Petition for Writ of Certiorari — Armco Inc. v. Maryland Casualty Co.

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{ e Supreme Court, U.S.

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ey 740° (0 3

oe NOV 2 1987

No. 87- Te JOSEPH F. SPANIOL, JR.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

ARMCO INC.,

Petitioner,

a V _—

THE MARYLAND CASUALTY COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FOURTH CIRCUIT

*BENJAMIN ROSENBERG

CRAIG E. SMITH

W. WARREN HAMEL

VENABLE, BAETJER AND HOWARD

1800 Mercantile Bank & Trust Building

Two Hopkins Plaza

Baltimore, Maryland 21201

(301) 244-7400

| Attorneys for Petitioner

*Counsel of Record

LIST OF SUBSIDIARIES OF ARMCO INC.

Acerex

Acerco S.A.

Aceros Comerciales Peru S.A.

Aceros Del Oriente S.A. (Acedor)

Aceros Del Sur S.A. (Adesur)

AH (UK) INC.

AIGI Leasing, Inc.

Armco AB

Armco ApS

Armco Argentina S.A.

Armco Canada Ltd.

Armco Caribbean Corporation

Armco Chile S.A. Sociedad Anonima

Armco Colombiana S.A.

Armco Colombo

Armco Dinslaken GmbH

Armco D.O.

Armco Equipetrol S.A.

Armco Finance (UK) Ltd.

Armco Financia! Holdings Corporation

Armco Financial Services Corperation

Armco Financial Services Europe Limited

Armco Financia! Services, Inc.

Armco Financial Services International, Inc.

Armco Financial Services International, Ltd.

Armco Flexal B.V.

Armco GmbH

Armco Grinding Systems

Armco Industrial S.A.

Armco Industries (Nigeria) Ltd.

Armco Instapanel S.A.

Armco Insurance Group Inc.

Armco International Inc.

Armco International Insurance Company of Bermuda

Armco Investment Management, Inc.

Armco Limited

Armco Management Corporation

Armco Marsteel Alloy Corporation

Armco Merchandising Limited

Armco Merchandising S.A.

Armco Moly-Cop S.p.A.

Armco National Re Incorporated

Armco National Supply (Australia), Pty. Ltd.

Armco Overseas Corporation

Armco Overseas Manufacturing Corporation

Armco Pacific Financial Corporation

Armco Pacific Financial Services Limited

Armco Pacific Investments, Inc.

Armco Pacific Limited

Armcopaxi S.A.

Armco Peruana S.A.

Armco Realty Corporation

Armco Resources Pty. Ltd.

Armco S.A. (Spain)

Armco S.A. (Spain) Spanish

Armco SARL

Armco SDT Limited

Armco Services S.A.M.

Armco Shipping Limited

Armco (South Africa) (Proprietary) Limited

Armco Steel Corporation

Armco Steel Processing Company

Armco Syndicate Ltd.

Armco Trust Limited

Armco Underwriters Agency, Inc.

Armco Uruguaya S.A.

Armco Venezolana S.A.

Armco Wire Company

Artex Constructors, Inc.

Atlantic National Insurance Company, Ltd.

Australian Steel & Mining Corporation Pty. Ltd.

Autometrios Co.

P.T. Bakrie—Armco

Bellefonte Underwriters Insurance Company

Black River Lime Company

B.N.L.M.S. Limited

British National Insurance Company of Bermuda

Ltd.

Bundy Venezolana C.A.

C.A. Armco Venezolana

C.A. Tubos Armco

Colombo Fonderie S.P.A.

Compass Insurance Company

Continental Western Industries, Inc.

Control International, Inc.

The Cumberland Group, Inc.

D.I.F.S.LC.A.

ENCORP INC. (assets to be sold, corporate entity

shall remain for next 5 yrs.)

Everest International, Inc.

Falconbridge Dominicana C.porA.

First Taconite Company

Charles Fulton (Asia) Holdings Ltd.

Charles Fulton (Australia) Pty. Ltd.

Charles Fulton (Malaysia) Sendirian Berhad

Charles Fulton (Singapore) Holdings Ltd.

Charles Fulton (Singapore) 1982 Ltd.

Hangar Facilities, Inc.

Industrias National Supply C.A.

Inmobilliara Hierro y Accro, S.A.

Insurance Management Corporation

Inversiones Armco C.A.

Metaltubos C.A.

MINARMCOS.A.

National Supply Company, Inc.

The National Supply Company of Mexico, S.A.

National Supply France S.A.R.L.

National Supply Stores Pte. Lid.

NN Administration, Inc.

NN Risk Management Services, Inc.

North Atlantic Management Company Limited

Northern Automatic Electric Foundry, Inc.

Northern Land Company

Northwestern National Casualty Company

Northwestern National Insurance Company

Obras Civiles e Industrias C.A.

Pacific Automobile Insurance

Pacific National Insurance Company

Productos Metalicos Armco S.A.

Prolansa (Productora de Alambres y Derivados S.A.)

Reserve Mining Company

Strata Energy, Inc.

Talbico, Inc.

Torcad Limited

United Lubricants Corporation

Universal Reinsurance Corporation

Virginia Horn Taconite Company

Westchester Nominees Ltd.

Winning Post Investment Ltd.

QUESTION PRESENTED

Whether the decision of the Court of Appeals for the

Fourth Circuit defeats the policy of Congress to create a

uniform, national framework for the clean up of toxic

wastes, under the Comprehensive Environmental Response,

Compensation, and Liability Act (“CERCLA”), 42 U.S.C.

§9601, et. seg., by finding a wholly artificial distinction

between actions by the Government under CERCLA Sec-

tions 107(aX4\A) and (B) on the one hand and Section

107(aX4XC) on the other, to support its holding that an

insurer is not liable to defend or indemnify its insured under

a policy containing standard comprehensive general liability

(‘“CGL”’) provisions in an action for clean-up costs under

CERCLA Sections 107(a\4)A) and (B).

THE PARTIES

Defendant, petitioner herein, is Armco Inc., formerly

known as Armco Steel Corporation (‘“‘Armco’’). Armco is

incorporated under the law of Ohio and has its principal

place of business in the State of Ohio. Armco engages in

various businesses including the manufacture and sale of

steel.

Plaintiff, respondent herein, The Maryland Casualty Com-

pany (“Maryland Casualty’’) is incorporated under the law

of Maryland. Maryland Casualty is in the business of provid-

ing and underwriting insurance. In the present case, Mary-

land Casualty issued a CGL policy to Armco which was in

effect from June 1, 1966 until June 1, 1983.

TABLE OF CONTENTS

Page

Cetin PROIGOOR oo Se i

Wee CE abcd ie swe ek eee eee i

po rere ri ee eh ei il

See OE BN io ka oe Dee eee ill

CE TO ones 635s eae ee ree vi

POI nbn ea ee See vl

Statutory Provisions Involved .... 61... 6scesdares- vi

Same ir SIN COANE ck a oe cs Nizds ce besa eee 1

Menno Hor Liat Wt 5k. ok vo cca eaters 5

Il.

IV.

The decision of the Fourth Circuit frustrates the

congressional policy embodied in CERCLA. ..... 5

The decision of the Fourth Circuit creates an

artificial distinction between CERCLA Sections

107(a)4)(A) and (B) on one hand and Section

107(aN4NC) om the OGMOR. o.oo es kee 7

The decision of the Fourth Circuit ignores the

host of decisions by other courts holding that

response costs for environmental contamination

are damages for purposes of a CGL policy. ...... 12

CERCLA response costs are a form of restitution

at law, and are the measure of ‘“‘damages’”’ as

defined by CGL policy language. .............. 16

APPENDIX

Memorandum and Order of the District Court

filed SeptembenS, 1986 .... ccc ccccncnccunces A-1

Opinion of the Court of Appeals filed July 6, 1987 A-11

Order of the Court of Appeals denying Petition

for Rehearing filed August 4, 1987 ............ A-25

STATUTORY PROVISIONS INVOLVED

Comprehensive Environmental Response,

Compensation and Liability Act (““CERCLA’’)

42 USA). SGG8 ones eee A-26

GOT on knckcaxedeeeer eee A-28

TABLE OF AUTHORITIES

Cases Page

Aaronson Associates, Inc. v. Pennsylvania National

Mutual Casualty Insurance Co., 14 D. & C. 3d (Pa.

Comm. Pl., Daughin Cty. 1977), aff'd mem., 272 Pa.

Super. 606, 422 A.2d 689 (1979) ................. 14

Abell v. Anderson, 148 F.2d 372 (6th Cir. 1945) ...... 16

Aetna Casualty & Surety Co. v. Hanna, 224 F.2d

SE Is che Seca ncneessesencsecves 10, 15

Askew v. American Waterways Operators, Inc.,

411 US. 325, 36 L. Ed. 2d. 280 (1973) ............ 14

Bankers Trust Co. v. Hartford Accident & Indemnity

Co., 518 F. Supp. 371 (S.D.N.Y. 1981), vacated by

settlement, 621 F.Supp. 685 (S.D.N.Y. 1981) ....... 14

Cass v. Anderson, 154 Minn. 162, 191 N.W. 407 (1923) 17

Chemical Application Co. v. Home Indemnity Co., 425

Of Se dS bs | 14

Clearfield Trust Co. v. United States, 318 U.S. 363

rae a6 4k aaa wwe sdules 7

Consolidated Rail Corp. v. Certain Underwriters of

Lloyds, No. 84-2069 (D. Pa. June 3, 1986) ........ 13

Continental Insurance Companies v. Northeastern

Pharmaceutical & Chemical Co., Inc., (““NEPACCO

IT’’) 811 F.2d 1180 (9th Cir. 1987), pet. for reh’g.

granted, 815 F.2d 51 (8th Cir. 1987) .............. 12

Cotnam v. Wisdom, 83 Ark. 601, 104 S.W. 164 (1907) . 17

Desrochers v. New York Casualty Co., 99 N.H. 129,

SN Ge ee 15

Haines v. St. Paul Fire & Marine Insurance Co., 428

P. eee. Ga ce. Wed. ISTT) 2... ce eee ees 15,16, 17

Independent PetroChemical Corp. v. Aetna Casualty &

Surety Co., 654 F. Supp. 1834 (D.D.C. 1986) ....... 14

TABLE OF AUTHORITIES—/(Continued)

Cases Page

Kutsher’s County Club Corp. v. Lincoln Insurance Co.,

119 Misc. 2d 889, 465 N.Y.S. 2d 136 (1983) ........ 14

Lansco, Inc. v. Department of Environmental

Protection, 138 N.J. Super. 275, 350 A.2d 520 (Ch.

Div. 1975), affd., 145 N.J. Super. 433, 368 A.2d 363

(App. Div. 1976), certif. denied, 73 N.J. 57, 372 A.2d

RENNES. 8a bu Rae ede SES ae aS ek eas ke 14

Lantry v. Wallace, 182 U.S. 536 (1901) ............. 16

Lehigh Electric & Engineering Co. v. Selected Risks

Insurance Co., 30 D. & C. 3d. 120 (Pa. Comm. PI.,

LS SD oka oed ne dncsahiiveseab ha is 14

Maryland Casualty Co. v. Armco Inc., 822 F.2d 1348

BEE 5 %.0 04.5 4s knee asad dae eee eee 4,11

N.L. Industries, Inc. v. Kaplan, 792 F.2d 896 (9th Cir.

WE ip cceedca chic boss ulvarebeeetneeheaee ns 14

Ohio Drill & Tool Co. v. Johnson, 498 F.2d 186 (6th

Cee MG es oie caret ean ber aice a eee 17

Port of Portland v. Water Quality Insurance

Syndicate, 796 F.2d 1188 (9th Cir. 1986) .......... 13

Riehl v. Travelers Insurance Co., 22 Env’t. Rep. Cas.

(BNA) 1544 (W.D. Pa. August 7, 1984), rev’d on

other grounds, 772 F.2d 19 (8rd Cir. 1985) ......... 15

Township of Gloucester v. Maryland Casualty Co., No.

83-4616 (SSB) (D.N.J. August 19, 1987) .......... 13

United States v. Conservation Chemical Co.,

653 F. Supp. 152 (W.D. Mo. 1986) ................ 3, 10

United States Aviex Company v. Travelers Insurance

Company, 135 Mich. App. 579, 336 N.W. 2d 838

PE hs casa ae a kL Ree EE ae Ok 4,11

Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887

Ee EE Ss coco os Sa ce och a eee e sa 14

TABLE OF AUTHORITIES—(Continued)

Cases Page

Wyandotte Transportation Co. v. United States, 389

Si SE a a hea Aa eR eee Ores dee 18

Statutes and Regulations

Comprehensive Environmental Response,

Compensation, and Liability Act (“CERCLA”), 42

es sec kcdenenk sacsetdsantcnss 1

CERCLA §106, 42 U.S.C. §9606 .................. 7,9

§107(aX3), 42 U.S.C. §9607(aX3) .......... 2

§107(aX4\A), 42 U.S.C.

eS 2, 3, 5, 6,7, 10

§107(aX4\B), 42 U.S.C.

