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

> District Court, E.D. Pennsylvania · July 9, 1992 · 870 F. Supp. 1293

URL: https://www.frixlaw.com/law-library/cases/1647979

## Case

- **Full name:** In Re TEXAS EASTERN TRANSMISSION CORPORATION PCB CONTAMINATION INSURANCE COVERAGE LITIGATION
- **Court:** District Court, E.D. Pennsylvania
- **Decided:** July 9, 1992
- **Citations:** 870 F. Supp. 1293; 1992 U.S. Dist. LEXIS 9665; 1992 WL 693700
- **Precedential status:** Published
- **Opinion:** Opinion by VanARTSDALEN
- **Judges:** VanARTSDALEN
- **Cited by:** 24 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1647979

## How later opinions describe it (automated extraction)

- 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”

## Opinion text

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
1
(the Carriers) that provided Texas Eastern with primary and excess comprehensive general liability (CGL) insurance coverage between 1958 and the present.
2
Texas Eastern seeks to recover the expense that it will incur in the governmentally mandated environmental cleanup of polychlorinated biphenyl
3
(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.
4
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.
5
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.
6
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.
7
IV. MOTIONS TO STRIKE
A.
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.
B.
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.
8
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.
9
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.
C.
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
10
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.
11
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
12
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.”
*1306
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
A.
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).
B.
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
*1307
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.
13
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
*1308
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.
14
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
A.
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.
15
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.
B.
Factual
Background
16
1.
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.
17
(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.)
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
18
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.)
19
*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.
20
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
App. 14 at 358-59 (deposition testimony of Texas Eastern’s Assistant Chief Engineer, Conrad W. Marvin, stating that Texas Eastern understood that the seal oil leaked as early as 1949).
There were occasional accidents and malfunctions involving the compressor unit systems, which explains how some of the lubricant was lost; the vaporizing of lubricant provides a second potential explanation. These explanations are insufficient, however, to explain the disappearance of the majority of the used lubricant, and Texas Eastern has offered insufficient evidence to refute the testimony of its own employees. Those Texas Eastern employees who testified that they understood that the seal oil system was not working perfectly and that a significant amount of lubricant was thereby lost, must therefore be believed.
21
Texas Eastern’s contention that the compressor seal systems were designed as “closed systems” with no leakage or “consumption” of lubricant oil is immaterial because there is no credible evidence which tends to establish that all Texas Eastern employees were working under this assumption or, more importantly, that this assumption was correct. Texas Eastern’s reliance on the fact that its senior management was unaware of the extent of the seal oil failures, and the amount of oil which leaked into the pipeline, is equally unavailing. Texas Eastern’s managers, charged with running the individual compressor stations, knew that lubricant oil was escaping down the pipeline and Texas Eastern is therefore charged with that knowledge. Texas Eastern cannot hide behind its senior management’s ignorance of the basic aspects of its compressor stations’ daily operations. For all of these reasons, there is no material dispute that Texas Eastern was aware, for many years, that some of the lubricant oil was escaping from the turbine-compressors and entering the natural gas pipeline.
The centrifugal compressors operating on Texas Eastern’s natural gas pipeline were routinely started-up and shut-down during the course of normal pipeline operation. (TRSOF ¶ 48.) During start-up, the compressor was purged of air and pressurized, and natural gas present in the compressor case was vented to the atmosphere through the compressor vent stacks. (TRSOF ¶ 49.) During shut-down, the compressor case was depressurized and the natural gas within the compressor case was again vented to the atmosphere. (TRSOF ¶ 50.)
During start-up, any lubricant present in the compressor ease was vented into the environment from the compressor vent
*1312
stacks along with the air and natural gas. During shut-down, any lubricant present in the compressor ease was similarly vented along with the natural gas. Although the parties disagree as to whether Texas Eastern was aware at the times relevant to this litigation that lubricant was being vented and lost into the environment in this manner, they do agree that at least some of Texas Eastern’s operational employees understood that lubricant was sometimes being vented into the air (and settling on the ground) along with the natural gas. (TRSOF ¶ 54.)
