Opposition Brief — Federal Insurance Co. v. Susquehanna Broadcasting Co.

(2) E I L ED

No. 90-1971 + JUL 25 1991

) GPFICE GF iit CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

FEDERAL INSURANCE Co.,

- Petitioner,

SUSQUEHANNA BROADCASTING Co.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

RESPONDENT’S BRIEF IN OPPOSITION

GERALD P. NORTON

(Counsel of Record)

ADRIENNE S8S.W. WILLIAMS

PEPPER, HAMILTON & SCHEETZ

1300 19th Street, N.W.

Washington, D.C. 20036

(202) 828-1200

THOMAS B. SCHMIDT, III

PEPPER, HAMILTON & SCHEETZ

Suite 400

10 S. Market Square

P.O. Box 1181

Harrisburg, PA 17108-1181

(717) 255-1155

W. EDWIN JACKSON

SUSQUEHANNA BROADCASTING Co.

140 E. York Street

York, PA 17405-2026

(717) 848-5500

Dated: July 25, 1991 Counsel for Respondent

ebaniiel

WILSON - Epes PrintinG Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether the judgment of the courts below, based on

Pennsylvania law, that petitioner has a duty to defend

and indemnify respondent under liability insurance pol-

2 icies with respect to proceedings to investigate and rem-

edy pollution pursuant to the Comprehensive Environ-

mental Response Compensation and Liability Act, 42

U.S.C. $§ 9601 et seq., conflicts with and is preempted by

that Act.

(i)

TABLE OF CONTENTS

Page

s,s) i

6 5 6 EET iv

COUNTERSTATEMENT OF STATUTES AND REG-

EE 1

COUNTERSTATEMENT OF THE CASE .................... 2

REASONS FOR DENYING THE PETITION ............ 6

I. THE QUESTION PRESENTED TO THIS

COURT BY FEDERAL WAS NOT RAISED

ee Re Ft, 6

II. THE DECISION BELOW DOES NOT CON-

FLICT WITH THE DECISIONS OF THIS

COURT OR ANY OTHER APPELLATE

ISSR 18 AS EOS ee Se ee Oe ee 8

III. FEDERAL’S CLAIM THAT THE JUDGMENT

BELOW CONFLICTS WITH CERCLA IS

(iii)

iv

TABLE OF AUTHORITIES

CASES: Page

AlU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 799

P.2d 1258, 274 Cal. Rptr. 820 (1990) ........0000.. 8,10

AM Int'l, Inc. v. International Forging Equip.,

743 F. Supp. 525 (N.D. Ohio 1990) , appeal pend-

ing, He. $6-Geee (te Cir.) .............................. 8-9

Battle v. Pennsylvania, 629 F.2d 269 (3d Cir.

1980), cert. denied, 452 U.S. 968 (1981) -.......... 7

Bishop v. Wood, 426 U.S. 341 (1976) -.......0.02000000... 10

Boeing Co. v. Aetna Cas. & Sur. Co., 1138 Wash.

94 660, 766 F.Ba Ger (1988) .«.............................. 8

Brenner v. Local 514, United Bhd. of Carpenters,

927 F.2d 1288 (8d Cir. 1991) ............................. 7

Claussen v. Aetna Cas. & Sur. Co., 259 Ga. 333,

FF FS ys Se ee ee eee eee 10

Delta Air Lines, Inc. v. August, 450 U.S. 346

(2, RB ete SS EE TAR SE ea ee 7

EEOC v. Federal Labor Relations Auth., 476 U.S.

a 7

Jackson v. University of Pittsburgh, 826 F.2d 230

(3d Cir. 1987), cert. denied, 484 U.S. 1020

ge RR MEL err I RRR TARA ale eo 7

Miree v. DeKalb County, 433 U.S. 25 (1977) .......... 7

Pierson v. Ray, 386 U.S. 547 (1967), overruled o

other grounds in Harlow v. Fitzgerald, 457 U.S.

