Petition for Writ of Certiorari — Missouri v. Continental Insurance Cos.

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Supreme Court, US

87-1953 | Freep

MAY ?7 1988

No. } JOSEPH F. SPANIOL, JR.

—-._ aie

In the Supreme Court of the United States

OCTOBER TERM, 1987

CONTINENTAL INSURANCE COMPANIES,

Plaintiff-Respondent,

VS.

NORTHEASTERN PHARMACEUTICAL AND

CHEMICAL COMPANY, INC., et al.,

Defendants,

and

STATE OF MISSOURI,

Intervenor-Petitioner.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

EIGHTH CIRCUIT

WILLIAM A. WEBSTER

Attorney General

MiIcHAFL L. BoIcourt*

Chiet Counsel,

Special Litigation Division

SHELLEY A. Woops

Assistant Attorney General

P.O. Box 899

Jefferson City, Missouri 65101

Attorneys for Petitioner

*Counsel of Record

E. L. Menpenuatt, Inc., 926 Cherry Street, Kansas City, Mo. 64196, (816) 421-3030

QUESTIONS PRESENTED FOR REVIEW

1. Whether the Eighth Circuit Court of Appeals erred

under Fed. R. Civ. P. 56(c) in making its summary

finding, without evidentiary support and without re-

manding to the district court for the development of

facts, that the term “damages” appearing in standard-

form comprehensive general liability insurance pol-

icies has a narrow, technical meaning in the insurance

context that differs from its broader meaning to lay

policyholders, thereby precluding coverage under the

policies for environmental cleanup costs incurred by

state and federal governments?

2. Whether the Eighth Circuit Court of Appeals, in a case

based on diversity jurisdiction, erred in failing to follow

the rule of decision in Missouri that insurance policy

terms are construed as they would be understood by

laypersons, and instead, following a conflicting rule of

other forums, thereby holding that the term “damages”

in standard-form comprehensive general liability insur-

ance policies does not include policyholders’ liability for

environmental cleanup costs incurred by state and fed-

eral governments?

THE PARTIES

Petitioner is the state of Missouri. Respondent is

Continental Insurance Companies (‘Continental’), a New

Hampshire corporation. Additional parties include North-

eastern Pharmaceutical & Chemical Co., a Delaware cor-

poration, and Milton Turkel, Edwin B. Michaels, and

John W. Lee, all residents of Connecticut.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW

THE PARTI nia ciecccnscocsseectscan caps gteets ere

TABLE OF AUTHORITIES .........02...-4.

OPINIONS OF THE DISTRICT COURT AND Cu 'RT

OF APPEREAIS. ..........:60nceeee ee hee

JURISDICTIONAL STATEMENT ...................

PROVISIONS OF STATUTES AND RULES _IN-

VOLVED IN THIS CABS... ees

STATEMENT OF THE CASE ...................... Ree et eer

The Underlying Claims Against NEPACCO

Based Upon Environmental Damage —...........

2. NEPACCO’s Insurance Coverage .

3. Proceedings in the District Court

a. Continental's Declaratory Judgment Action

b. State of Missouri Action to Intervene ......

c. The District Court Decision .................... ms

. Proceedings in the Court of Appeals .............

a. The Panel Decision ....... .... PA OY yR i KS

b. Rehearing En SRR... eee

ARGUMENTS AND AUTHORITIES .. ........................

The Court Of Appeals’ Summary Finding

That “Damages” Has An Unambiguous Nar-

row, Technical Meaning In The Insurance

Industry Is A Factual Determination Which

Cannot Be Made In An Evidentiary Void On

A Motion For Summary Judgment

A. It Was Improper For The Eighth Circuit

To Affirm Summary Judgment On The

Ill

Basis Of An Argument Presented For

The First Time On Appeal For Which

There Is No Support In The Record .... 10

B. Remand To The Trial Court For A Fac-

tual Determination Is Necessary Before

Any Court Can Conclude That The Term

“Damages” Has A Narrow, Technical

“Plain Meaning” In The Insurance Con-

text That Differs From Its Broader, Am-

biguous Meaning To Lay Policyholders 13

C. Insurers Regularly Have Described Envi-

ronmental Cleanup Costs And CERCLA

Cost Recovery Claims As “Damages,”

Precluding A Finding That In The In-

surance Context The Term Has A “Plain

Meaning” That Excludes Those Costs 15

II. The Eighth Circuit Misapplied the Erie Doc-

trine By Ignoring Missouri Rules Of Insur-

ance Policy Construction Under Which Policy

Terms Are Interpreted As They Would Be

Understood By A Layperson And _ Instead,

Interpreting The Term “Damages” According

To A Technical Meaning Applied By Laws

OR ns |

III. The Issues Presented In This Case Are Mate-

rial And Of Substantial Importance To The

State Of Missouri As A Claimant Seeking

To Recover Environmental Cleanup Costs

From NEPACCO And Others, And To The

Federal And State Governments Who Have

Similar Claims Pending 6. tsi.

