Petition for Writ of Certiorari — Federal Insurance Co. v. Susquehanna Broadcasting Co.

Supreme Court, U.S

> FILED

$D-1971 , JUN 25 1991

No. 90- 3 F THE CLERK |

IN THE

Supreme Court of the United Stotes

October Term, 1990

FEDERAL INSURANCE COMPANY,

Petitioner,

v.

SUSQUEHANNA BROADCASTING COMPANY,

Respondent.

Petition for Writ of Certiorari to the

United States Court of Appeals for the Third Circuit

PETITION FOR WRIT OF CERTIORARI

Epwarp C. Too e, Jr*

JEFFREY A. SMITH

C. Dennis SouTHARD IV

C.iark, LADNER, FORTENBAUGH & YOUNG

One Commerce Square

2005 Market Street

Philadelphia, Pennsylvania 19103

(215) 241-1800

Attorneys for Petitioner,

Federal Insurance Company

*Counsel of Record

Academy Hill Printing Company, 654 E. Atiantic Ave. & Stone Ad., Laure! Springs, NJ 08021 - 609-783-3220

QUESTION PRESENTED

Whether the affirmance by the Court of Appeals for the Third

Circuit of the District Court’s finding that costs incurred by an

insured in responding to an administrative directive to study or

remediate a contaminated site are covered by policies of compre-

hensive general and excess liability insurance defeats the purpose

of the Comprehensive Environmental Response, Compensation,

and Liability Act (“CERCLA”) to assure that those responsible for

environmental harm bear the costs of their actions.

TABLE OF CONTENTS

Page

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REPORTS OF OPINIONS BELOW ......cccsccccccccess l

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STATUTES AND REGULATIONS INVOLVED .......... 3

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Memorandum and Order of the District Court Filed

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Memorandum and Order of the District Court on

Reconsideration Filed May 18, 1990 ............. A-20

Order of the Court of Appeals denying Rehearing

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Comprehensive Environmental Response, Compensation,

and Liability Act, 42 U.S.C. § 9607 ............. A-27

TABLE OF AUTHORITIES

CASES

ACand5, Inc. v. Aetna Casualty & Surety Co.,

Pen BORD) oc sccccscccess

Fishel v. Westinghouse, C.A. No. 85-0216 (M.D. Pa.)

Fishel v. Westinghouse,

640 F. Supp. 442 (M.D. Pa. 1986) ...........

Lower Paxon Township v. United States Fidelity &

Guaranty Co.,

383 Pa. Super. 558, 557 A.2d 393 (1989) ....

Techalloy Co., Inc. v. Reliance Insurance Co.,

338 Pa. Super. 1, 487 A.2d 820 (1984) .......

STATUTES

ED Widen ceseecccectessnecsoecs

ECS G kc ckabecesssccss sebnesvone

OTHER AUTHORITY

Senate Comm. on Environmental and Public Works

Act of 1980, S. Rep. No. 848, 96th Cong.,

RE Se a

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REPORTS OF OPINIONS BELOW

The initial Judgment and Opinion of the United States District

Court for the Middle District of Pennsylvania is reported at 727 F.

Supp. 169, 20 Envtl. L. Rep. 20,622 (M.D. Pa. 1989). That

Judgment was modified on reconsideration. The District Court’s

opinion on reconsideration is reported at 738 F. Supp. 896, 20

Envtl. L. Rep. 21,295 (M.D. Pa. 1990). The Judgment Order of the

United States Court of Appeals for the Third Circuit is reported at

928 F.2d 1131 (3d Cir. 1991). The Court of Appeals’ denial of

rehearing is presently unreported, but is attached hereto at A-25.

JURISDICTIONAL STATEMENT

This Court has jurisdiction to review the judgment in question

by writ of certiorari pursuant to 28 U.S.C. § 1254(1). The judg-

ment sought to be reviewed was entered by the United States Court

of Appeals for the Third Circuit on February 22, 1991. Rehearing

was subsequently denied by Order dated March 28, 1991.

STATUTES AND REGULATIONS INVOLVED

This case involves the Comprehensive Environmental Response,

Compensation, and Liability Act, 42 U.S.C. § 9601 ef seq.

(“CERCLA”).The text of the pertinent provisions of this statute is

set forth at pages A-27 through A-40 of the Appendix.

STATEMENT OF THE CASE

1. Case History

This matter originated as a declaratory judgment action! insti-

tuted by petitioner, Federal Insurance Company (“Federal’’)? in

February, 1988. The action sought a declaration that Federal had

no duty to defend or indemnify Susquehanna Broadcasting Com-

pany (“SBC’’) for the cost of cleaning up environmental pollution

at two sites in central Pennsylvania. Up to the time that it instituted

this action, Federal had defended SBC under full reservation of

rights in connection with claims brought by area residents, and

claims for contribution brought by Westinghouse Electric Corpora-

tion arising out of the same alleged site contamination. Federal

had also paid, in full, SBC’s share of settlement of the residents’

suit.

The parties cross-moved for summary judgment. On December

21, 1989, Judge William W. Caldwell of the Middle District of

Pennsylvania issued a Memorandum and Order declaring that

Federal had a duty to indemnify and defend SBC on the third-party

claim of Westinghouse Electric for response costs arising from the

underlying action styled as Fishel v. Westinghouse, Civil Action No.

85-0216 (M.D. Pa.). The December 21, 1989, Memc¢ .andum and

Order is attached hereto at A-3. Applying Pennsylvania law, Judge

Caldwell determined that, notwithstanding the fact that the

term “damages” in Federal’s policies of insurance had a precise,

“technical” and unambiguous meaning, it nevertheless included

the costs of responding to the various governmental directives

which formed the basis for Westinghouse’s liability for which it

was seeking contribution from SBC in the underlying actions. The

Order also declared, however, that the amount properly recovera-

ble by SBC was limited, under principles of Pennsylvania property

law, to the value of the contaminated sites.

1. All parties named in the original action appear in the caption of this

petition.

2. Federal is a wholly-owned subsidiary of its parent, The Chubb Corpora-

tion. Federal itself has no ownership interest in any subsidiary corporations other

than those which it wholly owns.

3. Jurisdiction was based on diversity of citizenship of the parties, the

amount in controversy exceeding $50,000 exclusive of interest and costs as

provided by 28 U.S.C. § 1332. “a

4

The December 21 Order followed the cases of Techalloy Co.,

Inc. v. Reliance Insurance Co., 338 Pa. Super. 1, 487 A.2d 820

(1984),and Lower Paxon Township v. United States Fidelity &

Guaranty Co., 383 Pa. Super. 558,557 A.2d 393 (1989) in stating

that, for the years of Federal’s policies in which the pollution

exclusion clause was included, the plain and unambiguous lan-

guage of that clause would bar SBC’s recovery for gradual pollu-

tion.4 Judge Caldwell held that the pollution giving rise to the EPA

action and Westinghouse’s subsequent contribution claim against

SBC had been established as gradual pollution during the trial of

the underlying action.

The court also determined, however, that, pursuant to ACandS,

Inc. v. Aetna Casualty & Surety Co., 764 F.2d 968 (3d Cir. 1985), a

case which involved insurance coverage for asbestos-related injur-

ies, Pennsylvania law would permit full recovery for gradual pollu-

tion of property, under the exposure theory, from those years of

Federal’s coverage when the policies did not contain the polluticn

exclusion clause.

SBC moved for reconsideration of the Court’s Order under Rule

59(e) of the Federal Rules of Civil Procedure. By its motion, SBC

sought to have the Court delete its discussion concerning the

pollution exclusion clause, reverse its holding that “damages”

should be viewed in the technical sense as dictated by Pennsylva-

nia case law, and eliminate the property value limitation on the

recoverability of those damages. On May 18, 1990, the Court

below issued an Order removing the property value limitation cap

on recoverable damages and denying all other aspects of SBC’s

Motion. The District Court’s Opinion on reconsideration is att-

ached hereto at A-20.

Both parties appealed the decision of the District Court to the

United States Court of Appeals for the Third Circuit. The issues

presented by Federal on appeal to the Third Circuit included:

whether the term “as damages” as used in Federal’s policies of

insurance issued to SBC contemplated coverage for response costs

4. In light of its determination concerning the trigger of coverage, the

District Court found it unnecessary to resolve the dispute between the parties

concerning whether the pollution exclusion clause was first set forth in Federal’s

policy which went into effect on March 2, 1976, or the policy covering the year

beginning March 2, 1977. Federal has insured SBC since March 2, 1968, under

various policies of insurance.

5

— ae ome <2 eee

incurred pursuant to CERCLA; if so, when coverage for such costs

is triggered; whether coverage for such costs is limited to the value

of the property; and whether the Release executed by the parties in

the underlying action, Fishel v. Westinghouse, 640 F. Supp. 442

(M.D. Pa. 1986), extinguished any claims by Westinghouse for

contribution or indemnification.

On February 22, 1991, the Court of Appeals affirmed the

District Court’s judgment without opinion. The Court of Appeals’

affirmance and order is attached hereto at A-1. Federal subse-

quently filed a Petition for Rehearing together with a suggestion

for rehearing en banc. On March 28, 1991, Federal’s Petition for

Rehearing was denied. The Court of Appeals’ denial of Federal’s

Petition for Rehearing is attached hereto at A-25.

2. Factual Background

The underlying case presented a dispute between Federal and

one of its insureds, SBC, over the meaning and effect of plain and

unambiguous language contained in several of Federal’s policies

of insurance. SBC’s Pfaltzgraff division, a manufacturer of pottery

and stoneware, allegedly generated and disposed of wastes con-

taining heavy metals and other contaminants over the course of

years of operation. In 1983 and 1984, investigations carried out by

the Pennsylvania Department of Environmental Resources

(“DER”) and the Federal Environmental Protection Agency

(“EPA”) determined that these wastes posed a threat to the

environment.

Federal’s insuring agreements during all of the relevant time

included the following language:

The company will pay on behalf of the insured all sums which

the insured shall become obligated to pay as damages by

reason of liability to which the insurance applied . . . for bodily

injury, property damage or personal injury caused by an

occurrence ....

For a substantial portion of the time in question, Federal’s policies

also included language which, under Pennsylvania law, clearly

and unambiguously forecloses insurance coverage for:

Bodily injury or property damage arising out of the discharge,

dispersal, release, or escape of smoke, vapors, soot, fumes,

6

acid, alkalies, toxic chemicals, liquids or gases, waste mate-

rials or other irritants, contaminants, or pollutants into or

upon land, the atmosphere or any water course or body of

water; but this exclusion does not apply if such discharge,

dispersal, release or escape is sudden and accidental.