SS is o's wa 4k ako ae Oe 3, 5, 6, 7, 10

§107(aK4yC), 42 U.S.C.

re 3, 4, 5, 7, 9, 11

§107(f), 42 U.S.C. §9607(f) ............. 8, 9, 12

Resource Conservation and Recovery Act (““RCRA’’)

SRG Ge a EE bo bb c5eb eu choeas 1

C7008, 4B UBL. GORI nc ccccccascssvese 1

51 Fed. Reg. No. 142 at 27,681 (August 1, 1986) ..... 9

Other Authorities

Black’s Law Dictionary (5th ed. 1979) .............. 16

D. Dobbs, Handbook on the Law of Remedies (1975).. 17

Restatement of Restitution, Section 2 (Tent. Draft

Woes S,, Se os case eaa ska eae bear eee 17

Sang, Beverly S., The Quasi-Contractual Nature of

Cost Recovery Actions Under CERCLA, 5 Virginia

Journal of Natural Resources Law 85 (1985)....... 16

OPINIONS BELOW

The opinions pertinent to this Petition are the September

8, 1986 Opinion of the United States District Court for the

District of Maryland, 643 F. Supp. 430 (D. Md. 1986) (A-1 to

A-10), and the July 6, 1987 Opinion of the United States

Court of Appeals for the Fourth Circuit, 822 F.2d 1348 (4th

Cir. 1987) (A-11 to A-24).

JURISDICTION

The judgment of the Court of Appeals for the Fourth

Circuit was entered on July 6, 1987. A Petition for a

Rehearing with Suggestion for Rehearing En Banc was filed

on July 20, 1987 and denied on August 4, 1987.

This Court’s jurisdiction is invoked pursuant to Sup. Ct.

R. 20(4) and 28 U.S.C. §§1254(1) and 2101(C).

STATUTORY PROVISIONS INVOLVED

This case involves the Comprehensive Environmental

Response, Compensation, and Liability Act (“CERCLA’’)

§§106 and 107(a), 42 U.S.C. §§9606, 9607(a) and the

Resource Conservation and Recovery Act (““RCRA’’) 42

U.S.C. §§6903, 6973. The text of the relevant provisions of

CERCLA is set forth at pages A-26 et seg. of the Appendix.

STATEMENT OF THE CASE

On August 10, 1982, the United States Government, on

behalf of the Environmental Protection Agency (““EPA’”’),

brought suit against Conservation Chemical Company

(“CCC’’) and six co-defendants, including Armco, in the

United States District Court for the Western District of

Missouri, alleging seepage of hazardous waste from a stor-

age facility operated by CCC in Kansas City, Missouri (the

“CCC Litigation’). The suit was brought for injunctive

relief and reimbursement for the costs of investigating the

nature and scope of the pollution emanating from the site

and costs incurred in cleaning up the contaminated area,

pursuant to Sections 1004 and 7003 of the Resource Conser-

vation and Recovery Act (““RCRA’’), 42 U.S.C. §6903 and

§6973, and Sections 101, 104, 106, and 107(a) of the Com-

prehensive Environmental Response, Compensation, and

Liability Act (“CERCLA”), 42 U.S.C. §§9601-9607(a).

The Government’s complaint generally alleged that CCC’s

improper maintenance techniques—unlined or improperly

lined impoundments, deteriorating waste basins, treatment

basins which were allowed to overflow, improperly installed

storage tanks, improperly sealed and deteriorated drums

and unattended spillage of liquid wastes—had resulted in

the seepage of hazardous and toxic chemicals into the soil

and groundwater surrounding the site. The Complaint

asserted that chemicals migrated from the site as leachate

into the Missouri and Blue Rivers, creating a threat to per-

sons living in communities down river who used the rivers

for crop irrigation, livestock and wild life watering, boating,

industrial water supply, and drinking water.

The Complaint alleged that Armco “‘generated or caused

to be transported solid or hazardous wastes, hazardous sub-

stances and/or pollutants or contaminants to the CCC-

Kansas City site . . .”” and thus had “‘caused or contributed

to and [is] causing or contributing to the release or threat-

ened release of hazardous substances from the CCC-Kansas

City site which presents or may present an imminent and

substantial endangerment to the public health or welfare of

the environment.’’ Armco was alleged to be a “person who

. . . arranged with a transporter for the transport for dis-

posal or treatment of hazardous substances . . . at “any

facility owned or operated by another party’’ under 42

U.S.C. §9607(aX3) and was therefore strictly liable for “‘all

costs of removal or remedial action incurred by the United

States Government or a state’’ under 42 U.S.C.

§9607(aX4)A).

On April 4, 1983, Armco requested coverage under its

Maryland Casualty policy for the costs of its defense and for

indemnity in the CCC Litigation under the following provi-

sions of its policy:

(i) [Tjo pay on behalf of the insured all sums the insured,

shall become legally obligated to pay as damages

because of injury to or destruction of property, including

the loss of use thereof, caused by an occurrence; [and]

(ii) [Tjo defend any suit against the insured alleging such

injury, sickness, disease or destruction and seeking dam-

ages on account thereof, even if such suit is groundless,

false, or fraudulent. . . .

On April 20, 1983, Maryland Casualty advised Armco that

it would not provide coverage or a defense, asserting that

the Government’s complaint in the CCC Litigation did not

state a claim for “damages’’ but was instead a claim for

equitable relief.’

On April 2, 1985, Maryland Casualty instituted an action

for declaratory judgment pursuant to 28 U.S.C. §§2201 and

2202 against Armco in the United States District Court for

the District of Maryland. Jurisdiction was based on diversity

of citizenship under 28 U.S.C. §1332.

' Maryland Casualty also alleged that the Government’s CCC com-

piaint did not contain an allegation of a specific ‘“‘occurrence’’; that the

complaint lacked an allegation of “bodily injury” or “injury to or destruc-

tion of property”’ as defined in the policy; and that the pollution exclusion

endorsement in the policy precluded coverage. None of these arguments

is at issue in the instant petition.

Meanwhile, in the CCC Litigation, CCC and Hjersted (the

site operator defendants) requested their insurers, including

Maryland Casualty, to defend and indemnify them for the

claims asserted by the United States. That request was also

refused. The original generator defendants (‘‘OGDs’’)

including Armco, filed a third-party complaint against

CCC’s insurers, including Maryland Casualty, asserting that

the third-party plaintiffs were intended or creditor benefi-

ciaries of the site operator defendants’ insurance policies

and that the insurers were obligated to indemnify the OGDs

against all damages, costs and fees that they had incurred

or would incur. The CGL policy issued by Maryland Casualty

to the CCC operator defendants contains language nearly

identical to the Maryland Casualty policy at issue in this

case.

A Special Master appointed in the CCC Litigation made

recommendations that Maryland Casualty and other insur-

ers were obligated to indemnify and defend Armco and

other OGDs. Those recommendations were adopted by the

district court. United States v. Conservation Chemical Co.,

653 F. Supp. 152 (W.D. Mo. 1986). The court found that the

deposit of hazardous substances into the CCC site caused

injury to the site itself, and that the release and migration

of the contaminants damaged and continues to damage sur-

rounding groundwater, surface water and soil. After noting

that a great majority of courts have held that response or

clean-up costs constitute property damage for the purpose

of insurance coverage, the court held that actiofis seeking

recovery for clean-up costs under Sections 107(a)4) (A) and

(B) of CERCLA are equivalent to actions seeking recovery

for damages to natural resources under Section 107(aX4\C).

Id. at 194. The measure of damages caused by or arising out

of the environmental harm for purposes of CCC’s CGL poli-

cies was the cost of clean-up and response. Jd. at 193. The

Special Master and the court explictly rejected the insurers’

argument that a claim for response costs under CERCLA

was a claim for purely equitable relief and thus did not fall

within the definition of ‘‘damages’’, concluding that “‘actions

seeking recovery of cleanup costs . . . are equivalent to

actions seeking recovery of damages to natural resources.”’

653 F. Supp. at 193. In reaching this conclusion, the CCC —

court applied reasoning similar to that of the court in United

States Aviex Company v. Travelers Insurance Company, 135

Mich. App. 579, 336 N.W. 2d 838 (1983) (recognizing that

the State could have chosen to incur the costs of cleaning up

the site itself and then have sued plaintiffs to recover the

costs, which would have clearly been a claim for damages

under a comprehensive general liability policy, instead of

suing to force the responsible party to incur the response

cost directly, and terming the choice of one rather than the

other ‘‘merely fortuitous’’). Jd. at 194.

In this case, the Maryland district court rejected the

approach of the Aviex court and the Missouri district court

in the CCC Litigation, even though Maryland Casualty con-

ceded that, had the Government sued under 42 U.S.C.

§9607(a)(4\(C) for ‘“damages for injury to, destruction of, or

loss of natural resources,’’ such a suit would have been

covered as a claim for damages under Armco’s CGL policy.

The district court held that Maryland Casualty was not obli-

gated to defend or indemnify Armco because the Govern-

ment’s suit was for equitable relief and not damages. The

formalistic and substantively obsolete division between law

‘and equity was found sufficient by the district court to

warrant its self-described ‘‘arbitrary” holding that the Gov-

ernment’s claims were not covered by Armco’s CGL policy.

643 F. Supp. at 435.

On appeal, the Fourth Circuit affirmed the district court’s

decision, although the panel rejected the district court’s

ratio decidendi that a distinction between legal and equita-

ble forms of action governed in these circumstances.

Instead, the court of appeals focused on the nature of “‘dam-

ages’’ as that term is used in insurance policies, and adopted

a very restrictive construction which excludes response

costs from the definition. Maryland Casualty Co. v. Armco

Inc., 822 F.2d 1348, 1352 (4th Cir. 1987). In the Fourth

Circuit’s analysis, response costs are restitutionary relief,

and bear no particular relationship to the loss of value to

property occasioned by environmental contamination. As a

result, the panel concurred in the district court’s rejection of

the ‘“‘mere fortuity’”’ reasoning of Aviex, supra, and the Mis-

souri district court. In fact, despite a finding by the Missouri

district court that damage had occurred to the site and

surrounding property, the Fourth Circuit found that the

Government’s clean-up efforts were entirely and exclusively

prophylactic. The Fourth Circuit held that since response

costs are restitutional, they are not damages within the.

meaning of the CGL policy.

REASON FOR GRANTING WRIT

This petition presents an issue of substantial national sig-

nificance involving the frustration of the Congressional pol-

icy embodied in an important federal environmental statute,

by the denial of liability insurance coverage for claims made

by the government against private parties under CERCLA.

The decision of the Court of Appeals for the Fourth Circuit

is contrary to the purposes of CERCLA and creates an

artificial distinction between recovery by the Government

under CERCLA Sections 107(a)4)A) and (B) and Section

107(ay4\C), by holding that Maryland Casualty is under no

obligation under the CGL policy to defend or indemnify

Armco for response costs sought by the United States Gov-

ernment under CERCLA.

I. The decision of the Fourth Circuit frustrates the con-

gressional policy embodied in CERCLA.

Denial of insurance coverage for response costs claimed in

CERCLA actions will have a profoundly negative impact

upon the operation of the statute. Requiring generators and

site operators to forego insurance coverage for CERCLA

claims will inevitably hamper prompt and efficient efforts to

clean up hazardous waste sites.

Congress passed CERCLA in 1980 in response to the

growing awareness of the dangers presented by the numer-

ous hazardous waste disposal sites throughout the country.

m H. R. Rep. No. 1016, 96th Cong., Part I at 17-18 (1980),

reprinted in 1980 U.S. Code Cong. & Admin. News at 6120.

Many of these waste sites were created over a period of

decades, and contained toxic wastes produced by tens or

even hundreds of disparate industrial concerns. Tracing lia-

bility, and in particular, proving negligence or scienter on

the part of all of the owner/operators and the “original

generator defendants” (““OGDs’’) would have required more

years of complex and costly litigation, even as many of the

toxic sites present immediate public health hazards. Thus,

two overriding concerns of Congress in drafting CERCLA

were (a) attaching liability, and thus the risk of liability,

without fault, and (b) assuring a speedy remedial response.

See H. R. Rep. No. 1016, 96th Cong., at 17 (1980) reprinted

in 1980 U.S. Code Cong. & Admin. News at 6120 (‘‘This

legislation would establish a Federal cause of action in strict

liability to enable the administration to pursue rapid recov-

ery of the costs incurred . . . to pursue appropriate environ-

mental response actions with response to inactive hazardous

waste sites.’’).

By construing response costs as falling outside the scope

of the term “‘damages’’ for liability insurance purposes, the

decision below creates an obvious practical obstacle to the

prompt clean up of identified hazardous waste sites. Site

operators and generators of hazardous waste will be forced

to bear the entire cost of remediation. Denying insureds the

benefit_of_insurance coverage for which they bargained,

based upon the erroneous characterization of CERCLA Sec-

tions 107(aX4\A) and (B) as equitable restitution, will dis-

courage operators and OGDs from quickly and efficiently

carrying out remedial responsibilities under CERCLA.

What is worse, the piece-meal application of state law, with

response costs considered as ‘‘damages’”’ in one state but not

another, will create a patch-work quilt of varying liability

and rights under CERCLA, fragmenting what is plainly

intended to be a national, uniform environmental clean-up

statute.”

II. The decision of the Fourth Circuit creates an artificial

distinction between CERCLA Sections 107(a)(4)(A)

and (B) on one hand and Section 107(a)(4)(C) on the

other.

