City of Edgerton v. General Casualty Co.

SHIRLEY S. ABRAHAMSON, J.

(dissenting).

CERCLA environmental clean-up cases involve "one of the largest and most costly areas of civil litigation." 7A Appleman, Insurance Law and Practice, sec. 4520, p. 126 (1993 Supp.). The court's decision determines who will pay the costs of environmental clean-up in Wisconsin — the insureds or the insurance companies. Courts across the country have divided on the complex legal questions behind this very practical problem.

*787 I conclude, as did the circuit court, a unanimous panel of the court of appeals, and the majority of state and federal courts which have decided similar cases 1 that the insureds are covered by the insurance policies. The very well written court of appeals decision, City of Edgerton v. General Cas. Co., 172 Wis. 2d 518 , 493 N.W.2d 768 (Ct. App. 1992), carefully reviews the numerous cases and authorities. It does not need to be amplified by this dissent. I write briefly to explain where, in my opinion, the reasoning of the majority opinion falters.

I-H

The majority opinion holds that the insurance company's duty to defend a "suit" arises only on the commencement of an action in a court of law. I conclude that the majority's interpretation of the word "suit" as *788 used in the policy is erroneous and that the duty to defend may be prompted by administrative action. Because the majority concludes that "suit" is limited to a court action, I need not address, as did the court of appeals, which step in the administrative process triggers the duty to defend.

First, the majority's interpretation contravenes the general rules applicable to contract interpretation that the objective of interpreting the policy is to ascertain and carry out the intention of the parties. Words in a policy must be given their plain and ordinary meaning; they must be interpreted to mean what a reasonable person in the position of the insured would have understood them to mean.

The majority opinion states in a conclusory fashion that "suit" denotes court proceedings. While one dictionary definition of "suit" is an action in court, the dictionary also gives the word the broader meaning: "the attempt to gain an end by legal process: prosecution of right before any tribunal: litigation." Webster's Third New International Dictionary (1986) 2286. 2 *789 Thus suit, according to a dictionary or real life, is not limited to proceedings in court.

While courts frequently duel with dictionary definitions, many of which are circular, the real point is that the dictionaries show multiple meanings for the word "suit" and that a reasonable understanding of the word "suit" is not limited to an action filed in court.

From the point of view of a reasonable policy holder, official letters from a federal or state agency advising an insured of liability, with increasing penalties if the insured does not respond, appear to be an adversary's attempt to gain an end by a legal process. Such administrative proceedings may force the insured to hire technical experts and lawyers to protect its interests and may terminate in an action in court. Thus to the insured an administrative action is as coercive a legal process as an action filed in a court of law.

While the word "suit" may have several meanings, semantics make little difference to an objectively reasonable insured in the face of the myriad types of liability that might result from administrative proceedings. The only meaning of the word "suit" in the insurance policy which comports with an insured's objectively reasonable expectations is that it signifies either a court action or an attempt to gain an end by a legal process.

Second, the majority's narrow interpretation of the word "suit" to mean an action commenced in court is neither reasonable nor wise because it fosters litigation. The policy behind CERCLA is to encourage prompt and voluntary clean-up of toxic waste. The antipollution statutes offer the insured incentives to cooperate with the government rather than awaiting a court proceeding. If, as the majority opinion holds, the administrative action does not activate the duty to *790 defend, the insured may refuse to cooperate with the government in order to force the government to file a formal complaint. An interpretation of the policy that encourages an insured not to cooperate with governmental agencies and fosters litigation in lieu of alternative dispute resolution is, on its face, unreasonable.

Third, an examination of the statutory proceedings demonstrates that administrative enforcement is part of litigation. The government has discretion about the type of action to use to combat pollution. By choosing a more expensive option the government can adversely affect the insured's rights. Because damages might be determined before the parties ever get to court, the need for representation is thus perhaps greatest at the administrative level and the administrative process is obviously part of the litigation process which triggers the obligation to defend. Avondale Industries, Inc. v. Travelers Indent. Co., 697 F. Supp. 1314, 1320-22 (S.D. N.Y. 1988), aff'd, 887 F.2d 1200 (2d Cir. 1989), reh 'g denied, 894 F.2d 498 (2d Cir. 1990), cert. denied, 496 U.S. 906 (1990). See also, e.g., Lindas v. Cady, 183 Wis. 2d 547, 559-61 , 515 N.W.2d 458 (1994), concluding that unreviewed agency determinations may have preclusive effect in court.

Fourth, according to the majority, because our cases state that a court looks to the complaint to determine whether a potentially covered claim exists, the word "suit" must refer to a lawsuit. Majority opinion at 765, 781. These cases, however, do not have anything to do with the case at bar. In all of them, an action in court was in fact filed. These cases can not be used to say that there is no duty to defend unless an action in court is commenced.

