Opinion

In Re Texas Eastern Transmission Corp. PCB Contamination Insurance Coverage Litigation

870 F. Supp. 1293
1992 U.S. Dist. LEXIS 9665
1992 WL 693700

Court: District Court, E.D. Pennsylvania
Filed: Jul 9, 1992
Status: Published
Author: VanARTSDALEN
On the bench: VanARTSDALEN
Cited by: 24 cases
Authority: More cited than 86.0%

refusing to exclude declaration for lack of personal knowledge where declarant “acknowledge[d] that he relied on various sources to acquire his knowledge of the events to which he attests. He does not, however, offer his statement solely on the authority of those statements, but rather vouches for the statements’ truth himself. [His] alleged reliance on documents distinguishes this case from one in which a declarant relies solely on the ‘say-so’ of third parties.”

How later courts described this case

refusing to exclude declaration for lack of personal knowledge where declarant “acknowledge[d] that he relied on various sources to acquire his knowledge of the events to which he attests. He does not, however, offer his statement solely on the authority of those statements, but rather vouches for the statements’ truth himself. [His] alleged reliance on documents distinguishes this case from one in which a declarant relies solely on the ‘say-so’ of third parties.”
holding “all perception is inferential to some degree,” and given employee had reviewed company documents and vouched for their truthfulness, he had sufficient personal knowledge of the facts.
discussing Texas Insurance Code Article 21.42 in the context of a choice of law analysis regarding a Texas insured, but determining that a different substantive law governs
stating that “knowledge ac quired by employees within the scope of their employment is imputed to the corporation”

Written by the judges who cited it.

The opinion

TABLE OF CONTENTS

I. Introduction page 1300

II. Procedural History page 1300

III. Summary Judgment Standard page 1301

IV. Motions to Strike page 1302

A. Motion to Strike Texas Eastern’s Motion for Summary Judgment page 1302

B. Motion to Strike Certain Evidence Offered by Texas Eastern in Support of its Motion for Summary Judgment page 1302

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C.Supplemental Motion to Strike page 1303

V. Choice of Law page 1305

VI. Governing Principles of Insurance Law page 1306

A. Texas Rules of Insurance Contract Construction page 1306

B. Texas Rules Concerning the Burden of Proof page 1306

VII. Imputation of Employee Knowledge page 1307

VIII. Facts page 1308

A. Preliminary Issues page 1308

B. Factual Background page 1308

1. Texas Eastern’s Corporate History page 1309

2. Texas Eastern’s Operational History page 1309

3. Texas Eastern’s Knowledge of PCBs in its Lubricant page 1310

4. The Change-Out Program page 1313

5. Tracking Environmental Legislation page 1313

6. PCB Contamination in the Natural Gas Pipeline page 1314

7. PCB Cleanup page 1315

8. The Results of Weston’s Survey page 1315

9. Texas Eastern’s Problems Become Public Knowledge page 1317

10. Texas Eastern’s Negotiations with EPA page 1318

11. Texas Eastern’s Notice to its CGL Carriers page 1319

IX. Occurrence page 1320

A. The Policy Language page 1320

B. Texas Law page 1320

C. The Applicable Facts page 1323

1. Knowledge that the Lubricant was Escaping into the Environment page 1324

2. Knowledge that the Lubricant Contained PCBs page 1327

D. The Alternative Theory of an. Occurrence page 1328

X. Damages page 1329

A. Equitable Relief as Damages page 1330

B. Compliance Costs as Property and/or Bodily Injury Damage page 1334

C. Civil Fines and Penalties page 1335

1. Choice of Law — Fines and Penalties page 1335

2. New Jersey Fines page 1338

3. Pennsylvania Fines page 1338

4. EPA Fines page 1339

XI. Owned Property Exclusion page 1339

XII. Pollution Exclusion page 1345

XIII. Late Notice page 1350

A. The Policy Terms page 1351

B. Accrual of Texas Eastern’s Obligation to Notify its CGL Insurers page 1351

1. 1981 page 1351

2. 1982 page 1352

3. 1983 page 1352

4. 1984 page 1352

5. 1985 page 1353

6. 1986 page 1354

7. 1987 page 1355

C. Texas Law page 1356

D. The Applicable Facts page 1358

E. Prejudice page 1361

XIV. Duty to Defend page 1364

A. The Policy Language page 1364

B. Texas Law page 1364

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OPINION

VanARTSDALEN, Senior District Judge.

I. INTRODUCTION

Texas Eastern Transmission Corporation (Texas Eastern), the owner-operator of a natural gas pipeline system extending from natural gas well fields in Texas, Louisiana, and the Gulf of Mexico to the New York metropolitan area, brought suit against approximately twenty-one insurance companies

(the Carriers) that provided Texas Eastern with primary and excess comprehensive general liability (CGL) insurance coverage between 1958 and the present.

Texas Eastern seeks to recover the expense that it will incur in the governmentally mandated environmental cleanup of polychlorinated biphenyl

(PCB) contamination at multiple locations on Texas Eastern’s property along the transmission line. The total costs are estimated to exceed $750 million. After more than two years of discovery, the parties have now filed cross-motions for summary judgment.

II. PROCEDURAL HISTORY

The present litigation consolidates three lawsuits, each seeking declaratory judgment as to the respective duties and liabilities of the Carriers to defend and/or indemnify Texas Eastern against claims and settlements made by and with the United States Environmental Protection Agency (EPA), various state agencies, and private parties.

On December 11, 1987, Fidelity & Casualty Company of New York (Fidelity or F & C), Texas Eastern’s primary CGL carrier throughout all relevant periods, filed Case No. 87-2925T against Texas Eastern in the United States District Court for the Northern District of Texas (Northern District action). The Northern District action was a diversity case establishing federal subject-matter jurisdiction pursuant to 28 U.S.C. § 1332 .

On March 11, 1988, Associated Electric & Gas Insurance Services Limited (Aegis) and National Surety Corporation filed Civil Action No. 88-2126 in the United States District Court for the Eastern District of Pennsylvania (Eastern District action) against Texas Eastern, F & C, and Texas Eastern’s other CGL insurers. Jurisdiction was based on 28 U.S.C. §§ 1330 (a), 1603(a), and 1605(a)(2) of the Foreign Sovereign Immunities Act (FSIA), because one of the insurers, the Insurance Company of Ireland (one of the London Market Insurers), was an instrumentality of a foreign state.

On March 21, 1988, Texas Eastern filed an action in Texas state court, in Houston (Texas state court action), against all of its insurers.

The Texas state court action was removed to the United States District Court for the Southern District of Texas on the basis of the FSIA and was docketed in that court as Civil Action No. 88-1910.

In May 1988, the Northern District action was transferred by the Judicial Panel on

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Multidistriet Litigation to this court for consolidation for pretrial purposes with the Eastern District action, pursuant to 28 U.S.C. § 1407 ; the case was docketed in the Eastern District of Pennsylvania as Civil Action No. 88-5039. The cases were then designated “Texas Eastern Transmission Corporation, PCB Contamination Insurance Coverage Litigation, Case Number MDL 764.” In July 1988, the United States District Court for the Southern District of Texas transferred the action pending before it to this district, where it was docketed as Civil Action No. 88-5707. The grounds for the transfer were not stated, but presumably the transfer was based on 28 U.S.C. § 1404 (a). That case has been consolidated for all purposes with MDL 764. (MDL 764 Order No. 4, Document No. 23.)

After extensive (and perhaps exhaustive) discovery, the parties filed cross-motions for either partial or total summary judgment. Texas Eastern moved for partial summary judgment on six major issues seeking the following legal rulings: (1) the pollution exclusion in its insurance policies does not bar coverage for long-term pollution; (2) all of its insurance policies were triggered due to the latent nature of the PCB contamination; (3) the Carriers’ defenses of late notice and misrepresentation should be stricken; (4) the cleanup costs it has and will incur are recoverable as “damages”; (5) F & C breached its duty to defend Texas Eastern in the underlying lawsuits; and (6) the underlying lawsuits asserted claims for bodily injury, property damage, and personal injury.

The Carriers moved jointly for partial or complete summary judgment on the following issues seeking the following legal rulings: (1) no insurable occurrence ever accrued; (2) the costs incurred by Texas Eastern were not incurred as “damages” because of bodily injury or property damage; (3) Texas Eastern provided late notice of its claims to all Carriers; (4) civil fines and penalties are not insurable as “damages”; (5) the owned property exclusion in Texas Eastern’s insurance policies bars coverage for damage to Texas Eastern’s own property; and (6) the pollution exclusion in Texas Eastern’s insurance policies bars coverage for all costs incurred to remediate the PCB contamination. In addition, twelve of the Carriers individually filed separate motions for partial or total summary judgment in which some of the other Carriers joined. Finally, the Carriers jointly filed several motions to strike exhibits offered by Texas Eastern in support of its motion for summary judgment.

I held hearings on the summary judgment motions on January 13, 14, and 15, 1992. After consideration of the briefs and the arguments made during the hearings, I have reached numerous conclusions and decisions which are hereafter set forth. I have decided most, but not all, of the issues raised. I have determined that all of the Carriers are entitled to summary judgement on all claims against them because of Texas Eastern’s late notice. Other primary issues have been decided in order to avoid extensive further appeals and litigation in the event that a different result occurs on appeal.

III. SUMMARY JUDGEMENT STANDARD

A court shall grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c);

Williams v. Borough of West Chester,

891 F.2d 458, 463-64 (3d Cir.1989). In a motion for summary judgment, the court may examine evidence beyond the pleadings. The court must always consider the evidence, and the inferences therefrom, in the light most favorable to the nonmoving party.

United States v. Diebold, Inc.,

369 U.S. 654, 655 , 82 S.Ct. 993, 994 , 8 L.Ed.2d 176 (1962);

Tigg Corp. v. Dow Corning Corp.,

822 F.2d 358, 361 (3d Cir.1987).

The initial burden is on the moving party to demonstrate the absence of a genuine issue of material fact.

First Nat’l Bank v.

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Lincoln Nat’l Life Ins. Co.,

824 F.2d 277, 280 (3d Cir.1987). Once the moving party has satisfied this burden, the nonmoving party must demonstrate that genuine disputes exist

concerning

each essential element of its case on which it bears the burden of proof at trial.

Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 , 106 S.Ct. 2548, 2552-53 , 91 L.Ed.2d 265 (1986). For a dispute to be “genuine,” a reasonable jury must be able to return a verdict for the nonmoving party.

Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 , 106 S.Ct. 2505, 2510 , 91 L.Ed.2d 202 (1986). If the nonmoving party’s evidence is “ ‘merely colorable’ or is ‘not significantly probative,’ summary judgment may be granted” in favor of the moving party.

Equimark Commercial Fin. Co. v. C.I.T. Fin. Servs. Corp.,

812 F.2d 141, 144 (3d Cir.1987) (quoting

Anderson,

477 U.S. at 249-50 , 106 S.Ct. at 2510-11 ). In essence, it is my duty to determine whether the nonmoving party has submitted evidence which “presents a sufficient disagreement to require submission to a jury or whether [the evidence] is so one-sided that [the moving party] must prevail as a matter of law.”

Anderson,

477 U.S. at 251-52 , 106 S.Ct. at 2512 .

I have gone to great lengths to give Texas Eastern the benefit of every doubt in interpreting the thousands of pages of record evidence submitted by all parties. I have taken this course because the Carriers’ summary judgment motion heavily relies on factual findings, while Texas Eastern’s summary judgment motion, by its own admission, relies more on interpretations of the law than on express factual findings. In the interest of fairness, I have made extensive findings concerning the “undisputed facts.”

See infra

part VIII.

IV. MOTIONS TO STRIKE

Motion to Strike Texas Eastern’s Motion for Summary Judgment

The Carriers contend that Texas Eastern’s motion for summary judgment is merely a request for hypothetical legal rulings calculated to induce me to reveal my position on particular legal disputes and thereby enable Texas Eastern to better prepare its case for trial. As an example, the Carriers cite Texas Eastern’s motion for partial summary judgment on the issue of whether gradual discharge, dispersal, release, or escape of pollutants can be “sudden and accidental” within the meaning of a pollution exclusion clause. In the Carriers’ view, Texas Eastern’s motion is more appropriate to a Rule 16 conference or a motion

in limine,

where evidentiary rulings are appropriately requested and received.

Texas Eastern responds that seeking legal rulings which narrow the issues for trial are entirely proper in Rule 56 motions, and that its motion need not necessarily allow the court to pronounce final judgment on a particular claim, as long as the court’s decision finally disposes of at least some portion of that claim. In addition, Texas Eastern asserts that it need not proffer substantial factual support for its summary judgment motion because it primarily focuses on legal issues which are matters of law for the court to decide and, thus, do not require an extensive factual background.

Federal Rule of Civil Procedure 56(a) expressly entitles a party to move for summary judgment “in the party’s favor upon all [claims] or any part thereof.” In my view, Rule 56 is broad enough to allow Texas Eastern to move for summary judgment on issues which are crucially important to this litigation, and about which no factual dispute exists. The interpretation of insurance policy language is just such an issue. The Carriers’ motion to strike will therefore be denied.

Motion to Strike Certain Evidence Offered by Texas Eastern in Support of its Motion for Summary Judgment

The Carriers have also moved to strike certain evidence relied on by Texas Eastern to support its motion for summary judgment. First, the Carriers move to strike exhibits 8-31, 47, [4]8, and 50 offered by Texas Eastern in the Declaration of Laird Hart. Exhibits

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8-18 are private third-party complaints filed against Texas Eastern, alleging injuries arising out of PCB contamination, not specifically identified in Texas Eastern’s First Amended Complaint. They were the subject of Texas Eastern’s motion for leave to file a Second Amended Complaint which I held in abeyance. (Order No. 42, Document No. 443.) In a memorandum and order filed contemporaneously with this opinion, I have denied Texas Eastern’s motion for leave to amend its complaint and therefore conclude that evidence of the private third-party complaints is not properly before me. Exhibits 8-18 will therefore be stricken.

Exhibits 19-27 present a more difficult question. Texas Eastern has offered evidence of the drafting history of one form of a pollution exclusion used in many of the insurance policies at issue in this litigation.