SBC’s involvement in the underlying actions arose from its

alleged use of the services of Frederick Shealer over the course of a

number of years to dispose of the liquid industrial waste generated

by Pfaltzgraff. According to the allegations of the underlying

actions, SBC’s wastes ended up at the Hunterstown Road and

Shriver’s Corner sites which had also been repositories for wastes

from several other companies. These locations were the subject of

DER and EPA investigation and inquiry in 1983 and 1984. SBC’s

wastes are alleged to have contributed to the contamination found

to be present at the sites.

If SBC did use Mr. Shealer’s services, all testimony and

allegations in both of the underlying actions demonstrated that

SBC’s use of Mr. Shealer was routine, in the ordinary course of

business, and occurred over a period of time. There was neither

testimony nor allegation to contradict the conclusion that any

pollution at the sites occurred as the result of a gradual build up of

SBC’s wastes, together with those of the other defendants, includ-

ing Westinghouse, and the gradual release of contaminants into

the environment, including the groundwater, over the course of

time. Accordingly, the Courts below correctly found that the pollu-

tion occurred gradually over a period of years, a fact which had

been established at the trial of the underlying action. Fishel v.

Westinghouse Electric Co., 640 F. Supp. at 442 (M.D. Pa. 1986).

Up until March 22, 1988, when it withdrew its coverage from

SBC, Federal defended SBC in connection with all aspects of the

underlying actions, subject to a complete reservation of rights. In

connection with this defense, Federal paid $69,032.31 in legal fees

and expenses which, up until March 22, 1988, constituted SBC’s

complete costs of defense in the underlying actions. In settlement

of plaintiffs’ claims, Federal paid on SBC’s behalf $78,000.°

At the time of the cross-motions for summary judgment, the

only active claims against SBC which formed the basis for any

5. At the time that SBC settled with Plaintiffs, the other generator defend-

ants also settled their claims. Westinghouse had previously settled with plaintiffs.

J

ee

remaining liability in the underlying actions were those contained

in the Cross-Claim by Westinghouse against SBC and the other

generator defendants in the Fishel action.® This case, therefore,

squarely raised the question of whether, under Pennsylvania law, a

contribution action for response costs constitutes a claim for com-

pensable damages under Federal’s contracts of insurance.

In light of the clear Pennsylvania Appellate Court authority,

recognized by the District Court below, holding that the pollution

exclusion clause unambiguously forecloses coverage for gradual

pollution, and the District Court’s finding that the pollution for

which SBC was responsible was, indeed, gradual, this case also

presented the question, under Pennsylvania law, of the applicable

trigger of coverage for Federal’s policies.

This petition presents an issue of national significance. The

decisions of the courts below frustrate Congressional policy

embodied in an important Federal statute. By affirming the Dis-

trict Court’s decision that CERCLA response costs are covered by

the policies of insurance at issue, the Third Circuit has, in effect,

obliterated one of the principal purposes of CERCLA; that those

responsible for environmental harm bear the costs of their actions.

This result derives from the lower courts’ manipulation of the

policy language, specifically the term “as damages”, the pollution

exclusion clause, and the triggering occurrence, in order to create

coverage for a risk which Congress clearly intended be borne by

polluters.

6. Plaintiffs’ claims against the Shealers were also outstanding at the time of

the cross-motions, as were cross-claims between the parties in the underlying and

Fishel action. The cross-claims, however, were pro forma assertions of liability

under theories of contribution and/or indemnification and are governed by the

operation of the same legal principles which control disposition of Westing-

house’s Third-Party Complaint. The cross-claims between generator defendents

in Fishel were dismissed, by consent, on October 4, 1989.

ARGUMENT

THE COURT OF APPEALS’ AFFIRMANCE OF THE

DISTRICT COURT’S FINDING THAT ENVIRON-

MENTAL RESPONSE COSTS ARE COVERED BY

THE INSURANCE POLICIES AT ISSUE DEFEATS

THE PURPOSE OF CERCLA TO ASSURE THAT

THOSE RESPONSIBLE FOR ENVIRONMENTAL

~---HARM BEAR THE COSTS OF THEIR ACTIONS

The Comprehensive Environmental Response, Compensa-

tion, and Liability Act (“CERCLA”) was enacted by Congress and

signed into law in late December of 1980. The bill ultimately

proposed to Congress was the result of a compromise between

H.R. 7020 and S. 1480, drafted principally by Senators Jennings

Randolph of West Virginia and Robert T. Stafford of Vermont.

Due to the haste in which this compromise proposal was passed,

floor debate was limited and no conference report was prepared.

Congress’ purposes underlying the compromise legislation, how-

ever, especially concerning liability for releases, can be drawn

from the Senate Committee on Environment and Public Works

report which accompanied S. 1480 from which CERCLA’s liabil-

ity provisions were taken.

This report makes clear in language as explicit as any of

CERCLA’s legislative history that one of the foremost purposes of

this legislation was to “assure that those responsible for any dam-

age, environmental harm, or injury from chemical poisons bear the

costs of their actions.” Senate Committee on Environment and

Public Works, Report on S. 1480, S. Rep. No. 848, 96th Cong., 2d

Sess. 13 (1980) [hereinafter Report].

The goal of assuring that those who caused chemical harm

bear the costs of that harm is addressed in the reported

legislation by the imposition of liability. Strict liability, the

foundation of S. 1480, assures that those who benefit finan-

cially from a commercial activity internalize the health and

environmental costs of that activity into the cost of doing

business. ... An important aspect of strict liability is that it

would create a compelling incentive for those in control of

9

a

hazardous substances to prevent releases and thus protect the

public from harm.

Id. at 13-14.

The most desirable system of loss distribution is one in which

the prices of goods accurately reflect their full costs to

society. This therefore requires, first, that the cost of injuries

| be borne by the activities which caused them, whether or not

| fault is involved, because, either way, the injury is a real cost

of these activities. Second, it requires that among the several

parties engaged in an enterprise the loss be placed on the

party which is most likely to cause the burden to be reflected

in the price of whatever the enterprise sells.

Id. at 34.

Congress intended that this legislation reduce the risk to

society created by the generation, handling, and disposal of

hazardous substances, by assuring that those actors who had

reaped the benefits of producing or trading in these substances in

the past bear the financial burden of remediating injury and mit-

igating risk today.

While this allocation scheme does not in and of itself preclude

insurance coverage, it clearly contemplates that in procuring such

coverage the polluter would necessarily internalize the clean-up

costs through the payment of premiums. In the ordinary course the

amount of the premium would reflect the extent of the risk

covered. In the present case, however, the courts below have found

that insurance policies issued to SBC long before CERCLA was

enacted provide coverage. By definition those policies could not

have reflected the extent of the risk through the premiums charged.

The courts below thus have held, in effect that SBC would not have

to bear the costs of its past actions either directly, in the form of

accountability for the costs of clean-up or indirectly, in the form of

increased premium payments. Such a result is clearly inconsistent

with Congress’ purposes in enacting CERCLA.

The decisions below, however, go further than simply frustrat-

ing Congress’ intent in enacting CERCLA. By permitting SBC to

10

recover all of its CERCLA obligations regardless of when the

harm occurred, the courts below have completely ignored Con-

gress’ principal goal. Specifically, after correctly concluding that

the pollution exclusion contained in Federal’s policies would pre-

clude coverage for CERCLA response costs, the courts neverthe-

less found that SBC would be entirely covered by virtue of the

policies issued before the pollution exclusion was included.’

Because these earlier policies were issued well in advance of

CERCLA’s enactment the premiums charged could not have

reflected that risk. SBC, however, generated and disposed of

hazardous waste between 1975 and 1983. In holding that all

CERCLA liability would be covered by virtue of the early policies

the lower courts have allowed SBC to escape any responsibility for

the environmental harm caused by its waste products. Under this

rule a responsible party such as SBC bears neither the direct costs

of clean-up nor the indirect costs, through the medium of higher

premiums, for the environmental harm which it has created.

7. Federal had insured SBC since March 2, 1968. The pollution exclusion

was included in SBC’s policies beginning either March 2, 1976 or 1977.

11

axe

CONCLUSION

The holdings below, allowing SBC to escape liability for its

CERCLA responsibilities based on insurance coverage which was

secured during a time when CERCLA’s strict liability scheme was

unanticipated, defeats Congress’ purpose of assuring that those

responsible for environmental harm bear the costs of their actions.

For the foregoing reasons, Federal Insurance Company, respect-

fully requests that this Court grant its Petition for Certiorari and set

the case for briefing and oral argument.

Respectfully submitted,

Edward C. Toole, Jr.

Jeffrey A. Smith

C. Dennis Southard IV

CLARK, LADNER, FORTENBAUGH & YOUNG

One Commerce Square

2005 Market Street

Philadelphia, PA 19103

(215) 241-1800

Attorneys for Petitioner,

Federal Insurance Company

12

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 90-5523 and 90-5524

FEDERAL INSURANCE CO.

v.

SUSQUEHANNA BROADCASTING CO.

Federal Insurance Company,

Appellant in 90-5523

Susquehanna Broadcasting Co. (“SBC’’)

Appellant in 90-5524

Appeal from the United States District Court

for the Middle District of Pennsylvania

D.C. Civil Action No. 88-00469

(Honorable William W. Caldwell)

Argued February 7, 1991

Before: MANSMANN, SCIRICA and HIGGINBOTHAM, Circuit Judges

JUDGMENT ORDER

After consideration of all contentions raised by appellant/cross-

appellee and appellee/cross-appellant, it is ADJUDGED AND

ORDERED that judgment of the district court be and is hereby

AFFIRMED.

A-l

Each party to bear its own costs.

BY THE COURT:

mrs /s/

Circuit Judge

Attest:

/s/

Sally Mrvos, Clerk

A-2

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

FEDERAL

INSURANCE COMPANY,

Plaintiff

VS. : CIVIL ACTION NO. 88-0469

SUSQUEHANNA

BROADCASTING COMPANY,

Defendant :

MEMORANDUM

I. Introduction.

The parties have cross-moved for summary judgment pursuant

to Fed. R. Civ. P. 56. This declaratory judgment action was

brought by plaintiff, Federal Insurance Company (‘‘Federal’’), to

establish that it has no duty to indemnify defendant, Susquehanna

Broadcasting Co. (“SBC), for the costs of cleaning up environmen-

tal pollution under comprehensive general liability insurance poli-

cies in effect between the parties. Plaintiff also asserted a claim for

restitution of defense costs for allegedly non-covered claims. The

main issues presented are those commonly occurring in litigation

of this type: (1) whether response costs under the Comprehensive

Environmental Response, Compensation and Liability Act

(“CERCLA”), 42 U.S.C. § 6901 et seq., constitute “damages”

within the meaning of the policies; and (2) whether a policy

exclusion providing coverage only for “sudden and accident”

releases of pollutants bars indemnification.. An additional issue is

plaintiff's contention that under Pennsylvania law the settlement

of litigation between SBC and plaintiffs in the underlying action

extinguished the right of another defendant to seek contribution

A-3

leecnieiaaneeeedeeeennaeiacenatae eames

from SBC for response costs that defendant was required to

expend under governmental order. The principal issues have been

extensively litigated in the past, sometimes with sharp conflicts

between courts. We will examine the motions under the well

established standard. See Celotex Corp. v. Catrett, 477 U.S. 317,

106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This is a diversity action

controlled by Pennsylvania law.