Congress provided the federal government with a variety

of tools to cope with environmental contamination from haz-

ardous waste sites, including traditional equitable relief, 42

U.S.C. §9606, and civil penalties, 42 U.S.C. §§9606(b) and

9608. In addition, Congress enacted a series of cumulative,

monetary compensation provisions. 42 U.S.C.

§9607(aX4\A)-(C). The compensation sections of CERCLA

establish a federal cause of action to recover a money judg-

ment:

[Any person who disposed of hazardous substances at

any facility owned or operated by another party or

entity containing such hazardous substances and] from

which there is a release, or a threatened release which

causes the occurrence of a response cost, of a hazardous

substance, shall be liable for—

(A) All cost of removal or remedial action incurred by

the United States Government or a State not inconsis-

tent with the National Contingency Plan;

(B) Any other necessary cost of response incurred hy

any other person consistent with the National Contin-

gency Plan; and

“It may be appropriate to address the issue directly as a matter of

federal common law. The Supreme Court has held that certain matters

penumbral to a federal statutory program are more appropriately subject

to a uniform, national standard fashioned by the federal courts. See

Clearfield Trust Co. v. United States, 318 U.S. 363 (1948). This is particu-

larly so where application of a state law rule of decision will frustrate the

statutory purpose and leave a national federal program fragmented and

subject to uncertainty. 318 U.S. at 367. In the instant case, the Fourth

Circuit’s decision frustrates federal policy embodied in CERCLA, and a

national, uniform rule is most appropriate to assure the enforcement of

CERCLA.

natural resources, including the reasonable cost of

assessing such injury, destruction, or loss resulting from

such a release.

Under each of the subsections, the person or facility

charged with responsibility for hazardous waste is subject to

liability for damage to the environment in the form of a

money judgment. A defendant cannot be compelled under

any subsection of CERCLA §107(a) to take any action

except to pay a money judgment in a sum certain as deter-

mined by a court. That the sums recovered under all three

subsections are to be used for a common purpose, i.e., com-

pensation for restoration and repair of the land and its

resources, is additional evidence of congressional intent to

create cumulative bases for monetary relief under Section

107(a). A separate section of CERCLA further explicates

the rule of Subsection (C). CERCLA §107(f), 42 U.S.C.

§9607(f), states that:

In the case of an injury to, destruction of, or loss of

natural resources under subparagraph (C) of subsection

(a) of this Section, 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. ... 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 shall be

available for use to restore, rehabilitate, or acquire the

equivalent of such natural resources by the appropriate

agencies of the Federal Government or the State Govern-

ment, but the measure of such damages shall not be

limited by the sums which can be used to restore or

replace such resources.

(Emphasis provided).

The statutory scheme as interpreted by the Department of

the Interior, the executive department charged with carry-

ing out the provisions of CERCLA, explicitly recognizes

Congress’ intent to make recovery under subsection (C)

overlap and supplement damages recovered under subsec-

tions (A) and (B):

[Njatural resource damages are for injuries residual to

those injuries that may be ameliorated in the response

action [under subsections (A) and (B)]. . . . This concept

of natural resource damages as a residual should pre-

vent the development of two separate actions to amelio-

rate the same situation.

See 51 Fed. Reg. No. 148, 27,681 (August 1, 1986) (adopting

the Department of the Interior’s proposed rules for assess-

ment of damage to natural resource). The statute itself

states that the measure of damages under subsection (C)

“shall not be limited by the sums which can be used to

restore or replace such resources.” 42 U.S.C. §9607(f).

Taken as a whole, the provisions of CERCLA creating

multiple causes of action for damages stand in contrast to

the equitable, injunctive relief available under Section 106 of

CERCLA, 42 U.S.C. §9606. Section 106 empowers the Gov-

ernment to seek to compel responsible parties to implement

a comprehensive remedial program to remediate environ-

mental damage, as well as to prevent future harm. Under

the compensation provisions of Section 107 (a), the Govern-

ment is authorized to seek reimbursement of costs and

expense in response to environmental contamination. These

reimbursement costs may include costs incurred by the Gov-

ernment prior to the filing of a complaint, which are typi-

cally investigatory in nature, costs which the Government

has incurred to remedy the damage and abate the contami-

nation, and costs the Government may incur when responsi-

ble parties fail to implement appropriate remedial measures.

Finally, in the event remedial measures fail to abate envi-

ronmental damage, the Government may also sue for ‘‘dam-

ages for injury to or destruction of, or loss of natural

resources’. 42 U.S.C. §107(aX4\C). The goal of CERCLA’s

liability provisions is the expeditious and cost efficient

abatement of environmental damage or contamination.

In this case, the Fourth Circuit reached a decision which is

in direct conflict with the statutory scheme of CERCLA.

Maryland Casualty brought this declaratory judgment

action against Armco in order to avoid its obligation to

defend and indemnify Armco in the underlying Missouri

CERCLA action brought by the United States Government

against Armco and a variety of other OGDs. United States v.

Conservation Chemical Company, 653 F. Supp. 152 (W.D.

Mo. 1986).

In the CCC Litigation, the Government sued for injunctive

and monetary relief, seeking to force the site operator and

the OGDs to implement a remedial plan to abate the envi-

ronmental contamination in and around the Kansas City

site, and to reimburse the Federal Government for response

costs incurred by the Government in responding to environ-

mental contamination of the Missouri site> Armco sought,

and was denied, indemnity and the cost of defense of the

CCC Litigation from Maryland Casualty under the terms of

its comprehensive general liability policy.

The Court of Appeals for the Fourth Circuit, in deciding

that Maryland Casualty is under no obligation to defend or

indemnify Armco for the response costs sought in the CCC

Litigation, has reached a conclusion that is at odds with the

intent of Congress in creating the compensation provisions

of CERCLA §107(a). The court of appeals found that the

“best approach” to the language was to afford the term

‘“‘damages”’ the “legal, technical meaning described in

[Aetna Casualty and Surety Company v. Hanna, 224 F.2d

499, 503 (5th Circuit 1955)].”’ The question, then, became

whether the claim for response costs under CERCLA

§107(aX4)(A) and (B) involved a claim for ‘‘damages’’ prop-

erly defined, or whether it asserted a claim for equitable

relief. The court concluded that the claims for response

costs are not within the coverage of the CGL policy:

The claim for the reimbursement element arises under

CERCLA §107(a), and it is clear that the form of relief

requested in CCC pursuant to CERCLA §107(a) is not

‘“damages”’ in a legal sense, but rather is a form of

equitable, remedial relief.

Maryland Casualty Company v. Armco, Inc., 822 F.2d 1348,

1352 (4th Cir. 1987).°

The court of appeals affirmed the district court’s rejection

of the rationale of a leading case in the area of indemnifica-

tion of an insured for response costs under an environmen-

tal statute, United States Aviex Company v. Travelers

Insurance Company, 125-Mich. App. 579, 336 N.W.2d 838

(1983). In Aviex, the Court held that the term ‘‘damages’”’ in

a CGL policy included reimbursement of response costs

under an environmental clean-up statute. The Aviex court

reasoned that the state had the choice of suing the insured

to recover damages for the injury done to the groundwater,

including the cost of cleaning up the groundwater, or to seek

an injunction requiring the insured to conduct the clean up

itself. The Aviex court concluded that:

It is merely fortuitous from the standpoint of either

plaintiff or defendant that the state has chosen to have

plaintiff remedy the contamination problem, rather than

choosing to incur the costs of clean-up itself and then

suing plaintiff to recover those costs.

125 Mich. App. at 590, 336 N.W.2d at 843.

Both the district court and the court of appeals considered

the form of the Government’s claims for relief more signifi-

cant than the substance of those claims. The district court

accepted the proposition that, had the government brought

suit in the CCC Litigation under 42 U.S.C. §9607(aX4\C) for

“damages for injury to, destruction of, or loss of natural

* Curiously, the court of appeals abandoned its legal/equitable analysis

in the very next paragraph. Responding to Armco’s “creative argument”’

that CERCLA response costs are, as a form of action, most closely

related to an action in quasi-contract, and therefore legal rather than

equitable, the court stated, ‘‘whether a particular cause of action has

historically been considered a ‘legal’ or ‘equitable’ proceeding, with dif-

fering procedural and substantive rights thereto appertaining, is irrele-

vant.”’ 822 F.2d at 1352.

’

resoures,”’ coverage would have been found. The court of

appeals rejected the Aviex “mere fortuity’’ argument as

being a dangerous step for courts to “begin to construe

insurance policies to encompass costs of compliance with

injunctive and reimbursement relief.’’ 822 F.2d at 1353.

In holding that no coverage existed, both lower courts

failed to acknowledge that Congress intended for all three

subsections of CERCLA Section 107(a) to serve as cumula-

tive measures of damages in an abatement action. Any mon-

ies recovered in a suit under any of the three subsections of

Section 107(ay4) must be used to “restore [and] rehabili-

tate’, 42 U.S.C. §9607(f), the damaged property. Subsection

all remedy for injury to property due to environmental con-

tamination that cannot be abated. The policy revealed in the

legislative history, the interpretation of CERCLA by one of

its implementing agencies, and a close reading of the statute

for an appreciation of the structure of remedial tools avail-

able to the government under CERCLA, mandate the con-

clusion that subsections (A), (B) and (C) are cumulative and

overlapping bases by which the government may recover

damages as a remedy for contamination of the environment.

III. The decision of the Fourth Circuit ignores the host

of decisions by other courts holding that response

costs for environmental contamination are damages

for purposes of a CGL policy.

The Fourth Circuit’s decision runs directly counter to the

reasoning of a panel of the Eighth Circuit in Continental

Insurance Companies v. Northeastern Pharmaceutical &

Chemical Co., Inc., 811 F.2d 1180 (8th Cir. 1987), pet. for

reh’g granted, 815 F.2d 51 (8th Cir. 1987) (“NEPACCO IT’).

Although that decision has been suspended by the granting

of a petition for rehearing, the persuasive force of the panel

opinion stands in marked contrast to the Fourth Circuit’s

analysis. The court reviewed the extensive list of cases pre-

dominantly (although not entirely) holding that environmen-

tal response costs are damages under the CGL policy. 811

F.2d at 1186-87. After concluding that environmental con-

tamination causes property damage, and damage to the

property interests of the state and federal governments

acting as sovereign within their territories, 811 F.2d at

1187, the court addressed the issue of response costs, and in

particular, the notion that subsections (A) and (B) are differ-

ent in kind from subsection (C):

It seems clear to us that, although subsection (C)

directly provides for recovery for damage to natural

resources, subsections (A) and (B) are also measures of

the damages which governmental entities may recoup

for hazardous waste damage to natural resources.

811 F.2d at 1188. This conclusion was supported by the case

law and by a close reading of the language of the CGL

policy, virtually a duplicate of the provision in Armco’s CGL

policy. 811 F.2d at 1189. According to the panel, response

costs fit within the CGL language without difficulty:

This [CGL policy] language suggests that once there is

property damage—here, environmental contamination—

then the damages that flow from that property

damage—here, clean-up costs—are recoverable.

Id. (footnote omitted).4

Here, the Fourth Circuit ignored the large and growing

number of cases holding that response costs sought under

an environmental clean-up statute are damages for purposes

of CGL insurance. See, e.g., Township of Gloucester v. Mary-

land Casualty Company, et al., No. 83-4616 (SSB) (D.N.J.

August 19, 1987); Port of Portland v. Water Quality Insur-

ance Syndicate, 796 F.2d 1188 (9th Cir. 1986); Consolidated

Rail Corp. v. Certain Underwriters of Lloyds, et ak.,

* Although technically no dispute of law between the Fourth Circuit

and the Eighth Circuit exists at present because of the pending en banc

decision, should the decision of the district court be affirmed by the

Eighth Circuit, under reasoning similar to that of the majority in the

panel decision, a very clear conflict will exist. Petitioner will, of course,

immediately notify this Court of any action by the Eighth Circuit during

the pendency of this Petition.

No. 84-2069 (D. Pa. June 3, 1986); Kutsher’s Country Club

Corp. v. Lincoln Ins. Co., 119 Mise. 2d 889, 465 N.Y.S. 2d

136 (1983); Chemical Application Company v. Home Indem-

nity Co., 425 F. Supp. 777 (D. Minn. 1977); Lansco, Ine. v.

Department of Environmental Protection, 138 N.J. Super.

275, 350 A.2d 520 (Ch. Div. 1975), aff'd, 145 N.J. Super.

433, 368 A.2d 363 (App. Div. 1976), certif. denied, 73 N.J.

57, 372 A.2d 322 (1977); Independent PetroChemical Corp.

v. Aetna Casualty & Surety Company, 654 F. Supp. 1334,

1359 (D.D.C. 1986).

Courts have held that response costs constitute ‘‘dam-

ages’ within the meaning of a CGL policy regardless of

whether a state or the federal government cleaned up the

affected area and then sued to recover the costs of clean up

which were incurred, see, e.g., Kutsher’s, supra, or more

commonly, when the insured incurred the clean-up costs

itself pursuant to a state or federal enforcement order or

under threat of an enforcement suit. See, e.g., Consolidated

Rail Corp., supra; Bankers Trust Company v. Hartford

Accident and Indemnity Co., 518 F. Supp. 371 (S.D.N.Y.

1981), vacated by settlement, 621 F. Supp. 685 (S.D.N.Y.