For the reasons set forth in my discussion of the “Pollution Exclusion” issue,

infra

part XII, I have decided that consideration of this evidence is permissible under Texas law and, thus, the Carriers’ motion to strike exhibits 19-31 will be denied.

Exhibits 47 and 48 are excerpts from the depositions of Texas Eastern expert witnesses John A. Cherry and Bradford S. Cushing. The Carriers object to this evidence on the ground that the excerpts are insufficient to allow me to determine the experts’ qualifications, or the facts and data upon which the opinions are based. Additionally, the Carriers believe that this evidence sets forth mere conclusions and does not offer any evidence of the experts’ thought processes or rationale. Texas Eastern has responded by providing some of the deposition transcript missing from its initial proffer.

(See

TApp.

222; TApp. 223.) I am satisfied that when considered together with the additional deposition testimony, this evidence is properly before the court and the motion to strike will therefore be denied.

Exhibit 50 consists of two affidavits sworn by Karen Hammerstrom, an EPA employee, which were submitted in support of EPA’s enforcement action against Texas Eastern. Texas Eastern relies heavily on these affidavits to prove that at least some of its response costs are the direct result of actual or threatened third-party harm to property or persons. Although the affidavits were not created specifically for this litigation, they appear to be reliable and relevant, and appear to satisfy the requirements of Federal Rule of Civil Procedure 56(e). As such, they are properly before me. The Carriers’ motion to strike the Hammerstrom Affidavits will therefore be denied.

Second, the Carriers object to any reliance on Texas Eastern’s “Statement of General Background Facts” filed contemporaneously with, and in support of, its motion for summary judgment because, in general, it does not cite to record evidence. It is settled law that all evidence relied upon in deciding a motion for summary judgment must be reducible to admissible evidence. Texas Eastern admitted at oral argument that its “Statement of General Background Facts” was not “admissible evidence” and, as such, I have not relied on it in deciding these motions for summary judgment. The Carriers’ motion to strike Texas Eastern’s “Statement of General Background Facts” will therefore be granted.

Supplemental Motion to Strike

The Carriers have moved to strike certain additional evidence offered by Texas Eastern. First, the Carriers seek to strike paragraphs 4, 5, 7, and 8 of the Declaration of H. Douglas Church, located at TApp. 191, on the ground that the information contained therein is not based on Mr. Church’s personal knowledge. The information in these paragraphs relates to Texas Eastern’s historical practices concerning PCB use and containment. The Carriers contend that Mr. Church cannot have personal knowledge of events which occurred before 1985, the date

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when he first became responsible for dealing with Texas Eastern’s PCB-related problems.

Texas Eastern responds that although Mr. Church does not have first-hand personal knowledge of all the events to which he attested, he acquired personal knowledge by reviewing relevant documents and discussing the issues with senior management

and other personnel from Texas Eastern’s Operations, Engineering, Environmental, and Legal departments. (Church Deck, TApp. 191 at ¶ 4.) The Carriers have in turn challenged the quality of Mr. Church’s efforts to “get up to speed” on these important issues. (Ins.’ Reply in Supp. of Suppl.Mot. to Strike at 4-5.)

Federal Rule of Evidence 602 prohibits a witness from testifying about an issue unless the witness has personal knowledge of the matter. The Carriers complain that Mr. Church’s knowledge cannot be personal to him because it was acquired from third parties. This argument proves too much. All perception is inferential to some degree. As the Seventh Circuit recently noted:

Knowledge acquired through others may still be personal knowledge within the meaning of Fed.R.Evid. 602, rather than hearsay, which is the repetition of a statement made by someone else.... Such a statement is different from a statement of personal knowledge merely based, as most knowledge is based, on information obtained from other people.

Agfa-Gevaert, A.G. v. A.B. Dick Co.,

879 F.2d 1518, 1523 (7th Cir.1989).

Mr. Church acknowledges that he relied on various sources to acquire his knowledge of the events to which he attests. He does not, however, offer his statement solely on the authority of those statements, but rather vouches for the statements’ truth himself. Mr. Church’s alleged reliance on documents distinguishes this ease from one in which a declarant relies solely on the “say-so” of third parties.

See, e.g., Kaczmarek v. Allied Chem. Corp.,

836 F.2d 1055, 1060-61 (7th Cir.1987). I conclude that the Church Declaration is sufficiently based on personal knowledge and is therefore admissible evidence that can be relied on in deciding these motions for summary judgment.

Next, the Carriers have moved to strike paragraphs 6 and 8 of the Declaration of Steve L. Horton, found at TApp. 194. In paragraph 6, Mr. Horton states that after discussions with environmental representatives of other pipeline companies, it is his understanding that no other pipeline company has been required by EPA or any state authority to install the same source control equipment that Texas Eastern is required to install under the terms of the EPA Consent Decree. (Horton Deck, TApp. 194 at ¶ 6.) The Carriers and Texas Eastern agree that this statement is hearsay if it is offered to prove the truth of the matter, that is, that no other company has, in fact, been required to install the above-mentioned source control equipment.

Texas Eastern contends that this evidence is being offered only to establish what Steve Horton, Texas Eastern’s Vice President of Environmental Affairs, believed other companies have been required to do. Without ruling on the relevance of Mr. Horton’s opinion, I will deny the motion to strike; however, Mr. Horton’s statement is admissible only to establish what he believed has been the practice in the industry.

In Paragraph 8, Mr. Horton states that the residual value of a computer and software, purchased by Texas Eastern exclusively to help carry out the required activities under the Consent Decree, will be little or none when the activities are completed. (Horton Deck, TApp. 194 at ¶ 8.) The Consent Decree involves a ten-year cleanup program. (App. 385 at 16.) Thus, Mr. Horton is merely stating that in his opinion, a computer purchased today will have little value ten years from now.

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The Carriers believe that Texas Eastern should offer expert testimony on this issue, or at least lay testimony of someone with expertise in the computer industry. Given the nature of this testimony, I believe that Mr. Horton’s duties make him sufficiently knowledgeable about the computer and the work to which it is committed so as to permit his lay testimony to be admitted under Federal Rule of Civil Procedure 701. Of course, the fact that he is not an expert in this area may affect the persuasiveness of his testimony.

The Carriers also move to strike the excerpts of the deposition testimony of Texas Eastern expert Davis L. Ford concerning Texas Eastern’s waste management practices. (TApp. 31; TApp. 206.) The grounds for striking the testimony are the same as those asserted in the Carriers’ original motion to strike the deposition testimony of experts Cushing and Cherry. Texas Eastern has supplemented its offer with additional deposition testimony sufficient to allow its admission as evidence.

(See

TE’s Opp’n to Suppl.Mot. to Strike at 13-14; Ex. F.) The Carriers’ argument that the subject matter of Mr. Ford’s testimony is not helpful because it fails to consider Texas Eastern’s PCB use goes to the weight, not the sufficiency, of the evidence.

Finally, the Carriers move to strike TApp. 127 and 129. These exhibits are part of the evidence offered by Texas Eastern concerning circumstances surrounding the drafting of the pollution exclusion which appears in a number of the insurance policies at issue in this case. Having decided that consideration of such evidence is proper under Texas law to help determine whether the term “sudden” is, or is not, ambiguous, I conclude that the evidence is properly before me. For all of these reasons, the Carriers’ supplemental motion to strike will be denied in its entirety.

V. CHOICE OF LAW

The parties agree that Texas law applies

to all of the issues in this multidistrict litigation except those concerning the insurability of civil fines and penalties, where the Carriers contend that the law of the state which imposed the fine or penalty should apply. I will address the choice of law issue regarding civil fines and penalties in my discussion of that issue.

(See infra

part X.C.l.) Otherwise, Texas law will be applied throughout this opinion.

It is axiomatic that the decisions of a state’s highest court are the ultimate authority regarding state law.

Connecticut Mut. Life Ins. Co. v. Wyman,

718 F.2d 63, 66 (3d Cir.1983). If the state’s highest court has not ruled on the issue in question, it is my duty to predict how the state court would rule.

Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co.,

652 F.2d 1165, 1167 (3d Cir.1981). In making these predictions, I have relied, to the best of my ability, on lower Texas state court decisions, well-reasoned authority from other jurisdictions, and other relevant sources.

With respect to my use of sources other than the Texas Supreme Court, I have relied first on lower court decisions from the Texas state courts. Intermediate state court decisions are presumptive evidence of state law.

Commercial Union Ins. Co. v. Bituminous Casualty Corp.,

851 F.2d 98, 100 (3d Cir.1988). As the Third Circuit recently stated:

Although we are not bound in a diversity case to follow decisions of a state intermediate appellate court, we are instructed that such decisions are “not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.”

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Northern Ins. Co. v. Aardvark Assocs., Inc.,

942 F.2d 189, 193 (3d Cir.1991) (quoting

West v. American Tel. & Tel. Co.,

311 U.S. 223, 237 , 61 S.Ct. 179, 183 , 85 L.Ed. 139 (1940)).

I have also relied on decisions from other jurisdictions, as well as other miscellaneous sources, to aid in my predictions in instances where the lower courts have either (1) not decided an issue, or (2) have decided an issue with insufficient rationale to be a good indicator of what the Texas Supreme Court would conclude if faced with a similar question. Although I cannot guarantee that I have predicted correctly, I have relied on my own understanding of the law, and on the insurance and contract principles which Texas courts have historically considered important, to reach the conclusions which follow.

VI. GOVERNING PRINCIPLES OF INSURANCE LAW

Texas Rules of Insurance Contract Construction

Under Texas law, insurance policies are governed by the same rules of construction which apply to contracts generally.

National Union Fire Ins. Co. v. Hudson Energy Co.,

811 S.W.2d 552, 555 (Tex.1991);

Barnett v. Aetna Life Ins. Co.,

723 S.W.2d 663, 665 (Tex.1987);

Garrison v. Fielding Reinsurance, Inc., 765

S.W.2d 536, 538 (Tex.Ct.App.1989) (writ denied). “When terms of an insurance policy are unambiguous, they are to be given their plain, ordinary and generally accepted meaning unless the instrument itself shows that the terms have been used in a technical or different sense.”

Garrison,

765 S.W.2d at 538 .

When the terms of an insurance policy are ambiguous, a court should apply the construction that favors the insured and permits

recovery. Yancey v. Floyd West & Co.,

755 S.W.2d 914, 918 (Tex.Ct.App.1988) (writ denied). A term is ambiguous when the language of a policy is susceptible to more than one reasonable construction.

Yancey,

755 S.W.2d at 918 . “Where the clause of the insurance policy subject to dispute involves exceptions or limitations on the insurer’s liability under the policy, even more stringent construction than usual is required.”

Id.

(citing

Glover v. National Ins. Underwriters,

545 S.W.2d 755, 761 (Tex.1977)). The court must adopt the insured’s construction of an exclusionary clause “as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intent.”

Hudson Energy Co.,

811 S.W.2d at 555 . However, courts should refrain from creating an ambiguity where none exists.

Yancey,

755 S.W.2d at 918 . In this regard, “a policy which is otherwise clear is not rendered ambiguous simply because it requires the insured to read the policy thoroughly and carefully.”

LaBatt Co. v. Hartford Lloyd’s Ins. Co.,

776 S.W.2d 795, 800 (Tex.Ct.App.1989). Additionally, mere disagreement over the interpretation of an instrument does not make it ambiguous.

Cohen v. Rains,

769 S.W.2d 380, 389 (Tex.Ct.App.1989) (writ

denied). Indeed,

a court must avoid a construction of the policy which renders a portion of the contract meaningless.

Liberty Mut. Ins. Co. v. American Employers Ins. Co.,

556 S.W.2d 242, 245 (Tex.1977);

Ideal Mut. Ins. Co. v. Last Days Evangelical Ass’n, Inc.,

783 F.2d 1234, 1238 (5th Cir.1986). If no ambiguity exists, parol evidence is inadmissible to create an ambiguity.

Entzminger v. Provident Life & Accident Ins. Co.,

652 S.W.2d 533, 537 (Tex.Ct.App.1983). However, in determining whether a contract term is ambiguous, a court should consider the contract terms in light of the surrounding circumstances.

Sun Oil Co. (Del.) v. Madeley,

626 S.W.2d 726, 731-32 (Tex.1981).

Texas Rules Concerning the Burden of Proof

Pursuant to Texas law, the insured bears the burden of establishing that the claimed loss is within the coverage of the policy.

Employers Casualty Co. v. Block,

744 S.W.2d 940, 944 (Tex.1988). The insured also bears the burden of proving that it complied with all conditions precedent to coverage.

Trevino v. Allstate Ins. Co.,

651 S.W.2d 8, 11 (Tex.Ct.App.1983) (writ refused n.r.e.).

Texas law also requires the insured to prove that the loss does not fall within an exclusion or exception where the insurer

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pleads such exclusion or exception to coverage.

Sherman v. Provident Am. Ins. Co.,

421 S.W.2d 652, 654 (Tex.1967);

American Home Assurance Co. v. Brandt,

778 S.W.2d 141, 143 (Tex.Ct.App.1989) (writ denied);

Britt v. Cambridge Mut. Fire Ins. Co.,

717 S.W.2d 476, 482 (Tex.Ct.App.1986) (writ refused n.r.e.). I recognize that this is a minority rule, but it appears to be the settled law in Texas.

Finally, if it is determined that the policy provides coverage for only a portion of the insured’s loss, the burden of apportioning the damages between covered and noncovered losses is on the insured.

Winn v. Continental Casualty Co.,

494 S.W.2d 601, 606 (Tex.Civ.App.1973).

VII. IMPUTATION OF EMPLOYEE KNOWLEDGE

When individual parties are involved in litigation, the determination of what a party knew or intended is rarely a simple matter. Engaging in a

post hoc

analysis of what an individual was thinking requires powers of clairvoyance which most mortals do not possess. This difficult task is even more formidable when a corporate party is involved. A corporation operates solely through its individual employees. The employees’ knowledge and intentions must therefore ordinarily be deemed the knowledge and intentions of the corporation. As Judge Dalton observed:

A corporation can only act through its employees and, consequently, the acts of its employees, within the scope of their employment, constitute the acts of the corporation. Likewise, knowledge acquired by employees within the scope of their employment is imputed to the corporation. In consequence, a corporation cannot plead innocence by asserting that the information obtained by several employees was not acquired by any one individual employee who then would have comprehended its full import. Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly.