Pipeline liquids, consisting of hydrocarbon distillates
22
and water, routinely entered Texas Eastern’s natural gas pipeline. (TRSOF ¶ 57.) The lubricant that escaped from the compressor cases and entered the pipeline mixed with those fluids already present in the pipeline. From the time it began operations in 1947, Texas Eastern used its compressor stations as sites for the collection, removal, storage, and disposal of those pipeline liquids.
23
(TRSOF ¶ 56.) Texas Eastern primarily used two methods for the removal of pipeline liquids: gas/liquid separation equipment (scrubbers and strainers) and cylindrical devices known as “scrapers” or “pigs.”
24
(TRSOF ¶ 63.)
The liquids accumulated by scrubbers, strainers, scrapers, and pigs were routinely
25
discharged into unlined earthen pits at the compressor stations.
26
(TRSOF ¶¶71, 77; TSOF ¶ 74.) The PCB-based lubricant, carried along in the pipeline liquids, was thereby discharged into the unlined earthen pits. (TRSOF ¶ 73.)
Texas Eastern used its pits to collect, contain, and prevent the escape of pipeline liquids to other areas including neighboring third-party property. (TSOF ¶ 74.) The pipeline liquids were generally burned, but in some cases were hauled away, or were applied by Texas Eastern employees to kill weeds or control dust on dirt roads.
27
(TSOF ¶ 75; TRSOF ¶¶ 84-86, 101, 106.) Texas Eastern personnel understood that some of the liquids were absorbed into the ground, but it is disputed whether this was an intended method of disposal or simply a fact about which Texas Eastern was aware.
(See
App. 113 at 002021610; App. 118 at 002021192; App. 119 at 002021024 — All three Effluent Discharge Survey reports indicating that absorption of pipeline liquids was known to occur.)
The pits proved to be imperfect containment vessels, however, and during the period between 1958 and 1976, Texas Eastern was aware of instances where pipeline liquids escaped from the pits and migrated onto other
*1313
areas of Texas Eastern’s property or the property owned by neighboring third parties. (SOF ¶¶ 114-152; TSOF ¶¶ 52-62.) In 1973, Texas Eastern voluntarily conducted an “Effluent Discharge Survey” of all compressor station facilities. (TRSOF ¶ 132.) The purpose of the study was to identify potential problem
areas
by soliciting
information from
each compressor station location that had, or may have had, effluent discharges, particularly those that may have had liquids drain off Texas Eastern’s own property. (TRSOF ¶ 133.)
The survey results indicated that some of the lubricant used in the compressors was migrating from Texas Eastern’s property to the property of third parties. (TRSOF ¶¶ 135, 137, 143-45.) These instances were considered isolated occurrences and were generally remedied once Texas Eastern was made aware of their existence. The survey also establishes that Texas Eastern was fully aware of both potential and actual occurrences of off-site migration of pipeline liquids, and once Texas Eastern understood that the pipeline liquids contained PCBs, Texas Eastern should have been aware of the potential for off-site PCB migration.
Although Texas Eastern personnel were warned of the potential for overflow from the pits due to rainfall, and were instructed to guard against it, Texas Eastern was aware that overflows occasionally occurred. (TRSOF ¶ 147.) Texas Eastern was also aware of the potential for movement of the pipeline liquids from the compressor stations to other property from various sources, including the earthen pits and the pig receivers. (TRSOF ¶ 151.) In 1975, Texas Eastern drafted a “Water Pollution Prevention and Control Plan” for the purpose of controlling this undesirable spread of pipeline liquids. (TRSOF ¶¶ 150-51, 231-32.)
3.
Texas Eastern’s Knowledge of PCBs in its Lubricant
In February 1970, Monsanto sent correspondence to its customers alerting them to an increasing concern over the adverse environmental impact of Monsanto’s PCB-containing products and Monsanto’s intention to reformulate those products. (SOF ¶ 183.) Monsanto recommended that PCBs no longer be used in applications which would lead either directly or indirectly to the contamination of food and water supplies for humans or animals. (TRSOF ¶ 184; TSOF ¶ 12.) Following its own advice, Monsanto terminated its sale of certain products containing PCBs to certain of its customers.