1981); Lehigh Electric and Engineering Company v. Selected

Risks Insurance Company, 30 D. & C. 3d 120 (Pa. Comm.

Pl., Luzerne Cty. 1982); Aaronson Associates, Inc. v. Penn-

sylvania National Mutual Casualty Insurance Company, 14

D. & C. 3d-(Pa. Comm. Pl., Daughin Cty. 1977), aff'd mem.,

272 Pa. Super. 606, 422 A.2d 689 (1979).

Moreover, CERCLA Section 107(a) creates a private

cause of action for damages, Wickland Oil Terminals v.

Asarco, Inc., 792 F.2d 887, 890 (9th Cir. 1986) (‘‘Section

107(aX2\B) expressly creates a private cause of action for

damages’’); N.L. Industries, Inc. v. Kaplan, 792 F.2d 896,

898 (9th Cir. 1986), with the measure of damages in subsec-

tions (A) and (B) being the cost of clean up. Compare Askew

v. American Waterways Operators, Inc., 411 U.S. 325, 36 L.

Ed. 2d 280, 286 (1973) (in comparing Water Quality

Improvement Act of 1970, 33 U.S.C. §§1161, et seq. (1972),

and a similar Florida act, the court concluded that ‘‘the

Federal Act determines damages measured by the cost to

the United States for cleaning up oil spills. . . .’’); Riehl v.

Travelers Insurance Company, 22 Env’t Rep. Cas. (BNA)

1544, 1546 (W.D. Pa. August 7, 1984), rev’d on other

grounds, 772 F.2d 19 (3rd Cir. 1985).

The Fourth Circuit relied on only three cases in reaching

its conclusion, 822 F.2d at 1352, citing Aetna Casualty &

Surety Company v. Hanna, 224 F.2d 499 (5th Cir. 1955);

Desrochers v. New York Casualty Company, 99 N.H. 129,

106 A.2d 196 (1954); Haines v. St. Paul Fire & Marine

Insurance Company, 428 F. Supp. 435 (D. Md. 1977), none

of which addresses the issue of whether environmental

response costs are covered as damages under a CGL policy.

In Desrochers, the insured-inadvertently closed a drainage

culvert in the course of filling a marsh, which caused peri-

odic flooding and damage to his neighbor’s property. The

insurer declined to pay the costs incurred by the insured in

complying with an injunction issued in an action by the

neighbor. The trial court held in favor of the insured, finding

that the costs of compliance with the injunction were in lieu

of future monetary damages which would be incurred, had

the condition not been corrected. On appeal, the Supreme

Court of New Hampshire held only that because the insur-

er’s contract had been cancelled, the insurer could not be

held for any future damages caused by the flooding and the

costs of complying with the injunction could not be termed

“in lieu of’’ future damages. 99 N.H. at 133, 106 A.2d at

199.

Likewise, Hanna involved the refusal of an insurer to

defend or indemnify an insured sued in the Chancery Court

in Florida, where the plaintiff sought an injunction to force

the insured to remove landfill from the plaintiff's property

that had washed there during a storm, and to build a retain-

ing wall to prevent further damage to the property. Upon

failing to comply with an injunction issued by the Court of

Chancery, the insured was assessed penalties and damages,

although later the suit was revived in the Court of Chancery

in an attempt to force compliance with the original injunc-

tion. 224 F.2d at 502.

Finally, in Haines the insured claimed coverage under a

professional liability policy for defense and indemnity in a

suit brought by the Securities and Exchange Commission

against the insured to force disgorgement of illegal profits.

428 F. Supp. at 439. The nature of the action and the relief

granted in Haines was equitable and injunctive, and the

relief obviously did not fall under the term “‘damages’”’ in

the professional liability policy. The court found that the

SEC suit for restitution of ill-gotten profits was an action

for “traditional equitable relief and cannot be considered

damages within the policy coverage.”’ Jd. at 441.

IV. CERCLA response costs are a form of restitution at

law, and are the measure of ‘“‘damages’”’ as defined by

CGL policy language.

The Fourth Circuit rejected the structure of CERCLA as

it stands, in favor of a purely formalistic analysis: Response

costs are a form of restitution, restitution is not ‘““damages”’,

and therefore, response costs are not covered by the lan-

guage of the CGL policy. A closer look at the statute

unmasks the labels attached by the Fourth Circuit. Accept-

ing for the sake of argument that ‘‘damages’”’ are defined as

“‘pecuniary compensation or indemnity, which may be recov-

ered in the courts by anyone who suffers loss,’’ Black’s Law

Dictionary 351 (5th Ed. 1979), and that such damages may

only be had in a suit at law, CERCLA response costs none-

theless more closely resemble legal damages than an injunc-

tion, equitable restitution or any other form of equitable

relief.°

Response costs are the remedy available in a suit at law.

Section 107 of CERCLA, 42 U.S.C. §9606, imposes an obli-

gation which is wholly separate from the injunctive relief

available under CERCLA Section 106, 42 U.S.C. §9607. The

Supreme Court has held that an action to enforce a liability

° Seng, Beverly S., Quasi Contractual Nature of Cost Recovery Actions

Under CERCLA, 5 Va. J. Nat. Res. Law 85 (1985).

created by a statute is an action at law. Lantry v. Wallace,

182 U.S. 536, 548 (1901) (“The present action is beyond

question one at law. Its object is to enforce a liability cre-

ated by statute. .. .’’); Abell v. Anderson, 148 F.2d 372, 374

(6th Cir. 1945). Restitution is available at law as well as in

equity. Restatement (Second) of Restitution, tentative draft

No. 1, at 1 (1983) (“Restitution at law is the progeny of the

action of assumpsit—especially one of the so-called common

counts of indebitatus assumpsit—which gave rise to the gen-

eral theory of money recovery known as quasi-contract.’’);

Restatement of Restitution, §4(f) (1937) (‘‘In situations in

which a person is entitled to restitution, he is entitled in an

appropriate case to . . . (f) a judgment at law or decree in

equity for the payment of money. . . .”’).

Equitable restitution is quite different in purpose and in

measure from legal restitution. Equitable restitution most

commonly takes the form of disgorgement: The defendant

has been unjustly enriched and the remedy is to compel the

defendant to give back the undeserved gain. See, e.g., Ohio

Drill and Tool Company v. Johnson, 498 F.2d 186, 193 (6th

Cir. 1974); Haines v. St. Paul Fire and Marine Insurance,

supra; D. Dobbs, Remedies §41 at 224 (1975). The remedy is

not, as is the case with CERCLA response costs, measured

by the extent of the plaintiff's injury, but rather by the

amount of the defendant’s unjust enrichment. By contrast,

as noted in the Seng article, supra, restitution at law has

been available for recovery of expenses incurred in provid-

ing necessaries to the defendant,® recovery for the costs of

performing the defendant’s duty,’ and provision of public

necessaries, such as the cost of repair or removal of public

* See, for example, the physician's recovery for rendering medical aid

in an emergency. Restatement of Restitution §116 (1937); Cotnam v.

Wisdom, 83 Ark. 601, 104 S. W. 164 (1907).

’ Restatement of Restitution §113 (1937); Cass v. Anderson, 154 Minn.

162, 191 N.W. 407 (1923).

nuisances.* Liability does not arise until the plaintiff per-

forms the duty and incurs the out-of-pocket expense.®

Plainly, response costs under CERCLA are more akin to

legal restitution than to equitable restitution.

* Wyandotte Transportation Company v. United States, 389 U.S. 191,

204 (1967), citing Restatement of Restitution §115 (1937). The measure

of relief for an action at law to recover the costs of removing a public

nuisance is not the defendant’s unjust enrichment, but the plaintiff’s out-

of-pocket cost in performing the defendant’s duties.

* Seng, supra, 5 Va. J. Nat. Res. Law at 98-99.(‘{T]he benefit to the

defendant may be intangible, even ficticious, but it is presumed in the

law. Consequently, the usual measure of recovery, the benefit or enrich-

ment of the defendant, is replaced by the measure of the plaintiff’s

outlay.’’).

CONCLUSION

The Fourth Circuit’s decision frustrates the underlying

policies of CERCLA by creating an artificial distinction

between CERCLA subsections (A) and (B) on the one hand

and subsection (C) on the other and fostering very real

obstacles to prompt and efficient remedial efforts on the

part of parties primarily liable under CERCLA. The reason-

ing of the court of appeals runs counter to the overwhelm-

ing majority of opinions which hold that response costs are

damages within the meaning of the CGL policy. By allowing

the opinion to stand, enforcement of an important national

environmental statute will be hamstrung. For the foregoing

reasons, Armco Inc. respectfully asks that this court grant

its Petition for Certiorari and set the case for briefing and

oral argument.

Respectfully submitted,

Benjamin Rosenberg

Craig E. Smith

W. Warren Hamel

Venable, Baetjer and Howard

1800 Mercantile Bank & Trust Bldg.

2 Hopkins Plaza

Baltimore, Maryland 21201

(301) 244-7400

Attorneys for Petitioner

Armco Ince.

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

THE MARYLAND CASUALTY *

COMPANY .

V. * CIVIL NO. Y-85-1396

ARMCO, INC. '

Filed: September 1986

Jonathan D. Smith, Esquire, Baltimore, Maryland, Stephen

J. Immelt, Esquire, Baltimore, Maryland, Thomas W. Bren-

ner, Esquire, Washington, D.C., Jeffrey F. Liss, Esquire,

Washington, D.C., and Laura Foggan, Esquire, Washington,

D.C., counsel for the plaintiff.

Mark R. Engel, Esquire, Baltimore, Maryland, Benjamin

Rosenberg, Esquire, Baltimore, Maryland, and Robert J.

’ Proutt, Esquire, Baltimore, Maryland, counsel for the

defendant.

YOUNG, United States District Judge

MEMORANDUM

The Maryland Casualty Company seeks a declaratory

judgment that it does not have a duty to defend a Compre-

hensive Environmental Response, Compensation and Liabil-

ity Act (““CERCLA’’) suit brought against its insured,

Armco, Inc., and a host of other defendants in the Western

District of Missouri. United States v. Conservation Chemical

Co., No. 82-0983-CV-W-5. Maryland Casualty issued gen-

eral business insurance policies to Armco from 1966 to 1983.

The parties do not dispute the terms of those insurance

policies or the underlying facts in the Conservation Chemi-

A-1

A-2

cal Co. (““CCC’’) litigation, and have filed cross motions for

summary judgment. No hearing is necessary. Local Rule 6.

The Environmental Protection Agency’s complaint in the

CCC case alleges that a toxic waste site in Kansas City,

owned and maintained by the Chemical Conservation Com-

pany, is leaking hazardous substances into the water tables

of the Missouri and Blue Rivers. The complaint names

Armco as one of several defendants who generated hazard-

ous waste present at the site. The parties in this case have

represented to the Court that Armco hired Conservation

Chemical to dispose of its wastes, and that Conservation

Chemical improperly stored Armco’s wastes at the site over

a period of years. Armco thus appears to be a “‘person who .

. . arranged with a transporter for transport for disposal or

treatment, of hazardous substances . . . at any facility

owned or operated by another party’’ under 42 U.S.C. §

9607(aX3). The EPA complaint alleges that, as such, Armco

is strictly liable for ‘‘all costs of removal or remedial action

incurred by the United States Government or a “‘state’’

under 42 U.S.C. § 9607(a)4)(A).

The contracts between Maryland Casualty and Armco do

not specify whether the parties intended the contracts to be

interpreted according to the law of a particular jurisdiction.

In a diversity case such as this, the Court must look to the

choice of law rules of Maryland, the forum state. Klaxon Co.

v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941). Maryland

follows the rule of locus contractus, applying the law of ‘“‘the

place where the last act is performed which makes an agree-

ment a binding contract.’’ Grain Dealers Mutual Insurance

Co. v. Van Buskirk, 241 Md. 58, 65-66 (1965); Sun Insur-

ance Office, Ltd. v. Mallick, 160 Md. 71, 81 (1931); Haines v.

St. Paul Fire & Marine Insurance Co., 428 F. Supp. 485 (D.

Md. 1977); Riviera Beach Volunteer Fire Co., Inc. v. Fidelity

& Casualty Co. of New York, 388 F. Supp. 1114, 1119-20 (D.

Md. 1975).

Counsel for both parties have orally represented to the

Court that the insurance contracts at issue were signed in

A-3

Maryland, and agree that Maryland law applies. The Court

finds no dispute of material fact on this issue, and will apply

Maryland law. ‘‘Maryland has not adopted the rule, followed

in many jurisdictions, that an insurance policy is to be most

strongly construed against the insured. If the language of

an insurance contract is ambiguous, however, construction

is for the jury, and the ambiguity is to be resolved against

the company who prepared the policy and in favor of the

insured.”’ National Grange Mutual Insurance v. Pinkney,

284 Md. 694, 705 (1979) (citations omitted), quoting Govern-

ment Employees Insurance v. DeJames, 256 Md. 717, 720

(1970).

In its motions for summary judgment, Maryland Casualty

argues that it is not obligated to defend Armco in the CCC

litigation because the EPA’s complaint does not assert

claims for legal ‘‘damages’’ within the meaning of Maryland

Casualty’s policies. Because the Court finds that Maryland

Casualty is entitled to summary judgment on this issue, it is

unnecessary to consider the other contentions of the parties.