United States v. T.I.M.E.

—D.C.,

Inc.,

381 F.Supp. 730, 738 (WD.Va.1974). When dealing with a corporation as large as Texas Eastern, imputation requires an inquiry into the minds of literally thousands of people, and in this case, spanning a time period of three to four decades.

The difficulty of this task does not relieve the parties (or me) of the duty to attempt to reconstruct what Texas Eastern “knew” at the relevant times. If a corporation were able to escape this imputation of knowledge, it would always be in a position to limit its liability by professing corporate ignorance. At the other extreme, the imputation of every bit of knowledge known to each individual employee — from the Chief Executive Officer to the most recently hired recruit — would likely paralyze a corporation as upper level management attempted to keep informed of all information known to all of the corporation’s employees.

Cognizant of this dilemma, courts have created a compromise approach which limits the information imputed to the corporation to that which was learned in the course of an employee’s employment-related activities, and which is known by an employee of a sufficient level of corporate responsibility to justify charging the corporation with that knowledge. Texas law is in accord with this approach. Texas Eastern is a corporation and each employee is an agent for the corporation. In accordance with Texas agency law, knowledge which an employee or other agent acquires in the course of employment is imputed to the principal.

Green Tree Acceptance, Inc. v. Holmes,

803 S.W.2d 458, 460 (Tex.Ct.App.1991) (writ denied). Texas law makes it clear that this rule of imputation does not depend upon whether the principal actually shares the agent’s knowledge,

Williams v. Jennings,

755 S.W.2d 874, 883 (Tex.Ct.App.1988) (writ denied), because a principal should not be entitled to the benefits of the agent’s services without being

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charged with the agent’s knowledge.

Wellington Oil Co. v. Maffi,

150 S.W.2d 60, 63 (Tex.1941).

Texas Eastern is thus charged with the knowledge of its employees as long as that knowledge was gained in the course of the individual employee’s employment-related activities. Of course, not all of Texas Eastern’s employees will have knowledge of particular events, but this does not prevent the corporation from being charged with the knowledge of those who do.

Texas Eastern has raised an objection to being charged with the collective knowledge of its many employees for the purpose of determining the intent of the corporation. In

Kern Oil & Refining Co. v. Tenneco Oil Co.,

792 F.2d 1380, 1386-87 (9th Cir.1986),

cert. denied,

480 U.S. 906 , 107 S.Ct. 1349 , 94 L.Ed.2d 520 (1987), the court concluded that under Texas law, a corporation’s subjective intent could not be established by imputing the collective knowledge of its employees. In

Tenneco,

the court reviewed a district court’s determination that an overpayment of money was recoverable by the payor corporation, because it was made based on a mistake of fact, and thus was involuntarily made.

Under Texas law, if a party to a contract makes an overpayment,- even though it is under no legal obligation to do so, it cannot recover the money if it was voluntarily paid with full knowledge of the relevant facts.

Tenneco,

792 F.2d at 1386 . The payee argued that the corporate party could not claim that its payment was made under a mistake of fact when its employees collectively knew all of the relevant facts. The Ninth Circuit concluded that the collective knowledge could not be imputed because Texas law required that the overpayment be truly voluntary, that is, done intentionally or purposefully or by choice of one’s own accord or by the free exercise of the will; the collective knowledge was insufficient to charge the corporation with this action.

Id.

It is apparent to me that the

Tenneco

court assumed that Texas law required the corporation to subjectively intend to make the overpayment.

Tenneco

is distinguishable from the present litigation because, as will be explained in this opinion, Texas insurance law is not concerned with the subjective intentions of the insured, but with the objective ones. In an objective analysis, the focus of the inquiry is what the corporation is likely to have known, and not necessarily what the corporation in fact intended. Under these circumstances, I believe the Texas Supreme court would require the corporation to be charged with the collective knowledge of its employees.

As I previously observed, information known to corporate employees should not be blindly imputed to the corporation. An inquiry should be made as to whether the employee had a sufficient level of corporate responsibility to justify charging the corporation with that particular bit of knowledge. I do not understand this requirement to mean that an employee must have climbed to a particular rung on the corporate ladder, as Texas Eastern has argued, before an employee’s knowledge will be imputed. Rather, I believe this to mean that the knowledge must be substantially related to the task which the corporation has assigned the employee to perform. Therefore, information known to an employee which relates to the performance of the employee’s job will be imputed to Texas Eastern.

VIII. FACTS

Preliminary Issues

Both Texas Eastern and the Carriers have submitted versions of the “undisputed” facts. The Carriers initially filed the “Insurers’ Statement of Material Facts As To Which No Genuine Issue Exists” (SOF). Texas Eastern responded to the Carriers’ filing with “Texas Eastern’s Response To The Insurers’ Statement Of Material Facts As To Which No Genuine Issue Exists”

*1309

(TRSOF), in which Texas Eastern either disputed the Caniers’ assertions or admitted them. Texas Eastern contemporaneously filed its own version of the material facts in “Texas Eastern Statement Of Facts” (TSOF). Finally, the Carriers’ filed a response to the TRSOF.

The Carriers’ response to the TRSOF raised several important issues. First, the Carriers objected to the filing of the TSOF

after

Texas Eastern had filed its motion for summary judgment. In the Carriers’ view, Texas Eastern bore the initial burden of “identifying those portions of the ‘pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any,’ which it believe[d] demonstrate the absence of a genuine issue of material fact.”

Celotex,

477 U.S. at 323 , 106 S.Ct. at 2553 . By failing to meet this burden in its initial filing, the Carriers contend that Texas Eastern gained an unfair advantage by waiting until the Carriers had “tipped their hand before it too committed itself.” (Ins.’ Reply to TRSOF at 2 n. 1.)

The Carriers are clearly correct in their assertion that a party seeking summary judgment must file, in support of its motion, a statement of the facts which is supported by record evidence. However, this is not a ease where a party has

failed

to file such a statement, but one in which a party has failed to file its statement contemporaneously with its original motion.

Texas Eastern filed a response to the SOF, and its own TSOF, on September 9, 1991, almost two months after its initial filing of the summary judgment motion, filed on July 12, 1991. There is no dispute that taken together, the TRSOF and the TSOF satisfy the

Celotex

requirement of identifying those portions of the pleadings which Texas Eastern believes demonstrate the absence or existence of a genuine issue of material fact.

In light of the voluminous filings in this case, I conclude that while it would have been more appropriate for Texas Eastern to have filed its statement of facts with its summary judgment motion, the Carriers have not been significantly prejudiced by Texas Eastern’s late filing. All of the filings in this ease were made pursuant to a Case Management Order, which clearly sets forth the timetable for opposition and reply briefs. Texas Eastern filed its statement and response well within the allowable time. For these reasons, I will consider both the TRSOF and the TSOF in the disposition of these motions.

The second issue raised by the Carriers in their reply brief is the sufficiency of the record evidence upon which Texas Eastern relies to “dispute” many of the Carriers’ factual assertions. Having reviewed Texas Eastern’s responses, I conclude that the Carriers have raised numerous meritorious objections. Because many of the factual assertions are immaterial to my decision on the pending motions, I will not restate each of these objections in detail.

In the factual section which follows, I have set forth what I conclude to be the “undisputed” facts. These facts will be relied upon in deciding the cross-motions for summary judgment. Many of the facts have been admitted by Texas Eastern or by the Carriers. Some of the facts, however, have been disputed by the parties, but after a thorough investigation, of the record evidence, the disputes have been found not to be “genuine.” The facts below reflect many of the Carriers’ above-mentioned objections. In many instances, but not all, I will discuss the reasons for my conclusion that no genuine dispute exists.

Factual

Background

Texas Eastern’s Corporate History

Texas Eastern was incorporated in Delaware on January 30, 1947. In that year, it

*1310

acquired the War Emergency Pipeline from the United States Government and converted it from liquid service to a natural gas pipeline system. (TRSOF ¶ 1.)

The Texas Eastern Corporation was incorporated in Delaware in 1976. It was incorporated as the parent holding company of Texas Eastern and other subsidiaries. In 1989, the Texas Eastern Corporation was acquired by Panhandle Eastern Corporation. The real party in interest in this litigation is Texas Eastern, not its parent holding company or any of the unidentified subsidiaries, and I will refer solely to Texas Eastern in this opinion.

By 1987, Texas Eastern operated a natural gas transmission network which included as its primary operation a pipeline approximately 9,500 miles in length from supply areas in Texas, Louisiana, and the Gulf of Mexico to the New York Metropolitan area.

(TRSOF ¶ 5.) Approximately 65 stations at various locations along the pipeline system used turbine-driven centrifugal compressors to increase the pressure of the natural gas being transmitted. (TRSOF ¶2.)

Texas Eastern’s Operational History

In late 1957 or early 1958, Texas Eastern identified a problem with the lubricating oil used at its centrifugal compressor stations. It was suspected that the extreme heat of the turbines caused the oil to ignite; the ignitions caused a number of dangerous fires. (TSOF ¶¶4, 5.) In response to the fires, Texas Eastern conducted an extensive study of commercially available fire-resistant lubricants and, in 1958, selected Monsanto Chemical Corporation’s (Monsanto) OS-81

as a replacement. (TRSOF ¶¶ 6, 8.) The lubricant (apparently almost all PCB) had PCB concentrations of approximately 88%-90%. (TRSOF ¶ 13.)

Texas Eastern immediately began installing the new lubricant in some of its turbine-driven centrifugal compressors. (TRSOF ¶¶ 17, 18.) By 1970, Texas Eastern had installed the lubricant in 24 compressor units, at 19 compressor stations, located in approximately 8 or 9 states. (TRSOF ¶ 19.)

Texas Eastern used the Monsanto lubricant in its centrifugal compressors as both a lubricant and a seal oil. (TRSOF ¶ 31.) As a seal oil, the lubricant provided a pressurized seal against the natural gas compressed inside the compressor cases, which prevented the natural gas from escaping into the atmosphere. (TRSOF ¶ 32.) The centrifugal compressors were designed as “closed systems” and should therefore have operated without a noticeable leakage of oil. (TRSOF ¶ 35; TSOF ¶¶ 31-33.) Texas Eastern was aware, however, that the lubricating oil was “used” or “consumed” by the compressors, thereby requiring a routine replacement of the oil. (TRSOF ¶¶ 37, 38.) Texas Eastern prepared and maintained a “Compressor Department Annual Report” which detailed the amount of lubricant consumption at each compressor station. (TRSOF ¶ 37.)

*1311

The parties vigorously dispute the reason for the large consumption of the lubricant oil. Texas Eastern contends that many senior employees believed that most of the lost lubricant was simply vaporized by the extreme heat of the turbine-driven centrifugal compressors, in the same way that oil is consumed in an automobile. (TSOF ¶ 31.) The Carriers concede that some of Texas Eastern’s employees may have believed that lubricant was being consumed in this manner. However, the Carriers have produced evidence which establishes that key Texas Eastern personnel were aware that the compressor system was designed in a manner that all but guaranteed that some lubricant would leak out of the compressors, come into contact with the natural gas, and enter into the pipeline.

For example, Texas Eastern’s Superintendent of Compressor Stations, E.C. Riall, testified that he was aware, at the time he was working for Texas Eastern, that the passage of some amount of lubricant into the compressor case was “an inherent design of centrifugal compressors.” (Dep. of Eugene Riall, App. 56 at 186).

See also

Dep. of David Fen-ton, App. 135 at 76-82), and because Texas Eastern believed that no third parties were involved. (Dep. of Stephen Mulliken, TApp. 2 at 304.) Texas Eastern discussed similar issues with representatives of its other lower-level liability carriers in March 1987. (App.

*1319

4 at 39.) On March 17,1987, representatives of Texas Eastern testified before the United States Senate Subcommittee on Superfund and Environmental Oversight concerning the PCB contamination of its earthen pits. (TRSOF ¶ 397; App. 2 at 2.)

10.

Texas Eastern’s Negotiations with EPA

On April 14, 1987, Texas Eastern met with EPA representatives for the purpose of outlining the framework within which a Consent Decree would be negotiated covering the cleanup of Texas Eastern’s compressor station sites. (App. 381.) On August 18, 1987, in a letter to David Batson, EPA’s chief negotiator, Carol Dinkins, Texas Eastern’s attorney, outlined certain proposals made by Texas Eastern on. which Ms. Dinkins believed an agreement had been reached. (App. 382.) By the middle of October 1987, both Texas Eastern and EPA came to an “Agreement in Principle” which the parties formally executed in writing in November 1987.

Ultimately, EPA and Texas Eastern entered into a consent deeree in an action entitled

United States of America v. Texas Eastern Transmission Corp.

in June 1988. (TRSOF ¶ 411; App. 385.) The Complaint and the Consent Decree were both filed the same day. Pursuant to the Consent Decree, Texas Eastern was obligated to clean up property which it had contaminated with PCBs. All of the property was either owned or operated by Texas Eastern, and none of the property was owned by third parties. (TRSOF ¶ 499.) The Consent Decree required continued monitoring of groundwater under Texas Eastern’s land, but did not specifically require or provide for remediation of any groundwater. Although Texas Eastern did not admit liability, it did agree to pay a civil penalty in the amount of $15 million. (App. 385 at 11.) Texas Eastern also agreed to reimburse EPA for costs already expended up to $1.5 million. The estimated total cost of the cleanup is presently in excess of $750 million.

Additionally, in April 1987, Texas Eastern entered into a Consent Decree with the Pennsylvania Department of Environmental Resources (PaDER) wherein Texas Eastern agreed to test soil and groundwater for possible PCB contamination and to remediate any discovered contamination. (Consent Order, App. 227C.) Subsequently, Texas Eastern also agreed to pay a penalty of $5.3 million to settle other PaDER claims that Texas Eastern had violated provisions of the Solid Waste Management Act, (35 Pa.Stat. Ann. § 6018.101

et seq.),

and the Clean Streams Law, (35 Pa.Stat.Ann. § 691.1

et seq.).