After informing its customers of the decision to terminate the sale of certain products, however, Monsanto published a promotional booklet about Turbinol-153, stating that it had a history of safe use as both a lubricant and control fluid in commercial pipeline gas turbines. (TSOF ¶ 14; App. 27 at 2.) Texas Eastern was aware of this booklet. (TSOF ¶ 14.) On January 7, 1972, however, Monsanto proposed that Texas Eastern sign a hold harmless agreement promising to indemnify Monsanto for any future liability arising out of the sale of Turbinol-153 after January 15,1972. (TRSOF ¶ 187; App. 186.) Monsanto further informed Texas Eastern that because Turbinol contained “major amounts” of certain polychlorinated biphenyl products (PCBs), it would no longer sell any Turbinol to Texas Eastern after June 30, 1972. (TRSOF ¶ 189; App. 186.)
Texas Eastern elected not to sign the hold harmless agreement, but it did attempt to purchase Monsanto’s remaining stock of lubricant oil available for sale before the January 15, 1972 deadline. (App. 190.) Monsanto apparently refused to sell Texas Eastern any more PCB-based lubricant.
(Id.)
In May 1972, Texas Eastern began a program referred to as the “phase-out” or “change-out” program to replace the PCB-based lubricant with non-PCB-based oil. (TRSOF ¶ 199.)
4.
The Change-Out Program
Because Turbinol-153 and the replacement oil were compatible, the change-out program did not necessarily require Texas Eastern to flush the turbine driven compressors of the PCB-based lubricant and replace it with non-PCB-based oil. (App. 194 at 3.) Complete flushing was advisable from an ecological standpoint, however, presumably because anything less would have resulted in Texas Eastern’s continued use of a lubricant con-
*1314
taming PCBs. On April 12, 1972, Texas Eastern chose the replacement for Monsanto’s Turbinol-153. (App. 214 at 2.) In May 1972, Texas Eastern began installation of the replacement lubricant. (7d)
28
The speed with which Texas Eastern conducted its change-out program is a subject of dispute between the parties. The Carriers contend that the speed depended upon the rate of consumption of the PCB-based oil in the turbine compressor units. (SOF ¶ 203.) Texas Eastern responds that it intended to convert its compressors to non-PCB-based lubricants as quickly as possible, but that it was restrained by the technical difficulty of the change-out and the difficulty of finding an appropriate replacement lubricant. (TSOF ¶¶ 21-26.)
Ultimately, the rate at which Texas Eastern completed the change-out probably depended on all of these factors. There can be no dispute, however, that Texas Eastern was, at least initially, concerned with utilizing as much of its remaining inventory of Turbinol-153 as it could. (Dep. of Walter Woods, App. 42 at 754-59; App. 195 at 010028581.) To achieve this end, Texas Eastern made its change-out decisions based, at least in part, on the lubricant consumption rates of various compressor stations — choosing to change those compressor stations with higher consumption rates last. (App. 203; Dep. of Eugene Riall, App. 56 at 109-12; App. 200.)
As early as August 1972, Texas Eastern was aware of evidence indicating that a break-down product of the Monsanto Oil was in the compressor units and the pipeline, contaminating the non-PCB-based replacement lubricant. (App. 213.) In July 1976, Texas Eastern’s testing confirmed that some of the replacement lubricant was contaminated with PCBs. (TRSOF ¶ 223.) In the same year, one Texas Eastern employee wrote a memorandum in which he indicated that he understood that using the PCB lubricant meant that the oil was being spread throughout the entire pipeline system. (App. 211.) This evidence indicates that Texas Eastern was on notice, during this time period, that the change-out program had not completely solved its PCB lubricant problems.
Throughout the change-out program, Texas Eastern continued to dump pipeline liquids into the unlined earthen pits at its compressor stations. Texas Eastern was aware that the amount of liquids accumulating in its pits was increasing and raised some concerns as to whether the pits were adequate containment vessels. (App.'221.) One explanation for this increase is that Texas Eastern’s management discouraged burning in the disposal pits as early as 1972, (App. 220 at 010020659), and implemented a formal “no burn” policy in 1975. (App. 221; TRSOF ¶ 235.) This required Texas Eastern to rely more heavily on evaporation and siphoning to reduce the amount of liquid in the pits. (App. 221)
By July 11, 1975, Texas Eastern’s Operating Department abandoned the policy of disposing pipeline liquids into the unlined pits in order to comply with environmental regulations being established by the various states in which Texas Eastern operated. (App. 223.) Subsequently, Texas Eastern commenced a program to install diffuser tanks at the compressor stations to replace the unlined earthen pits as the receptacles for the pipeline liquids. The replacement program was substantially completed by 1985. (TRSOF ¶ 237.) After a pit was replaced by a diffuser tank, the pit was backfilled by pushing in the surrounding berm with a bulldozer and grading the area to its natural contours. (App. 165 at 12.)