Il. Background.

Frederick Shealer operated.a waste hauling and disposal

business in the Gettysburg, Pennsylvania area. He would pick up

and dispose of wastes for various waste generators, including

Westinghouse Electric Corporation and SBC. Eventually, over a

period of years, certain of these wastes contaminated soil and well

water in adjoining residential areas. Those neighbors affected

brought suit. See Fishel v. Westinghouse Electric Corp., 617 F. Supp.

1531 (M.D. Pa. 1985) and 640 F. Supp. 442 (M.D. Pa. 1986) for

some background,' Westinghouse was also ordered by the Envir-

onmental Protection Agency (“EPA”) to clean up the contami-

nated areas pursuant to 42 U.S.C. § 9607(a). Westinghouse

arranged a settlement with the plaintiffs and also joined SBC, and

other third party waste generators, as third party defendants. West-

inghouse sought contribution and indemnity for its liability to the

plaintiffs and for response costs it incurred in complying with the

EPA order. Upon their motion, the plaintiffs eventually were also

permitted to bring direct claims against the third party defendants.

SBC tendered defense of the claims to Federal in January of

1986. The insurance company at first declined to provide a

defense, contending in letters to SBC’s Chief Counsel, dated May

30, 1986 and June 3, 1986, that there was no coverage under

primary and excess policies in force between the parties. Eventu-

ally, by letter dated February 19, 1987, Federal did agree to

provide a defense but did so under a reservation of rights. Despite

plaintiff's contrary contention, Federal did not assert at that time,

or at any time previously, that it was denying coverage because

CERCLA response costs were not damages within the meaning of

1. A similar case was filed at Arentz v. Westinghouse Electric Corp., No.

86-1674 (M.D. Pa.) but was consolidated with the Fishel action.

A-4

the policy language. The first time Federal raised that issue was in

a letter, dated September 22, 1987, from an environmental claims

supervisor to defendant’s Chief Counsel.

In early 1988, plaintiff settled the neighbors’ claims against

defendant. On March 25, 1988, plaintiff notified defendant that

Federal no longer considered itself obligated to act further on

SBC’s part since the remaining claims were those of Westinghouse

against SBC, which sought contribution for costs plaintiff consi-

dered beyond the coverage it provided. Plaintiff paid the complete

costs of defending the action up to the time of its withdrawal. Since

that time, Westinghouse and the third party waste generator

defendants agreed in the Fishel action to dismiss the claims against

each other. See Fishel, supra, order, dated October 4, 1989.

III. Discussion.

Plaintiff's course of conduct in discharging its obligations to

accept or deny coverage and, in turn, defend the action, forms the

basis of a preliminary argument by defendant that Federal has

waived its argument on the damages coverage issue or, alterna-

tively, should be estopped from arguing it. SBC argues that plain-

tiffs failure to set forth its “’damages’ defense” in its reservation of

rights letter precludes its presentation in the instant action. (doc.

no. 26, defendant’s opposition and supporting brief at p. 15).

Defendant claims that this position is particularly appropriate

“where, as here, the insured is prejudiced because the insurer later

seeks recoupment of defense costs or the insured has foregone the

opportunity to obtain an early ruling as to that coverage issue.” (/d.

p. 16). Further prejudice is claimed in defendant’s reply brief, (doc.

no. 36 at p. 5), in that SBC “had accepted Federal’s defense and

effectively ceded control of the litigation to Federal and its desig-

nated counsel.”

We can make short work of the waiver argument. Defendant

is simply wrong as a matter of Pennsylvania law in asserting that

when an insurer “does not raise an objection to coverage, and

defends with a reservation of rights, the failure to raise the issue

results in waiver ... as to that objection.” (doc. no. 26 at p. 15-16).

This position has been rejected by Pennsylvania courts and federal

district courts interpreting Pennsylvania law. Rather, Pennsylva-

A-5

ee

nia uses an estoppel approach. See Pfeiffer v. Grocers Mutual

Insurance Co., 251 Pa. Super. 1,379 A.2d 118 (1977). As stated in

Weintraub vy. St. Paul Fire and Marine Insurance Co., 609 F. Supp.

273,275 (E.D. pa. 1985) (cited cases omitted), under Pennsylva-

nia law, “‘an insurer’s failure to assert all possible defenses when

denying coverage will create an estoppel only when such failure

causes the insured to act to his detriment in reliance thereon.” See

also Bensalem Township v. Western World Insurance Co., 609 F.

Supp. 1343 (E.D. Pa. 1985).

We have no particular quarrel with the cases cited by defend-

ant in support of its waiver argument. See /ntel Corporation v.

Hartford Accident and Indemnity Co., 692 F.Supp. 1171 (N.D. Cal.

1988) and Central Armature Works v. American Motorists Insur-

ance Co., 520 F. Supp. 283 (D. D.C. 1980). They are simply

inapposite here because they do not involve Pennsylvania law.?

Other cases cited by defendant are distinguishable. Beckwith

Machinery Co. v. Travelers Indemnity Co., 638 F. Supp. 1179 (W.D.

Pa. 1986); Safeco Insurance Co. v. Ellinghouse, 223 Mont. 239,725

P.2d 217 (1986) and Ebert v. Balter, 83 N.J. Super. 545, 200 A.2d

532 (1964), all involved cases where the insurer accepted cover-

age, defended the underlying action for some period of time with-

out a reservation of rights, and then abruptly withdrew from the

case. Imposition of liability on the company in those circumstances

was in accord with the general Pennsylvania rule “that an insur-

ance company may not undertake the defense of a suit which

entails the defendant’s relinquishing to the company the manage-

ment of the case and then turn around and deny liability under its

policy.” Brugnoli v. United Nat'l Insurance Co., 284 Pa. Super. 511,

516,426 A.2d 164, 166-67 (1981) (quoted case omitted). Here, as

noted, there is a reservation of rights letter which compels a

different conclusion. See Draft Systems, Inc. v. Alspach, 756 F.2d

293 (3d Cir. 1985).

We must therefore determine if plaintiff should be estopped

from arguing that its policies are inapplicable to defendant’s

claims because defendant is not seeking “damages” within the

2. Defendant’s failure to refer to the relevant Pennsylvania case law in its

briefs is curious. In particular, we have in mind the Weintraub decision since

Weintraub was footnoted in /ntel as a case invoking the estoppel approach. See

Intel, 692 F. Supp. at 1171, 1181 n.11.

A-6

meaning of the policies. To apply estoppel here SBC must show

-hat it has been prejudiced by plaintiff's failure to assert this ground

in its reservation of rights letter and earlier denials of coverage. See

Pfeiffer, supra. As noted, defendant claims prejudice because: (1)

Federal has sought recoupment of defense costs; (2) defendant has

foregone an opportunity to obtain an early ruling on this coverage

issue; and (3) SBC accepted Federal’s defense of the underlying

action and ceded control of that litigation to Federal and its

designated defense counsel.

In light of the reservation of rights letter, none of these conten-

tions, without more, establishes the necessary prejudice. Defend-

ant knew that plaintiff was disclaiming coverage on other grounds

so a Claim for recoupment of counsel fees should not have been

surprising.’ Defendant has also foregone an early ruling on all

coverage issues so its inaction in regard to this particular issue

could not have been prejudicial. Finally, the ceding control of the

litigation to Federal and its counsel is not sufficient. Defendant had

knowledge of the initial refusal to defend and the plaintiff's issu-

ance of the reservation of rights letter. Defendant nevertheless

accepted plaintiff's choice of counsel. We will therefore address

plaintiff's argument on the merits.

There were various policies in effect during the relevant time

period.4 A representative policy contained the following

language:

The company will pay on behalf of the insured all sums which

the insured shall become obligated to pay as damages by

3. We note that the claim for counsel fees is for fees expended in defense of

non-covered claims so the merits of this claim are not connected to the early

failure to assert the damages defense. The two issues are simply not relevant to

each other. What is important is that plaintiff did not defend under a reservation

of rights. We do note our agreement with defendant that plaintiff is not entitled to

reimbursement of any of its defense costs incurred until the time of the termina-

tion of the Fishel action. See Terra Nova Insurance Co. v. 900 Bar Inc., 887 F.2d

1213 (3d Cir. 1989). We will therefor enter judgment in favoi « © defendant on

Count III of the complaint.

4. SBC contributed to the waste from 1975 through 1983. Specifically,

during that time period, Shealer hauled waste for the Pfaltzgraff Company, a

subsidiary of SBC.

A-7

reason of liability to which the insurance applies ... for bodily

injury, property damage or personal injury caused by an

occurrence ....

Plaintiff contends that response costs under CERCLA are equita-

ble in nature. In contrast, it is well established that damages are a

legal remedy. Accordingly, it argues that its promise to pay on

behalf of SBC any “damages” for which the latter may be liable is

inapplicable here. Federal relies mainly upon Continental Insur-

ance Companies v. Northeastern Pharmaceutical & Chemical Co.,

842 F.2d 977 (8th Cir. 1988) (en banc) (NEPACCO) and Mary-

land Casualty Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987). It

has also referred us to A/U Insurance Co. v. Superior Court (FMC

Corp.), 213 Cal. App. 3d 1219, 262 Cal. Rptr. 182 (1989) review

granted, (Cal. Nov. 30, 1989). NEPACCO held that under Missouri

law an insurer’s obligation to pay “damages” on behalf of its

insured does not include CERCLA response costs. Maryland Cas-

ualty reached the same conclusion under Maryland law. SBC

counters with cases in support of its position that response costs, or

more generally costs necessary to repair property damage, are

damages within the meaning of the policy language.’ See, e.g,

Aerojet General Corp. v. San Mateo County Superior Court

(Cheshire and Companies), 211 Cal. App. 3d 216, 257 Cal. Rptr.

621 (1989); New Castle County v. Hartford Accident and Indemnity

Co., 673 F. Supp. 1359 (D. Del. 1987); Avondale Industries, Inc. v.