The insurance contracts limit Maryland Casualty’s duty to

defend to a “‘suit against the insured . . . seeking damages,”

and limit the duty to indemnify to “‘sums which the insured

shall become legally obligated to pay as damages.”’ Policy

No. 31R-0038550, Defense, Settlement, Supplementary Pay-

ments, Subsection (a); Coverage C - Property Damage Lia-

bility - Except Automobile. The word “‘damages”’ is not

ambiguous in the insurance context. Black letter insurance

law holds that claims for equitable relief are not claims for

“damages” under liability insurance contracts. See, e.g.,

Haines v. St. Paul Fire & Marine Insurance Co., 428 F.

Supp. 485 (D. Md. 1977) (Blair, J.); Aetna Casualty and

Surety Co. v. Hanna, 224 F:2d 499 (5th Cir. 1955); Desro-

chers v. New York Casualty Co., 106 A.2d 196 (N.H. 1954).

The government’s CCC complaint sought injunctive relief

against Armco, as well as reimbursement for “‘all costs of

removal or remedial action incurred by the United States

Government or a State not inconsistent with the national

A-4

contingency plan,” under 42 U.S.C. § 9607(aX4\A). Judge

Wright of the Western District of Missouri appointed a spe-

cial master, Professor Robert H. Freilich of the University

of Missouri at Kansas City, to help resolve the CCC litiga-

tion. The special master recommended that a CCC defen-

dant’s request for a jury trial be denied, on the grounds that

the government’s suit for response costs were analogous to

an equitable claim for restitution. See Special Master’s Rec-

ommendation Regarding General Dynamics Corporation’s

Demand for a Jury Trial (April 29, 1985). Judge Wright

approved the special master’s recommendation by Order

dated May 14, 1985.

The Seventh Amendment does not provide a right to a

jury trial ‘‘if viewed historically the issue would have been

tried in the courts of equity ... .”’ 9 Wright & Miller,

Federal Practice and Procedure, Civil § 2302, p. 15 (1971).

Judge Wright’s Seventh Amendment analysis of the CER-

CLA statutory scheme followed the unanimous decisions of

other courts faced with the same issue. This Court has also

denied a demand for a jury trial in a CERCLA case. See

United States v. Dickerson, No. Y-85-3249, memo. op. at 12

(May 28, 1986); see also United States v. Mottolo, 605 F.

Supp. 898, and cases cited at 913 (D. N.H. 1985).

Recently, the special master recommended that the gov-

ernment’s CCC complaint alleges claims for ‘‘damages’’ for

purposes of comprehensive general liability insurance poli-

cies. See Special Master’s Recommendation on Motions for

Summary Judgment Regarding Insurance and Indemnifica-

tion, memo. op. at 132 (June 27, 1986) (hereafter ‘Special

Master’s Recommendations“). Maryland Casualty has repre-

sented to the Court that Judge Wright entered an order

adopting the special master’s recommendations on July 10,

but said that he would vacate the order as to Maryland

Casualty and two other insurers who had settled before

entry of the order. Judge Wright apparently has deferred

entry of that order to vacate pending further settlement

negotiations between all parties still involved. See letter to

A-5

the Court from counsel for Maryland Casualty, July 18,

1986, pp. 1-2.

In this posture, the special master’s recommendations are

not res judicata against Maryland Casualty. They are also

unpersuasive as precedent. Professor Freilich, in some —

detail, explained why actions to recover response costs

alleged ‘‘property damage’”’ under the insurance contracts.

Special Master’s Recommendations at pp. 63-81. This Court

agrees with the special master’s common sense conclusion

that toxic waste dumps that contaminate the environment

cause “‘property damage;”’ it reached the same result in

Mraz v. American Universal Insurance Co., 616 F. Supp.

1173, 1177 (D. Md. 1985), appeal filed, No. 85-2399 (4th Cir.

November 26, 1985). The “‘property damage’’ issue is dis-

tinct from the ‘damages’ issue, however. As Professor

Freilich noted, the typical business liability policy reads:

“The company will pay on behaif of the insured all sums

which the insured shall become legally obligated to pay as

damages because of . . . property damage. . . .”” Special

Master’s Recommendations at p. 70. In the unambiguous

wording of the policy, even if a lawsuit against the insured

alleges ‘‘property damage,’’ it must also make claims for

‘“‘damages’’ before the insurer becomes obligated to defend

or indemnify.

This Court was not presented with the “‘damages”’ issue in

the Mraz litigation. See Pretrial Order filed June 26, 1985,

section 2(c), pp. 8-10. Maryland Casualty squarely pre-

sented Special Master Freilich with the “‘damages”’ issue in

the CCC litigation, and he acknowledged that it was differ-

ent than the ‘‘property damage”’ issue noting:

To the extent that Maryland [Casualty]’s argument once

again raises the question of whether “‘cleanup costs’ con-

stitute ‘‘property damage’’ for purposes of liability insur-

ance coverage, the Special Master rejects Maryland’s

argument. [The special master had already rejected that

argument at pp. 63-81 of his memorandum.| To the extent

that Maryland’s argument interprets “‘damages”’ as com-

A-6

pensation for injury or loss and excludes the cost of com-

plying with equitable or injunctive orders, the Special

Master believes the argument interprets “damages’’ too

narrowly. The Special Master interprets “‘damages’”’ to be

sums which the insured is obligated to pay by reason of

liability imposed by law, and adopts the reasoning of the

Court in United States Aviex Co. v. Travelers Ins. Co., 125

Mich. App. 579, 336 N.W.2d 838 (1983).

Special Master’s Recommendations at 132.

To adopt the reasoning of the Aviex decision is to adopt no

reasoning at all. In that case, the insured operated a chemi-

cal plant in Niles, Michigan that had been destroyed by fire.

Chemicals from the plant mixed with water used to put out

the fire and percolated into the ground, contaminating the

groundwater. The State of Michigan ordered the insured to

clean up the contamination. The insured paid a consulting

firm to analyze the damage, but dragged its feet when the

consultants estimated that clean-up operations would cost

over a million dollars. The State of Michigan threatened the

insured with legal action. Under Michigan’s statutory

scheme, the State could have sought an order for abatement

of water pollution, a criminal complaint, injunctive relief, or

damages for injuries done to the national resources of the

state. 336 N.W.2d 841, 843. Before the State pursued any of

these remedies, the insured sued its insurer for a declara-

tory judgment. The trial court held that the insurer was

obligated

to defend any claim or action and to pay for any dam-

ages to the extent of the policy’s monetary limits deter-

mined by a tribunal of competent jurisdiction, which

damages will include the costs of plaintiff imposed by such

tribunal or resulting from a determination by such tribu-

nal for correcting the chemical contamination of the per-

colating or ground water underneath plaintiff's premises

caused by the fire. . . . The obligation of the defendant

includes reimbursement of plaintiff for the costs and

A-7

expenses of any study and testing incurred by the plaintiff

to date.

336 N.W.2d at 841.

On appeal, the insurer argued that ‘“‘damages” did not

include costs incurred in complying with equitable or injunc-

tive orders. The Court of Appeals of Michigan affirmed. The

Aviex court recognized that ‘“‘Defendant’s argument is per-

suasive and supported by decisions from several other juris-

dictions,’ and cited Aetna Casualty Co. v. Hanna, supra;

Desrochers v. New York Casualty Co., supra; and Ladd Con-

struction Co. v. Insurance Company of North America, 391

N.E.2d 568 (Ill. App. 1979). 336 N.W.2d 842-43.

The Aviex court declined to follow this ‘‘persuasive’’ prec-

edent, however, holding:

In our opinion, this reasoning interprets ‘‘damages’’ too

narrowly. . . . [T]he Attorney General is empowered to file

a suit ‘“‘to recover the full value of the injuries done to the

natural resources of the state. . . .” [sic] This language

clearly indicates the state’s interest in its natural

resources. Defendant agrees that the contamination of

subterranean and percolating water as a result of the fire

is “physical injury to tangible property”’ within the terms

of the insurance policy [the equivalent of the “property

damage” issue]. If the state were to sue in court to

recover in traditional ‘‘damages,”’ [sic] including the

state’s costs incurred in cleaning up the contamination,

for the injury to the groundwater, defendant’s obligation

to defend against the lawsuit and to pay damages would

be clear. It is merely fortuitous from the standpoint of

either plaintiff or defendant that the state has chosen to

have plaintiff remedy the contamination problem, rather

than choosing to incur the costs of clean-up itself and then

suing plaintiff to recover those costs.

336 N.W.2d 843.

It was no coincidence that the Aviex court did not cite a

single authority in support of its “‘mere fortuity’’ argument,

because that argument violates one of the major tenets of

A-8

black letter insurance law. An insurer has an obligation to

assess its duty to defend and indemnify against the allega-

tions in the complaint alone. See generally, Brohawn v.

Transamerica Insurance Co., 276 Md. 396 (1975); Board of

County Commissioners of the County of Larimer v. Guaran-

tee Insurance Co., 90 F.R.D. 405, 407-408 (D. Colo. 1981);

Ladd Construction Co., supra, 391 N.E.2d at 572-73: |

Should we indulge in speculation as to whether a court

by exercising its inherent power might award damages

when none were sought and then conclude that such inher-

ent power exists and insurance company [sic] must defend

an action, then we would by speculation be altering the

responsibilities between parties as set forth in an insur-

ance contract. Moreover, a giant if not final step would

have been taken in support of a proposition that an insur-

ance company would be under an obligation to defend all

suits, regardless of policy provisions or allegations con-

tained in a complaint. Such a result could well create

havoc as to both the insurers and the insureds.

Traditionally, courts have found no insurance coverage for

the costs of complying with an injunction even in cases

where the suits could have been brought for damages. See

Aetna Casualty and Surety Co. v. Hanna, supra, 224 F.2d

503; Ladd Construction Co. v. Insurance Co. of North Amer-

wea, supra, 391 N.E.2d at 572-73; Garden Sanctuary, Ine. v.

Insurance Co. of North America, 292 So.2d 75, 76-77 (Fla.

App. 1974). Maryland Casualty concedés that the govern-

ment could have brought its CCC suit under 42 U.S.C. §

9607(aX4XC) for “damages for injury to, destruction of, or

loss of natural resources,”’ and that such a suit would have

alleged claims for ‘“‘damages’’ under the insurance con-

tracts. But, the government chose not to bring suit under

the “damages” provisions of CERCLA, apparently prefer-

ring the equitable remedy of restitution. Maryland Casualty

is obligated to defend or indemnify real lawsuits, not hypo-

thetical ones.

A-9

Professor Freilich and the Aviex court tried to get around

this result by saying that damages to the environment are

measured by the costs of clean-up. See Special Master’s

Recommendations at 80, 132; Aviex, supra, 336 N.W.2d 843.

Armco adds a wrinkle to that argument by suggesting that

in claims for clean-up, money is the ‘“‘essence”’ of the gov-

ernment’s claims, unlike in other equitable suits, which pre-

sumably focus on injunctive relief. The difficulty with these

arguments is that they apply with equal force to the Sev-

enth Amendment analysis of CERCLA clean-up suits; clean-

up costs cannot be the equivalent of damages, or

“essentially’’ monetary, for purposes of interpreting an

insurance contract, and also be equitable for Seventh

Amendment purposes.

The Special Master’s suggestion that ‘‘damages’’ are

“sums which the insured is obligated to pay by reason of

liability imposed by law’”’ appeals to common sense. That is

why people buy insurance, after all, and why should out-

dated distinctions between law and equity get in the way? It

is true that no practical difference exists between sums

which the insured must pay the court under some equitable

remedy as opposed to sums payable for damages. But there

is also no practical difference between sums which the

insured must pay the court and sums which the insured

must pay to comply with an injunctive order. Obviously, an

insurer cannot be required to pay the costs of its insured in

complying with every new government regulation.

Insurance contracts must draw the line somewhere, and

under law clearly established by 1955, these contracts drew

the line at the historic division between law and equity.

Every court that has considered the question has held that

CERCLA response cost suits fall on the equity side of the

line. Arbitrary as it may appear, Maryland Casualty is enti-

tled to the benefit of its bargain.

/s/

United States District Judge

A-10

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

THE MARYLAND CASUALTY *

COMPANY ,

v. * CIVIL NO. Y-85-1396

ARMCO, INC. 7

ORDER

In accordance with the attached Memorandum, it is this

day of September, 1986, by the United States District

Court for the District of Maryland, ORDERED:

1. That the motion of Maryland Casualty for summary

judgment BE, and the same IS, hereby GRANTED;

2. That the motion of Armco, Inc. for summary judgment

BE, and the same IS, hereby DENIED;

3. That the cross-motion for summary judgment by Mary-

land Casualty BE, and the same IS, DENIED AS MOOT;

4. That the Pretrial Order in Mraz v. American Universal

Insurance Co., Y-84-4426, and counsel for Maryland Casu-

alty’s letter to the Court dated July 18, 1986, be made part

of the record in this case;

5. That judgment BE, and the same IS, ENTERED in

favor of Maryland Casualty; and

6. That a copy of this Memorandum and Order be mailed

to counsel.