5.
Tracking Environmental Legislation
In the early 1970s, PCBs became generally known as a potential hazard to human health and the environment. Not surprisingly, Congress and numerous state legislatures moved to regulate the uses of the toxic substance. Texas Eastern was aware of this legislative activity. (TRSOF ¶¶ 241-47.) Acting pursuant to the authority granted it by the Toxic
*1315
Substances Control Act (TSCA),
29
EPA promulgated a final rule on May 31,1979, which,
inter alia,
prohibited the use of PCBs in concentrations above 50 parts per million (ppm), except in totally enclosed systems. (App. 279, 44 Fed.Reg. 31544.) The rule, however, authorized the continued use of PCBs above the 50 ppm limit in natural gas pipeline compressors until May 1, 1980, in systems which were not totally enclosed. (App. 279, 44 Fed.Reg. 31551.)
In September 1978, Texas Eastern understood that it was impermissible to dispose of liquid mixtures of PCBs in excess of 500 ppm in landfills. (App. 236.) The only permissible disposal method was to incinerate the waste in an EPA approved incineration facility. (TRSOF ¶250; App. 236.) Employees at Texas Eastern were also aware of EPA requirements regarding PCB storage facilities. (TRSOF ¶ 254; App. 237.) With these rules in mind, Texas Eastern constructed and used storage buildings, at various compressor stations, to store drums containing the PCB-based lubricant. (TRSOF ¶ 255.) Due to the danger of storing large amounts of petroleum oil on its property, Texas Eastern advised its first-party property insurers, in December 1978, about the storage buildings, but did not give notice to its third-party liability carriers. (App. 242; App. 245; TRSOF ¶ 258.)
6.
PCB Contamination in the Natural Gas Pipeline
In January 1981, Texas Eastern learned that PCBs were detected in a Long Island residential gas meter. (TRSOF ¶263.) A subsequent investigation by Texas Eastern, in a 36 location sampling program, conclusively revealed that Texas Eastern’s pipeline liquids were contaminated with PCBs. (App. 276.) The Brooklyn Union Gas Company informed Texas Eastern that it would seek, from Texas Eastern, reimbursement of the costs incurred for cleaning up the PCB contamination, (App. 267), and Texas Eastern provided notice of these claims to Aegis, its excess liability carrier, (TApp. 148), but not to its other third-party liability insurance carriers. (TRSOF ¶ 266.)
As a result of Texas Eastern’s testing and the discovery of PCBs in its pipeline liquids, Texas Eastern met with EPA officials, on March 27, 1981, to discuss Texas Eastern’s remedial plans. (App. 277.) According to a Texas Eastern internal memorandum, Texas Eastern’s Vice President of Operations, F.L. Cohagan, told EPA’s John Seitz that Texas Eastern planned to test all of its pipeline liquids for PCBs before disposal, and that Texas Eastern would use accumulator tanks (instead of open pits) for collecting liquids at the compressor stations.
{Id.)
J. Clifton Williams, Texas Eastern’s Director of Technical Services, testified at his deposition that Mr. Cohagan also explained to Mr. Seitz that the pits would continue to be used until all of the accumulator tanks had been installed. (Dep. of J. Clifton Williams, TApp. 7 at 644-48, 659-60.)
By letter dated May 27, 1981, EPA informed Texas Eastern that it was establishing a four-part program to reduce the risk from PCBs in gas pipeline systems: (1) to ensure the proper handling of PCBs removed from the pipeline, (2) to obtain information on ways to prevent further movement of PCBs into other systems, (3) to implement the best option identified in step two, and (4) to obtain information on the possible methods for removing any remaining PCBs from the system. (App. 282.) Subsequently, Texas Eastern sent its response to EPA’s letter outlining its proposed plan for handling the PCB liquids in its pipeline. (App. 281.) Texas Eastern and EPA agreed upon a plan for the cleanup in late 1981 or early 1982. (TRSOF ¶ 284.)