Travelers Indemnity Co., 697 F.Supp. 1314 (S.D. N.Y. 1988), aff-d,

887 F.2d 1200 (2d Cir. 1989); National Indemnity Co. v. United

States Pollution Control, Inc., 717 F.Supp. 765 (W.D. Okla. 1989).

Each of these lines of cases has its own theme. Those holding

that response costs, or costs of restoring property, are recoverable

as damages refuse to assign a technical meaning to the word

“damages,” referring the lay person’s point of view and emphasiz-

ing the reasonable expectations of the insured. Those holding that

such costs are not recoverable start from the premise that damages

has a technical, but nonetheless, accepted meaning which does not

include the costs of complying with equitable actions. The latter

5. We reject defendant's contention that the Westinghouse contribution

claim transforms the claim for response costs into a purely legal one. See Armco,

supra, 822 F.2d at 1352.

A-8

also note the potentially unlimited exposure which might result if

an insurance company was required to pay for response costs.

Our own analysis of the issue is not very different from the en

banc discussion in NEPACCO except for the result. We believe

that under Pennsylvania law Federal can be required to pay for at

least some of the response costs.

In interpreting insurance contracts, Pennsylvania, while con-

struing words of common usage “in their nature plain, and ordi-

nary sense” will construe technical words “in their technical sense

unless a contrary intention clearly appears.” Blue Anchor Overall

Co. v. Pennsylvania Lumbermens Mutual Insurance Co., 385 Pa.

394, 397-98, 123 A.2d 413,415 (1956) (construing in a technical

sense the phrases “other insurance” and “concurrent or not’’). See

also Easton v. Washington County Insurance Co., 391 Pa. 28, 137

A.2d 332 (1957) (“sheds” in a fire insurance policy is not a word of

art but a simple word of common usage); Mohan v. Union Fidelity

life Insurance Co., 207 Pa. Super. 205, 216 A.2d 342, 348 n.11

(1966) (per curiam affirmance incorporating the opinion of the

trial court) (paycheck is a word of common meaning); Shelley v.

Nationwide Mutual Insurance Co., 213 Pa. Super. 218, 245 A.2d

674 (1968).

This rule is in accord with Pennsylvania rules of contract

construction in general. In interpreting a contract:

It is fundamental that “Technical terms and words of art are

[to be] given their technical meaning unless the context or a

usage which is applicable indicates a different meaning”.

Restatement, Contracts, § 235(b). And this rule is especially

applicable where the words of art used are legal terms. 17

CJ.S., Contracts, § 302, page 720. [remaining citation

omitted].

Fischer & Porter Co. v. Porter, 364 Pa. 495,500, 72 A.2d 98, 101

(1950) (brackets added in part). See also generally Spatz v. Nascone,

283 Pa. Super. 517, 424 A.2d 929 (1981); Rothstein v. Aetna

Insurance Co., 216 Pa. Super. 418,268 A.2d 233 (1970). In accord

with Fischer, the Third Circuit in Miller v. Weller, 288 F.2d 438 (3d

Cir. 1961), concluded that damages was “a word of art with a

rather definite meaning,” id. at 439, and used the definition of

A-9

damages as given in the case law, id. at n.4, to interpret a contract.®

Based upon the foregoing we must interpret damages in the

instant case in its technical sense as it is “generally recognized in

the law,” Miller, 288 F.2d at 440, and therefore permit indemnifi-

cation only to the extent that the response costs are recoverable

under Pennsylvania law as an item of damages.

In making this determination, it is not very helpful to note that

damages are a legal remedy and the sums sought from SBC

represent Westinghouse’s expenses to comply with equitable

orders of the EPA. To recognize that damages are not equitable

relief does not answer the specific question whether the costs of

restoring land to its original condition are, nevertheless, recovera-

ble in damages. It is well established in Pennsylvania that such

costs are recoverable. The Pennsylvania Superior Court recently

stated the general rule as follows:

The measure of damages for injury to property is the cost of

repairs where that injury is reparable unless such cost is equal

to or exceeds the value of the injured property. Rabe v.

Shoenberger, 213 Pa. 252, 62 A. 854 (1906); Wade v. S.J.

Groves & Son Co., 283 Pa. Super. 464,424 A.2d 902 (1981).

Where the cost of repair does exceed the value of said prop-

erty, the cost of damages becomes the value of the property.

Id. Where, however, the injury is deemed to be permanent,

the measure of damages becomes the decrease in the fair

market value of the property. /d.; Bumbarger v. Walker, 193

Pa. Super. 301, 164 A.2d 144 (1960).

Kirkbride v. Lisbon Contractors, Inc., 385 Pa. Super. 292, ____.,

560 A.3d 809, 812 (1989) (en banc).

In Kirkbride, the Superior Court affirmed a damage award in

the form of restoration costs despite the defendant’s contention

that such costs were improper since they significantly exceeded the

diminution in the value of the land. Because the injury was repara-

ble, however, plaintiffs’ “were entitled to receive the costs of

6. We recognize that the Third Circuit considered another importani ele-

ment of this case was the drafting of the agreement by two lawyers whe should

have recognized the significance of using the word damages but we believe the

Fischer case was an equally valid consideration.

A-10

restoring their land back to its original condition.” /d. at

560 A.2d at 813.

Since, under Pennsylvania law “where an injury is reparable,

the damage is the cost of repair or restoration,” /d. at 560

A.2d at 813, it appears that CERCLA response costs would

include the cost of restoring the land and cleaning up the pollution.

See generally, Lutz v. Chromatex, Inc., 718 F. Supp. 413 (M.D. Pa.

1989). There is a limitation, however, upon the damages that may

be recovered. They cannot exceed the value vu. the property.’ See

also NEPACCO, supra, 842 F.2d at 989 (Heaney, J., concurring

and dissenting) (the record clearly showed that the cost of cleaning

up was less than the value of the government’s interest in the

property and therefore was the proper measure of damages).*

Federal also contends that there is no coverage because of the

pollution exclusion in certain of the policies. Defendant counters

that plaintiff is ignoring the period of time when the policies did

not contain a pollution exclusion and that, pursuant to ACandS,

Inc. v. Aetna Casualty And Surety Co., 764 F.2d 968 (3d Cir. 1985);

General Refractories Co. v. Travelers Insurance Co., 1988 WL

136317 (E.D. Pa.); Reading Co. v. Travelers Indemnity Co., 1988

WL 13242 (E.D. Pa.) and Centennial Insurance Co. v. Lambermen’s

Mutual Casualty Co., 677 F. Supp. 342 (E.D. Pa. 1987), Pennsyl-

vania would permit full recovery of defendant’s CERCLA obliga-

tions under the earlier policies even if some of the disposal and

discharges contributing to the need for response costs occurred

when the pollution exclusion was applicable.’ Specifically, SBC

contends that the “exposure theory,” as it has come to be known, of

determining when “property damage” has occurred or of de-

termining when an “occurrence” within the meaning of the

7. We think that we can conclude that the damage was reparable since

remedial efforts have been undertaken. If the damage had been permanent, the

damages that Federal would have been responsible for would have been the

diminution in the value of the land.

8. Hence, the fears of some courts that deciding for coverage would impose

unlimited liability upon insurance companies need not be addressed here. Com-

pare AIU, supra..

9. There is a dispute whether the pollution exclusion was first set forth in a

policy on March 2, 1977, as SBC contends, or on March 2, 1976, as Federal

contends. Our analysis of the pollution exclusion issue will not require us to

resolve this dispute.

A-11

policies’ definitions happened, dictates that coverage for the

pollution in the underlying action can start from the time in 1975

that Shealer began disposing of wastes at the various dump sites

for SBC.

In ACandS, the Third Circuit held that, along with the theories

of “exposure-in-residence” and “manifestation,” an insurance

policy providing coverage for bodily injury would be applicable to

claims for bodily injuries arising from exposure to asbestos under

the exposure theory; that is, a policy in effect at the time the injured

party was exposed to asbestos would provide coverage for an

illness manifesting itself after the expiration of the policy period.

Accord Centennial, supra (coverage for environmental discharge

triggered at times wastes were dumped onto the land). We agree

with defendant. Therefore, coverage under the earlier policies not

containing a pollution exclusion was triggered in this case.

ACandsS is also significant here because of a potential prora-

tion issue. In ACandS, the defendant insurers argued that any

particular policy could only be responsible for a pro rata share of

an injury, measured, in part, by its effective period. Rejecting this

contention, the Third Circuit stated:

The policies require the insurers to pay all sums which

ACandS becomes “legally obligated to pay” because of bod-

ily injury during the policy period. It is uncontested that under

principles of tort law ACandS may be heid fully liable for a

personal injury plaintiffs damages caused in part by

ACandS’ asbestos during a particular period, even though

plaintiffs damages may also have been caused, in part, at

other times. See Borel v. Fibreboard Paper Products Corp.,

493 F.2d 1076, 1094-96 (Sth Cir. 1973), cert. denied, 419

U.S. 869,95 S.Ct. 127,42 L.Ed.2d 107 (1974). It follows that

if a plaintiff's damages are caused in part during an insured

period, it is irrelevant to ACandS’ legal obligations and,

therefore, to the insurer’s liability that they were also caused,

in part, during another period. See Keene, 667 F.2d at 1047-

49. We think the Supreme Court of Pennsylvania would

agree.

764 F.2d at 974.

A-12

The policies at issue in the instant case contain similar language.

And generators of environmental waste can be held jointly liable

for all response costs even though others may have contributed to

the pollution. See United States v. Marisol. Inc., F. Supp.

1989 WL 138175 (M.D. Pa.) (Nealon, J.). On the current

record, we conclude then that the earlier policies would provide

coverage for all of SBC’s response costs liabilities regardless of the

presence of the pollution exclusion in later policies.

Nevertheless, because it might advance the ultimate resolu-

tion of this action, we present our observations on the effect of the

pollution exclusion clause. A representative exclusion provided

that the policy would not apply to:

bodily injury or property damage arising out of the discharge,

dispersal, release or escape of smoke, vapors, soot, fumes,

acid, alkalis, toxic chemicals, liquids or gases, waste mate-

rials or other irritants, contaminants, or pollutants into or

upon land, the atmosphere or any water course or body of

water; but this exclusion does not apply if such discharge,

dispersal, release or escape is sudden and accidental.