om Oto. SAA onan Ae 24

APPENDIX. ......---2:0-cscc00scs0-c000-n.-...0..-......... Separate Cover

Opinion, United States Court of Appeals, Eighth

Circuit (Filed February 26, 1988) —............... Al

Opinion, United States Court of Appeals, Eighth

Circuit (Filed January 22, 1987) ....................A81

Order, United States District Court, Western

District of Missouri, Southern Division (Filed

June 25, 1985) ..... RecctahdedertakPasdieacanbsanictoten skapeine A63

Order, United States District Court, Western

District of Missouri, Southern Division (Filed

I TI ED arcneiites checingsxnatnnneansasaaseneeshasaiocbinastenrenaane A83

Order Denying Rehearing, United States Court of

Appeals, Eighth Circuit (Filed May 4, 1988) ....A84

Complaint for Declaratory Judgment (Filed Feb-

> dR SR} ERI er ier Onne No CoMeOn eum e Nar EDS eee A85

Excerpts From Suggestions in Support of Plain-

tiffs Motion for Summary Judgment (Filed

November 14, 1984) .... Sine oes A196

Agenda and Minutes - cabs: of the Sanne

Liability Governing Committee - October 28,

aa an Ieenae rent ee Jasna iabetbi iokanaloebtadanielsa ee ae

Commercial General! Liability Coverage Form ...A120

Excerpts From Reporters’ Transcript of Proceed-

ings March 7, 1988 _..... aickcleteie tate penton

Excerpts From Reporters’ Transcript of Proceed-

ings March 8, 1988 . iis cali ahiee tame males A124

TABLE OF AUTHORITIES

Cases

Aetna Chsualty & Surety Company v. Haas, 422

S.W.2q 316 (Mo. 1968) piebade sansiiieschpolipsne eae anenaat 16

American\ Home Products Corp. v. Liberty Mu- |

tual Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983),

aff'd as modified, 748 F.2d 760 (2d Cir. 1984) 16-17

Anderson v. Liberty Lobby, 477 U.S. 242, 106

DAA. Bee CHD see eee 12

Bellamy v. Pacific Mut. Life Ins. Co., 651 S.W.

26 400 CE estiitietnea ee a 20

Broadwell Realty Services, Inc. v. Fidelity & Ca-

sualty Co., 218 N.J. Super. 516, 528 A.2d 76

(iG. TOR REY sitet cee 17, 21

Busch & Latta Painting Corp. v. State Highway

Comm'n, 597 S.W.2d 189 (Mo. App. 1980) _.......... 14

Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct.

Se (ie ee Skee ota 12,13

Continental Insurance Cos. v. NEPACCO, 842

F.2d 977 (8th Cir. en banc 1988) ................ Aiea, l

Continental Insurance Cos. v. NEPACCO, No. 84-

9034-CV-S-4 (W.D. Mo. filed June 25, 1985) ... 5,6

Continental Insurance Companies v. Northeastern

Pharmaceutical & Chemical Co., Inc., 811 F.2d

L300 (Oth Col. 200) ee l

CPS Chemical Co., Inc. v. Continental Ins. Co.,

222 N.J. Super. 175, 536 A.2d 311 (App. Div.

| RRM ODM eee AEE Saetes sb WM RN abate 17

Denis v. Liberty Mut. Ins. Co., 791 F.2d 846 (ilth

Cir. 1986) ee cer aa acre hated dc Pob sin 11

Erie Railroad Co. v. Tompkins, 304 US. 64, 58

S.Ct. 817 11938) ; 19, 25

Federal Deposit Ins. Co. v. Lauterbach, 626 F.2d

1327 «(7th Cir. 1980) a

Frank C. Bailey Enterprises, Inc. v. Cargill, Inc.,

582 F.2d 333 (5th Cir. 1978)

Greer v. Zurich Ins. Co., 441 S.W2d 15 (Mo.

1969) odes seeuhahnbenepentelianabkehaesaanseeaneleanenanennaiaan

Haines v. St. Paul Fire & pent Ins. Co., 428

F. Supp. 435 (D. Md. 1977) .........-.-.-..---.sseee0

Home Ins. Co. v. Aetna Cas. & Sur. Co., 528 F.2d

1388 (2d Cir. 1976) ° +5

Huddleston v. Dwyer, 322 U.S. 232, 64 S.Ct. 1015

(1944)

Jack L. Baker Co., Inc. v. Pasley Mig. & Distrib.

Co., 413 S.W.2d 268 ‘Mo. 1967)

Katter v. Arkansas Louisiana Gas Co., 765 F.2d

730 (8th Cir, 1985) ae. al

Kipin Industries, Inc. v. American Daieniil Ins.

Co., No. C-860658 (Ohio App., Aug. 12, 1987) .

Lacey v. Lumber Mutual Fire Ins. Co. of Boston,

554 F.2d 1204 (1st Cir. 1977)

Maryland Casualty Co. v. Armco, Inc., 822 “F2¢

1348 (4th Cir. ai. cert. denied, _... US.