Several other states initiated administrative or judicial actions against Texas Eastern alleging violations of state environmental laws, including New Jersey, Mississippi, and Kentucky.

(See

TE’s First Am. Compl. ¶¶ 53-56, 65-68, 90-94; App. 227H-I; App. 227J-K; App. 227M-0.) The New Jersey action has been partially resolved, requiring Texas Eastern to pay a civil penalty in the amount of $850,000; however, issues concerning Texas Eastern’s potential remediation responsibilities remain outstanding. The Mississippi and Kentucky actions have apparently been resolved by consent decrees.

Finally, as many as thirteen private third-party suits were filed against Texas Eastern alleging property and personal injury damage resulting from the PCB contamination. Only two of these complaints (the

Bondy

and

Atwood

actions) are actually involved in the present litigation, because I have denied Texas Eastern’s motion for leave to amend its complaint and add the additional eleven complaints filed after the commencement of this action.

(See supra

pp. 1302-1303.)

Bondy v. Texas Eastern Transmission Corp.,

filed January 29, 1988, was terminated by summary judgment granted in favor of Texas Eastern. (TE’s First Ami Compl. at ¶ 104.)

Atwood v. Texas Eastern Transmission Corp.,

filed July 1, 1989, was terminated by a settlement between the parties.

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11.

Texas Eastern’s Notice to its CGL Camers

Texas Eastern first gave formal notice of its negotiations with EPA, and of its “claim” under the various insurance policies, to its third-party liability carriers by letter dated August 19, 1987. (TRSOF ¶414.) After a December 9, 1987 meeting, in Houston, between Texas' Eastern and the Camers failed to resolve important questions concerning Texas Eastern’s insurance claims, F & C filed suit against Texas Eastern, and as is recounted in the “Procedural History,” this multidistrict litigation resulted. According to Texas Eastern, it has continued, at least up to January 1992, to provide the Carriers with copies of all relevant documents regarding the filing and settlement of claims arising out of the PCB contamination.

In sum, Texas Eastern now seeks a declaration that all of its costs incurred to comply with the EPA Consent Decree, the various state decrees and settlements, and the various private third-party actions are covered losses under the CGL insurance policies issued by the Carriers. The Carriers seek a declaration that they are not responsible for these costs. With the undisputed facts in mind, I will now address the issues, which in my view, are at the heart of this insurance coverage dispute.

IX. OCCURRENCE

The Carriers have moved for summary judgment on the issue of whether the PCB contamination constitutes an “occurrence” under any or all of Texas Eastern’s insurance policies. The Carriers contend that Texas Eastern knew or should have known that it was polluting its own property and the property of third parties. Therefore, they argue, there was no “occurrence” pursuant to any of Texas Eastern’s insurance policies because Texas Eastern “intentionally” caused all of the damage for which it is now seeking insurance coverage. Texas Eastern denies this allegation, and responds that since material factual disputes exist as to what Texas Eastern and its employees knew and intended, summary judgment is inappropriate on this issue; For the following reasons, I agree that factual disputes exist which prevent the granting of summary judgment on the “Occurrence” issue.

The Policy Language

The policies issued to Texas Eastern obligate the Carriers, in some cases, to indemnify the insured for, and in others, to pay on behalf of the insured

sums which the insured becomes legally obligated to pay as damages because of bodily injury, personal injury or damage to or destruction of property caused by an

occurrence.

(Ins.’ Mot. Summ. J. — No Occurrence at 2) (emphasis original). The definition of an “occurrence” varies among the policies, but the Carriers admit that all of the policies provide coverage for an “accident,” and none of the policies provide coverage for intentionally caused harmful acts.

Texas Law

It is a fundamental principle of insurance law that insurance contracts should provide coverage only when a loss is fortuitous. R.E. Keeton & A.I. Widiss,

Insurance Law

§ 5.3(a), at 475 (1988). The principle of fortuity is typically reflected in a liability policy’s requirement that the insured’s loss arise from an “occurrence” or an “accident.”

Republic Nat’l Life Ins. Co. v. Heyward,

536 S.W.2d 549 (Tex.1976) and

Argonaut Southwest Ins. Co. v. Maupin,

500 S.W.2d 633 (Tex.1973) establish that Texas law is in accord with these general principles of insurance law. Under Texas law, harm which is the “natural and probable result” of intentional acts is not fortuitous and therefore is not covered by general liability insurance policies.

Maupin ,

the insured removed some “borrow material” (sand and gravel) from the property of a third party under the mistaken belief that he had the property owners’ permission to do so. The property’s true own

*1321

ers subsequently sued the insured for trespassing on the property. The insurance carrier refused to defend the insured in the suit, contending that no covered occurrence had taken place because the suit alleged an intentional act (trespass) and the policies only provided coverage for “accidents” or “occurrences.”

The

Maupin

court concluded that the removal of the sand and gravel was neither an accident nor an occurrence because the damage to the property was the “natural result” of the insured’s intentional acts: “ ‘Where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen and unintended.’ ”

Maupin,

500 S.W.2d at 635 (quoting

Thomason v. United States Fidelity & Guar. Co.,

248 F.2d 417, 419 (5th Cir.1957)). That the insured was unaware of the property’s true owners had no bearing on whether the trespass was caused by “accident.” The insured did what he intended to do when he removed the sand and gravel from the property. The only mistake (or accident) made by the insured concerned the property’s true ownership and the court concluded that the insurance policies did not provide coverage for accidents of that type.

Maupin,

500 S.W.2d at 635 .

Heyward ,

the Texas Supreme Court again addressed the meaning of “accident,” this time in the context of an accidental death rider to a life insurance policy. The court held that

injuries are “accidental” and within the coverage of an insurance policy ... if, from the viewpoint of the insured, the injuries are not the natural and probable consequences of the action or occurrence which produced the injury; or in other words, if the injury could not reasonably be anticipated by Tsic] insured, or would-not ordinarily follow from the action or occurrence which caused the injury.

Heyward,

536 S.W.2d at 557 . It is settled Texas law that injuries which are the “natural and probable consequences” of intentional acts are not fortuitous injuries covered by insurance.

Numerous lower Texas courts are in agreement. For example, in

Baldwin v. Aetna Casualty & Sur. Co.,

750 S.W.2d 919 (Tex.Ct.App.1988) (writ denied), the insured allegedly damaged state roads by intentionally causing its admittedly overweight trucks to be driven on Texas highways. Citing

Maupin ,

the court held that there was no accidental occurrence under the insurance policies because the act of continually sending out the overweight trucks was intentional, although the insured did not necessarily intend to damage the road.

Baldwin,

750 S.W.2d at 921 .

Southern Farm Bureau Casualty Ins. Co. v. Brock,

659 S.W.2d 165 (Tex.Ct.App.1983) (writ refused n.r.e.), the insured intentionally rammed his truck into a second vehicle to prevent the second vehicle’s driver from shooting at someone. The court held that the insured was not entitled to recover for damage sustained by his vehicle under an automobile collision insurance policy covering only “accidental” damage. Citing both

Mau-pin

and

Heytvard,

the court reasoned that the damage was not “accidental” because the insured “knew or should have known that the resulting damage to his vehicle was a natural and probable consequence of his act.”

Brock,

659 S.W.2d at 166-67 .

In addition to establishing the Texas courts’ definition of “accident” and “occurrence,” these cases clearly establish that Texas law determines an insured’s intention “objectively” and not “subjectively.” Texas courts have consistently framed the occurrence issue as “what the insured knew or

should have known.’’ See, e.g., Brock,

659 S.W.2d at 166-67 ;

Sanders v. Prudential Ins. Co.,

697 S.W.2d 80, 81-82 (Tex.Ct.App.1985) (interpreting

Heyward

to establish a “reasonable anticipation standard,” and not a purely subjective one);

Chen v. Metropolitan Ins. & Annuity Co.,

907 F.2d 566, 568 (5th

*1322

Cir.1990).

Texas Eastern contends that the objective test is merely a product of the judicial interpretation of specific language in the standard CGL insurance policy defining an occurrence as “an accident which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.” It is Texas Eastern’s position that courts have developed the objective test by interpreting the policy term “expected.”

See, e.g., New Castle County v. Hartford Accident & Indem. Co.,

685 F.Supp. 1321, 1331 (D.Del.1988). Texas Eastern urges that because the individual policies at issue in this case do not include the terms “unexpected” or “unintended,” the test which should be applied in this case is a subjective one, requiring the Carriers to prove that Texas Eastern subjectively intended to cause the harm for which the Carriers refuse to provide coverage.

Texas Eastern’s contentions do not stand up under scrutiny. Texas Eastern has not offered any Texas precedent which links the inquiry into the insured’s intentions to any particular policy language. In my view, the Texas appellate courts have developed an objective test because it flows naturally from the language in

Heyward

directing a court to inquire whether the injury could “reasonably be anticipated by the insured.”

Heyward,

536 S.W.2d at 557 . The objective test is additionally beneficial because it avoids the difficult task of determining the actual subjective intent of a party. Texas Eastern has not provided any compelling reason to depart from what I believe is settled Texas law and I conclude that Texas Eastern’s intent should be determined objectively.

*1323

Under Texas law, there is no insurance coverage for harm which is the natural and probable consequence of an intentional act. The Carriers argue that the evidence of Texas Eastern’s knowing and intentional pollution of its own property with pipeline liquids establishes undisputed material facts sufficient to grant summary judgment in them favor and against Texas Eastern on the issue of whether any covered “occurrence” happened.

The Applicable Facts

The application of the law to the undisputed facts would be a simple procedure if the parties agreed on the nature of the harm for which Texas Eastern actually seeks coverage. They do not. The Carriers contend that Texas Eastern is attempting to shift costs which it historically should have paid as normal operating expenses to properly store and dispose of its pipeline liquids. Texas Eastern characterizes the costs for which it seeks coverage as the result of the off-site migration of PCBs which Texas Eastern did not know were in the pipeline liquids and did not know had a tendency to migrate in soil or groundwater. The characterization of Texas Eastern’s claim is therefore significant to, and in my view dispositive of, the “Occurrence” issue.

Texas Eastern’s claim for coverage. is predicated, at least in theory, solely on costs incurred to clean up actual damage to third-party property, and on costs incurred to prevent future damage to third-party property, caused by the past, present, and future migration of PCBs from Texas Eastern’s property onto the property of third parties. Indeed, this is the only conceivable claim which would allow Texas Eastern to recover from its third-party liability carriers under any CGL policy. Both parties agree that Texas Eastern has no coverage under its third-party liability policies for damage to its own property which does not, at a minimum, create the possibility of future harm to third-party property. Therefore, for the purposes of this motion, I assume that Texas Eastern is making a claim only for cleanup costs related to actual or potential third-party harm.

To prevail on its motion for summary judgment as to there being no “occurrence,” the Carriers must establish, with undisputed material facts, that Texas Eastern intentionally polluted third-party property or acted in a manner which would naturally and probably lead to the off-site migration of PCBs. Based on the present record, the Carriers have not met their burden of proof.

*1324

Knowledge that the Lubricant was Escaping into the Environment

The Carriers have produced evidence which establishes that Texas Eastern knew that the seals on its compressor station casings were less than perfect. Specifically, Texas Eastern was allegedly aware, beginning in 1958, that seal oil lubricant was escaping the compressors and entering the compressor case where it was exposed to the natural gas in the pipeline.

As I have previously discussed, Texas Eastern also understood that the passage of some amount of lubricant into the compressor case was an inherent design of centrifugal compressors. Texas Eastern’s own internal documents establish that a large amount of lubricating oil was lost between 1958 and 1977. In the Carriers’ view, the loss can only be adequately explained by oil escaping from the compressor and either traveling down the pipeline (and mingling with the other pipeline liquids, large amounts of which were later disposed of in open earthen pits) or being vented out of the compressor vent stacks with the natural gas during the start-up and shut-down of the compressors. Importantly, Texas Eastern does not deny that it was aware of the system’s occasional failures, choosing instead to dispute only the extent to which senior management knew about the frequency and magnitude of the leaks.

In addition, the Carriers note, and Texas Eastern does not dispute, that Texas Eastern was concerned with the compatibility of the seal oil lubricant and epoxies used to coat the

inside

of the pipeline. The Carriers conclude that Texas Eastern must have known that at least some of the lubricant was getting into the pipeline. Texas Eastern has not adequately responded to this contention.

Texas Eastern does not present a significant amount of evidence to refute the Carriers’ allegations. First, Texas Eastern argues that the compressor seal systems were supposed to be “closed systems” with no leakage or “consumption” of lubricant oil. It is clear, however, that numerous employees were working under the opposite assumption. More significantly, other than observing that it would be counterintuitive for a corporation to waste expensive seal oil, Texas Eastern has presented no evidence to establish that the “closed system” assumption was correct.

Second, Texas Eastern employee Walter Woods testified that significant seal oil consumption took , place only during seal failure or malfunction. (Dep. of Walter Woods, TApp. 18 at 295-96.) However, Woods also testified that he realized, no later than 1974, that the compressors did leak seal oil into the cases making them one of the prime consumers of lubricant oil. (Dep. of Walter Woods, App. 670 at 5-6.) Rather than supporting Texas Eastern’s argument, Mr. Woods’s testimony establishes that at least one member of Texas Eastern’s senior management understood that the seal oil did not work perfectly and that a substantial amount of oil was lost to the compressor cases.

In addition, Texas Eastern continues to rely on the fact that its senior management was unaware of the extent of the seal oil failures which occurred, and the amount of oil which ultimately entered into the pipeline. If Texas Eastern’s managers, responsible for running the individual compressor stations, knew that the lubricant oil was escaping down the pipeline, then Texas Eastern will be charged with that knowledge. As I previously stated, Texas Eastern will not be allowed to hide behind the fact that its senior management did not know some of the basic aspects of its compressor stations’ daily operation.

Texas Eastern also contends that most of the lubricant was vaporized by the heat of the turbine engines much like oil in a car engine. Texas Eastern has not, however, offered any evidence to show that the heat of the turbines could possibly be responsible for such a large amount of consumption.

The Carriers contend that once the oil entered into the cases, there were only two paths which it could follow. It could be blown out the vent stacks with the natural gas or it could be discharged down the pipe

*1325

line with the natural gas. Texas Eastern does not seriously contest this fact.