This language provides that there is no coverage for damages

resulting from pollution unless the pollution was sudden and

accidental. The pollution here occurred gradually over a period of

years.'° Hence, Federal argues there is no coverage. Plaintiff cites

Lower Paxon Township v. United States Fidelity And Guaranty Co.,

383 Pa. Super. 558,557 A.2d 393 (1989) and Techalloy Company,

Inc. v. Reliance Insurance Co., 338 Pa. Super. 1, 487 A.2d 820

(1984). In both of these cases the Pennsylvania Superior Court

held that coverage for pollution could only be odbtained “if the

discharge itself is both sudden, meaning abrupt and lasting only a

short time, and accidental, meaning unexpected.” Lower Paxon,

383 Pa. Super. at 571,557 A.2d at 399. SBC contends that these

cases were wrongly decided and that the better rule is set forth in

cases like United States Fidelity & Guaranty Co. v. Thomas Solvent

Co., 683 F. Supp. 1139 (W.D. Mich. 1988) and New Castle County

v. Hartford Accident & Indemnity Co., 673 F. Supp. 1359 (D. Del.

10. We reject defendant's contention that plaintiff has not proven that the

pollution was gradual. That was established in the underlying action.

A-13

1987). Those cases hold that “sudden and accidental” is ambigu-

ous, must be construed in the insured’s favor, and requires only an

accidental discharge for coverage to take effect. SBC points out

that we are not controlled by intermediate state court appellate

decisions, see Wisnieski v. Johns-Manville Corp., 759 F.2d 271 (3d

Cir. 1985), and must rule as we think the state’s highest court

would. /d. We have carefully considered cases on both sides of this

issue and agree with the reasoning and holding of the courts in

Lower Paxon and Techalloy.

SBC further argues that Lower Paxon and Techalloy do not

control here because the insured was the active polluter in those

cases. In the instant case, SBC had hired Shealer to dispose of

environmental waste and the discharges occurred at locations

chosen and controlled by Shealer. SBC argues the pollution exclu-

sion is ambiguous concerning its application to pollution by third

parties and accordingly should be construed to provide coverage

for SBC’s liability arising from Shealer’s disposal of defendant’s

waste. Defendant relies principally upon United States Fidelity And

Guaranty Co. v. Specialty Coatings Co., 180 Ill. App.3d 378, 535

N.E.2d 1071 (1989). Faced there with a similar argument from the

insured, the court stated as follows:

It is not clear from the circumstances of this case, and from

the underwriting history of the exclusionary clause to which

we will later refer, that the parties intended the exclusionary

clause to apply whether the insured was an active polluter or

not. Certainly, those engaged in manufacturing processes

would be expected to have sought other or additional insur-

ance had they known that the mere act of engaging an

independent agency such as a waste disposal in the ordinary

course of having industrial wastes removed from their prop-

erty would result in the denial of insurance coverage. There is

nothing in the record to show whether such additional insur-

ance was even available when defendants purchased their

USF & G policy. This ambiguity must be resolved against

USF & G in consonance with the authorities previously cited.

Id. at 535 N.Ed.2d at 1076.

A-14

Whatever validity this approach to insurance policy interpre-

tation has in Illinois, it cannot be used under Pennsylvania law. In

Pennsylvania, the intent of the parties is ascertained first from the

language of the policy if possible. See Standard Venetian Blind Co.

v. American Empire insurance Co., 503 Pa. 300, 469 A.2d 563

(1983). The pollution exclusion makes no reference at all to active

polluters or passive polluters. These terms are foreign to the poli-

cies in question. As such, we agree with the court in Fireman's Fund

Insurance Cos. v. Ex-Cell-O Corp., 702 F. Supp. 1317, 1325 (E.D.

Mich. 1988), when faced with the same argument by the insureds

there:

Insofar as the term “active polluter” is a rubric for analyzing

whether coverage exists under the terms of the policy, it is at

best unnecessary. If, however, the term imports some addi-

tional criteria not found in the policy, it is not part of the

parties’ contract. Policyholders’ argument is not persuasive.

In our view, the pollution exclusion broadly, but nevertheless

plainly, excludes coverage for gradual pollution. Thus, under Pen-

nsylvania law, there is no occasion or opportunity to indulge in a

loose examination of the “circumstances” of the case or “the

underwriting history of the exclusionary clause.’’ Nor should we

examine what would have been expected of SBC in obtaining

other insurance which would have covered the risk. Federal’s only

obligation is to fulfill its obligations for the risks it contractually

obligated itself.

Along with Specialty Coatings, SBC also, in part, relies upon

Niagara County v. Utica Mutual Insurance Co., 80 A.D.2d 415,439

N.Y.S.2d 538 (1981); Covington Township v. Pacific Employers

Insurance Co., 639 F.Supp. 793 (M.D. Pa. 1986); Jackson Town-

ship Municipal Utilities Authority v. Hartford Accident and Indem-

nity Co., 186 N.J. Super 156, 451 A.2d 990 (Law Div. 1982) and

United Pacific Insurance Co. v. Van's Westlake Union. Inc., 34

Wash. App. 708, 664 P.2d 1262 (1983). Most of these cases were

correctly critiqued by the court in Ex-Cell-O, supra, as follows:

The distinction between “active” and "’passive” polluters

originates from Niagara County, in which the court held that

A-15

the pollution exclusion in the county’s policy did not preclude

the insurer’s duty to defend the county against an action

regarding hazardous waste disposal at Love Canal, where the

county merely owned the land. Interpreting the legislative

history behind the statutorily mandated pollution exclusion,

the court suggested that it was meant to apply to ’industry-

related activities.” 427 N.Y.S.2d at 174. Subsequent cases

have ignored the statutory basis of Niagara County’s holding,

and extended the concept beyond its more limited holding.

See, Jackson Township, 451 A.2d at 991-92, and Van’s

Westlake Union, 664 P.2d at 1264-66. See Note, The Pollution

Exclusion Clause Through the Looking Glass, 74 Ceo. L.J.

1237, 1271-73 (1986) (“Whatever little analytical value the

labels might have had in the Niagara County context, they

have no value once the facts change.’’).

702 F. Supp. at 1325 n.12.

Moreover, Niagara County has not received unanimous

acceptance within its own state. In Powers Chemco. Inc. v. Federal

Insurance Co., 144 A.D.2d 445, 533 N.Y.S.2d 1010 (1988), the

Appellate Division, Second Department, refused to follow it. In

Powers Chemco, the plaintiff bought land which had been used by

the seller to dispose of hazardous material over a number of years.

Powers Chemco entered into a consent decree with New York

State to clean up the site and sought indemnification from its

defendant insurer. Federal relied upon the same pollution exclu-

sion at issue in the instant case to avoid coverage. Plaintiff

asserted, as SBC does here, that the exclusion applies only to active

polluters. Rejecting this argument, the appellate court stated:

The plaintiff emphasizes the fact that the discharge of

hazardous materials was performed by the former owner of

the property without its knowledge or consent. Thus, it con-

cludes that the rationale for the inclusion of a pollution

exclusion clause in general liability policies, which is, in part

“to deter deliberate pollution by withholding the shelter of

liability insurance for injuries resulting from such conduct.”

(Technicon Electronics Corp. v. American Home Assur. Co.,

A-16

:

supra at 103), would not be served by applying the exclusion

to preclude coverage here. In support of this proposition, the

plaintiff relies upon Niagara County v. Utica Mut. Ins. Co., 80

A.D.2d 415,439 N.Y.S.2d 538, lv. dismissed, 54 N.Y.2d 608,

443 N.Y.S.2d 1030, 427 N.E.2d 1191, and Autotronic Sys-

tems v. Aetna Life & Cas. Co., 89 A.D.2d 401,456 N.Y.S.2d

504, decided by the Appellate Division, Fourth Department

and Third Department, respectively We decline to follow the

holding in Autotronic and the dicta in Niagara County. The

clear and unambiguous language of the pollution exclusion

makes no exception for pollution caused by someone other

than the insured where that pollution is not “sudden and

accidental”. To impose such an exception under the instant

circumstances would be to “vary the contract of insurance to

accomplish (this court’s) notions of abstract justice or moral

obligation” (Breed v. Insurance Co. of North Amer., 46

N.Y.2d 351, 355.413 N.Y.S.2d 352, 355, 385 N.E.2d 1280,

1282), something which we may not do.

144 A.D.2d at 533 N.Y.S.2d at 1O11-12.11"!

Most significantly, the New York Court of Appeals recently

affirmed the decision of the Second Department in language

including that of the lower court:

We also reject plaintiff's contention that since it was not the

actual polluter, but merely inherited the problem from the

prior landowner, the pollution exclusion clause cannot bar its

present insurance claim. Simply put, there is nothing in the

language of the pollution exclusion clause to suggest that it is

not applicable when liability is premised on the conduct of

someone other than the insured.

11. We would also note that Covington Township, supra, a decision of this

court, per Judge Nealon, is distinguishable because the Township, while charged

with permitting discharges of pollution, also was alleged to have been negligent in

monitoring waste disposal sites and issuing permits.

A-17

N.Y.2d ‘ ' N.E.2d ;

1989 WL 139608 (1989). The court concluded that “the exclusion

clause [was] ‘unambiguously plain and operative’ ....” /d. at

N.E.2d at (brackets added) (quoted case

omitted).

We would therefore not accept defendant’s argument as it

relates to the policies containing the exclusion.

Plaintiff has also argued that the releases executed by the

Fishel plaintiffs in the separate settkements consummated with

Westinghouse and SBC have extinguished Westinghouse’s claim

for contribution against SBC. But, as pointed out by deiendant,

Federal would still have had a duty to defend the contribution

claims and the direct claims by the Fishel plaintiffs which were still

pending at the time SBC requested a defense. See Beckwith, supra.

The settlements might have been a defense to the claims in the

underlying action but could not excuse SBC’s insurer from de-

fending the claim in the first instance.

We will issue an appropriate order.

/s/

William W. Caldwell

United States District Judge

Date: December 21, 1989

A-18

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

FEDERAL

INSURANCE COMPANY,

Plaintiff

w: " CIVIL ACTION NO: 88-0469

SUSQUEHANNA

BROADCASTING COMPANY,

Defendant ~

ORDER AND JUDGMENT

AND NOW, this 21st day of December, 1989, upon consider-

ation of the cross-motions for summary judgment, it is ordered and

declared that:

1. Plaintiff, Federal Insurance Company, had a duty

to indemnify and defend defendant, Susquehanna Broad-

casting Company, on the third party claim of Westinghouse

Electric Corporation, for response costs arising from Fishel v.

Westinghouse, Civil Action No. 85-0216.

2. Judgment is hereby entered in favor of defendant,

Susquehanna Broadcasting Company, and against plaintiff,

Federal Insurance Company, on the Third Count of plaintiff's

complaint.

3. The Clerk of Court is directed to close this file.

/s/

William W. Caldwell

United States District Judge

A-19

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

FEDERAL

INSURANCE COMPANY,

Plaintiff

¥. "CIVIL ACTION NO: 88-0469

SUSQUEHANNA

BROADCASTING COMPANY,

Defendant ;

MEMORANDUM

On December 21, 1989, we entered summary judgment in

favor of defendant, Susquehanna Broadcasting Co. (SBC), con-

cluding that plaintiff, Federal Insurance Co. (Federal), was liable

under its comprehensive general liability insurance for response

costs incurred by SBC in cleaning up environmental pollution at

certain sites in the Gettysburg, Pennsylvania area. See 727 F. Supp.