RI SRE ACERT SE Seats 2 ie Na At neh Re 10

United States v. Ron Pair Enterps., Inc., 489 U.S.

I a od secaicanlestinoae 8

STATUTES:

Comprehensive Environmental Response Compen-

sation and Liability Act:

42 U.S.C. §§ 9601 et seq. .................... Pann ORES passim

42 U.S.C. § 9607 (e) (1) (1990) -......0- 8,9

I a cceceetenevenenencsvencneces 9

OO IND crsciscccctsevesnseccevencconscsensonmeeectes 9

RULES OF PROCEDURE:

a ceteasncmnniescuiinnss

_ >

ee I reacrecnaiecaiveneintnncenneeniedsecymcsanonsianens

Vv

TABLE OF AUTHORITIES—Continued

Page

ii 1

Third Cir. R.21(1) (A) () o.n.eeeceocececccececcecececceceeeeceee 4

LEGISLATIVE HISTORY:

S. Rep. No. 848, 96th Cong., 2d Sess. (1980) .......... 9

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

No. 90-1971

FEDERAL INSURANCE Co.,

Petitioner,

V.

SUSQUEHANNA BROADCASTING Co.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

RESPONDENT’S BRIEF IN OPPOSITION

Respondent Susquehanna Broadcasting Co. (“SBC”)!

files this Brief in Opposition to the Petition for a Writ

of Certiorari by Petitioner Federal Insurance Company

(“Federal”) .?

COUNTERSTATEMENT OF STATUTES AND

REGULATIONS INVOLVED

Contrary to Federal’s statement of the statutes and

regulations involved, the questions presented in this case

1 Pursuant to Rule 29.1 of this Court, SBC states that it is a

closely held corporation with no subsidiaries or affiliates that have

publicly traded shares outstanding.

“As used herein, “PA” refers to the Appendix to the petition

(“Pet.”) and “JA” refers to the Joint Appendix filed in the Court

of Appeals. For the convenience of the Court, a copy of the Joint

Appendix and Federal’s Reply Brief in the Court of Appeals have

been lodged with the Clerk.

2

involve the interpretation of insurance agreements under

Pennsylvania common law. They are not governed by

the Comprehensive Environmental Response Compensa-

tion and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601

et seq., nor any other federal or state statute or regula-

tion.

COUNTERSTATEMENT OF THE CASE

This case arises out of actions by private plaintiffs and

by the U.S. Environmental Protection Agency (“EPA”’)

under CERCLA against Westinghouse Electric Corp.

(“Westinghouse”) to impose liability for investigating,

cleaning up, and otherwise responding to alleged pollu-

tion.* After Westinghouse sued SBC for contribution

and indemnity as to the claims against it, Federal ini-

tially agreed to defend SBC under several comprehensive

general liability (“CGL”) and excess/umbrella liability

policies Federal had issued to SBC since 1964. Federal

also paid SBC’s liability (under a settlement) to the pri-

vate plaintiffs.

In March 1988, Federal terminated its defense of SBC

against Westinghouse and brought a declaratory judg-

8 The underlying CERCLA actions arise from the discovery in the

early 1980’s of contamination at several sites in the Gettysburg area,

including a Westinghouse plant and two rural sites at which an

independent contractor, Frederick Shealer, disposed of waste for a

period of years for Westinghouse as well as SBC (starting in 1975)

and other private parties. BecauS¢ of that discovery, EPA, under

CERCLA, required Westinghouse to investigate the contamination.

In addition, residents and property owners in the vicinity of the

sites sued Westinghouse and Shealer under CERCLA and Pennsyl-

vania statutes and common law, seeking to recover for alleged bodily

injuries and property damage caused by the contamination. West-

inghouse thereafter impleaded SBC and others who used Shealer

and sought a money judgment against them for contribution and

for indemnity as to all or a portion of its financial liabilities to EPA

and the resident plaintiffs. The resident plaintiffs then cross-claimed

against SBC and the other third-party defendants, who also counter-

claimed against Westinghouse. All of the underlying claims concern-

ing SBC have been settled.