In fact, one of Texas Eastern’s employees, J.C. El-more, wrote in a February 6, 1976 memorandum to Paul Hughen, that Texas Eastern did not actually get rid of its lubricant oil by using it in its compressor stations, but rather distributed the oil throughout the pipeline.

(App. 211 at 010021973; Dep. of James El-more, App. 697 at 166-69.)

Having entered the pipeline, the Carriers contend that Texas Eastern knew or should have known that the lubricant oil intermingled with other pipeline liquids. Texas Eastern responds that it was unaware of PCBs in the pipeline liquids until 1981. The evidence Texas Eastern provides to support this position is the deposition testimony of Texas Eastern employees claiming that they did not know, until 1981, that the oil was mixed in with the other pipeline liquids.

(See, e.g.,

Dep. of Earl Farmer, TApp. 25 at 233; Dep. of Dickran Tefankjian, TApp. 26 at 117-18; internal Texas Eastern memoranda, written after 1981, stating that Texas Eastern did not discover the pipeline liquid contamination until 1981, App. 286 at 1; App. 305 at 1; the Declaration of H. Douglas Church, TApp. 191 at ¶ 6; the testimony before a senate subcommittee of Howard Homeyer, President of Texas Eastern Gas Pipeline Co., that Texas Eastern was- not informed of the pipeline liquid contamination until 1981, App. 2 at 17). This evidence does not refute the Carriers’ evidence (SOF ¶¶ 43-47) that certain Texas Eastern managers

ivere

aware of the contamination.

Thus, Texas Eastern has not created a material dispute on the issue of whether Texas Eastern knew about the fate of the escaped lubricant oil.

Having established that the lubricant oil was knowingly intermingled with other pipeline liquids, the Carriers rely on Texas Eastern’s admission that it discharged pipeline liquids into the unlined earthen pits from 1958 until 1984, and Texas Eastern’s admission that the migration of PCBs began almost immediately after PCBs were placed in the pits, (see Hart Decl, Ex. 47 (Dep. of John Cherry); Ex. 48 at 215-18 (Dep. of Bradford Cushing)), to establish that Texas Eastern intentionally caused all of the harm for which it is now seeking insurance coverage. The Carriers also rely on the testimony of certain Texas Eastern employees who saw cloudy mists coming from the vent stacks indicating that liquid was being vented along with the natural gas, liquid which the Carriers contend was lubricant oil containing PCBs. (TSOF ¶ 120.)

*1326

Texas Eastern responds that it did not believe that the discharge of the liquids into the pits was considered a discharge into the environment. It offers evidence that from the viewpoint of its employees, the pits were considered containers which segregated the liquid from the rest of the environment, (TSOF ¶ 76), and destroyed the liquid either by burning, natural evaporation, or by carting the liquid away for permanent disposal. The Carriers challenge Texas Eastern’s characterization of the pits as containers, and contend that Texas Eastern understates its knowledge of the pits’ shortcomings as containment vessels.

Concerning the viability of using the disposal pits as containment vessels, the Carriers point to significant amounts of evidence establishing that Texas Eastern was aware that the various compressor station sites had a history of discharging liquids from the pits, which occasionally made their way off-site. First, Texas Eastern’s Effluent Discharge Survey indicates that only 8 of the 35 compressor station locations burned pipeline liquids in 1973. (App. 118; App. 119.)

Thus, not all of the liquids were burned in the pits, as Texas Eastern has suggested. Next, the Carriers point to the same Effluent Discharge Survey to establish that some of the compressor stations reported that pipeline liquids were being absorbed into the ground, thus refuting Texas Eastern’s contention that many of the pit sites had been backfilled and were therefore presumed to be safe containers, much like landfill sites.

(Id.)

Finally, the Carriers rely on evidence that over a twenty-five year period of time, Texas Eastern was presented with complaints from neighboring property owners alleging that pipeline liquids from the pits had overflowed onto their property. (SOF ¶¶ 114, 125, 130; Dep. of Roy Wolfe, App. 60 at 340; App. 137.)

Concerning the mists that were seen during the venting of natural gas from the compressor casings, Texas Eastern offers the testimony of a number of employees who claim that they believed the mist to be water or pipeline liquids and not any of the lubri-eating oil. (TSOF ¶ 120.) Texas Eastern also relies on the Declaration of H. Douglas Church as evidence that Texas Eastern did not realize until 1987 that it had regularly vented lubricant oil (containing PCBs) in the regular course of business. (Church Deck, TApp. 191 at ¶ 8.) Finally, Texas Eastern contends that even if its employees knew that it was oil, the employees only saw the mist land on Texas Eastern’s property and not on the property of third parties. (TSOF ¶ 120.)

Although it is Texas Eastern’s position that it never intended to vent lubricant oil along with natural gas during start-up and shut-down of the compressors, various Texas Eastern employees testified that the venting-included numerous instances of misty discharges. (TSOF ¶ 120; Dep. of Eugene Riall, App. 56 at 183-86; Dep. of Walter Woods, App. 670 at 812-14; Dep. of A.B. Jarnagin, App. 658 at 208-09.) Texas Eastern has not created a material dispute that it did not know that lubricant oil was vented along with the natural gas. It is still an issue of dispute, however, as to whether any of the vented oil reasonably should have been expected to migrate onto the property of third parties.

The Carriers respond that even if Texas Eastern is correct about the “containment” function of its pits and its lack of knowledge of the oil content of the mists, Texas Eastern does not adequately address the alternate ways in which the PCBs could and did reach the environment. The Carriers point out that there are drains in the basements of each of the compressor stations which directed leaked lubricant into the environment. (Dep. of Robert Salzer, App. 105 at 248-50.) Texas Eastern has not responded with any evidence to challenge this assertion, except the conclusory statement that Texas Eastern employees did not consider Texas Eastern property to be part of the “general” environment. Texas Eastern’s argument is spurious. I conclude, as a matter of law, that Texas Eastern’s property is part of the “en

*1327

vironment.”

Even if Texas Eastern’s belief was reasonable at the time, it would not provide Texas Eastern with a valid defense because, under Texas law, its CGL policies would not provide insurance coverage for mistakes of this type.

See Maupin,

500 S.W.2d at 635 . All of this does not, however, establish that Texas Eastern understood that the PCBs were migrating off its property and onto third-party property.

After considering all of this evidence, I conclude that the Carriers have established, as a matter of law, that Texas Eastern was aware that liquids were escaping from the pits and contaminating the environment, which included both Texas Eastern’s property and the property owned by third parties. This does not, however, conclusively establish that Texas Eastern understood that the pipeline liquids contained PCBs.

Knoivledge that the Lubricant Contained PCBs

Texas Eastern contends that it was unaware that the seal oil lubricant used in its compressor stations contained PCBs until 1972, at which time Monsanto informed Texas Eastern of this fact. The Carriers have produced very little evidence to refute Texas Eastern’s claim and certainly not enough to grant summary judgment on the ground that Texas Eastern knew prior to 1972 that PCBs were escaping from its own property and migrating onto third-party property.

The Carriers rely on the deposition testimony of Earl Farmer, a Texas Eastern employee, who testified that in 1958 he was aware that the composition of some lubricant manufactured by Monsanto, which he believed to be OS-81, was a “chlorinated poly-phenyl in a phosphate ester mix.” (Dep. of Earl Farmer, App. 19 at 90.) This testimony does not, however, conclusively establish that he knew that the oil Texas Eastern used contained PCBs, or even that any other Texas Eastern official knew or had reason to know that the lubricant manufactured by Monsanto, for use by Texas Eastern, contained PCBs.

The Carriers observe that Texas Eastern employee Walter Woods became aware between 1968 and 1972 that there was growing public concern over PCBs in the environment. Once again, this does not refute Texas Eastern’s claim that it was not aware of the lubricant’s PCB content until 1972. The Carriers also claim that there is some evidence that Walter Woods was looking to replace Turbinol-153 before Monsanto informed Texas Eastern of its decision to discontinue sales of the lubricant oil. The document which the Carriers rely on is a letter written by Woods dated January 7, 1972.

(App. 184.) In the Carriers’ view, Woods recommended that Texas Eastern pursue the approval of a particular lubricant as a replacement for the Turbinol-153 because he was aware that Turbinol was a polychlorinat-ed biphenyl based product.

(Id.)

Although this is some evidence from which a fact finder might infer that Texas Eastern knew about the PCBs in the oil earlier than the 1972 Monsanto decision to discontinue the

*1328

sale of Turbinol-153, it does not conclusively establish that Texas Eastern knew about the PCBs, and it does not identify the specific time between 1958 and 1972 when Texas Eastern allegedly acquired this knowledge.

As a consequence of the Carriers’ inability to establish that Texas Eastern knew that PCBs were in the lubricant prior to 1972, Texas Eastern’s coverage cannot, at least as a matter of law, be invalidated before the January 7, 1972 date, on the basis that there was no “occurrence.”

The Alternative Theory of an Occurrence

Recognizing the difficulty of their task, the Carriers have advanced an alternative theory: Texas Eastern intentionally released pipeline liquids into unlined earthen pits, thereby knowingly polluting the environment with hydrocarbons.

Thus, even if Texas Eastern was unaware of the PCBs in the pipeline liquids, it knew that the liquids themselves were environmental pollutants if they migrated off Texas Eastern’s property. In the Carriers’ view, it is settled Texas law that once an insured intentionally causes harm of any kind (presumably this includes property damage to first or third-party property, personal injury, and bodily injury), all resulting damage is not covered by insurance, because the damage is not fortuitous, regardless of the ultimate scope and magnitude of the harm.

I do not read the Texas cases to require this result. In

National Life and Accident

*1329

Ins. Co. v. Knapp,

430 S.W.2d 84 (Tex.Civ.App.1968) (writ refused n.r.e.), the court decided that the i tent to shoot an intruder in the leg, which ultimately resulted in the intruder’s death, invalidated the shooter’s insurance coverage because “[t]he insurer is not required to show that the actor had the specific intention to inflict the particular character of injury that flowed from the act.”

Id.

at 90 . In other words, the court found that the death of the intruder was an injury of a different magnitude than the result originally intended (mere injury), but was still sufficiently related to the intended harm as to be considered part of the natural and probable consequences of the original act.

Carpenter Plastering Co. v. Puritan Ins. Co.,

No. 3-87-2435-R, 1988 WL 156829 (N.D.Tex. August 23, 1988), the insured was aware of minor cracking and water damage due to defective asbestos wall panels, but the damage was later discovered to be much more extensive. The court reasoned that if the insured was aware of the problem, although unaware of the problem’s full extent, it would be difficult to consider the accident “ ‘unexpected.’ ”

Carpenter Plastering,

1988 WL 156829 , at *5. Once again the court was confronted with a situation where the ultimate harm was reasonably related to the expected harm.

These eases are considerably different from the situation alleged to have existed at Texas Eastern. This is not an example of damage which is merely more extensive or of a different magnitude. PCB damage is ordinarily of a completely different character and caused by a different instrumentality than hydrocarbon damage and is therefore unrelated to any hydrocarbon damage which Texas Eastern might have intentionally caused. Indeed, if Texas Eastern reasonably believed that PCBs did not migrate (although all parties agree that the PCBs did migrate), then it might be entitled to insurance coverage for at least some part of the ultimate cleanup costs, absent some other reason to invalidate coverage.

I reach the same result on the Carriers’ loss in progress argument. The loss in progress principle is intended to invalidate coverage for a loss which the insured understood was ongoing and for which it bought insurance coverage while only the extent of the loss was unknown.

See Carpenter Plastering,

1988 WL 156829 , at *5;

Appalachian Ins. Co. v. Liberty Mut. Ins. Co.,

676 F.2d 56, 63 (3d Cir.1982);

Summers v. Harris,

573 F.2d 869, 872 (5th Cir.1978).

I have previously concluded that Texas Eastern knew that it was causing some property damage by releasing hydrocarbon liquids into the environment (including damage to third-party property) and that Texas Eastern knew it was releasing PCBs onto its own

property. I

have not concluded, however, that, as a matter of law, Texas Eastern knew or should have known that the natural and probable result of this activity was the release of PCBs onto third-party property.

If the loss for which Texas Eastern requested coverage was the damage to its own property, or even the damage to third-party property caused by the hydrocarbon liquids, the loss in progress principle would probably apply. However, since it is the damage caused by the PCB migration for which Texas Eastern seeks coverage, the loss in progress principle is inapplicable for the purposes of this motion.

The Carriers have failed to establish by undisputed facts of record that all of Texas Eastern’s losses were not the result of an “occurrence” within the meaning of the CGL policies. Texas Eastern has likewise failed to establish by undisputed facts of record that any of its losses were the result of an “occurrence” within the coverage of any of its CGL policies. For these reasons, the Carriers’ motion for summary judgment on the “Occurrence” issue will be denied.

X. DAMAGES

Both parties have moved for summary judgment on the issue of whether Texas Eastern’s losses are recoverable as “damages” under the specific language of its insurance policies. The Carriers contend that the costs of complying with the EPA Consent Decree and the various state decrees are not recoverable as “damages” which result from “property damage” or “bodily injury.” Texas Eastern contends that these costs are

*1330

recoverable.

For the reasons that follow, I conclude that, under Texas law, the remediation costs and the EPA penalties are potentially recoverable as “damages,” and the civil penalties paid to Pennsylvania and New Jersey are not.

The insurance policies issued to Texas Eastern by the Carriers generally provide coverage for “damages because of bodily injury or property damage.” The Carriers contend that because the government claims sought only injunctive relief and not monetary compensation, the money expended by Texas Eastern to comply with the injunctions is not recoverable as “damages,” which unambiguously refers to monetary relief. Alternatively, the Carriers contend that the government orders requiring expenditures by Texas Eastern are based not on existing or threatened property damage or bodily injury, but rather on regulatory violations, and are therefore not recoverable as “damages” because of “property damage” or “bodily injury.”