169 (M.D. Pa. 1989). SBC has filed a timely motion to reconsider

and amend the judgment under Fed. R. Civ. P. 59(e). SBC contends

that we erred in concluding that its recovery under the policy

would be limited to the value of the polluted property. In its brief in

support of the motion, defendant also takes issue with our analysis

that under Pennsylvania law, the word “damages” in the Federal

policy had to be construed in a technical sense as it appears in the

case law rather than from a lay person’s point of view. The brief

also requests that we delete our discussion of the pollution exclu-

sion as necessary dictum. In opposing defendant’s motion, Federal

does not contest defendant’s argument that we erroneously

imposed a “ ‘property value’ limitation,” as SBC characterizes it.

Instead, plaintiff has attempted to convince us that our threshold

A-20

conclusion was wrong and that the responses costs are not recov-

erable as damages under Pennsylvania law. '

In concluding that any recovery for response costs would be

limited to the value of the affected property we relied upon Kirk-

bride v. Lisbon Contractors, Inc., 385 Pa. Super. 292,560 A.2d 809

(1989)en banc), in which the Pennsylvania Superior Court sum-

marized the holdings of various Pennsylvania cases permitting

recovery as damages the cost of repairing or restoring real prop-

erty but which limited recovery to the value of the property.

Defendant stresses that this was an issue not argued or briefed by

the parties and that Kirkbride, a trespass action under the common

law, does not support the conclusion that recovery of CERCLA?

response costs are similarly limited. SBC points out that Federal

agreed to pay “all sums” which SBC became “obligated to pay as

damages.” 727 F. Supp. at 173. The obligation to pay response

costs arises under CERCLA which is not limited by reference to a

common law measure or limitation upon the damages recovera-

ble. SBC cites, among other cases, CPS Chemical Co., Inc. v.

Continental Insurance Co., 222 NJ. Super. 175, 536 A.2d 311

(1988) and Lansco, Inc. v. Department of Environmental Protection,

138 NJ. Super. 275, 350 A.2d 520 (1975) in its support. In the

above-cited cases the courts looked to the environmental law

under which the legal obligation was imposed to determine the

measure of damages rather than the common law. We agree with

defendant’s position and wil grant the motion insofar as it attacks

our previous conclusion that damages are limited by the value of

the property.

Defendant has also contested our decision to view the word

“damages” in the policy in a technical sense. SBC argues that on

1. SBC contends that Federal is foreclosed from making this argument since

plaintiff did not file its own motion to alter or amend. Accordingly, Fede: ai should

be limited to rebutting SBC’s arguments. We believe, however, that SBC's motion

confers upon us the discretion to consider Federal’s position even though Federal

could not have independently at this time sought reconsideration. See Charles v.

Daley, 799 F.2d 343, 347 (7th Cir. 1986); Continental Casualty Co. v. American

Fidelity And Casualty Co., 186 F. Supp. 173 (S.D. Ill. 1959). The same conclusion

applies to the grounds set forth in defendant's brief which were not set forth in the

motion.

2. The Comprehensive, Environmental Response, Compensation and Lia-

bility Act. 42 U.S.C. § 6901 et seg.

A-21

er Pee ee

this issue we incorrectly relied upon Continental Insurance Com-

panies v. Northeastern Pharmaceutical & Chemical Co., 842 F.2d

977 (8th Cir. 1988) (en banc) (NEPACCO) and that we misinter-

preted Miller v. Weller, 288 F.2d 438 (3d Cir. 1961) and Blue

Anchor Overall Co. v. Pennsylvania Lumbermens Mutual Insurance

Co., 385 Pa. 394, 123 A.2d 413 (1956). Contrary to defendant's

contention, we did not rely upon NEPACCO. We did note that our

analysis would be similar to that of the court in NEPACCO but it

did not flow from that case. Rather, it was based upon an inde-

pendent analysis of cases like Miller and Blue Anchor which

construed Pennsylvania law. As for defendant’s argument con-

cerning the latter cases, our interpretation is set forth in our origi-

nal memorandum and we believe it is correct.’

SBC has also requested that we delete our discussion of the

pollution exclusion clause as unnecessary dictum. We decline to

do so. Our analysis was offered in an attempt to narrow the issues

and expedite resolution of the case. That our effort was fruitless

does not mean that we should now disavow it. The relief defendant

seeks is unnecessary and we reject it.

In connection with plaintiff's argument that we erred in con-

cluding that response costs are recoverable as damages, we think it

is Federal that is elevating form over substance by its focus upon

CERCLA response costs as equitable and restorative in nature

rather than legal and compensatory. As the parties and the court

apparently agree, significance cannot be attached solely to labels

on the causes of action. If, in fact, response costs, the costs of

restoring land to its original condition, are recoverable as damages

under Pennsylvania law, it does not matter what the nature of the

CERCLA action is. This is where Kirkbride can be relied upon. It

upheld an award of damages measured by the cost of restoring the

property to its original condition. The damages were referred to as

compensatory but it is clear that substantively their purpose was to

3. Defendant has also referred us to Aronson Associates, Inc. v. Pennsylvania

Nat'l Mut. Cas. Ins. Co., 14 Pa. D. & C. Rep. 3d 1, 8 (Dauphin Co. 1977)

(Caldwell, J.). But in that case we had to construe the words “sudden” and

“accidental,” words of common meaning.

A-22

restore the original condition of the land, not compensation for

damage inflicted.

We will issue an appropriate order.

/s/

William W. Caldwell

United States District Judge

Date: May 18, 1991

A-23

ee te ee > ewan

es Re Pey C8 whee

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

FEDERAL

INSURANCE COMPANY,

Plaintiff

¥. " CIVIL ACTION NO: 88-0469

SUSQUEHANNA

BROADCASTING COMPANY,

Defendant :

ORDER

AND NOW, this 18th day of May, 1990, upon consideration

of Defendant’s motion to reconsider and amend the judgment, it is

ordered that:

1. | The motion is granted in part.

y & Defendant’s recovery under thepolicy shall not be

limited by the value of the polluted properties.

3. In all other respects, the motion is denied.

/s/

William W. Caldwell

United States District Judge

A-24

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 90-5523 and 90-5524

FEDERAL INSURANCE CO.

V.

SUSQUEHANNA BROADCASTING CO.

Federal Insurance Company,

Appellant in 90-5523

Susquehanna Broadcasting Co. (“SBC”),

Appellant in 90-5524

(D.C. Civ. No. 88-00469)

SUR PETITION FOR REHEARING

Present: SLOVITER, Chief Judge, BECKER, MANSMANN,

SCIRICA, NYGAARD, ALITO and HIGGINBOTHAM*, Circuit

Judges

The petition for rehearing filed by appellant/cross-appellee

Federal Insurance Company in the above-entitled case having

been submitted to the judges who participated in the decision of

this Court and to all the other available circuit judges of the circuit

in regular active service, and no judge who concurred in the

decision having asked for rehearing, and a majority of the circuit

* As to panel rehearing only.

A-25

\

judges of the circuit in regular service not having voted for rehear-

ing, the petition for rehearing by the panel and the Court in banc, is

denied.

BY THE COURT,

/s/

Circuit Judge

Dated: March 28, 1991

$9607. Liability

(a) Covered persons; scope; recoverable costs and dam-

ages; interest rate; “comparable maturity” date. Notwithstanding

any other provision or rule of law, and subject only to the defenses

set forth in subsection (b) of this section --

(1) the owner and operator of a vessel or a facility,

(2) any person who at the time of disposal of any hazardous

substance owned or operated any facility at which such hazardous

substances were disposed of,

(3) any person who by contract, agreement, or otherwise

arranged for disposal or treatment, or arranged with a transporter

for transport for disposal or treatment, of hazardous substances

owned or possessed by such person, by any other party or entity, at

any facility or incineration vessel owned or operated by another

party or entity and containing such hazardous substances, and

(4) any person who accepts or accepted any hazardous

substances for transport to disposal or treatment facilities, inciner-

ation vessels or sites selected by such person, from which there is a

release, or a threatened release which causes the incurrence of

response costs, of a hazardous substance, shall be liable for --

(A) all costs of removal or remedial action incurred by

the United States Government or a State or an Indian tribe not

inconsistent with the national contingency play;

(B) any other necessary costs of response incurred by

any other person consistent with the national contingency plan;

(C) damages for injury to, destruction of, or loss of

natural resources, including the reasonable costs of assessing such

injury, destruction, or loss resulting from under subparagraphs (A)

through (D). Such interest shall accrue from the later of (i) the date

payment of a specified amount is demanded in writing, or (ii) the

date of the expenditure concerned. The rate of interest on the

outstanding unpaid balance of the amounts recoverable under this

section shall be at the same rate as is specified for interest on

investments of the Hazardous Substance Superfund established

under subchapter A of chapter 98 of the Internal Revenue Code of

1954 [26 USCS §§9501 et seq.]. For purposes of applying such

amendments to interest under this subsection, the term “compara-

A-27

eee ea

ee ee ae

NE RRB REL LN BND et

ble maturity” shall be determined with reference to the date on

which interest accruing under this subsection commences.

(b) Defenses. There shall be no liability under subsection

(a) of this section for a person otherwise liable who can establish by

a preponderance of the evidence that the release or threat of

release of a hazardous substance and the damages resulting there-

from were caused solely by -

(1) an act of God;

(2) an act of war;

(3) an act or omission of a third party other than an

employee or agent of the defendant, or than one whose act or

omission occurs in connection with a contractual relationship,

existing directly or indirectly, with the defendant (except where the

sole contractual arrangement arises from a published tariff and

acceptance for carriage by a common carrier by rail), if the

defendant establishes by a preponderance of the evidence that (a)

he exercised due care with respect to the hazardous substance

concerned, taking into consideration the characteristics of such

hazardous substance, in light of all relevant facts and circumstan-

ces, and (b) he took precautions against foreseeable acts or omis-

sions of any such third party and the consequences that could

foreseeably result from such acts or omissions; or

(4) any combination of the foregoing paragraphs.

(c) Determination of amounts.