7.
PCB Cleanup
On July 23, 1982, EPA instituted an enforcement proceeding against Texas Eastern pursuant to the Toxic Substances Control Act alleging that Texas Eastern was using PCBs in violation of 15 U.S.C. § 2614 (1) & 40 C.F.R. § 761.20 (a). (App. 287.) The gravamen of the violation was Texas Eastern’s continued use of compressor fluids containing PCB concentrations exceeding 50 ppm in its turbine driven compressors.
(Id.)
On Au
*1316
gust 3, 1982, Texas Eastern entered into a Consent Order, Consent Agreement, and Compliance Schedule with EPA addressing the use of lubricant contaminated with PCBs in its pipeline system. (App. 288; App. 289; App. 290.) Texas Eastern did not provide notice of these activities to its third-party liability carriers.
The agreements, both formal and informal, entered into by Texas Eastern and EPA did not cover the remediation of the unlined earthen pits. Texas Eastern does not dispute the fact that at some of its compressor stations, Texas Eastern continued to use the pits to “dispose,” or at a minimum, to “temporarily store,” (TSOF ¶ 86), pipeline liquids known by Texas Eastern to be contaminated with residual PCBs. In fact, Texas Eastern admits that it was necessary to continue using the pits until appropriate accumulator tanks could be installed at all of the compressor station sites known to contain contaminated lubricant, pipeline liquids, or both. (Dep. of J. Clifton Williams, TApp. 7 at 644-48, 659-60.)
For example, as of August 27, 1982, Texas Eastern’s St. Francisville, Louisiana station received pipeline liquids into its pits containing PCBs in a concentration ranging from 7 ppm to 2700 ppm. (App. 293.) In addition, sampling in pits on its Transwestern Pipeline System (a wholly owned subsidiary of Texas Eastern) in Corona, New Mexico made Texas Eastern aware that PCBs were present at those sites and had migrated into the soil from an unlined earthen pit. (TRSOF ¶ 298.) Although Texas Eastern contends that it was not aware of any off-site migration of the PCBs, the estimated cost of “decontamination” at the Corona compressor station alone was in excess of $500,000. (App. 298.) After Texas Eastern attempted to remediate the Corona site in 1983, it was apparent to Texas Eastern employees responsible for the remediation attempt that the PCBs had migrated from the lubricant into the sides and bottom of the disposal pit. (TRSOF ¶ 298.)
As Texas Eastern gradually stopped discharging pipeline liquids into its pits, it routinely backfilled them with earthen fill. (App. 165 at 12.) At Texas Eastern’s St. Francisville, Louisiana; Union Church, Mississippi; and Clinton, Mississippi stations Texas Eastern closed the pits by (1) skimming the oil off the surface of the pipeline liquids and carting it away for incineration, (2) draining the water out of the pit and filtering it for low level PCB contamination, (3) solidifying PCB sludge by mixing it with fly-ash, and (4) installing a plastic cover to prevent any percolation through the solidified mass. (App. 305.) The pits were then marked so that they could be easily located at a later date. (App. 2 at 88-89.)
On November 29, 1984, EPA Region 9 issued a civil administrative complaint against the Transwestern Pipeline Company (Transwestern) for improperly marking, storing, and disposing of PCB-laden waste oils into unlined earthen pits in Arizona. (App. 307.) At this time, Texas Eastern was completing, or had completed, the sale of Tran-swestern to Houston Natural Gas (HNG). (Dep. of Bolivar Andrews, App. 309 at 159-61.) ' In April 1985, Transwestern entered into a Consent Agreement and Final Order with EPA. (App. 306.) Around this time, Texas Eastern entered into an agreement with HNG to amend the contract of sale so that Texas Eastern would bear some financial responsibility for the costs of remediat-ing PCBs from pits in the Transwestern System. (App. 311.) Texas Eastern did not provide notice of this agreement to its third-party liability carriers.