3

ment action in the Middle District of Pennsylvania under

the district court’s diversity jurisdiction. Raising no fed-

eral question, Federal sought a ruling that under the

cerms of its liability policies Federal was not obligated

to defend or indemnify SBC with respect to Westing-

house’s claims.‘

The specific issues raised by Federal’s claims in this

case were delineated in a stipulated order (JA at A5l,

A54): (1) whether costs incurred in proceedings to in-

vestigate and remediate pollution under CERCLA were

“damages” under the CGL and excess policies Federal

issued to SBC;* and (2) whether coverage was precluded

by the so-called “poliution exclusion” contained in some

of those policies.* In support of its motion for summary

judgment, Federal contended that the court’s interpreta-

tion of the policy language on the “damages” issue should

take account of the asserted CERCLA policy of “intern-

alizing” environmental costs (Fed. Mem. in Support of

Motion for Summary Judgment at 13). Federal did not

contend that there was a conflict between the allowance of

coverage and the provisions of CERCLA so that CERCLA

precluded an application of state law under which

CERCLA response costs were covered “damages.”

Based on its interpretation of Pennsylvania law, the

district court granted summary judgment for SBC and

* Federal also sought restitution from SBC of those defense costs

it had incurred prior to terminating its defense of SBC with respect

to Westinghouse’s third-party claims.

® Under these policies Federal is obliged to indemnify SBC for

“all sums which the insured [SBC] shall become legally obligated to

pay as damages because of bodily injury or property damage” (JA

A235). Federal is also required “to defend any suit ... . seeking

damages on account of such bodily injury or property damage”

(id.).

®*Those policies excluded coverage for intentional pollution but

covered contamination which was “sudden and accidental” (JA at

A254).

d

held that Federal had a duty to defend and indemnify

SBC under the policies in force in 1975, when SBC’s dis-

posal began (PA at Al9).’ The district court’s opinion

did not discuss Federal’s reference to CERCLA policy.

Federal filed no post-judgment motion. Moreover, in re-

sponding to a post-trial motion by SBC,* Federal sought

reconsideration of the court’s interpretation of Pennsy]l-

vania law, but did not argue that the court’s ruling con-

flicted with or was preempted by CERCLA.

Both parties appealed to the Court of Appeals for the

Third Circuit. Federal did not raise as an issue on

appeal any contention that a construction of the policies

in favor of coverage as a matter of state law would con-

flict with or be preempted by CERCLA.” While Federal

7 The district court found it unnecessary to decide the questions

raised as to the applicability of the pollution exclusion, and whether

it first appeared in 1976 or 1977, but went on to make “observations”

on the pollution exclusion suggesting that it did not apply to

“gradual” pollution (PA A13-A18).

8 The district court had initially limited the “damages” SBC could

recover to “the value of the property” (PA at All). SBC filed a

motion pursuant to Rule 59, Fed. R. Civ. P., requesting that the

district court reconsider and amend its judgment insofar as it im-

posed limitations on Federal’s duty to indemnify SBC. The district

court granted SBC’s motion by removing the “property value” limi-

tation, which Federal had agreed was erroneous (PA at A20).

* SBC appealed from the district court’s failure to decide that the

pollution exclusion first appeared in 1977, from its observations con-

cerning that exclusion, and from its denial of SBC’s request for

attorney fees.