*791 Finally, it seems to me that the majority's interpretation of the word "suit" in the context of an insurer's duty to defend is antiquated. In our modern legal world many forms of liability are determined outside the courtroom. This court has by rule enabled trial courts to resolve disputes without clogging the dockets of our trial and appellate courts. By creating administrative mechanisms to encourage prompt, voluntary, and efficient environmental clean-up, the state and federal legislatures have attempted to solve a major societal problem without resorting to the courts. By clinging to an outmoded definition of the term "suit," the majority defeats this legislative policy.

For the reasons set forth, I agree with the numerous cases holding that when the government assumes an adversarial posture and makes clear that governmental force will be used with probable and imminent financial consequences, a suit is in progress and the insured might reasonably expect the insurance company to defend.

HH H-1

Although the majority opinion concludes that the insurance company has no obligation at this stage of the administrative proceedings, it nevertheless goes on to hold that response costs do not constitute damages under the policy. I address this damage issue because it is the only damage issue the majority discusses. Again I conclude, as did the circuit court, a unanimous panel of the court of appeals, and the majority of courts that have considered the issue, that response costs are damages under the policy. The majority opinion's interpretation of the word "damages" in the policy relies heavily on School District of Shorewood v. *792 Wausau Ins. Co., 170 Wis. 2d 347 , 488 N.W.2d 82 (1992), and is unpersuasive.

First, the majority opinion applies the Shorewood discussion of damages to this CERCLA case in a summary fashion, ignoring the language in the Shorewood decision by which the court expressly declined to analogize that case to CERCLA cases defining the word "damages." The Shorewood court stated: "The issue of whether clean-up costs constitute 'damages' under the terms of an insurance contract has never been addressed by a Wisconsin court. Such an important issue should not be decided in a cursory fashion by this court. Therefore, we decline to adopt or apply the analogy posited by the school districts." Shorewood, 170 Wis. 2d at 374 .

Second, were the majority opinion to follow the Shorewood rationale to its logical conclusion, it would have to hold that the response costs in this case were damages within the meaning of the policy. The Shore-wood court's dissection of the word "damages" in a comprehensive general liability policy rests on the analysis of "damages" by Professor Dobbs, whom the court characterized as "a noted authority on remedies." Shorewood, 170 Wis. 2d at 368 . The Shorewood court quoted extensively from Professor Dobbs' 1973 Handbook on the Law of Remedies. Shorewood, 170 Wis. 2d at 368-69 .

In his more recent 1993 revision of his book, Professor Dobbs concludes that response costs under CERCLA cases are "analogous to repair costs and .... common law consequential damages. . . . Response costs are very high, but in spite of the terminology, they closely resemble familiar common law types of damages." Handbook on the Law of Remedies 727 (1993). Thus adherence to Shorewood and its reliance on Pro *793 fessor Dobbs lead to the conclusion that response costs are damages under the standard form policy involved in this case.

For the reasons set forth herein and in the decision of the court of appeals, I dissent.

I am authorized to state that Chief Justice NATHAN S. HEFFERNAN and Justice WILLIAM A. Bablitch join in this dissent.

As I previously stated, the courts are divided. I rely on secondary material for surveys of the federal and state court decisions to determine the majority rule. According to these sources, a slim majority of the courts have held that the policy imposes a duty to defend following receipt of a PRP letter; a larger majority apparently concludes that response costs are damages under the policy. For surveys of the cases, see, e.g., Kenneth H. Mack, Insurance Coverage of Environmental Claims, Practicing Law Institute (April-May 1993) at 4 (Westlaw citation: 459 PLI/Lit 261, PLI Order No. H4-5152; Database JLR); Barry R. Ostrager, Special Insurance Coverage Issues Arising out of Hazardous Waste/Environmental CleanUp Litigation, American Law Institute (June 21, 1993) at 25-35, 40-48 (Westlaw citation: C855 ALI-ABA 1005; Database JLR); Mary Kay Vyskocil, Environmental Coverage Litigation: An Overview of Trends and Developments Practicing Law Institute (January-February 1993) at 6-11, 18-24 (Westlaw citation: 454 PLI/Lit 443, PLI Order No. H4-5148; Database JLR).

When I examine the dictionary definitions of "process" and "litigation," they too have multiple meanings. "Process" is defined as "the course of the procedure in a judicial action or in a suit in litigation: legal action." Webster's Third New International Dictionary (1986) 1808. "Litigation" is defined as "the practice of taking legal action" and also as "a controversy involving adverse parties before an executive governmental agency having quasi-judicial powers and employing quasi-judicial procedures." Webster's Third New International Dictionary (1986) 1322. While a court would not ordinarily examine a law dictionary, as the majority does, to determine what an objectively reasonable policyholder would have understood the policy to mean, the legal definition of "suit" is similar to Webster's.