As a result of the Transwestern Complaint, Texas Eastern undertook a survey of its pit use along its entire pipeline system. (TRSOF ¶ 312.) In August 1985, EPA issued a Notice of Non-Compliance to Texas Eastern’s Delmont, Pennsylvania compressor station for violations of TSCA regulations concerning the marking, storage, disposal, and record keeping of PCBs. (App. 317.) A subsequent meeting was held with EPA on August 29, 1985, and Texas Eastern advised EPA that it was preparing to close the earthen pits formerly used to contain PCB-laden pipeline liquids at stations where the pits had been replaced by liquid separators and/or accumulator bottles. (App. 319.) EPA advised Texas Eastern that it should submit information regarding the location, site, predominant usage, current status, and closure
*1317
date of some of the pits. (TRSOF ¶ 320.) Presumably, Texas Eastern then understood that it could no longer use the pits to hold, even temporarily, any pipeline liquids containing more than 50 ppm of PCBs.
Texas Eastern admits that it realized, by late 1985, that it would have to formulate a remediation plan for the unlined earthen pits — something it had previously believed to be unnecessary. (Dep. of Howard Homeyer, App. 315 at 134.) To facilitate the creation of the plan, Texas Eastern hired Roy F. Weston, Inc. (Weston), a national environmental consulting firm, to determine the nature and extent of the PCB contamination around the pits. (App. 323.) Simultaneously, Henry H. King, President of Texas Eastern, consulted with Steve Mulliken, Director of Texas Eastern’s Risk Management Department, regarding the possibility of insurance coverage for the earthen pit remediation. Mr. King reached the initial conclusion that CGL insurance policies would not cover the estimated 40 to 50 million dollars that the remediation program would cost. (TRSOF ¶ 325; App. 324; Dep. of Henry King, App. 318 at 121-22.)
In November 1985, Texas Eastern employees met with employees of Weston to discuss Weston’s work schedule. (TRSOF ¶ 333.) At this time in late 1985, the manager of Texas Eastern’s Environmental Protection Department, Robert Salzer, understood that many of the pits and landfills at the compressor stations were not in compliance with federal regulations regarding the storage and disposal of PCBs. (Dep. of Robei’t Salzer, App. 105 at 49-50, 453-63.)
8.
The Results of Weston’s Survey
In January 1986, Weston and Texas Eastern held a progress meeting to discuss the results of Weston’s initial sampling of six compressor station sites.
30
(App. 340.) On February 18, 1986, Weston provided Texas Eastern with a draft report entitled “Compressor Station Disposal Pit Investigation.” (App. 341.) This report included the results of Weston’s initial six-site survey.
(Id.)
Weston concluded that
[bjorings drilled adjacent to but outside of the pit perimeters indicated very low to no PCB content, and, thus, minimal migration of PCBs from the pits. However, the PCB presence in the drainage swales and surface water bodies indicates that the potential for off-site migration exists.
(App. 341 at 001363937.) The report did not, however, conclusively find evidence of off-site migration although reasonable minds might differ about this characterization of the report. (Dep. of Bradford Cushing, TApp. 106 at 294, 374-75, 539, 670-71.)
In the months following the delivery of Weston’s initial report, Texas Eastern’s senior management received a number of general briefings
concerning the
PCB “situation.” Examples include (1) a February 27, 1986 Board of Directoi's meeting at the Ocean Reef Club in Key Largo, Florida, (App. 343), (2) a February 28, 1986 Public Policy Committee meeting, (Dep. of Fred Wichlep, App. 344 at 213-18), and (3) a March 5, 1986 meeting of the Executive Committee of the Board of Directors, (App. 345). In late April 1986, Texas Eastern’s senior management was briefed about the estimated cost and duration of a pit remediation effort. (App. 347; App. 348.)
On April 1,1986, EPA requested additional information from Texas Eastern regarding its use of earthen pits located at various compressor stations. (TRSOF ¶ 345.) Texas Eastern responded on April 25, 1986, and provided EPA with a final version of Weston’s pilot program report (six-site survey) dated April 21, 1986. (TRSOF ¶ 348.) In Texas Eastern’s April 25,1986 letter to EPA, it admitted that it had used the earthen pits for the collection of pipeline liquids at certain compressor stations until the fall of 1985. (TRSOF ¶ 349.)