(1) Except as provided in paragraph (2) of this subsection,

the liability under this section of an owner or operator or other

responsible person for each release of a hazardous substance or

incident involving release of a hazardous substance shall not

exceed -

(A) for any vessel, other than an incineration vessel,

which carries any hazardous substance as cargo or residue, $300

per gross ton, or $5,000,000, whichever is greater;

(B) for any vessel, other than an incineration vessel,

$300 per gross ton, or $500,000, whichever is greater,

(C) for any motor vehicle, aircraft, pipeline (as defined

in the Hazardous Liquid Pipeline Safety Act of 1979 [49 USCS §§

2001 et seq.]), or rolling stock, $50,000,000 or such lesser amount

as the President shall establish regulation, but in no event less than

$5,000,000 (or, for releases of hazardous substances as defined in

A-28

section 101(14)(A) of this title [42 USCS § 9601 (14) (A)] into the

navigable waters, $8,000,000). Such regulations shall take into

account the size, type, location, storage, and handling capacity and

other matters relating to the likelihood of release in each such class

and to the economic impact of such limits on each such class; or

(D) for any incineration vessel or any facility other

than those specified in subparagraph (C) of this paragraph, the

total of all costs of response plus $50,000,000 for any damages

under this title [42 USCS §§ 9601 et seq.].

(2) Not withstanding the limitations in paragraph (1) of this

subsection, the liability of an owner or operator or other responsi-

ble person under this section shall be the full and total costs of.

response and damages, if (A) (i) the release or threat of release of a

hazardous substance was the result of willful misconduct or willful

negligence within the privity or knowledge of such person or (ii)

the primary cause of the release was a violation (within the privity

or knowledge of such person) of applicable safety, construction, or

operating standards or regulations; or (B) such person fails or

refuses to provide all reasonable cooperation and assistance

requested by a responsible public official in connection with

response activities under the national contingency plan with

respect to regulated carriers subject tot the provisions of title 49 of

the United States Code or vessels subject to the provisions of title

33 or 46 of the United States Code, subparagraph (A) (ii) of this

paragraph shall be deemed to refer to Federal standards or

regulations.

(3) If any person who is liable for a release or threat of

release of a hazardous substance fails without sufficient cause to

properly provide removal or remedial actior upon order of the

President pursuant to section 104 or 106 of this Act [42 USCS §

9604 or 9606], such person may be liable to the United States for

punitive damages in an amount at least equal to, and not more than

three times, the amount of any costs incurred by the Fund as a

result of such failure to take proper action. The President is autho-

rized to commence a civil action against any such person to

recover the punitive damages, which shall be in addition to any

costs recovered from such person pursuant to section | 12(c) of this

Act [42 USCS §§ 9612(c)]. Any moneys received by the United

States pursuant to this subsection shall be deposited in the Fund.

A-29

(d) Rendering care of advice.

(1) In general. Except as provided in paragraph (2), no

person shall be liable under this title [42 USCS §§ 9601 et seq.] for

costs or damages as a result of actions taken or omitted in the

course of rendering care, assistance, or advice in accordance with

the National Contingency Plan (“NCP”) or at the direction of an

onscene coordinator appointed under such plan, with respect to an

incident creating a danger to public health or welfare or the

environment as a result of any releases of hazardous substance or

the threat thereof. This paragraph shall not preclude liability for

costs or damages as the result of negligence on the part of such

person.

(2) State and local governments. No State or local govern-

ment shall be liable under this title [42 USCS §§ 9601 et seq.] for

costs or damages as a result of actions taken in response to an

emergency created by the release or threatened release of a

hazardous substance generated by or from a facility owned by

another person. This paragraph shall not preclude liability for costs

or damages as a result of gross negligence or intentional miscon-

duct by the State or local government. For the purpose of the

preceding sentence, reckless, willful, or wanton misconduct shall

constitute gross negligence.

(3) Savings provision. This subsection shall not alter the

liability of any person covered by the provisions of paragraph (1),

(2), (3), or (4) of subsection (a) of this section with respect to the

release or threatened release concerned.

(e) Indemnification, hold harmless, etc. agreements or con-

veyances; subrogation rights.

(1) No indemnification, hold harmless, or similar agree-

ment or conveyance shall be effective to transfer from the owner or

operator of any vessel or facility or from any person who may be

liable for a release or threat of release under this section. Nothing

in this subsection shall bar any agreement to insure, hold harmless,

or indemnify a party to such agreement for any liability under this

section.

(2) Nothing in this title [42 USCS §§ 9601 et seq.], including

the provisions of paragraph (1) of this subsection, shall bar a cause

of action that an owner or operator or any other person subject to

A-30

liabiiity under this section, or a guarantor, has or would have, by

reason of subrogation or otherwise against any person.

(f) Natural resources liability; designation of public trustees

of natural resources.

(1) Natural resources liability. In the case of an injury to,

destruction of, or loss of natural resources under subparagraph (C)

of subsection (a) liability shall be to the United States Government

and to any State for natural resources within the State or belonging

to, managed by, controlled by, or appertaining to such State and to

any Indian tribe for natural resources belonging to, managed by,

controlled by, or appertaining to such tribe, or held in trust for the

benefit of such tribe, or belonging to a member of such tribe if such

resources are subject to a trust restriction on alienation: Provided,

however, That no liability to the United States or State or Indian

tribe shall be imposed under subparagraph (C) of subsection (a),

where the party sought to be charged has demonstrated that the

damages to natural resources complained of were specifically

identified as an irreversible and irretrievable commitment of natu-

ral resources in an environmental impact statement, or other com-

parable environment analysis, and the decision to grant a permit or

license authorizes such commitment of natural resources, and the

facility or project was otherwise operating within the terms of its

permit or license, so long as, in the case of damages to an Indian

tribe occurring pursuant to a Federal permit or license, the issu-

ance of that permit or license was not inconsistent with the fidu-

ciary duty of the United States with respect to such Indian tribe.

The President, or the authorized representative of any State, shall

act on behalf of the public as trustee of such natural resources to

recover for such damages. Sums recovered by the United States

Government as trustee under this subsection shall be retained by

the trustee, without further appropriation, for use only to restore,

replace, or acquire the equivalent of such natural resources. Sums

recovered by a State as trustee under this subsection shall be

available for use only to restore, replace or acquire the equivalent

of such natural resources by the State. The measure of damages in

any action under subparagraph (C) of subsection (a) shall not be

limited by the sums which can be used to restore or replace such

resources. There shall be no double recovery under this Act for

natural resource damages, including the costs of damage assess-

A-31

acpi tt 0 a De AR LIN

ment or restoration, rehabilitation, or acquisition for the same

release and natural resource[.] There shall be no recovery under

the authority of subparagraph (C) of subsection (a) where such

damages and the release of a hazardous substance from which

such damages resulted have occurred wholly before the enactment

of this Act [enacted Dec. 11, 1980].

(2) Designation of federal and state officials.

(A) Federal. The President shall designate in the

National Contingency Plan published under section 105 of this

Act[42 USCS § 9605] the Federal officials who shall act on behalf

of the public as trustees for natural resources under this Act and

section 311 of the Federal Water Pollution Control Act [33 USCS

§1321]. Such officials shall assess damages for injury to, destruc-

tion of, or loss of natural resources for purposes of this Act and

such section 31 1 [33 USCS §13210 for those resources under their

trusteeship and may, upon request of and reimbursement from a

State and at the Federal officials’ discretion, assess damages for

those natural resources under the State’s trusteeship.

(B) State. The Governor or each State shall designate

State officials who may act on behalf of the public as trustees for

natural resources under this Act and section 311 of the Federal

Water Pollution Control Act [33 USCS §1321] and shall notify the

President of such designations. Such Sate officials shall assess

damages to natural resources for the purposes of this Act and such

section 311 [33 USCS §1321] for those natural resources under

their trusteeship.

(C) Rebuttable presumption. Any determination or

assessment of damages to natural resources for the purposes of this

Act and section 311 of the Federal Water Pollution Control Act

{33 USCS §1321] made by a Federal or State trustee in accordance

with the regulations promulgated under section 301(c) of this Act

[42 USCS §965 1(c)] shall have the force and effect of a rebuttable

presumption on behalf of the trustee in any administrative or

judicial proceeding under this Act or section 311 of the Federal

Water Pollution Control Act [33 USCS §1321].

(g) Federal agencies. For provisions relating to Federal

agencies, see Section 120 of this Act [42 USCS §9620].

(h) Owner or operator of vessel. The owner or operator of a

vessel shall be liable in accordance with this section, under mari-

A-32

time tort law, and as provided under section 114 of this Act [42

USCS § 9614] notwithstanding any provision of the Act of March

3, 1851 (46 U.S.C. 183ff) or the absence of any physical damage to

the proprietary interest of the claimant.

(i) Application of registered pesticide product. No person

(including the United States or any State or Indian Tribe) may

recover under the authority of this section for any response costs or

damages resulting from the application of a pesticide product

registered under the Federal Insecticide, Fungicide, and Rodenti-

cide Act [7 USCS §§ 136 et seq.]. Nothing in this paragraph shall

affect or modify in any way the obligations or liability of any

person under any other provision of State or Federal law, including

common law, for damages, injury, or loss resulting from a release

of any hazardous substance or for removal or remedial action or

the costs of removal or remedial action of such hazardous

substance.

(j) Obligations or liability pursuant to federaily permitted

release. Recovery by any person (including the United States or

any State or Indian tribe) for response costs or damages resulting

from a federally permitted release shall be pursuant to existing law

in lieu of this section. Nothing in this paragraph shall affect or

modify in any way the obligations or liability of any person under

any other provision of State or Federal law, including common

law, for damages, injury, or loss resulting from a release of any

hazardous substance or for removal or remedial action or the costs

of removal or remedial action of such hazardous substance. In

addition, costs of response incurred by the Federal Government in

connection with a discharge specified in section 101(10\B) or(C)

[42 USCS § 9601(10)B) or (C)] shall be recoverable in an action

brought under section 309(b) of the Clean Water Act [33 USCS §

1319(b)].

(k) Transfer to, and assumption by, Post-closure Liability

Fund of liability of owner or operator of solid waste disposal

facility in receipt of permit under applicable solid waste disposal

law; time, criteria applicable, procedures, etc., monitoring costs;

reports.

(1) The liability established by this section or any other law

for the owner or operator of a hazardous waste disposal facility

which has received a permit under subtitle C of the Solid Waste

A-33

yen ot a

a allt ti i ai

Pin 6 We Bete ta 3

Disposal Act [42 USCS § 6921 et seq.], shall be transferred to and

assumed by the Post-closure Liability Fund established by section

232 of this Act [42 USCS § 9641] when -

(A) such facility and the owner and operator thereof

has complied with the requirements of subtitle C of the Solid

Waste Disposal Act [42 USCS § 6921 et seq.] and regulations

issued thereunder, which may affect the performance of such

facility after closure; and

(B) such facility has been closed in accordance with

such regulations and the conditions of such permit, and such

facility and the surrounding area have been monitored as required

by such regulations and permit conditions for a period not to

exceed five years after closure to demonstrate that there is no

substantial likelihood that any migration offsite or release from

confinement of any hazardous substance or other risk to public

health or welfare will occur.