10 In both its civil appeal information statement and the statement

of issues in its opening brief, required by Fed. R. App. P. 28(a) (2)

and Third Cir. R. 21(1)(A)(d), Federal limited its issues on appeal

to whether, under Pennsylvania law: the terms of the policies can

be interpreted to provide coverage; if so, when that coverage was

triggered (a question Federal had not raised in the district court) :

whether coverage for “response costs” is limited to the value of the

property (although Federal had agreed that such a limitation was

erroneous) ; and whether a settlement agreement between the resi-

5

did again allude to the alleged “internalization” of costs

goal of CERCLA (Fed. Appeal Br. at 18), Federal also

did not argue in any of its appellate briefs that the dis-

trict court’s decision in favor of coverage under state law

conflicted with or was preempted by CERCLA. To the

contrary, Federal argued that “[t]his case is about con-

tract language” (Fed. Reply Br. at 5).

Further, in responding to a claim that public policy

favored coverage, as evidenced by the widespread support

for policyholders in similar cases through amicus briefs

by states and the Department of Justice, Federal sub-

mitted and relied on the recent congressional testimony of

the Assistant Administrator for Enforcement at EPA, pri-

marily responsible for enforcing CERCLA. His testi-

mony presented the federal government’s view that these

insurance coverage questions concerning CERCLA liabil-

ity are governed entirely by state law:

[t]he question whether an insurer is required to in-

demnify its insured against Superfund liability turns

on the interpretation of the private insurance con-

tract entered into by those parties; typically, the Com-

prehensive General Liability (“CGL”) insurance pol-

icy is the instrument used to protect commercial en-

tities against various types of liability. Although

CERCLA provides that certain categories of parties

are to be held liable for hazardous substance contam-

ination, the statute leaves the interpretation of insur-

ance policies to state law. No special rules apply

when construing insurance policies merely because

the underlying liability arises as a result of CERCLA.

[Fed. Reply Br. at 20 and Exh. E at 7; emphasis

added].

Federal also relied upon a letter from the Assistant

Attorney General of the United States to a House Com-

dent plaintiffs and SBC and the other third party defendants had

extinguished Westinghouse’s claims against SBC (a claim the dis-

trict court had rejected (PA at A18)).

6

mittee endorsing the EPA testimony and explaining that

the United States had filed an amicus brief in one case

because it believed that the Eighth Circuit had “incor-

i art gt Missouri law” in holding that “dam-

ages’ should not be construed to include CERCLA re-

sponse costs (id. at Exh. D at 2). The letter, which re-

ferred to the appeal in this case, in no way suggested that

a correct interpretation of state law as providing such

coverage would conflict with or be preempted by CERCLA.

By judgment order dated February 22, 1991, the Third

Circuit affirmed without opinion the district court’s judg-

ment. Federal filed a petition for rehearing and sugges-

tion of rehearing en banc, in which it raised no issue

concerning any conflict between the judgment in this case

and CERCLA. Rather, the only questions identified by

Federal as important or otherwise warranting rehear-

ing were questions of state law. On March 28, 1991, the

Court of Appeals denied Federal’s petition.

REASONS FOR DENYING THE PETITION

The petition should be denied because (1) the question

presented by Federal was not raised in or addressed by

the court below; (2) the question presented has not given

rise to a conflict with any decision of this Court or any

other appellate court, and (3) Federal erroneously con-

tends that an interpretation of state law permitting in-

surance coverage for environmental contamination al-

legedly caused by an insured conflicts with or is pre-

empted by CERCLA.

I. THE QUESTION PRESENTED TO THIS COURT BY

FEDERAL WAS NOT RAISED IN THE COURT

BELOW

In the court of appeals, Federal chose to litigate solely

with respect to questions of state insurance contract law.

Having lost twice on those questions, Federal now seeks

to present a federal question—that the judgment finding

7

coverage conflicts with and is presumably preempted by

CERCLA—as a vehicle for review by this Court. How-

ever, absent extraordinary circumstances not present

here, this Court will not grant certiorari to review a ques-

tion that was not squarely presented to the court of ap-

peals and necessarily decided by that court’s judgment.

Cf., e.g., EEOC v. Federal Labor Relations Auth., 476

U.S. 19, 24 (1986); Miree v. DeKalb County, 433 U.S.