Texas Eastern subsequently met with EPA officials on April 30,1986, to discuss the status of Weston’s pit investigation, and to discuss a draft “action plan” prepared by Texas Eastern for the remediation of the
*1318
compressor station sites. (TRSOF. ¶ 350.) Texas Eastern represented to EPA officials that it would continue its efforts to identify and control PCBs found at the Texas Eastern sites which may have been exposed to PCBs. (App. 350.) Texas Eastern also expressed a desire to reach an agreement on a remediation plan, possibly in the form of a consent decree, (App. 76), and criteria for determining how clean the Texas Eastern sites would have to be after remediation was completed. (App. 350; App. 351.)
EPA officials, specifically Michael Wood, were clearly displeased with Texas Eastern’s continued use of its earthen pits after 1981, the date Texas Eastern claims that it first learned its pipeline liquids were contaminated with PCBs. (App. 350; App. 353.) Texas Eastern explained that the logistics of replacing the earthen pits required a gradual phaseout, and made it nearly impossible to cease all use of the pits at that time. EPA indicated to Texas Eastern that some of the latter’s activities, specifically the closing of the pits at its St. Francisville, Union Church, and Clinton compressor stations, by solidifying the PCB liquids with fly ash, (TRSOF ¶ 353), were almost certainly violations of TSCA.
In light of these discussions with EPA, Texas Eastern requested that Weston enlarge its study to include 54 additional compressor station sites (54-site survey). (TRSOF ¶ 354.) During the course of the 54-site survey, Weston communicated some of its findings regarding on-site contamination to some of Texas Eastern’s employees, although the specifics of these conversations are not known. (App. 3 at No. 411.) In December 1986, Texas Eastern received a preliminary report of the results of Weston’s 54-site survey. (App. 3 at No. 432.) Texas Eastern’s attorney admitted at oral argument that the survey gave Texas Eastern reason to believe that off-site contamination had indeed occurred. (Tr. of Hr’g on Mot. for Summ. J., January 13, 1992 at 93-94.) A copy of this initial report was forwarded to EPA in December 1986. (App. 3 at No. 437.) Texas Eastern presented the final results from Weston’s 54-site survey to EPA in March 1987. (TRSOF ¶391.)
In July 1986, Texas Eastern’s Risk Management Department (which included its Insurance Department) was aware of the PCB presence in or on soil located at Texas Eastern’s compressor station sites. (Dep. of Stephen Mulliken, App. 261 at 284-87.) At this time, Texas Eastern’s Insurance Department requested that Querbes & Nelson, Texas Eastern’s insurance brokers, compile a list of all CGL policies issued beginning in 1956. (Dep. of James Farley, App. 359 at 706.) The list was received by the Insurance Department at the end of July or early August 1986.
(Id.)
Texas Eastern received information regarding claim notification requirements under these policies on or about December 9, 1986. (TRSOF ¶¶381, 383.)
On November 5, 1986, Texas Eastern representatives met with representatives from EPA and the Department of Justice to discuss PCB contamination at the compressor station sites. At the conclusion of the meeting, all parties understood that a judicially enforceable agreement would have to be entered into concerning the pit remediation. (TRSOF ¶ 368.)
9.
Texas Eastern’s Problems Become Public Knowledge
On February 21, 1987, several newspaper accounts of Texas Eastern’s problems and its discussions with EPA were published. (TRSOF ¶ 387.) Prior to this time, Texas Eastern had not given notice to its insurers that it had entered into negotiations with EPA concerning the PCBs. (SOF ¶388.) During meetings held in London, England, in February 1987, concerning the renewal of Texas Eastern’s liability insurance, Texas Eastern advised the London Underwriters that it had a PCB problem and that it was
not
making a claim against the insurers at the time “because the occurrences being investigated by Weston had not yet given rise to suits or claims against Texas Eastern,” (App. 4 at 39.
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.
31
*1320
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.
A.
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.
B.
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.
In
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.”
32
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 .
In
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 .
In
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).
33
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.
34
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.
35
*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.
C.
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.
36
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.
37
*1324
1.
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.
38
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.
39
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.
40
(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.
41
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.)
42
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.”
43
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.
2.
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.
44
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.
45
(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.
46
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.”
47
D.
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.
48
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.
In
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.
49
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.
A.
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).
50
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.
51
*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.
In
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
52
(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.
In
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
53
(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.”
54
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 .
55
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 m

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1647979. Public record. Not legal advice.