/s/

United States District Judge

A-11

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 86-3125

The Maryland Casualty Company,

Plaintiff— Appellee,

versus

Armco, Inc.,

Defendant— Appellant,

Lumbermens Mutual Casualty Company;

AT&T Technologies, Inc.; State of Missouri;

Insurance Environmental Litigation Association;

Keith Rayment

Amici Curiae.

Appeal from the United States District Court for the Dis-

trict of Maryland, at Baltimore. Joseph H. Young, District

Judge. (CA-85-1396)

Argued: March 2, 1987 Decided: July 6, 1987

Before WIDENER, SPROUSE, and CHAPMAN, Circuit

Judges.

A-12

Benjamin Rosenberg (Craig E. Smith; James R. Moxley, II];

Mare R. Engel; W. Warren Hamel; Venable, Baetjer &

Howard on brief) for Appellant; Thomas William Brunner

(Steven C. Kahn; Jeffrey F. Liss; Laura A. Foggan; John W.

Cavilia; Piper & Marbury on brief) for Appellee; (Robert N.

Sayler; John E. Heintz; William F. Greaney; Frederick G.

Harold; Covington & Burling on brief) for Amicus Curiae

AT&T Technologies, Inc., The Boeing Company, Carter Day

Industries, Inc., Chemical Manufacturers Associations, Ex-

Cell-O Corporations, International Business Machines Cor-

poration, Key Pharmaceuticals, Inc., SCM Corporation,

Stauffer Chemical Company and 3M Company; (Richard L.

Blatt; Richard S. Borland; Ellen J. Kerschner; Robert W.

Hammesfahr; Peterson, Ross, Schloerb & Seidel; Patrick M.

Sweeney; Beverly L. Crump; Douglas M. Palais;

McSweeney, Burtch & Crump on brief) for Amicus Curiae

Keth Rayment; (William L. Webster, Attorney General;

Shelley A. Woods, Assistant Attorney General on brief) for

Amicus Curiae State of Missouri; (Timothy C. Russell;

Thomas S. Schaufelberger; Drinker, Biddle & Beath on

brief) for Amicus Curiae Lumbermens Mutual Casualty

Company; (Roger E. Warin; Virginia L. White-Mahaffey;

Helen D. Irvin; Michael J. Markoff; Steptoe & Johnson on

brief) for Amicus Curiae Insurance Environmental Litiga-

tion Association.

A-13

CHAPMAN, Circuit Judge:

The appellee, The Maryland Casualty Company, sought

a declaratory judgment concerning its liability to its insured,

Armco, Inc., arising out of a suit brought against Armco by

the United States. The underlying suit is a claim against

Armco for reimbursement and injunctive relief because of

an alleged endangerment to the environment at a hazardous

waste site in Missouri. The question presented is whether

the claim brought against Armco in Missouri constitutes a

claim for ‘“damages’”’ as defined in the insurance agreement

between Armco and Maryland Casualty. We hold that the

claim seeking compliance with regulatory directives of a

federal agency, which compliance takes the form of obedi-

ence to injunctions and reimbursement of remedial costs,

does not constitute a claim for ‘“‘damages’’ under the insur-

ance policy. We affirm the decision of the district court that

Maryland Casualty is not obligated to indemnify nor defend

Armco in the Missouri litigation

At issue is a general comprehensive liability policy first

negotiated between Maryland Casualty and Armco in 1966.

Modified periodically, it remained in effect until June 1,

1983. Totaling one hundred and fifty-eight pages, the policy

is “manuscript” in several instances: that is, some provi-

sions are negotiated and specifically written for this

insured. In pertinent part, the policy obligates Maryland

Casualty:

[T]o pay on behalf of the insured all sums which the

insured shall become legally obligated to pay as damages

because of injury to or destruction of property, including

the loss of use thereof, caused by an occurrence; [and]

[To] defend any suit against the insured alleging such

injury, sickness, disease or destruction and seeking dam-

ages on account thereof, even if such suit is groundless,

false, or fraudulent. . . .

In the Missouri litigation, United States v. Conservation

Chemical Company, 82-0983-CV-W-5 (W.D. Mo. Sept. 2,

A-14

1986) (‘“CCC’’), the United States brought suit against both

the owners of the waste storage facility and the “original

waste generator’ defendants, which latter group included

Armco. The complaint alleged that improper maintenance

techniques utilized in storing the hazardous waste resulted

in the seepage of toxic chemicals into the soil and ground-

water surrounding the site and surface flows off the site and

e-.to adjoining property. The complaint also alleged that the

chemicals have migrated from the site as leachate into the

Missouri and Blue Rivers and thus pose a threat to persons

living in communities downriver who use the rivers for crop

irrigation, livestock and wildlife watering, boating, indus-

trial water supply and as a source of drinking water.

The suit was brought pursuant to the Resource Con-

servation and Recovery Act of 1976, as amended, 42 U.S.C.

§§ 6901-91, and the Comprehensive Environmental

Response, Compensation and Liability Act of 1980, Pub. L.

No. 96-510, 94 Stat. 2767 (1980) (““CERCLA’’). Among its

CERCLA claims the government sued under § 106 and

under § 107, 42 U.S.C. § 9607(a)4)(A) seeking to compel the

responsible parties to implement a comprehensive remedial

action program and seeking reimbursement for all of its

investigatory and other response costs and enforcement

activities related to the site and for the costs incurred or to

be incurred in cleaning up the affected area.

CERCLA § 107, 42 U.S.C. § 9607 reads in pertinent

part:

(4) any person who accepts or accepted any hazardous

substances for transport to disposal or treatment facilities

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

release, or a threatened release which causes the incur-

rence 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 not incon-

sistent with the national contingency plan;

A-15

(B) any other necessary costs of response incurred

by any other person consistent with the national contin-

gency plan; and

natural resources, including the reasonable costs of

assessing such injury, destruction, or loss resulting from

such a release.!

In January 1986, the original waste generator defen-

dants in the CCC litigation, including Armco, filed an

amended third-party complaint against the site operator

defendants’ primary and excess insurers, including Mary-

land Casualty, alleging that the third-party plaintiffs were

intended and/or creditor beneficiaries of the site operator

defendants’ insurance policies. The complaint asserted that

the insurers were obligated to indemnify the original waste

generator defendants against all damages, costs and fees

which they had incurred or would incur. The insurance pol-

icy between Maryland Casualty and the CCC operator defen-

dants contained nearly identical language to the Maryland

Casualty—Armco policy at issue in this case.

The special master appointed in CCC found that Mary-

land Casualty was under an obligation to indemnify and

defend Armco in the CCC litigation. Specifically, the master

determined that environmental harm constitutes “‘property

damage”’ as defined in the insurance policy, and that envi-

ronmental response costs constitute ‘damages’ as con-

tained in the policy. The district judge in CCC signed an

order which adopted, in substantial part, the-recommenda-

tions of the special master. Immediately thereafter, Mary-

land Casualty and two other insurers informed the judge

that they wished to complete a settlement with the original

generator defendants, including Armco. The district judge

stated that he would set aside his order nunc pro tunc as to

any settling insurers. The settlement was reached, and the

order was vacated.

' Section 9607 was slightly amended by Pub. L. 99-499, effective Octo-

ber 17, 1986, but this amendment has no bearing on this litigation.

A-16

The district court in the present litigation found that the

action taken by the Missouri district court did not render

the present controversy res judicata, and did not give rise to

collateral estoppel. Addressing the case on the merits, the

court held that Armco was not entitled to defense costs and

indemnity from Maryland Casualty in the CCC litigation.

Maryland Casualty Company v. Armco, Inc., 643 F.Supp.

430 (D.Md. 1986). The court stated that ‘“‘[bjlack letter insur-

ance law holds that claims for equitable relief are not claims

for ‘damages’ under liability insurance contracts.” Jd. at

432. The district court then inquired into whether CCC

involved a claim for equitable relief. The court considered

whether the nature of that claim was a “‘legal’’ or ‘‘equita-

ble”’ claim as historically defined, and analogized to judicial

interpretations of the Seventh Amendment right to a jury

trial. Because ‘“‘[e]very court that has considered the ques-

tion has held that CERCLA response cost suits fall on the

equity side of the line,” id. at 485, the CCC claim was not a

legal claim, and therefore was not a suit for damages

against which Maryland Casualty must defend and indem-

nify.

Maryland Casualty’s obligations under the terms of the

insurance agreement arise only where the insured has

become “‘legally obligated to pay as damages because of

injury to or destruction of property. .. .” It is black-letter

law that the terms of an insurance policy are to be con-

strued according to the meaning a reasonably prudent lay-

man would infer. Pacific Indemnity Company v. Interstate

Fire & Casualty Company, 302 Md. 3838, 488 A.2d 486, 488

(1985). Under this standard, Armco and its amici AT&T, et

al., argue that the term “damages” connotes virtually any

claim for monetary relief.

Judicial decisions, although not rejecting the rule of con-

struction that terms of an insurance contract are to be given

their ordinary meaning, have nevertheless limited the

A-17

breadth of the definition of ““damages’”’ somewhat more nar-

rowly than the appellant suggests. “‘Damages,”’ as distin-

guished from claims for injunctive or restitutionary relief,

includes “only payments to third persons when those per-

sons have a legal claim for damages. . . . Aetna Casualty and

Surety Company v. Hanna, 224 F.2d 499, 503 (5th Cir.

1955). See also, Desrochers v. New York Casualty Company,

99 N.H. 129, 106 A.2d 196 (1954). Thus ‘‘damages”’ is to be

construed in consonance with its ‘“‘accepted technical mean-

ing in law.” Hanna, 224 F.2d at 503. Maryland law, whieh

governs the construction of this agreement, has similarly

adopted the somewhat narrow, technical definition of dam-

ages. See, e.g., Haines v. St. Paul Fire and Marine Insur- ~

ance Company, 428 F.Supp. 435 (D. Md. 1977) (holding that

a claim for restitution of ill-gotten profits was an action for

“traditional equitable relief and cannot be considered dam-

ages within the policy coverage’’).

The best approach in construing the term ‘‘damages”’ as

contained in this insurance contract is to afford it the legal,

technical meaning described in Hanna. The contract obli-

gates Maryland Casualty to pay where its insured become

obligated ‘‘to pay as damages... .’”’ If the term “‘damages”’

is given the broad, boundless connotations sought by the

appellant, then the term ‘‘damages’”’ in the contract between

Maryland Casualty and Armco would become mere surplus-

age, because any obligation to pay would be covered. The

limitation implied by employment of the phrase ‘‘to pay as

damages”’ would be obliterated. We thus proceed to examine

whether the claim for relief in the CCC litigation involves a

claim for ‘“‘damages’’ properly defined, or whether it asserts

claims for equitable relief.

In the CCC litigation, the government sought both

injunctive relief and restitution in the form of reimburse-

ment of costs, including engineering and clean-up costs, in

connection with the allegedly hazardous waste contamina-

tion in Missouri. The claim for the reimbursement element

A-18

arises under CERCLA § 107(a), and it is clear that the form

of relief requested in CCC pursuant to CERCLA § 107(a) is

not “‘damages”’ in the legal sense, but rather is a form of

equitable, remedial relief. Because we adopt the construc-

tion of the term “damages” as employed by the court in

Hanna and the other cases cited, we find the claims raised

in CCC are not within the coverage of the insurance con-

tract. The general comprehensive liability policy between

the parties covers “damages,” but not the expenditures

which result from complying with the directives of regula-

tory agencies.

Armco and its amici proffer the creative argument that

an action for restitution which arises from the fulfillment of

one’s legal obligation by another is an action in quasi-

contract, and therefore is an action at law, and not in equity.

This argument, however, misperceives the focus of the

inquiry. In defining ‘‘damages,’’ and distinguishing ‘“dam-

ages’ from equitable remedies, we focus not on the nature

of the underlying action, but rather on the form of relief

sought. In other words, whether a particular cause of action

has historically been considered a “‘legal’’ or ‘“‘equitable’”’

proceeding, with the differing procedural and substantive

rights thereto appertaining, is irrelevant. The insurance

contract, which controls the obligations between the parties

and therefore centers the focus of this court, is written in

terms of the relief sought, and not in terms of the form of

the cause of action. The contract describes “‘damages’’ to be

paid, and not liabilities arising out of “‘legal,”’ rather than

“equitable” proceedings.

The appellant relies upon two decisions that have held

that a claim for apparent equitable relief for reimbursement

of environmental cleanup expenses is a claim for ‘“‘damages”’

as used in the standard general comprehensive liability pol-

icy. We find these decisions unpersuasive. In United States

Aviex Company v. Travelers Insurance Company, 125 Mich.

App. 579, 336 N.W.2d 838 (1983), the court held that the

A-19

term ‘‘damages’’ included monies recovered to reimburse

the government for costs incurred in investigating and cor-

recting chemical contamination of percolating waters. In

rejecting the argument that the term “‘damages’”’ should be

limited to compensation for injury or loss, as distinguished

from costs incurred in complying with equitable or injunc-

tive orders, the court noted that other jurisdictions had

recognized this distinction, citing Hanna among other deci-

sions. Rejecting the definition employed in other jurisdic-

tions as being too narrow, the court in Aviex reasoned that

the ‘“‘merely fortuitous” event that the state has chosen to

clean the contamination itself and then sue for reimburse-

ment, rather than suing straightforwardly for damages,

should not excuse the insurer from liability on its policy.