25, 34 (1977). See also Delta Air Lines, Inc. v. August,

450 U.S. 346, 362 (1981) (where petition presents ques-

tion that “was not raised in the Court of Appeals,” that

question “is not properly before us’”’).

As set forth in the counterstatement of the case, at no

point did Federal contend in the court of appeals that the

district court’s judgment in SBC’s favor conflicted with

or was overridden by CERCLA—the sole issue Federal

seeks to raise before this Court. To the contrary, Federal

expressly stated that the case was only about the meaning

of contract language. Further, it relied upon statements

by EPA and the Justice Department that the question

before the courts in this and like cases. was governed

solely by state contract law.

Moreover, as the court of appeals merely entered a

judgment order affirming the district court’s judgment,

without any opinion, there is no basis for contending that

the court of appeals ruled against a claim that Federal

did not purport to make.’ In any event, given the ab-

sence of an opinion of either court below addressing the

question Federal now presents, this case would not be a

11 The court of appeals’ affirmance is not necessarily an implicit

rejection of Federal’s claim of conflict with CERCLA, for the affirm-

ance could have been based on the familiar rule that an appellate

court need not address issues not squarely and timely raised by a

party. E.g., Brenner v. Local 514, United Bhd. of Carpenters, 927

F.2d 1283, 1298 (3d Cir. 1991) ; Jackson v. University of Pittsburgh,

826 F.2d 230, 237 (3d Cir. 1987), cert. denied, 484 U.S. 1020 (1988) ;

Battle v. Pennsylvania, 629 F.2d 269, 271 n.1 (3d Cir. 1980), cert.

denied, 452 U.S. 968 (1981).

8

suitable vehicle for the Court to consider that question

even if it had been properly raised below.

II. THE DECISION BELOW DOES NOT CONFLICT

WITH THE DECISIONS OF THIS COURT OR ANY

OTHER APPELLATE COURT

Even if the question addressed in the petition were

properly presented in this case, Federal does not make

any claim that the judgment below conflicts with any

decision of this Court or any other court. Indeed, the very

few appellate courts that have considered a similar claim

of conflict with CERCLA have rejected it. See, e.g.,

Boeing Co. v. Aetna Cas. & Sur. Co., 118 Wash. 2d 869,

784 P.2d 507, 510 n.1 (1990); AJU Ins. Co. v. Superior

Court, 51 Cal. 3d 807, 799 P.2d 1253, 1262, 274 Cal.

Rptr. 820 (1990).

III. FEDERAL’S CLAIM THAT THE JUDGMENT BE-

LOW CONFLICTS WITH CERCLA IS WRONG

Federal’s contention that the judgment requiring Fed-

eral to cover SBC’s liability for CERCLA costs conflicts

with the “polluter pays” principle of CERCLA is based

not on any language of CERCLA, but entirely upon

CERCLA’s legislative history. Such an argument must

fail. E.g., United States v. Ron Pair Enterps., Inc., 489

U.S. 235, 241-42 (1989).

The text of CERCLA itself expressly permits responsi-

ble parties to obtain insurance to cover the costs to clean

up environmental contamination. Thus, Section 107(e)

(1) provides, in pertinent part, that “[n]othing in this

subsection shall bar any agreement to insure, hold harm-

less, or indemnify a party to such agreement for any

liability under this section.” 42 U.S.C. § 9607(e) (1)

(1990).** Indeed, Federal acknowledges that CERCLA

12 Courts also have interpreted § 107(e)(1) to allow the kind of

insurance at issue here. See, e.g., AM Int'l, Inc. v. International

Forging Equip., 743 F. Supp. 525, 529 (N.D. Ohio 1990) (“by the

9

“does not in and of itself preclude insurance coverage

...” (Pet. 10). Compare 42 U.S.C. §§ 9672(a), 9673(a).