Texas Eastern responds that costs incurred to satisfy the injunctions are recoverable as “damages” because the term “damages,” as it appears in the various insurance policies, is ambiguous and reasonably can be interpreted to include them. Additionally, Texas Eastern contends that the primary focus of the government actions was both actual and imminent property damage and a danger to the environment which would likely have caused bodily injury. As such, Texas Eastern claims that the costs are recoverable under its insurance policies.

Equitable Relief as Damages

The question of whether the costs incurred in complying with an injunctive order are “damages” is not a novel one. As with many of the issues raised in this litigation, numerous courts have reached different conclusions. Three circuit courts have reached the conclusion that these costs are not recoverable as “damages.”

See, e.g., Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co. (NEPACCO),

842 F.2d 977 , 987 (8th Cir.)

(en banc), cert. denied sub nom. Missouri v. Continental Ins. Cos.,

488 U.S. 821 , 109 S.Ct. 66 , 102 L.Ed.2d 43 (1988) (Missouri law);

Maryland Casualty Co. v. Armco, Inc.,

822 F.2d 1348, 1354 (4th Cir.1987), ce

rt. denied,

484 U.S. 1008 , 108 S.Ct. 703 , 98 L.Ed.2d 654 (1988) (Maryland law);

A. Johnson & Co., Inc. v. Aetna Casualty & Sur. Co.,

933 F.2d 66, 69 (1st Cir.1991) (Maine law).

However, at least four circuit courts have recently reached the opposite conclusion.

See, e.g., New Castle County v. Hartford Accident & Indem. Co.,

933 F.2d 1162 , 1190-91 (3d Cir.1991) (Delaware law);

Independent Petrochemical Corp. v. Aetna Casualty & Sur. Co.

(IPC), 944 F.2d 940, 947 (D.C.Cir.1991),

cert. denied sub nom. Certain Underwriters at Lloyd’s, London v. Independent Petrochemical Corp.,

— U.S.-, 112 S.Ct. 1777 , 118 L.Ed.2d 435 (1992) (Missouri law);

Aetna Casualty & Surety Co. v. Pintlar Corp.,

948 F.2d 1507, 1513 (9th Cir.1991) (Idaho law);

Avondale Indus., Inc. v. Travelers Indem. Co.,

887 F.2d 1200 , 1207 (2d Cir.1989),

cert. denied,

496 U.S. 906 , 110 S.Ct. 2588 , 110 L.Ed.2d 269 (1990) (New York law).

The parties have found one Texas state court decision which addresses the question of whether, in the context of an insurance policy, an injunction can constitute “damages.” In

Feed Store, Inc. v. Reliance Ins. Co.,

774 S.W.2d 73 (Tex.Ct.App.1989) (writ denied), the appellate court concluded that it could not. In

Feed Store,

the issue was whether an insurer was obligated to defend an insured against a trademark infringement suit which requested only prospective injunc-tive relief. The insurer had refused to defend on the ground that the CGL policy only obligated it to defend “any suit against the insured seeking damages,” and the plaintiff in the underlying suit sought only injunctive relief.

*1331

The appellate court affirmed the lower court’s judgment that the insurance company had no duty to defend against the suit. Specifically, the appellate court held that the underlying plaintiffs failure to seek “even one dollar in damages” was compelling, if not conclusive, evidence that the suit was for injunctive relief only, and not for damages.

Feed Store,

774 S.W.2d at 74 . The court reasoned that while the allegations underlying the suit could have supported a claim for damages, the controlling factor was what the complaint actually demanded.

Id.

at 75 .

Although the opinion provides some guidance in predicting how the Texas Supreme Court would decide this issue, it is important to highlight the issues which the opinion did not consider. First, the court did not determine whether, under Texas law, the term “damages” was ambiguous or unambiguous. The

Feed Store

court explicitly stated that the parties agreed that the policy was unambiguous and, thus, the settled principle of Texas law requiring resolution of ambiguities in favor of the insured was “quite immaterial to [its] decision.... ”

Feed Store,

774 S.W.2d at 75 . Second, the court was not faced with the question of whether an insurance company is obligated to defend and indemnify an insured in an action seeking injunctive relief which requires the insured to expend significant amounts of money in order to comply, as is the case in most environmental litigation. It is therefore helpful to review the decisions of other jurisdictions to predict how the Texas Supreme Court would decide the issue.

Armco,

an insurer brought a declaratory judgment action to determine whether it had an obligation to indemnify its insured for liability pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act

(CERCLA) for response costs and injunctive relief. Applying Maryland law, the Fourth Circuit reasoned that “ ‘[d]amages,’ as distinguished from claims for injunctive or restitutionary relief, includes ‘only payments to third persons when those persons have a legal claim for damages.’ ”

Armco,

822 F.2d at 1352 (quoting

Aetna Casualty & Sur. Co. v. Hanna,

224 F.2d 499, 503 (5th Cir.1955)). The court reasoned that this “somewhat narrow, technical definition of damages” was necessary because interpreting “damages” to include in-junctive relief would render the term “mere surplusage, because any obligation to pay would be covered” by the contract.

Armco,

822 F.2d at 1352 . Because the suit against the insured sought injunctive relief,

Annco

concluded that the costs of compliance were not covered by the CGL policy.

NEPACCO,

the Eighth Circuit, sitting

en banc,

adopted a similar definition of “damages” under Missouri law and concluded that the insurer was not required to cover liability arising out of an EPA CERCLA action. The court conceded that “damages” may be an ambiguous term from the viewpoint of a lay insured, but concluded that the term is not ambiguous in the insurance context, and that the “plain meaning of the term ‘damages’ ... refers to legal damages and does not include equitable monetary relief.”

NEPACCO,

842 F.2d at 985.

By contrast, the Third Circuit reached the opposite result in

New Castle County,

where the court reasoned that the question of whether cleanup costs incurred pursuant to CERCLA and the Resource Conservation and Recovery Act

(RCRA) are “damages” is correctly answered by determining whether “damages” should receive a “legal, technical meaning” or a “plain, ordinary meaning.”

New Castle County,

933 F.2d at 1188 . The court reviewed

Armco, NEPACCO,

and various other decisions holding that injunctive relief was not “damages” and concluded that those decisions rested on the courts’ application of a “technical meaning” which excluded equitable relief from the definition of “dam

*1332

ages.” Delaware law required that the language in an insurance policy be given its plain, ordinary meaning and, if an ambiguity existed, it should be interpreted against the insurer.

New Castle County,

933 F.2d at 1188-89 . Thus, the court concluded that in-junctive relief was insurable under the policies because “damages” could reasonably be interpreted to include such costs.

IPC

reached a similar conclusion. In

IPC,

the Court of Appeals for the District of Columbia Circuit faced the identical issue decided by the Eighth Circuit in

NEPACCO: Are

response costs recoverable as “damages” under Missouri law? The court recognized that the Eighth Circuit was the “home” circuit for Missouri and was entitled to a degree of deference concerning the interpretation of Missouri law. Nevertheless,

IPC

concluded that under Missouri law cleanup costs were recoverable as “damages” under a liability insurance policy.

IPC,

944 F.2d at 944 ^17.

The

IPC

court agreed with the

NEPACCO

court’s conclusion that under Missouri law the language of an insurance policy is to be given the meaning that would ordinarily be understood by the lay person who bought and paid for the policy.

IPC,

944 F.2d at 945 . In the court’s view, however,

NEPAC-CO

failed to apply this important principle of law,.because it accepted a definition of “damages” used “‘by astute insurance specialists or perspicacious counsel’” rather than one understood by the lay insured.

Id.

at 945 (citation omitted). NEPACCO’s reliance on the “ ‘legal, technical meaning,’ ”

Id.

(quoting

Arinco,

822 F.2d at 1352), violated Missouri’s principles of interpretation and led the court to reach the wrong result. As in

New Castle County,

IPC’s conclusion rests on its interpretation of the plain, ordinary meaning of the contract rather than on a purely technical definition of “damages.”

Texas Eastern correctly observes that Texas law concerning the interpretation of terms in an insurance policy is analogous to Delaware law (and Missouri law). Texas courts do not permit policy terms to be confined to technical meanings unless they have been specifically so defined in the policy.

See Gonzalez v. Mission Am. Ins. Co.,

795 S.W.2d 734, 736 (Tex.1990);

United States Ins. Co. v. Boyer,

153 Tex. 415 , 269 S.W.2d 340, 341 (1954) (“[T]he court in construing [an insurance] policy determines the everyday meaning of the words to the general public — the meaning of the words ‘in common parlance’ — ‘the usual and popular understanding of the term.’ ”) (citations omitted);

Gamson,

765 S.W.2d at 538 .

As the Third Circuit recognized, resolution of the issue rests primarily on whether the term “damages” is ambiguous. The Carriers rely exclusively on

Feed Store

for the proposition that the Texas Supreme Court would conclude that, under Texas law, the term “damages” is unambiguous and refers only to monetary relief, and not to injunctive relief.

Feed Store,

however, did not consider the ambiguity question. I conclude that the Texas Supreme Court would not follow

Feed Store

and would instead conclude that the term “damages” is ambiguous and can reasonably be interpreted to cover costs incurred to satisfy the Federal and State Consent Decrees at issue in this case.

After reading

Feed Store,

I am not persuaded that the court was faced with the identical issue that is presented in this case. The complaint at issue in

Feed Store

clearly requested only traditional injunctive relief. The court reviewed the complaint and expressly found that the plaintiff had not alleged that it had suffered, or that it was seeking, monetary damages. Significantly, the opinion did not discuss whether the insured was obligated to take corrective action

*1333

and whether such an expenditure would constitute “damages.”

In my view, when a court issues an injunction, requiring a party to act or to refrain from acting, the average individual believes that any of the costs associated with compliance constitute “damages.” The court in

NEPACCO

expressly recognized this fact.

See NEPACCO,

842 F.2d at 985. Because Texas law requires that insurance terms be given their plain, ordinary meaning from the standpoint of the insured, these costs, although incurred as a result of an injunctive order, should be recoverable.

An injunction issued pursuant to TSCA, RCRA or CFRCLA is different in kind from injunctions issued in other contexts. Ordinarily, a court is not free to provide injunc-tive relief unless a party has established that it lacks an adequate remedy at law. An adequate legal remedy ordinarily takes the form of monetary damages, which would clearly be covered by insurance. In the environmental context, EPA is authorized to seek injunctive relief regardless of the adequacy of other legally sufficient remedies. These injunctions ordinarily require a party to incur large costs to remediate existing environmental damage. This power blurs the line between what might traditionally be considered damages (a remedy at law) and injunc-tive relief (a remedy in equity).

This distinction does not rely, however, on EPA’s ability to choose between its various remedies. A number of courts have relied on the “fortuity” of EPA either (1) choosing to clean up environmental damage and sue the responsible parties for the costs expended by the government; or (2) choosing to sue the responsible party for a mandatory injunction to clean up the pollution in the first instance, to hold that costs expended to comply with injunctions are recoverable as “damages.”

See, e.g., United States Aviex Co. v. Travelers Ins. Co.,

125 Mich.App. 579 , 336 N.W.2d 838, 843 (1983). Other courts have relied on the fortuity of EPA requiring a cleanup rather than suing for “environmental damages.” While these reasons may add additional support for concluding that “damages” is broad enough to include Texas Eastern’s response costs, in my view, the most relevant distinction is based on the injunction’s ultimate effect on the insured.

I therefore reject the Carriers’ argument that because the EPA Consent Decree sounds primarily in TSCA and RCRA, as opposed to CERCLA

, Texas Eastern’s cleanup costs are per

unrecoverable as “damages.”

The Carriers believe that EPA’s inability to remediate environmental harm and sue to recover the cost under TSCA and RCRA requires a different result regarding the insurability of an insured’s costs of compliance with the injunction. In the Carriers’ view, those courts holding that CERCLA response costs are recoverable as “damages,” rely on the fact that EPA might have decided to clean up the contamination and sue for damages, and refused to deny coverage because of the fortuity of EPA’s choice. The Carriers conclude that under TSCA and RCRA, the fortuity risk is nonexistent, and that in this case, EPA could not have proceeded under CERCLA because it

*1334

never made a finding that an “imminent and substantial danger to health and the environment” existed at the Texas Eastern sites.

These arguments are all beside the point, because I have not grounded my decision on mere fortuity. As the

Feed Store

court explained, the inquiry is not what might have been alleged but what was in fact alleged. No court should engage in a

post hoc

analysis of whether a party might have brought a particular action and I refuse to speculate about whether EPA might have brought an action against Texas Eastern based on grounds other than those stated in the EPA Complaint, or whether EPA might have proceeded under an entirely different statute.

In the present litigation, I am concerned with the issue of whether, under Texas law, the term “damages” is broad enough to include the costs incurred by Texas Eastern in complying with the EPA Consent Decree and various other decrees and settlements. I conclude that an insured’s cost of complying with either a demand or an injunction to remediate property damage or bodily injury is the same whether issued under CERCLA, TSCA, or RCRA, and is therefore recoverable as “damages” under Texas Eastern’s insurance policies.

Compliance Costs as Property and/or Bodily Injury Damage

The second issue raised by the parties is whether the costs incurred by Texas Eastern are losses due to “property damage” or “bodily injury.” The Carriers contend that the EPA Complaint and the resulting Consent Decree merely seek to compel Texas Eastern to come into compliance with various environmental regulations and to remediate damage which has resulted from Texas Eastern’s prior violation of those regulations. As such, the Carriers argue that Texas Eastern’s costs are not recoverable because the costs of complying with federal and state regulations, and the costs of administering prophylactic measures to ensure future compliance, are not insurable.

Texas Eastern apparently concedes that the costs incurred merely to stay in compliance with regulations are not recoverable from the Carriers. Additionally, Texas Eastern must concede that any costs of remediat-ing property damage which cannot be significantly linked to third-parly harm are not recoverable because its CGL insurance policies only cover harm to third parties. It is Texas Eastern’s view, however, that a large percentage of its costs were incurred primarily to remedy and prevent third-party property damage. Although I am doubtful of Texas Eastern’s ability to ultimately establish this relationship, I conclude that a factual dispute exists on this issue requiring that both the Camers’ motion for summary judgment and Texas Eastern’s motion for summary judgment be denied on this point.