According to the Aviex court the measure of damages to

natural resources is measured simply as the costs of restora-

tion, and whether a plaintiff sues for the damages or the

costs should not determine the coverage under the insur-

ance policy.

We think this reasoning is faulty for two reasons. First,

it is not necessarily correct that the measure of relief is

unrelated to whether the government sues for reimburse-

ment or for damages. Damages is a form of substitutional

redress which seeks to replace the loss in value with a sum

of money. Restitution, conversely, is designed to reimburse

a party for restoring the status quo. It might very well cost

far more to restore a contaminated marsh than it would to

pay damages for its loss. See, e.g., Peevyhouse v. Garland

Coal & Mining Co., 382 P.2d 109 (Okla. 1962), cert. denied,

375 U.S. 906 (1963) (where the cost of restoring strip-mined

land was more than quadruple its potential value in the

restored condition).

Second, even assuming that the costs to the defendant

are the same regardless of whether the government sues for

restitution or for damages, thus in some sense rendering the

decision by the government regarding whether to sue for

A-20

damages or restitution a ‘‘mere fortuity,’’ it is a great step,

and a dangerous one, for courts to begin to construe insur-

ance policies to encompass costs of compliance with injunc-

tive and reimbursement relief.

Insurance policies, probably for reasons of certainty and

economy, traditionally reimburse only damages arising from

actual, tangible injury. Insurers are very reluctant to cover

what are essentially prophylactic measures, such as safety

precautions, for the obvious reason that such expenditures

are subject to the discretion of the insured, and are not

connected with any harm to specific third parties. Insurers

require certainty as to the extent of their liability and this

certainty is set forth in the insurance policy, which in the

instant case was a negotiated manuscript policy. The less

obvious, but perhaps more telling reason that insurers are

reluctant to cover avoidance costs is that insureds are far

more likely to over-utilize safety measures where another

party is paying the bill. Should policies be-construed to

cover some forms of harm-avoidance measures, courts

would be faced with the very difficult problem of separating

needed prophylactic measures from unnecessary or ineffi-

cient ones.

From an insurer’s perspective, investigative and reme-

dial action taken by the government respecting potential

environmental hazards constitutes a prophylactic measure.

In the CCC litigation which underlies this case, the govern-

ment, choosing not to wait and learn whether the environ-

mental spill in Missouri created a hazard which would cause

harm to the wildlife and humans in the Missouri River and

Blue River region, has intervened immediately upon learn-

ing of the toxic contamination. The case thus presents no

instance of harm to human or animal life, but merely the

prevention of such harm. Even if some such harm had

occurred, the fundamental nature of the government’s inter-

vention is the same: the government seeks to prevent or

mitigate the occurrences or reoccurrences of hazardous con-

A-21

tamination. This action is fundamentally prophylactic, and is

not of the sort that Maryland Casualty contracted to cover.

Armco also relies upon the recent decision in United

States v. Northeastern Pharmaceutical and Chemical Com-

pany, No. 84-1837 (8th Cir. Dec. 31, 1987) (NEPACCO). In a

2-1 decision, the court held that damage to the environment

constitutes “‘property damage’”’ as contained in that insur-

ance policy.* The court, however, in an apparently advisory

spirit, continued beyond its holding to address the issue of

whether the term “damages” as used in the standard gen-

eral comprehensive liability policy includes claims for reim-

bursement and other equitable relief. The court held that

“damages” does include claims for equitable relief, reason-

ing that the measure of damages is the same regardless of

whether the suit seeks damages or reimbursement. Thus

this decision rests on the same logic we find faulty in Avier.

Maryland Casualty has contracted with Armco to reim-

burse only where Armco is obligated to pay damages which

result from injury, which in the insurance context means

damages in the legal sense. In the absence of clear contract

language or specific Congressional authorization in CER-

CLA, we decline to extend the obligations of insurance car-

riers beyond the well-illumined area of tangible injury and

into the murky and boundless realm of injury prevention.

We hold that the costs to Armco of complying with the

directives of a regulatory agency are not covered within the

terms of the insurance policy.

Ili

Armco has argued that the duty to defend is broader

than Maryland Casualty’s obligation to reimburse Armco for

damages and that the district court erred in construing the

* This holding is in disagreement with this court’s holding in Mraz v.

Canadian Universal Insurance Company, No. 85-2399, slip opinion (4th

Cir. Nov. 4, 1986). The parties in this case do not raise the same issue as

that presented in Mraz, and we therefore decline to base our decision on

its holding.

A-22

terms in pari materia, with the effect of holding that Mary-

land Casualty had no duty to defend Armco in the CCC

litigation. Under Maryland law, the insurer has a duty

to defend where there is a “‘possibility’”’ that it may be liable.

Continental Casualty Company v. Board of Education of

Charles County, 302 Md. 516, 489 A.2d 536 (1985). The

insurance contract provides that Maryland Casualty will

defend any suit against Armco which alleges ‘‘such

injury, . . . even if such suit is groundless, false, or

fraudulent . .. .’’ Thus, the duty to defend arises only where

there is an allegation of “‘such injury,’’ which phrase refers

to the liability of the insurance company to pay on behalf of

Armco the sums which Armco will become legally obligated

“to pay as damages because of injury to or destruction of

property ....’’ It is clear that the duty to defend and the

duty to reimburse are to be interpreted conterminously, and

because we hold that the claim in the CCC litigation does not

allege a claim for damages as defined in the policy, then a

mere “‘possibility”’ of liability on behalf of Maryland Casu-

alty does not arise.

The appellant has offered two other theories. First, the

appellant argues that response costs are ‘‘mitigation”’ costs

which, because their incursion saves the insurer money for

which it would otherwise be liable, are “‘damages’’ under the

terms of the policy. The appellant cites two cases which it

Says supports the recoverability of mitigation expenses. See

Consolidated Rail Corporation v. Certain Underwriters at

Lloyds, No. 84-2069, slip opinion (E.D.Pa. June 3, 1986);

Bankers Trust Company v. Hartford Accident and Indem-

nity Company, 518 F.Supp. 371 (S.D.N.Y.), vacated due to

settlement, 621 F.Supp. 685 (S.D.N.Y. 1981). In these cases,

however, the court determined that the insurance contract

specifically obligated the insurer to reimburse expenses

undertaken to mitigate the amount of damages. The appel-

lant has presented no argument that the Maryland Casualty

A-23

policy by its terms implies the coverage of such damages.

The appellant does argue, as a matter of judicial policy, that

the insurer ought to be liable where the insured takes steps

to mitigate the damages which would be chargeable to the

insurer. Such an interpretation would suffer from the same

difficulties attendant in construing Maryland Casualty liable

for Armco’s (or the government’s) employment of prophy-

lactic measures: the insurer would be uncertain of the

extent of its liability in the absence of a requirement for an

injury, the insured would have the tendency to over-utilize

the ‘“‘free’’ resource, and the judicial system would be faced

with the impossible task of attempting to define the limita-

tions on the necessity for the costs incurred in preventing

future harm. We find this argument unpersuasive.

Second, the appellant argues that the action of the dis-

trict court in Missouri, which assigned a special master to

address the same issue but later vacated nune pro tune its

order that adopted the master’s recommendations, should

have collateral estoppel or preferably res judicata effect in

this case. The appellant argues that a defendant should not

be able to manipulate the judicial system by entering into

last-minute settlements in order to avoid the collateral

estoppel effects of unfavorable judgments. See, Note, Collat-

eral Estoppel of Nonparties, 87 Harv. L. Rev. 1485, 1503

(1974). Regarding the rule that the judgment in the prior

suit must be “‘final’’ before collateral estoppel can obtain,

the appellant cites Chemetron Corporation v. Business

Funds, Inc., 682 F.2d 1149, 1191 (5th Cir. 1982), vacated on

other grounds, 460 U.S. 1007 (1983) (stating that the finality

requirement “‘does not require a judgment ‘which ends the

litigation . . . and leaves nothing for the court to do but

execute the judgment,’ Catlin v. U.S., 324 U.S. 229, 233... .

(1945), but includes many dispositions which, though not

final in that sense, have nevertheless been fully litigated”’).

A-24

We decline to hold that the recommendations of a spe-

cial master, which have been vacated, rise to the level of a

“final judgment”’ in order to estop the present litigation. In

light of the significance of the issue presented and the large

sums of money involved, and the fact that the manuscript

policy was not before the Missouri court, the preclusion

against the putative defendant of re-litigation on the

grounds of estoppel arising out of withdrawn judgment is

singularly inappropriate. See Note, Avoiding Issue Preclu-

ston by Settlement Conditioned upon the Vacatur of Entered

Judgments, 96 Yale L. J. 860 (1987). Collateral estoppel is

an equitable doctrine, and we affirm the district court’s

decision on the equities not to employ it.

Thus the decision of the district court is

AFFIRMED.

rer I a le Dn et

OR a SD, SW SS Ga SS ae

—_———

A-25

FILED

August 4, 1987

U.S. Court of Appeals

Fourth Circuit

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 86-3125

The Maryland Casualty Company

Appellee,

versus

Armco, Inc.,

Appellant.

On Petition for Rehearing with Suggestion for Rehearing In

Banc.

ORDER

The appellant’s petition for rehearing and suggestion

for rehearing in bane were submitted to this Court. As no

member of the Court requested a poll on the suggestion for

hearing in banc, and

As the panel considered the petition for rehearing and is

of the opinion that it should be denied,

IT IS ORDERED that the petition for rehearing and

suggestion for rehearing in banc are denied.

Entered at the direction of Judge Chapman, with the

concurrence of Judge Widener and Judge Sprouse.

- For the Court,

/s/

CLERK

iui a nace

A-26

Comprehensive Environmental Response,

Compensation and Liability Act (““CERCLA’’)

42 U.S.C. §9606. Abatement Actions

(a) Maintenance, jurisdiction, etc.

In addition to any other action taken by a State or local

government, when the President determines that there

may be an imminent and substantial endangerment to the

public health or welfare or the environment because of an

actual or threatened release of a hazardous substance

from a facility, he may require the Attorney General of

the United States to secure such relief as may be neces-

sary to abate such danger or threat, and the district court

of the United States in the district in which the threat

occurs shall have jurisdiction to grant such relief as the

public interest and the equities of the case may require.

The President may also, after notice to the affected State, |

)

take other action under this section including, but not

limited to, issuing such orders as may be necessary to

protect public health and welfare and the environment.

(b) Fines; reimbursement

(1) Any person who, without sufficient cause, willfully

violates, or fails or refuses to comply with, any order of

the President under subsection (a) of this section may, in

an action brought in the appropriate United States district

court to enforce such order, be fined not more than

$25,000 for each day in which such violation occurs or

such failure to comply continues.

(2(A) Any person who receiv.s and complies with the

terms of any order issued under subsection (a) of this

section may, within 60 days after completion of the

required action, petition the President for reimbursement 7

from the Fund for the reasonable costs of such action, plus

interest. Any interest payable under this paragraph shall

accrue on the amounts expended from the date of expendi-

ture at the same rate as specified for interest on invest-

ments of the Hazardous Substance Superfund established

under subchapter A of chapter 98 of Title 26.

A-27

(B) If the President refuses to grant all or part of a

petition made under this paragraph, the petitioner may

within 30 days of receipt of such refusal file an action

against the President in the appropriate United States

district court seeking reimbursement from the Fund.

reimbursement, the petitioner shall establish by a prepon-

derance of the evidence that it is not liable for response

costs under section 9607(a) of this title and that costs for

which it seeks reimbursement are reasonable in light of

| the action required by the relevant order.

(D) A petitioner who is liable for response costs under

section 9607(a) of this title may also recover its reasonable

costs of response to the exvent that it can demonstrate, on

the administrative record, that the President’s decision in

selecting the response action ordered was arbitrary and

capricious or was otherwise not in accordance with law.

Reimbursement awarded under this subparagraph shall

include all reasonable response costs incurred by the peti-

tioner pursuant to the portions of the order found to be

arbitrary and capricious or otherwise not in accordance

with law.

oO EE

(E) Reimbursement awarded by a court under subpar-

agraph (C) or (D) may include appropriate costs, fees, and

other expenses in accordance with subsections (a) and (d)

of section 2412 of Title 28.

ment, and emergency response authorities; promul-

gation by Administrator of EPA, scope, etc.

Within one hundred and eighty days after December 11,

1980, the Administrator of the Environmental Protection

Agency shall, after consultation with the Attorney General,

establish and publish guidelines for using the imminent haz-

ard, enforcement, and emergency response authorities of

this section and other existing statutes administered by the

Administrator of the Environmental Protection Agency to

OE —_ EO

A-28

effectuate the responsibilities and powers created by this

chapter. Such guidelines shall to the extent practicable be

consistent with the national hazardous substance response

plan, and shall include, at a minimum, the assignment of

responsibility for coordinating response actions with the

issuance of administrative orders, enforcement of standards

and permits, the gathering of information, and other immi-

nent hazard and emergency powers authorized by (1) sec-

tions 1321(c\2), 13818, 1319, and 1364(a) of Title 33, (2)

sections 6927, 6928, 6934, and 69738 of this title, (3) sections

300j-4 and 300i of this title, (4) sections 7413, 7414, and

7603 of this title, and (5) section 2606 of Title 15

42 U.S.C. § 9607. Liability

(a) Covered persons; scope; recoverable costs and

damages; 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 hazard-

ous 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 facili-

ties, incineration 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 haz-

ardous substance, shall be liable for—

A-29

(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 plan;

(B) any other necessary costs of response incurred by

any other person consistent with the national contingency

plan;

natural resources, including the reasonable costs of

assessing such injury, destruction, or loss resulting from

such a release; and ¥

(D) the costs of any health assessment or health

effects study carried out under section 9604(i) of this title.