Moreover, nothing in the legislative history cited by

Federal contradicts the statute’s express allowance of

insurance coverage. See S. Rep. No. 848, 96th Cong.,

2d Sess. (1980). Federal argues that the policy of

CERCLA requires that the polluter pay for its actions

through the payment of insurance premiums, and that

the insurance policies which the courts below held cov-

ered SBC do not reflect the risks under CERCLA through

the premiums charged, since those policies were issued

prior to the enactment of CERCLA. But Federal mis-

states the policy of internalization of costs alluded to

in the Senate report on CERCLA (but not mentioned

in the statute). That policy was to preclude generators

or others in the chain of waste production and disposal

from shifting the risk of loss to each other or to the

victims injured by the hazardous material. S. Rep. No.

848, 96th Cong., 2d Sess. 18, 15, 33 (1980). The report

said nothing about shifting of the risk of loss to insurers,

let alone whether the extent of the risk was reflected in

the premiums charged.

In view of the language and history of CERCLA, it is

quite understandable why EPA and the Justice Depart-

ment have concluded that CERCLA “leaves the inter-

pretation of insurance policies to state law,” and that

“(n]o special rules apply when construing insurance pol-

icies merely because the underlying liability arises as a

result of CERCLA” (Fed. Reply Br. Exh. E. at 7).

In essence, Federal’s argument boils down to the prem-

ise that it failed to anticipate the risks involved in cover-

ing pollution liability when underwriting pre-CERCLA

second sentence [of 107(e)(1)], Congress intended to permit any

person to contract with others not already liable under the act to

provide additional liability by way of insurance or indemnity”),

appeal pending, No. 90-3958 (6th Cir.),

10

policies, which risks it desires to shift back to SBC.

Courts have rejected such shifting of the risk of loss from

the insurer to the insured, on the basis that the insurers’

failure to draft their policies to exclude such potential

liability cannot be invoked “to the detriment of the in-

sured who purchased a ‘comprehensive general liability’

policy.” Claussen v. Aetna Cas. & Sur. Co., 259 Ga. 333,

380 S.E.2d 686, 689 (1989). In any event, there is no

evidence in the record on historical estimates of antici-

pated costs or any other information tending to show that

Federal priced its policies in specific reliance upon its

present interpretation of the narrow scope of coverage

under its policies.

Federal’s position amounts to a claim that, as a matter

of public policy, CGL policies should not be allowed to

cover past (or future) CERCLA costs. Responding to

the same claim, the Supreme Court of California opined

in AlU:

{b]ecause Congress and the [state] Legislature al-

ready have made the relevant public policy deter-

minations, the issue before this Court is not whether

CGL policies may provide the coverage sought, but

whether they do provide it according to their terms.

[AIU, supra, 799 P.2d at 1262 (emphasis in origi-

nal).]

The question whether Federal’s policies “do provide [cov-

erage of SBC] according to their terms” is governed by

state law, is not presented by Federal’s petition, and is

not an issue for review by this Court. E.g., Bishop v.

Wood, 426 U.S. 341, 346-47 n.10 (1976); Pierson v.

Ray, 386 U.S. 547, 558 n.12 (1967), overruled on other

grounds in Harlow v. Fitzgerald, 457 U.S. 800 (1982).

11

CONCLUSION

For all of the foregoing reasons, Federal’s petition

should be denied.

Respectfully submitted,

GERALD P. NORTON

(Counsel of Record)

ADRIENNE S.W. WILLIAMS :

PEPPER, HAMILTON & SCHEETZ

1300 19th Street, N.W.

| Washington, D.C. 20036

(202) 828-1200

}

|

THOMAS B. SCHMIDT, III

) PEPPER, HAMILTON & SCHEETZ

Suite 400

| 10S. Market Square

P.O. Box 1181

Harrisburg, PA 17108-1181

| (717) 255-1155

W. EDWIN JACKSON

SUSQUEHANNA BROADCASTING Co.

| 140 E. York Street

York, PA 17405-2026

| (717) 848-5500

Dated: July 25, 1991 Counsel for Respondent