id. at 200. Because the extent to which the remedial activities related solely to damage to the [insured's property] itself had not been briefed by the parties, the court denied summary judgment on the issue. I find the court's construction of the "property of others" clause in Conservation to be an accurate statement of Missouri law on the subject and I will therefore apply it to the case before me. Defendant Transport retained an expert who rendered an opinion concerning the potential effects of contamination of ground water and properties adjoining the Hall Street facility. In general, it was the expert's opinion that "the groundwater was not shown to be contaminated and the potential for migration of contaminants under the site or to the adjoining properties was highly unlikely." Defendant's Exhibit 18, at 1. The expert also stated, however, that certain remedial measures taken "could be construed as an abatement of potential migration pathways." Id. at 2. Based on the court's review of the expert's report and the arguments advanced by the parties, and viewing the evidence in the light most favorable to the non-moving party, the court finds that the existence of genuine issues of material fact relating to the extent to which the remedial measures relate solely to damage to the insured's property (as contrasted with measures taken to prevent off-site contamination), preclude the granting of summary judgment on this issue. C. Effect of the "Legally Obligated to Pay" Clause As indicated above, the policy provides that Transport will "pay on behalf of the insured all sums which the insured shall become legally obligated to pay for damages. . . ." (emphasis added). Transport argues that any costs incurred plaintiffs in connection with the Hall Street facility are not covered by the relevant policies, since neither Jones nor Triad was legally obligated to pay for such cleanup costs by any judgment or agreement. In 1982 Jones learned that the Hall Street facility was on a list prepared by the United States Environmental Protection Agency of sites that might be contaminated with dioxin. By letter dated December 6, 1982, the EPA notified Jones that pursuant to its authority under CERCLA, the EPA was requesting permission to enter the Hall Street facility to take soil samples and also requesting records relating to spraying of oil at the site by Russell Bliss or Bliss related companies. Plaintiffs' Exhibit 16. Later, by letter dated October 3, 1983, the EPA submitted to Jones a draft of a consent order between the EPA and Jones under CERCLA and the Resource Conservation and Recovery Act, 42 U.S.C. § 6934 (RCRA), that ordered Jones to undertake remedial cleanup measures at the Hall Street facility. Plaintiffs' Exhibit 23. In light of the correspondence from the EPA to Jones and under the particular circumstances present when dealing with the cleanup of hazardous and toxic wastes, the court is unwilling to find that the "legally obligated to pay" clause precludes recovery by Jones. Had Jones failed to take prompt remedial action, the EPA clearly was ready and willing to exercise its statutory authority to take control of the situation and clean up the site. While this would have created a "legal obligation" on the part of Jones, it also would have resulted in further delay and the otherwise unnecessary expenditure of additional monies related to (but not directly resulting in) cleanup of the contaminated site. Clearly, then, Jones' "voluntary" assumption of cleanup responsibility was expeditious and more cost-efficient (from the standpoint of both Jones and the taxpayers) than if the EPA had been required to arrange for cleanup and then initiate a CERCLA or RCRA action against Jones.12 D. Assignment of the Policy by Jones to Triad The policy provides that "no assignment of interest under this policy shall bind the company until its consent is endorsed thereon." Transport argues that summary judgment should be granted against Triad because Triad is neither a named insured nor a proper assignee. In National Life and Accident Insur. Co. v. Magers, 319 S.W.2d 53, 55 (Mo. App. 1958), the court stated that general provisions in insurance policies prohibiting assignment except with the insurer's consent have been universally held to apply only to assignments before the loss accrues, and not to prevent assignment after the loss occurs. The court noted that the "recognized and valid reasons for the prohibition of assignments without the consent of the insured cease" once the loss occurs. Because the subrogation or assignment to Triad occurred on August 26, 1986, well after the contamination and also after the cleanup of the site, the court finds that the clause does not preclude Triad from recovering on the policies issued by Transport to Jones. For the reasons explained herein, the court has made the following determination with regard to this litigation and the insurance contract at issue: a. Missouri substantive law controls this dispute. b. Under Missouri substantive law, notwithstanding the Eighth Circuit's decision in Continental Insur. Cos. v. Northeastern Pharm. & Chem. Co., Inc., 842 F.2d 977 [18 ELR 20819] (8th Cir. 1988) (en banc), the cleanup costs incurred by plaintiffs are "damages" as that term is used in the insurance policy. c. To the extent that all or a portion of the cleanup costs relate solely to damage to the Hall Street facility itself and not to prevent off-site contamination, the "owned property exclusion" clearly applies, and such damage is not within the coverage provided. d. The "legally obligated to pay" clause does not preclude recovery by Jones. e. The "no assignment" clause does not bar recovery by Triad. AND NOW, this 9th day of May, 1989, after consideration of defendant's motion for summary judgment and the response thereto, and in accordance with the accompanying memorandum, it is hereby Ordered that the motion is DENIED. 