Because factual disputes exist as to whether some of Texas Eastern’s costs were or will be incurred to remediate third-party property damage and to prevent future harm to third-party property and third parties generally, I reject the Carriers’ contention that the mere fact that the majority of Texas Eastern’s expenses were incurred pursuant to TSCA and RCRA establishes that the costs are not recoverable “damages.” The Carriers have, however, raised serious issues concerning which of Texas Eastern’s costs are potentially recoverable and which are not.

Texas Eastern cannot seek recovery of costs incurred solely to comply with federal or state environmental legislation. Even those courts which have allowed the recovery of CERCLA response costs under CGL policies have recognized that liability policies do not provide coverage for the costs of statutory and regulatory compliance. For example, in

Minnesota Mining & Mfg. Co. v. Travelers Indem. Co.,

457 N.W.2d 175 (Minn.1990), the Minnesota Supreme Court qualified its holding that CERCLA-imposed cleanup costs were recoverable by observing:

We are not “opening the door,” as the insurers assert, to insurance coverage of all business expenses which are mandated by the government.... These types of costs are not covered by the insurance policies simply because no property damage has occurred.

Id.

at 184 .

Indeed, Texas Eastern has admitted that it is not seeking coverage for those expenses

*1335

which cannot be linked to property damage or bodily injury. Thus, the costs of complying with (1) TSCA regulations regarding the proper labeling of PCB containers; (2) TSCA regulations requiring the maintenance of adequate records of PCB storage and disposal activities; (3) RCRA regulations requiring notification to EPA that Texas Eastern was managing hazardous waste; (4) RCRA regulations requiring Texas Eastern to obtain permits; and (5) RCRA regulations requiring Texas Eastern to comply with various record keeping and safety requirements are not recoverable.

Although I have previously concluded that the mere fact that EPA’s Complaint was grounded on regulatory violations does not automatically preclude recovery of costs associated with compliance, it does make it more difficult for the insured to prove that its costs were incurred primarily because of property damage as opposed to mere regulatory violations. For example, the Carriers persuasively argue that many of the regulatory violations alleged in the EPA Complaint could have resulted in a mandatory injunction regardless of whether any property damage had in fact taken place. It would be Texas Eastern’s responsibility to establish that each cost for which it seeks insurance coverage was incurred primarily because of property damage, bodily injury, or both. It would also be Texas Eastern’s burden to establish that its costs were incurred not to implement prophylactic measures to prevent future regulatory violations, but only to prevent actual and imminent harm to third-party property.

In short, the fact that I have decided to deny summary judgment on this issue should not be viewed as a positive review of the merits of Texas Eastern’s claims. It merely signals that Texas Eastern has offered sufficient evidence that would allow it to go forward and attempt to prove that at least some of its claims are recoverable, although it is my view that Texas Eastern would face a Herculean task in this regard.

Civil Fines and Penalties

One category of costs which Texas Eastern seeks to recover merits special attention: civil fines and penalties.

To date, Texas Eastern has agreed to pay a $15 million penalty to EPA, a $5.3 million penalty to the PaDER, and an $850,000 penalty to the New Jersey Department of Environmental Protection (NJDEP) for violations arising under federal and state environmental laws. I conclude as a matter of law that the civil penalties assessed by PaDER and NJDEP are not recoverable as “damages”; however, the EPA penalty would be recoverable as damages under Texas Eastern’s insurance policies.

Choice of Law

— Fines

and Penalties

Although the parties agree that Texas law applies to the majority of the issues in this litigation, the Carriers contend that the question of insurability of civil penalties should be determined pursuant to the law of the issuing jurisdiction. Therefore, the Carriers argue that the insurability of the EPA fine would be decided under the federal common law of insurance, and the insurability of the Pennsylvania and New Jersey fines would be decided under Pennsylvania and New Jersey substantive law, respectively. Texas Eastern responds that Texas law should be applied to decide the entire “Damages” issue and, pursuant to Texas law, civil penalties are insurable as “damages” to the insured. In order to decide this issue, it is necessary to address the choice of law principles followed by both Texas and Pennsylvania.

The parties agree that I must apply the choice of law principles from the two forum states originally involved in this action: Texas and Pennsylvania.

See generally, In re San Juan Dupont Plaza Hotel Fire Litig.,

745 F.Supp. 79, 81 (D.P.R.1990);

In re Air Crash Disaster at Stapleton Int’l Airport,

*1336

720 F.Supp. 1445, 1448 (D.Colo.1988).

In choice of law cases, Texas courts will apply “the law of the state with the most significant relationship to the particular substantive is-sue_”

Duncan v. Cessna Aircraft Co.,

665 S.W.2d 414, 421 (Tex.1984);

W.R. Grace & Co. v. Continental Casualty Co.,

896 F.2d 865, 873 (5th Cir.1990). The test is set forth in sections 6 and 188 of

Restatement (Second) of Conflict of Laws.

Pennsylvania uses a modified version of the

Restatement (Second)

approach, which combines a relationship and interest analysis.

Compagnie des Bauxites de Guinee v. Argonaut-Midwest Ins. Co.,

880 F.2d 685 , 688 & n. 9 (3d Cir.1989) (citing

Griffith v. United Air Lines, Inc.,

416 Pa. 1 , 203 A.2d 796 (1964)). This test “ ‘takes into account both the grouping of contacts [listed in the Restatement (Second) of Conflict of Laws § 188(2) (1971) ] with the various concerned jurisdictions and the interests and policies that may be validly asserted by each jurisdiction.’ ”

Compagnie des Bauxites,

880 F.2d at 689

(quoting Melville v. American Home Assurance Co.,

584 F.2d 1306, 1311 (3d Cir.1978)).

See also General Star Nat’l Ins. Co. v. Liberty Mut. Ins. Co.,

960 F.2d 377, 379 (3d Cir.1992) (citing

Cipolla v. Shaposka,

439 Pa. 563 , 267 A.2d 854, 856 (1970) (“Pennsylvania rule requires examination of the significant contacts as they relate to the states’ public policies underlying the issue in question.”))

Since 1961, Texas Eastern’s principal place of business has been Houston, Texas.

After moving its headquarters to Texas, Texas Eastern routinely sent its insurance applications and paid its insurance premiums from Houston. Additionally, Texas Eastern appears to have co-brokered the acquisition of its insurance policies through John L. Wort-ham & Son and Querbes & Nelson, Inc., headquartered in Houston and Shreveport

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respectively. Notice of the claims at issue in this case was made from Texas Eastern’s headquarters in Houston.

Republic Insurance Company, Highlands Insurance Company, and Ranger Insurance Company have their principal places of business in Texas. (Ins.’ Mot.Summ.J. — Choice of Law at 10.) Although the other insurance carriers have their principal places of business elsewhere, the majority of them do business in the State of Texas. (TE’s Mem. in Opp’n Summ.J. — Civil Penalties at 12 n. 15.)

The environmental damage took place in as many as fourteen states including Texas, Pennsylvania, and New Jersey. Finally, to date, penalties have been imposed by EPA, PaDER and NJDEP.

The parties agree that on all other issues, no other state has a more significant contact to the present litigation than Texas, based largely on the fact that Texas Eastern is headquartered in Texas, environmental damage occurred in Texas, and many of the Carriers do business in Texas. The relevant question, therefore, is whether the nature of the civil penalties creates a significant relationship to the assessing state which overrides the Texas contacts.

The first step in the choice of law analysis is to determine whether the substantive laws of the states which have a possible interest in a particular issue would reach a different result. If the answer is yes, then I must determine whether the various choice of law analyses choose different substantive law. Again, if the answer is yes, I must choose between the competing choice of law analyses.

On the issue of civil penalties, the states which have a significant interest are Texas, Pennsylvania, and New Jersey.

Only New Jersey has decided this issue, concluding that civil penalties are not insurable as a matter of public policy.

Township of Gloucester v. Maryland Casualty Co.,

668 F.Supp. 394, 401-02 (D.N.J.1987) (environmental fines and penalties are not viewed as “damages” and are thus uninsurable);

Blair v. Anik Liquors,

210 N.J.Super. 636 , 510 A.2d 314, 318 (Law Div.1986) (indemnification for fines resulting from violation of Alcoholic Beverage Control laws violates public policy).

Neither Pennsylvania nor Texas has decided whether civil penalties are insurable. The best analogy provided by the parties is to the insurability of punitive damages. Under Pennsylvania law, punitive damage awards are not insurable because insurability would violate public policy.

Martin v. Johns-Manville Corp.,

508 Pa. 154 , 494 A.2d 1088, 1096 (1985). Under Texas law, punitive damages are insurable, at least for conduct which merely rises to the level'of gross negligence.

American Home Assurance Co. v. Safway Steel Products Co.,

743 S.W.2d 693, 704-05 (Tex.Ct.App.1987) (writ denied). Therefore, a conflict appears to exist between the substantive law of the three states with potential interests in this issue.

Having found a conflict in the substantive law, I will apply the choice of law principles of Texas and Pennsylvania and determine whether they would select the same substantive law to be applied. Under Texas choice of law principles (following

Restatement (Second) of Conflict ofLaivs

§ 6(1)), I must first

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look at Texas Insurance Code article 21.42 which states a preference for applying Texas law to an insurance contract involving a Texas citizen and an insurance company that does business in Texas.

See

Tex.Ins.Code Ann. art. 21.42. For the purposes of this discussion, I assume that Texas Eastern, by virtue of its headquarters in Houston, Texas, is a Texas citizen pursuant to article 21.42. As I have previously indicated, most of the insurance companies involved in this litigation do business in Texas. Thus, it would appear that Texas choice of law rules would apply Texas substantive law to this issue.

The Carriers correctly observe, however, that the statute’s application is limited to situations where the article would not give extraterritorial effect to Texas law.

See generally, W.R. Grace & Co.,

896 F.2d at 883 . In my view, the Texas Supreme Court would conclude that relying on article 21.42 to apply Texas law to the issue of civil penalties imposed by other states, or to civil penalties imposed by EPA, would be constitutionally permissible, in light of the fact that this litigation involves a dispute between a Texas insured and insurers who have significant contacts with Texas. Therefore, under Texas choice of law principles, Texas substantive law applies.

Under Pennsylvania’s choice of law principles, I must balance the various state interests with the public policies underlying those interests. In my view, Texas’s interest is making certain that Texas insureds receive all of the benefits for which they contract with insurance carriers. This includes insurance coverage for civil penalties. Pennsylvania’s interest is its ability to effectively enforce Pennsylvania laws.

There is little doubt that limiting the insurability of civil penalties does affect Texas’s policy concerns. It may well be that Texas Eastern believed it was contracting for coverage of civil penalties that it incurred as a result of operating its natural gas pipeline. However, from Pennsylvania’s .standpoint, the inability to enforce its laws by the assessment of civil penalties may well hamper its ability to force compliance without resorting to criminal or other more severe sanctions. It would appear that a state can hardly have a more significant contact with the issue of a fine’s insurability than in a situation where a foreign corporation doing business within its borders violates its laws, damages its property and natural resources, and is therefore fined as a punishment for the violation, and as a future inducement to comply with the state’s laws. Combined with a public policy against the indemnification of liability incurred as punishment, I conclude that under Pennsylvania’s choice of law rules, Pennsylvania’s substantive law applies. For the same reasons, New Jersey substantive law would apply to the insurability of the New Jersey fines.

Because the choice of law principles lead to divergent choices of substantive law, I must choose between the two.

See e.g., Dupont Plaza Hotel Fire,

745 F.Supp. at 87-88 . Although I have not found explicit guidance on this point, I will apply federal common law to determine whether to use Texas choice of law principles or Pennsylvania choice of law principles. Federal common law follows the

Restatement (Second) of Conflict of Laws. Schoenberg v. Exportadora de Sal.

S.A.

de C.V.,

930 F.2d 777, 782 (9th Cir.1991). Based on Pennsylvania’s need to enforce its laws, I believe that Pennsylvania has the most significant contacts concerning the “Fines and Penalties” issue and I will therefore apply Pennsylvania choice of law principles.

New Jersey Fines

As previously explained, under Pennsylvania choice of law principles, the penalty paid to New Jersey would be governed by New Jersey substantive law. As such, they are not insurable, and Texas Eastern would not be entitled to recover these losses from its insurance earners.

Pennsylvania Fines

Under Pennsylvania choice of law principles, the Pennsylvania penalties would be governed by Pennsylvania law. Relying on Pennsylvania’s refusal to permit insurance against punitive damages, I conclude that Pennsylvania would likewise refuse to permit insurance against civil penalties assessed for

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the violation of Pennsylvania’s environmental laws.

EPA Fines

Under Pennsylvania choice of law principles, the EPA penalty would be controlled by the substantive law of Texas.

No federal common law of insurance exists, and as between Texas and Pennsylvania, Texas has the most significant relationship to the insurability of penalties because of Texas Eastern’s contacts with Texas, and because of the lack of any significant Pennsylvania public policy regarding the insurance of federally assessed civil penalties. Relying on Texas law which enforces insurance contracts for punitive damages, I conclude that Texas law would permit insurance against civil penalties.

One final issue remains concerning Texas Eastern’s ability to

recover civil

penalties under Texas law. I have previously determined that the term “damages” can reasonably be interpreted to mean money expended under sanction of law to redress harm to property or persons.

(See supra,

p. 1333 note 56.) Although this definition does not necessarily mean that a reasonable person would conclude that penalties are covered as “damages,”

see IPC,

944 F.2d at 947 , it is certainly reasonable that an ordinary person could. I conclude, therefore, that civil penalties can be recovered as “damages” under Texas law. However, as with all of Texas Eastern’s claims, Texas Eastern would have the burden of establishing which, if any, of these penalties were imposed primarily to redress harm to third-party property before the Carriers would be obligated to reimburse Texas Eastern.

XI. OWNED PROPERTY EXCLUSION

Both the Carriers and Texas Eastern have moved for summary judgment based on the owned property exclusion.

Although the precise wording of the owned property exclusion varies, the following provision is representative of the exclusion as it appears in many of the insurance policies:

This policy does not apply

to property damage to:

(1) property owned'or occupied by or rented to the Insured,

(2) property used by the Insured, or

(3) property in the care, custody or control of the Insured as to which the Insured is for any purpose exercising physical control; but parts 2 and 3 of this exclusion do not apply with respect to liability under a written sidetrack agreement and part 3 of this exclusion does not apply with respect to property damage (other than to elevators) arising out of the use of an elevator at premises owned by, rented to or controlled by the Named Insured....