The amounts recoverable in an action under this section

shall include interest on the amounts recoverable under sub-

paragraphs (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 the same rate as is specified for interest on investments

of the Hazardous Substance Superfund established under

subchapter A of chapter 98 of Title 26. For purposes of

applying such amendments to interest under this subsection,

the term “comparable 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

therefrom were caused solely by—

(1) an act of God;

(2) an act of war;

A-30

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

employee or agent of the defendant, or than one whose

act or cmission occurs in connection with a contractual

relationship, existing directly or indirectly, with the defen-

dant (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 con-

cerned, taking into consideration the characteristics of

such hazardous substance, in light of all relevant facts and

circumstances, and (b) he took precautions against fore-

seeable acts or omissions of any such third party and the

consequences that could forceably result from such acts or

omissions; or

(4) any combination of the foregoing paragraphs.

(1) Except as provided in paragraph (2) of this subsec-

tion, the liability under this section of an owner or opera-

tor or other responsible person for each release of a

hazardous substance or incident involving release of a haz-

ardous substance shall not exceed—

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

which carries any hazardous substance as cargo or resi-

due, $300 per gross ton, or $5,000,000, whichever is

greater;

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

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

greater;

in the Hazardous Liquid Pipeline Safety Act of 1979 [49

U.S.C.A. § 2001 et seq.]}), or rolling stock, $50,000,000 or

such lesser amounts as the President shall establish by

regulation, but in no event less than $5,000,000 (or, for

releases of hazardous substances as defined in section

9601(14)(A) of this title into the navigable waters,

A-31

$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 para-

graph, the total of all costs of response plus $50,000,000

for any damages under this subchapter.

(2) Notwithstanding the limitations in paragraph (1) of

this subsection, the liability of an owner or operator or

other responsible 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 coop-

eration and assistance requested by a responsible public

official in connection with response activities under the

nationa! contingency plan with respect to regulated carri>

ers subject to the provisions of Title 49 or vessels subject

to the provisions of Title 33 or 46, subparagraph (A\ii) of

this paragraph shall be deemed to refer to Federal stan-

dards 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 action upon

order of the President pursuant to section 9604 or 9606 of

this title, 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 authorized to commence a

civil action against any such person to recover the puni-

A-32

tive damages, which shall be in addition to any costs

recovered from such person pursuant to section 9612(c) of

this title. Any moneys received by the United States pur-

suant to this subsection shall be deposited in the Fund.

(d) Rendering care or advise

(1) In general

Except as provided in paragraph (2), no person shall

be liable under this subchapter for costs or damages as a

result of actions taken or omitted in the course of render-

ing 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 a

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 government shall be liable under this

subchapter 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 para-

graph shall not preclude liability for costs or damages as a

result of gross negligence or intentional misconduct by the

State or local government. For the purpose of the preced-

ing sentence, reckless, willful, or wanton misconduct shall

constitute gross negligence.

(3) Savings provision

This subsection shall not alter the liability of any per-

son 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

conveyances; subrogation rights

A-33

(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, to any other person the liability

imposed 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 subchapter, 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 liability under this section, or a guarantor, has

or would have, by reason of subrogation or otherwise

against any person.

(f) Actions involving natural resources; maintenance,

scope, etc.

(1) Natural resources liability; use of recovered funds;

measure of damages; double recovery

In the case of an injury to, destruction of, or loss of

natural resources under subparagraph (C) of subsection (a)

of this section liability shall be to the United States Gov-

ernment and to any State for natural resources within the

State or belonging to, managed, by, controlled by, or

appertaining to such State: Provided, however, That no

liability to the United States or State shall be imposed

under subparagraph (C) of subsection (a) of this section,

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 natural resources in an environmental

impact statement, or other comparable environment anal-

ysis, and the decision to grant a permit or license autho-

rizes such commitment of natural resources, and the

facility or project was otherwise operating within the

terms of its permit or license. The President, or the autho-

rized representative of any State, shall act on behalf of the

A-34

public as trustee of such natural resources to recover for

such damages. Sums recovered by the United States Gov-

ernment 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 natu-

ral 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) of this

section 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 chapter for natural resource

damages, including the costs of damage assessment 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)

of this section where such damages and the release of a

hazardous substance from which such damages resulted

have occurred wholly before December 11, 1980.

(2) Designation of Federal and State officials

(A) Federal

The President shall designate in the National Contin-

gency Plan published under section 9605 of this chapter

the Federal officiais who shall act on behalf of the public

as trustees for natural resources under this chapter and

section 1321 of Title 33. Such officials shall assess dam-

ages for injury to, destruction of, or loss of natural

resources for purposes of this chapter and such section

1321 of Title 33 for those resources under their trustee-

ship and may, upon request of and reimbursement from a

State and at the Federal officials’ discretion, assess dam-

ages for those natural resources under the State’s trustee-

ship.

(B) State

The Governor of each State shall designate State offi-

cials who may act on behalf of the public as trustees for

ee Ne ae ey

ee a eS eed Nee ere

btn 9 Srabvee at!

A-35

natural resources under this chapter and section 1321 of

Title 33 and shall notify the President of such designa-

tions. Such State officials shall assess damages to natural

resources for the purposes of this chapter and such section

1321 of Title 33 for those natural resources under their

trusteeship.

Any determination or assessment of damages to natu-

ral resources for the purposes of this chapter and section

1321 of Title 33 made by a Federal or State trustee in

accordance with the regulations promulgated under sec-

tion 9651 of this title shall have the force and effect of a

rebuttable presumption on behalf of the trustee in any

administrative or judicial proceeding under this chapter or

section 1321 of Title 33.

(g) Federal agencies

For provisions relating to Federal agencies, see section

9620 of this title.

(h) Owner or operator of vessel

The owner or operator of a vessel shall be liable in accor-

dance with this section, under maritime tort law, and as

provided under section 9614 of this title 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 produce

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 appli-

cation of a pesticide product registered under the Federal

Insecticide, Fungicide, and Rodenticide Act [7 U.S.C.A. §

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 com-

mon law, for damages, injury, or loss resulting from a

A-36

release of any hazardous substance or for removal or reme-

dial action or the costs of removal or remedial action of such

hazardous substance.

(j) Obligations or liability pursuant to federally permit-

ted 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 pursu-

ant 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 9601(10\B)

or (C) of this title shall be recoverable in an action brought

under section 1319(b) of Title 33.

(k) Transfer to, and assumption by, Post-Closure Lia-

bility Fund of liability of owner or operator of haz-

ardous waste disposal facility in receipt of permit

under applicable solid waste disposal law; time, cri-

teria 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 dis-

posal facility which has received a permit under subtitle C

of the Solid Waste Disposal Act [42 U.S.C.A. § 6921 et

seq.], shall be transferred to and assumed by the Post-

closure Liability Fund, established by section 9641 of this

title 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 U.S.C.A. § 6921 et seq.] ad

regulations issued thereunder, which may affect the per-

formance of such facility after closure; and

- ees

A-37

(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 demon-

strate that there is no substantial likelihood that any

migration offsite or release from confinement of any haz-

ardous 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

Administrator 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 U.S.C.A.

§ 6926(b)]) that the conditions imposed by this subsection

have been satisfied. If within such ninety-day period the

Administrator of the Environmental Protection Agency or

such State determines that any such facility has not com-

plied with all the conditions imposed by this subsection or

that insufficient information has been provided to demon-

strate such compliance, the Administrator or such Stae shall

so notify the owner and operator of such facility and the

administrator of the Fund established by section 9641 of

this title, 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 subsection. A determina-

tion by the Administrator or such State that a facility has

complied with all conditions imposed by this subsection or

that insufficient information has been supplied to demon-

strate compliance, shall be a final administrative action for

purposes of judicial review. A request for additional infor-

mation shall state in specific terms the data required.

(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 9641 of this

title may be used to pay costs of monitoring and care and

A-38

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 U.S.C.A. § 6921 et

seq.] for hazardous waste disposal facilities meeting the con-

ditions of paragraph (1) of this subsection.

(4A) Not later than one year after December 11, 1980,

the Secretary of the Treasury shall conduct a study and

shall submit a repor thereon to the Congress on the feasibil-

ity of establishing or qualifying an optional system of pri-

vate 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 incentives, 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 subchapter II of this chapter.

(B) Not later than eighteen months after December 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 insurance for postclosure

financial responsibility for hazardous waste disposal facili-

ties to which this subsection applies. If the President deter-

mines the establishment or qualification of such a system

would be infeasible, he shall promptly publish an explana-

tion of the reasons for such a determination. If the Presi-

dent determines the establishn. +t or qualification of such a

system woud be feasible, he shall promptly publish notice of

such determination. Not later than six months after an affir-

mative determination under the preceding sentence and

after a public hearing, the President shall by rule promul-

gate adequate and realistic minimum standards which must

be met by any such privately placed insurance, taking into

account the purposes of this chapter and this subsection.

Such rules shall also specify reasonably expeditious proce-

De ate ls n> Cae <r

TEs ea

A-39

dures by which privately placed insurance plans can qualify

as meeting such minimum standards.

fies 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 subchap-

ter II of this chapter.

(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 paragraphs (1), (2), (3), and (4) of this

subsection and subsection (j) of section 9611 of this title, no

liability shall be transferred to or assumed by the Post-

Closure Liability Trust Fund established by section 9641 of

this title 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 authorization of

such a transfer or assumption by Act of Congress following

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 liabili-

ties 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 [42 U.S.C.A. § 6901 note] and

assures the protection of human health and the environ-

ment.

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(B) Program Elements.

The program referred to in subparagraph (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 confi-

dence that-hazardous wastes will be managed and dis-

posed 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.

(iii) Persons who are or seek to become owners and

operators of hazardous waste disposal facilities wil be

able to manage their potential future liabilities and to

attract the investment capital necessary to build, oper-

ate, and close such facilities in a manner which assures

protection of human health and the environment.

The study under this paragraph shall include assess-

ments 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 U.S.C.A. § 6925]

and the likelihood of future insolvency on the part of

owners and operators of such facilities. Separate assess-

ments shall be made for different classes of facilities and

for different classes of land disposal facilities and shall

include but not be limited to—

(i) the current and future financial capabilities of facil-

ity owners and operators;

(ii) the current and future costs associated with facili-

ties, including the costs of routine monitoring and main-

tenance, compliance monitoring, corrective action,

natural resource darnages, and liability for damages to

third parties; and

i pe

A-41

(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 ou the responsibilities of this paragraph, the

Comptroller General shall consult with the Administrator,

the Secretary of Commerce, the Secretary of the Trea-

sury, and the heads of other appropriate Federal agencies.

(E) Consideration of Options.

In conducting the study under this paragraph, the

Comptroller General shall consider various mechanisms

and combinations of mechanisms to complement the poli-

cies set forth in the Hazardous 2nd Solid Waste Amend-

ments of 1984 [42 U.S.C.A. § 6901 note] to serve the

purposes set forth in subparagraph (B) and to assure that

the current and future costs associated with hazardous

waste facilities, including post-closure costs, will be ade-

quately 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 Waste Disposal Act [42 U.S.C.A. § 6921 et seq.

and § 6991 et seq.];

(ii) voluntary risk pooling by owners and operators;

(iii) legislation to require risk pooling by owners and

operators;

(iv) modification of the Post-Closure Liability Trust

Fund previously established by section 9641 of this title,

and the conditions for transfer of liability under this

subsection, including limiting the transfer of some or all

liability under this subsection only in the case of insol-

vency of owners and operators;

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_ (v) private insurance;

(vi) insurance provided by the Federal Government;

(vii) coinsurance, reinsurance, or pooled-risk insur-

ance, whether provided by the private sector or pro-

vided or assisted by the Federal Government; and

(viii) creation of a new program to be administered by

a new or existing Federal agency or by a federally char-

tered corporation.

(F) Recommendations.

The Comptroller General shall consider options for fund-

ing any program under this section and shall, to the

extent necessary, make recommendations to the appropri-

ate committees of Congress for additional authority to

implement such program.

(L) 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 this subsection (a) of this section) shall

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 reme-

dial 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 Unitesd

States with respect to a response action under this

chapter.

(B) The time that the person referred to in para-

graph (1) is provided (by certified or registered mail)

written notice of potential liability.

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Such lien shall continue until the liability for the costs (or

a judgment against the person arising out of such liability) is

satisfied or becomes unenforceable through operation of the

statute of limitations provided in section 9613 of this title.

(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 governmental subdivision), as desig-

nated by State law, in which the real property subject to

the lien is located. Any such purchaser, holder of a secu-

rity 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 obliga-

tion 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 noties 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 provided

under section 6323(h) of Title 26.

(4) Action in Rem.

iat igs

RRR

| 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 occur-

ring 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.

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(M) Maritime Lien.

All costs and damages for which the owner or operator of

a vessel is liable under subsection (a1) of this section 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 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.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.