(2) Such transfer of liability shall be effective ninety days

after the owner or operator of such facility notifies the Administra-

tor of the Environmental Protection Agency (and the State where it

has an authorized program under section 3006(b) of the Solid

Waste Disposal Act) [42 USCS § 6926(b)] that the conditions

imposed by this subsection have been satisfied. If within such

ninety-day period the Administrator of the Environmental Protec-

tion Agency or such State determines that any such facility has not

complied with all the conditions imposed by this subsection or that

insufficient information has been provided to demonstrate such

compliance, the Administrator or such State shall so notify the

owner and operator of such facility and the administrator of the

Fund established by section 232 of this Act [42 USCS § 9641 ], and

the owner and operator of such facility shall continue to be liable

with respect to such facility under this section and other law until

such time as the Administrator and such State determines that such

facility has complied with all conditions imposed by this subsec-

tion. A determination by the Administrator or such State that a

facility has not complied with all conditions imposed by this

subsection or that insufficient information has been supplied to

demonstrate compliance, shall be a final administrative action for

purposes of judicial review. A request for additional information

shall state in specific terms the data required.

A-34

(3) In addition to the assumption of liability of owners and

operators under paragraph (1) of this subsection, the Post-closure

Liability Fund established by section 232 of this Act [42 USCS §

9641] may be used to pay costs of monitoring and care and

maintenance of a site incurred by other persons after the period of

monitoring required by regulations under subtitle C of the Solid

Waste Disposal Act [42 USCS § 6921 et seq.] for hazardous waste

disposal facilities meeting the conditions of paragraph (4) of this

subsection.

(4A) Notlater than one year after the date of enactment of

this Act [enacted Dec. 11, 1980], the Secretary of the Treasury

shall conduct a study and shall submit a report thereon to the

Congress on the feasibility of establishing or qualifying an

optional system of private insurance for postclosure financial

responsibility for hazardous waste disposal facilities to which this

subsection applies. Such study shall include a specification of

adequate and realistic minimum standards to assure that any such

privately placed insurance will carry out the purposes of this

subsection in a reliable, enforceable, and practical manner. Such a

study shall include an examination of the public and private incen-

tives, programs, and actions necessary to make privately placed

insurance a practical and effective option to the financing system

for the Post-closure Liability Fund provided in title II of this Act.

(B) Not later than eighteen months afier the date of

enactment of this Act [enacted Dec. 11, 1980] and after a public

hearing, the President shall by rule determine whether or not it is

feasible to establish or qualify an optional system of private insu-

rance for postclosure financial responsibility for hazardous waste

disposal facilities to which this subsection applies. If the President

determines the establishment or qualification of such a system

would be infeasible, he shall promptly publish an explanation of

the reasons for such a determination. If the President determines

the establishment or qualification of such a system would be

feasible, he shall promptly publish notice of such determination.

Not later than six months after an affirmative determination under

the preceding sentence and after a public hearing, the President

shall by rule promulgate adequate and realistic minimum stand-

ards which must be met by any such privately placed insurance,

taking into account the purposes of this Act and this subsection.

A-35

—"—P |

Such rules shall also specify reasonably expeditious procedures by

which privately placed insurance plans can qualify as meeting

such minimum standards.

(C) In the event any privately placed insurance plan

qualifies under subparagraph (B), any person enrolled in, and

complying with the terms of, such plan shall be excluded from the

provisions of paragraphs (1), (2), and (3) of this subsection and

exempt from the requirements to pay any tax or fee to the Post-

closure Liability Fund under title II of this Act.

(D) The President may issue such rules and take such

other actions as are necessary to effectuate the purposes of this

paragraph.

(5) Suspension of liability transfer. Notwithstanding para-

graphs (1), (2), (3), and (4) of this subsection and subsection (j) of

section 111 of this Act [42 USCS § 961 1(j)], no liability shall be

transferred to or assumed by the Post-Closure Liability Trust Fund

established by section 232 of this Act prior to completion of the

study required under paragraph (6) of this subsection, transmission

of a report of such study to both Houses of Congress, and authori-

zation of such a transfer or assumption by Act of Congress follow-

ing receipt of such study and report.

(6) Study of options for post-closure program.

(A) Study. The Comptroller General shall conduct a

study of options for a program for the management of the liabilities

associated with hazardous waste treatment, storage, and disposal

sites after their closure which complements the policies set forth in

the Hazardous and Solid Waste Amendments of 1984 and assures

the protection of human health and the environment.

(B) Program elements. The program referred to in sub-

paragraph (A) shall be designed to assure each of the following:

(i) Incentives are created and maintained for the

safe management and disposal of hazardous wastes so as to assure

protection of human health and the environment.

(ii) Members of the public will have reasonable

confidence that hazardous wastes will be managed and disposed of

safely and that resources will be available to address any problems

that may arise and to cover costs of long-term monitoring, care,

and maintenance of such sites.

A-36

(iii) Persons who are or seek to become owners

and operators of hazardous waste disposal facilities will be able to

manage their potential future liabilities and to attract the invest-

ment capital necessary to build, operate, and close such facilities in

a manner which assures protection of human health and the

environment.

(C) Assessments. The study under this paragraph shall

include assessments of treatment, storage, and disposal facilities

which have been or are likely to be issued a permit under section

3005 of the Solid Waste Disposal Act [42 USCS § 6925] and the

likelihood of future insolvency on the part of owners and operators

of such facilities. Separate assessments shall be made for different

classes of facilities and for different classes of land disposal facili-

ties and shall include but not be limited to -

(i) the current and future financial capabilities of

facility owners and operators;

(ii) the current and future costs associated with

facilities, including the costs of routine monitoring and mainte-

nance, compliance monitoring, corrective action, natural resource

damages, and liability for damages to third parties; and

(iii) the availability of mechanisms by which

owners and operators of such facilities can assure that current and

future costs, including post-closure costs, will be financed.

(D) Procedures. In carrying out the responsibilities of

this paragraph, the Comptroller General shall consult with the

Administrator, the Secretary of Commerce, the Secretary of the

Treasury, and the heads of other appropriate Federal agencies.

(E) Consideration of options. In conducting the study

under this paragraph, the Comptroller General shall consider var-

ious mechanisms and combinations of mechanisms to comple-

ment the policies set forth in the Hazardous and Solid Waste

Amendments of 1984 to serve the purposes set forth in subpara-

graph (13) and to assure that the current and future costs asso-

ciated with hazardous waste facilities, including post-closure

costs, will be adequately financed and, to the greatest extent

possible, borne by the owners and operators of such facilities.

Mechanisms to be considered include, but are not limited to -

(i) revisions to closure, post-closure, and financial

responsibility requirements under subtitles C and I of the Solid

A-37

)

-

?

Waste Disposal Act [42 USCS §§ 6921 et seq. and 6991 et seq.];

(ii) voluntary risk pooling by owners and opera-

tors;

(iii) legislation to require risk pooling by owners

and operators;

(iv) modification of the Post-Closure Liability

Trust Fund previously established by section 232 of this Act, and

the conditions for transfer of liability under this subsection, includ-

ing limiting the transfer of some or all liability under this subsec-

tion only in the case of insolvency of owners and operators;

(v) private insurance;

(vi) insurance provided by the Federal Govern-

ment;

(vii) coinsurance, reinsurance, or pooled- risk

insurance, whether provided by the private sector or provided or

assisted by the Federal Government; and

(vili) creation of a new program to be adminis-

tered by a new or existing Federal agency or by a federally char-

tered corporation.

(KF) Recommendations. The Comptroller General

shall consider options for funding any program under this section

and shall, to the extent necessary, make recommendations to the

appropriate committees of Congress for additional authority to

implement such program.

(1) Federal Lien.

(1) In general All costs and damages for which a person is

liable to the United States under subsection (a) of this section

(other than the owner or operator of a vessel under paragraph (1)

of subsection (a)) sha!l constitute a lien in favor of the United

States upon all real property and rights to such property which -

(A) belong to such person; and

(B) are subject to or affected by a removal or remedial

action.

(2) Duration. The lien imposed by this subsection shall arise

at the later of the following:

(A) The time costs are first incurred by the United

States with respect to a response action under this Act.

(B) The time that the person referred to in paragraph

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(1) is provided (by certified or registered mail) written notice of

potential liability.

Such lien shall continue until the liability for the costs (or a

judgment against the person arising out of such liability) is satis-

fied or becomes unenforceable through operation of the statute of

limitations provided in section 113 [42 USCS § 9613].

(3) Notice and validity. The lien imposed by this subsection

shall-be subject to the rights of any purchaser, holder of a security

interest, or judgment lien creditor whose interest is perfected under

applicable State law before notice of the lien has been filed in the

appropriate office within the State (or county or other governmen-

tal subdivision), as designated by State law, in which the real

property subject to the lien is located. Any such purchaser, holder

of a security interest, or judgment lien creditor shall be afforded the

same protections against the lien imposed by this subsection as are

afforded under State law against a judgment lien which arises out

of an unsecured obligation and which arises as of the time of the

filing of the notice of the lien imposed by this subsection. If the

State has not by law designated one office for the receipt of such

notices of liens, the notice shall be filed in the office of the clerk of

the United States district court for the district in which the real

property is located. For purposes of this subsection, the terms

“purchaser” and “security interest” shall have the definitions pro-

vided under section 6323(h) of the Internal Revenue Code of 1954

[26 USCS § 6323(h)].

(4) Action in rem. The costs constituting the lien may be

recovered in an action in rem in the United States district court for

the district in which the removal or remedial action is occurring or

has occurred. Nothing in this subsection shall affect the right of the

United States to bring an action against any person to recover all

costs and damages for which such person is liable under subsection

(a) of this section.

(m) Maritime lien. All costs and damages for which the

owner or operator of a vessel is liable under subsection (a)(1) with

respect to a release or threatened release from such vessel shall

constitute a maritime lien in favor of the United States on such

vessel. Such costs may be recovered in an action in rem in the

district court of the United States for the district in which the vessel

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may be found. Nothing in this subsection shall affect the right of

the United States to bring an action against the owner or operator

of such vessel in any court of competent jurisdiction to recover

such costs. (Dec. 1 i, 1980, P. L. 96-510, Title I, § 107, 94 Stat.

2781; Oct. 17, 1986, P.L. 99-499, Title I, 107(a)-(d)(2), (e), (f),

127(b), (e), Title I, §§ 201, 207(c), 100 Stat. 1628, 1692, 1693,

1705.)

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