Other policies simply exclude coverage for damage to property owned by the insured, or for loss of, or damage to, or destruction of, property owned by the named insured.

Texas Eastern argues that although the owned property exclusion precludes coverage for damage to its own property, the exclusion should not apply to the cost of remediation work on its own property that is aimed at preventing actual and continuing harm to third-party property, and anticipated future harm to third-party property.

Specifically, Texas Eastern contends that the majority of the remediation work in which it is engaged is aimed at stopping the migration of PCB contamination from Texas Eastern’s property to third-party property through surface soil, subsurface soil, and groundwater migration. Texas Eastern relies on case law (from jurisdictions other than

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Texas) and the various consent orders and decrees into which it has entered to support its assertion.

The Carriers contend that the owned property exclusion is unambiguous, and in accordance with Texas law, must be given its plain, ordinary meaning. In the Carriers’ view, any damage to property owned, rented, or controlled by Texas Eastern is not covered by any of the insurance policies which contain an owned property exclusion. In the alternative, the Carriers urge that Texas Eastern be required to prove that any costs for which it seeks insurance coverage were incurred to remediate actual third-party property damage or to prevent future third-party harm which is imminent, immediate, and substantial.

Neither Texas Eastern nor the Carriers have cited a Texas state court decision, or any decision applying Texas law, which has considered the applicability of an owned property exclusion to a situation analogous to the present litigation. However, Texas Eastern has cited numerous cases from other jurisdictions which have concluded that the owned property exclusion does not bar an insured’s recovery for cleanup work on its own property when the focus of the cleanup was the prevention of third-party harm.

For example, in

New Castle County v. Continental Casualty Co.,

725 F.Supp. 800 (D.Del.1989),

aff'd in part and rev’d in part on other grounds, New Castle County v. Hartford Accident & Indem. Co.,

933 F.2d 1162 (3d Cir.1991), the district court refused to deny coverage for New Castle County’s cleanup costs of the Tybouts Corner landfill on the basis of an owned property exclusion. The court noted that the primary focus of the three lawsuits against the County (one by EPA, and two by citizens living near the landfill site) was the release and continuing release of hazardous substances from the landfill to other properties and the surrounding drinking water.

New Castle County,

725 F.Supp. at 816 . On this basis, the court concluded that the property damage at issue was “off-site property damage” not owned, rented, or controlled by New Castle County. Because there was a continuing threat of off-site property damage if the contamination on the insured’s property was not remediated, the court held that the owned property exclusion did not bar coverage of the County’s claims.

Id.

United States v. Conservation Chem. Co.,

653 F.Supp. 152 (W.D.Mo.1986) the district court refused to exclude coverage based on an owned property exclusion for remediation costs incurred by the insured, Conservation Chemical Company (CCC), for cleaning up an industrial chemical waste disposal facility located on its own property. The costs were incurred pursuant to a complaint filed by EPA alleging that hazardous wastes which had been disposed of at the site were migrating from the site and posed a danger to public health and the environment.

Conservation Chem.,

653 F.Supp. at 162 .

The court concluded that “coverage of the abatement remedy on the CCC site designed to prevent damage or further damage to third parties cannot be denied on the basis of the owned property exclusion.”

Conservation Chemical,

653 F.Supp. at 200 . The court noted, however, that this does not include elements of the CCC claim which relate to a remedy for damage confined to the CCC site itself. “To the extent that all or a portion of the remedy relates solely to damage to the CCC site itself and not to prevent off-site contamination, the ‘Owned Property Exclusion’ clearly applies, and such damage is not within the coverage provided.”

Id.

The court left the determination of which costs were included and which were not for trial.

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Consolidated Rail Corp. v. Certain Underwriters at Lloyds,

No. 84-2609, 1986 WL 6547 (E.D.Pa. June 5, 1986),

aff'd,

853 F.2d 917 (3d Cir.1988), a Consolidated Rail Corp. (Conrail) train derailed in Pennsylvania, spilling 32,000 gallons of chloroform onto the ground at and surrounding the accident site. The chloroform liquid contaminated groundwater, storm sewers, and a nearby creek. While concluding that the governmentally mandated cleanup was clearly aimed at the prevention and mitigation of third-party harm, and thereby constituted “damages” as defined by Conrail’s excess insurance policies, the district court permitted Conrail to recover its cleanup costs despite the fact that some of Conrail’s expenditures were for cleanup of ConraiTs own property, and Conrail’s insurance policies explicitly excluded coverage for damage to property “owned by the named insured.”

Consolidated Rail,

1986 WL 6547 , at *4-5.

Township of Gloucester v. Maryland Casualty Co.,

668 F.Supp. 394 (D.N.J.1987), the district court explained why it did not consider an owned property exclusion a bar to coverage of a cleanup which included property owned by the insured, Gloucester Township. The court reasoned that there was an ambiguity in the language of the exclusion concerning whether the exclusion precluded coverage of costs which were linked to both damage to third-party property and the repair of

property

owned by the insured.

Township of Gloucester,

668 F.Supp. at 400 . The court concluded that because ambiguities should be interpreted against the insurer, and because the cleanup costs were “inextricably linked” to the damage claims of a third-party, the owned property exclusion did not preclude coverage of those costs.

Id.

Relying on these and other cases, Texas Eastern argues that the owned property exclusion in its insurance policies should not apply to the cleanup costs it has incurred, and will continue to incur, pursuant to the various formally concluded consent orders and agreements. Texas Eastern admits, however, that the Federal Consent Decree does not require it to remediate any off-site property. According to the terms of the Decree, Texas Eastern must remediate surface soil contamination, off-site equipment areas (controlled by Texas Eastern), and monitor groundwater contamination levels (but not remediate any groundwater at this time). (App. 385; App. 227A at 95).

In light of these facts, Texas Eastern asserts that the focus of EPA’s concern regarding the cleanup of Texas Eastern’s property was the migration of PCBs from Texas Eastern’s property to the property owned by third parties, and the potential future harm to said properties. The evidence which Texas Eastern proffers to support these assertions is sparse, but is sufficient to create a disputed issue of material fact as to whether Texas Eastern’s cleanup costs were incurred

solely

because of damage to its own property, or whether some of Texas Eastern’s costs are related to the prevention of third-party damage.

In support of its assertion, Texas Eastern has offered two affidavits sworn by Karen Hammerstrom, a scientist working in EPA’s TSCA compliance section who helped prepare risk assessments for EPA regulations concerning healthy PCB levels in the environment, and who prepared risk assessments related to the EPA Complaint and Consent Decree. As previously explained, Texas Eastern offers these affidavits to establish that EPA considered the effects of PCB contamination on third-party property (off-site property) when it decided the level of cleanliness to which it would require Texas Eastern to remediate its property. (First Hammer-strom Affidavit, Hart Deck, Ex. 50 at attachment pp. 6-7; Second Hammerstrom Affidavit, Hart Deck, Ex. 50 at ¶¶ 3-5.) Specifically, Hammerstrom’s risk assessment considers what level of

post

-remediation off-site PCB exposure would be acceptable to EPA. (Second Hammerstrom Affidavit, Hart Deck, Ex. 50 at ¶3.)

Additionally, Texas Eastern observes that EPA is charged with the protection of the environment and is by definition always concerned with potential third-party harm. In this regard, Texas Eastern offers the deposition testimony of one of its environmental experts, Bradford Cushing, who testified that due to PCB migration from Texas Eastern’s property to third-party property and ground

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water, unspecified off-site contamination has in fact occurred. (Dep. of Bradford Cushing, TApp. 223 at 435-36; App. 632 at Table 2.)

The Carriers respond, however, that any actual off-site pollution has not been specifically defined by any of Texas Eastern’s experts and contend that if Texas Eastern wants to rely on off-site property damage to procure coverage, it must do so on a site-by-site basis, proving that a particular site has migrating PCBs, or is in immediate danger of migrating PCB contamination onto off-site property, before the Carriers are deemed liable for any of the cleanup costs. Texas Eastern responds that EPA did not require a site-specific cleanup program, choosing instead to require that all sites meet a particular PCB standard, without regard to what the PCB levels were at the time of the Consent Decree. Therefore, Texas Eastern does not know whether every site, or which individual sites, have migrating PCBs reaching third-party property.

The Carriers’ primary contention is that the facts of the present case do not fit within the “judge made insurance law” on which Texas Eastern relies. The Carriers observe that the only

actual

damage that can be affected by Texas Eastern’s cleaning up of its own property is on-site contamination. Thus, this case is distinguishable from the situation where EPA orders a polluter to remediate third-party harm which includes the cleanup of on-site property as one element of a greater third-party problem. In this case, EPA limited its cleanup order to Texas Eastern’s own property.

Having considered these arguments, I conclude that the Texas Supreme court would preclude coverage for Texas Eastern’s costs which were not

primarily

aimed at preventing actual, as opposed to purely potential, harm to third-party property.

I further conclude that the evidence proffered by the Carriers is insufficient to mandate a finding that

none

of Texas Eastern’s expenses incurred pursuant to the EPA Consent Decree, state government decrees, or private third-party actions were due primarily to prevent future third-party harm.

There is little doubt that the majority of courts to consider-this issue have concluded that costs incurred to remediate damage on the insured’s property in an attempt to prevent future damage to third-party property are not excluded under the owned property exclusion.

Having examined these deei-

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sions, I respectfully decline to fully adopt their rationale, and I do not believe that the Texas Supreme Court would choose to either.

In my view, the owned property exclusion is unambiguous. The clause clearly reads that damage to an insured’s property is not covered under the CGL policy. This does not mean that all activity taking place on an insured’s property is

per se

uninsured. If the activity is

primarily

undertaken to abate an existing risk of harm to a third party, then the owned property exclusion should not apply.

The rationale most often relied on by courts declining to enforce the owned property exclusion is that the failure to allow an insured to recover cleanup costs incurred prior to the actual occurrence of third-party damage creates an incentive for the insured to wait until third-party damage occurs before taking any preventive action.

See, e.g., Allstate Ins. Co.,

713 F.Supp. at

40-41; Broackvell Realty,

218 N.J.Super. 516 , 528 A.2d at 81 ;

Consolidated Rail Corp.,

No. 84-26019, 1986 WL 6547 , at *5. I find this rationale unpersuasive for three reasons. First, if the insured intentionally allows the damage to occur, no insurance coverage should be available because intentional damage is not insurable as an “occurrence” in a standard CGL policy. Second, even if insurance coverage was made available to pay for the cleanup of third-party property, it does not follow that insurance coverage would automatically become available for the damage to the insured’s own property.

Third, ample incentives exist to compel the insured to timely report and remediate contamination; the most significant being the potential for criminal sanctions in addition to civil penalties for intentionally violating federal and state environmental statutes.

An alternative explanation for allowing insurance coverage for potential third-party harm is that in envirohmental cases cleanup costs are often directly related to the length of time that the contaminant is left unreme-diated.

See, e.g., Allstate,

713 F.Supp. at 40-41. Thus, an insurance company benefits by paying for the remediation

before

the pollutant migrates from the insured’s property and onto the property of third-parties.

See Bankers Trust Co.,

518 F.Supp. at 373. Under Texas law, insurance contracts are to be interpreted by the same rules of construction as any other contract. Thus, the terms are to be given their plain, ordinary meaning. It may be true that an insurance company would benefit from the early cleanup, and the parties are free to write a contract that provides for that type of coverage.

Texas Eastern and the Carriers entered into contracts which did not provide coverage for damage to the insured’s property, and I refuse to alter the agreements which the parties freely made.

Finally, courts have relied on the fact that in the environmental context, the costs of cleanup and prevention of third-party and first-party damage are often inextricably linked, making it virtually impossible to equitably enforce the owned property exclusion.

See, e.g., Gloucester,

668 F.Supp. at 400 . While the task of separating the insurable costs may be difficult in some cases (I have previously indicated that it may be an impossible task in this case), I do not believe this

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difficulty is sufficient to invalidate the owned property exclusion. It is the insured’s responsibility to present the insurer with claims that are covered by insurance. This responsibility includes the identification of costs which are recoverable and those which are not. The insured should not reap an additional benefit simply because damages are difficult to prove. If Texas Eastern cannot segregate its damages, then, under Texas law, it fails to satisfy a condition precedent to recovery under its insurance contracts, and the Carriers’ obligation to indemnify will never mature.

Texas Eastern contends that no showing of any significant link between the third-party risk and the first-party remediation need be made before a court will allow recovery of the entire cleanup cost. To the contrary, many of the cases considering this issue, and on which Texas Eastern relies, have held that the threat of third-party damage must be significant before a court will allow the insured to recover the cleanup costs for damage to its own property. For example, a number of cases have limited their holding to situations where the danger is both imminent and substantial. In

Broadwell Realty,

the court summarized its holding: “We are thus convinced that abatement remedies designed to prevent imminent and immediate damage to third parties cannot be denied on the basis of the owned-property exclusion.”

Broad-well Realty,

218 NJ.Super. 516, 528 A.2d at 82 .

Other courts have failed to expressly limit their holdings, but have reached their conclusions in situations where the danger to third-party property was clearly imminent, substantial, or both.

See, e.g., Allstate,

713 F.Supp. at 41 (finding that the gas leak from the insured’s property constituted a “demonstrated danger” to third-party property);

Conservation Chem.,

653 F.Supp. at 175 (finding that the release of the hazardous substances constituted an “ ‘imminent and substantial endangerment to the public or welfare of the environment’ ”);

Consolidated Rail,

1986 WL 6547 (32,000 gallons of chloroform was spilled on the insured’s property and the property of third parties, clearly creating a substantial danger of third-party harm).

Further, many of these courts explicitly recognized that the insured does not automatically receive coverage for all of its remediation costs. As one court explained, “[t]o the extent that all or a portion of the response expenses pertain solely to damage to the [insured’s property) and not to prevent off-site contamination, the owned property exclusion clearly applies, and such damage is not within the coverage provided.”

Broad-well Realty,

218 N.

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