1. Harbor Incorporated of Missouri was owned in whole or in part by Harvey Jones, a named insured under the policies, and his wife. Plaintiffs' Memorandum at 6. 2. Section 6 of the Restatement provides that when there is no statutory directive with regard to choice of law, the relevant factors include: (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basis policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied. Restatement (Second) of Conflicts of Laws § 6. 3. The Restatement further provides that: [S]ituations where this cannot be done, and where the location of the risk has less significance, include . . . (2) where the policy covers a group of risks that are scattered throughout two or more states. The importance of the risk's principal location will also vary somewhat from case to case. It enjoys greatest significance when an immovable object is involved, . . . . Restatement (Second) of Conflicts of Laws § 193, comment b. 4. The Restatement provides: A special problem is presented by multiple risk policies which insure against risks located in several states. A single policy may, for example, insure dwelling houses located in states X, Y and Z. . . . Presumably, the courts would be inclined to treat such a case, at least with respect to most issues, as if it involved three policies, each insuring an individual risk. So, if the house located in state X were damaged by fire, it is thought that the court would determine the rights and obligations of the parties under the policy, at least with respect to most issues, in accordance with the local law of X. . . . Restatement (Second) of Conflicts of Laws § 193, comment f. 5. The court is compelled to note in passing that the entire choice of law controversy surrounding this insurance contract could have been avoided by the simple insertion of a choice of law provision in the contract by the parties at the time of execution. 6. This court previously addressed the same issue in Centennial Insur. Co. v. Lumbermens Mutual Casualty Co., 677 F. Supp. 342 (E.D. Pa. 1987) (Newcomer, J.), concluding that under Pennsylvania law, toxic waste cleanup costs are "damages" within a comprehensive general liability insurance policy. 7. The Continental policies were "standard-form GCL policies" which 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. Continental Insur. Cos., 842 F.2d at 979. 8. In its decision, the circuit initially confirmed the district court's application of Missouri law to the issue, as Missouri had the most significant relationships and contacts with the parties and the GCL policies. Continental, 842 F.2d at 985. 9. The court did note that certain claims for recovery of damages for personal injury and property damage due to the improper disposal of hazardous wastes were claims for "damages," not cleanup costs, and would be covered under the terms of the GCL policies. Continental, 842 F.2d at 987. 10. Baker involved a suit against two defendants whose propane tank trailer exploded, resulting in damage to plaintiff's buildings. On appeal, the Missouri Supreme Court concluded that when the diminution in property value was greater than the cost of restoring the property to its original condition, the proper measure of recovery (i.e., allowable damages) was the cost of restoration. I note, however, that Baker did not involve an insurance contract and the court did not construe the term "damages" as that term is used in an insurance context. 11. In Estrin, the Missouri Court of Appeals upheld application of an exception in a standard-form liability policy which excluded coverage for injury to or destruction of "property in the care, custody or control of the Insured." See also Benning-field v. Avemco Insur. Co., 561 S.W.2d 736 (Mo. Ct. App. 1978) (upholding denial of coverage based on an exception which excluded coverage for injury to property "in charge of the insured"). 12. As this court previously recognized: [T]he government frequently has a choice whether to seek an injunction ordering a party to clean up a contaminated site or to clean up the site itself and subsequently sue for the costs expended in toxic waste cases. . . . When such an option exists, coverage should not hinge on the form of action taken or the nature of the relief sought. Coverage should be triggered when an actual or threatened use of the legal process coerces payment or clean up conduct by a policyholder. Centennial Insur. Co. v. Lumbermens Mutual Casualty Co., 677 F. Supp. 342, 349-50 (E.D. Pa. 1987) (Newcomer, J.). See also Hazen Paper Co. v. U.S.F. & G. Co., No. 86-1679 (Mass. Sup. Jan. 10, 1989) ("public policy requires a finding that the enforcement proceedings brought by the EPA and DEQE incur the kind of legal liability which is covered by a comprehensive general liability insurance policy"; noting that to hold otherwise would result in delay, additional costs, and would frustrate the purpose of CERCLA). The court has also considered and rejected Transport's argument that the "no action" clause precludes coverage. As noted by Jones, it would be unfair for an insurer to deny coverage and then to rely on the "no action" clause. Moreover, were the court to accept this argument, Jones would be foreclosed from obtaining a declaratory judgment regarding insurance coverage until after it went to trial and had judgment entered against it. 19 ELR 21169 | Environmental Law Reporter | copyright © 1989 | All rights reserved |