. 108 S.Ct. 703 11988)

Munoz v. International Alliance of Theatrical

Stage Emp. & Moving Picture Mach. Operators,

563 F.2d 205 (5th Cir. 1977)

New Castle County v. Hartford Accident & In-

demnity Co., 673 F. Supp. 1359 (D. Del. 1987) (17, 2

Order of Ry. Conductors v. Pitney, 326 U.S. 561,

66 S.Ct. 322 (1946)

VIL

Parker v. Provident Life & Acc. Ins. Co., 582 S.W.

2d 380 (Tenn. 1979) Si apkesbipcesaschielenaneananeinal 4

Robin v. Blue Cross Hospital Services, Inc., 637

S.W.2d 695 (Mo. en banc 1982) 220000... 19, 20

Ross v. Communications Satellite Corp., 759 F.2d

Be Cle Se MINI aocibaneasidissatetsciaceentartaenadionns ll

Singleton v. Wulff, 428 U.S. 106, 96 S.Ct. 2868,

Sy Rees CU. OOD hits cieenbcccdecneccceteaienoetadcanicuts 12

Stafford v. Travelers Ins. Co., 530 S.W.2d 23

(Mo. App. 1975) as pace ueaeatecenhanas 20

Transportation-Commun. mie U. v. Union Pac.

R. Co., 385 U.S. 157, 87 S.Ct. 369 (1966) ....... 13

Truck Ins. Exchange v. Marks Rentals, Inc., 288

Md. 428, 418 A.2d 1187 (Md. App. 1980) _. 20

U.S. Aviex Co. v. Travelers Ins. Co., 125 Mich.

App. 579, 336 N.W.2d 838 (1983) 000000000... 21

United States v. Northeastern Pharmaceutical &

Chemical Co., 579 F. Supp. 823 (W.D. Mo.

1984). aff'd in part, rev'd in part and remanded,

810 F.2d 726 (8th Cir. 1986), cert. den.,

US. . , 108 S.Ct. 146 (1987) moe SS

West v. AT&T, 311 US. 223, 61 S.Ct. 179 (1940) i9

Wheeling Stamping Co. v. Birdsboro Steel

Foundry & Machine Co., 245 F.2d 752 (3d Cir.

1957) eae . 20

Zipkin v. Freeman, 436 S.W.2d 753 (Mo. en banc

1968 ) aciiebaia evince 21

VII!

Statutes and Rules

Comprehensive Environmental Response, Com-

pensation and Liability Act, 42 U.S.C. § 9601

et seq. and the following sections thereof: 104

(c)(3)(C) (42 USC. § 9604(c)(3)(C)), 107

(a) (42 U.S.C. § 9607(a)), and 111 (42 USC.

§ 9611) eceestaeeaenine sasselly Oy 6

Federal Rule of Civil Procedure 56 5, 14,15

Section 260.480.1 R.S.Mo. (1986) 22

Section 260.440 R.S.Mo. (1986) 23

28 U.S.C. § 1332 +

Other Authorities

Abandoned and Uncontrolled Hazardous Waste

Disposal Sites in Missouri, Fiscal Year 1987

Annual Report (Missouri Department of Nat-

ural Resources 1988) 23

J. Appleman & J. Appleman, Insurance Law and

Practice, § 7388 (1986) anes by 34

Chesler, Rodburg & Smith, Patterns of Judicial

Interpretation of Insurance Coverage for Haz-

ardous Waste Site Liability, 18 Rutgers L.J. 9

(1986) . rh eke he Steere 17

52 Fed. Reg. 27,620 et seq. (July 21, 1987) 24

Restatement (Second) Contracts § 219, comment

a and § 220, comment a 13

10A Wright, Miller & Kane, Federal Practice and

Procedure, $ 2730.1

OPINIONS OF THE DISTRICT COURT AND

COURT OF APPEALS

The district court’s opinion in Continental Insurance

Cos. v. Northeastern Pharmaceutical & Chemical Co., Inc.,

No. 5034-CV-S-4 (W.D. Mo.), was filed June 25, 1985

(Appendix at A63-82). That opinion is not officially re-

ported.

The Eighth Circuit Court of Appeals panel decision

issued Jan. 22, 1987 is reported at 811 F.2d 1180 (8th Cir.

1987). Petitions for rehearing en banc were granted,

and the order granting rehearing is reported at 815 F.2d

51 (8th Cir. 1987). The Eighth Circuit’s en banc decision

dated February 26, 1988 is reported at 842 F.2d 977 (8th

Cir. 1988).

JURISDICTIONAL STATEMENT

This petition for writ of certiorari seeks review of the

opinion of the United States Court of Appeals for the

Eighth Circuit in Continental Insurance Cos. v. North-

eastern Pharmaceutical & Chem. Co., Inc., et al., 842 F.2d

977 (8th Cir. en banc 1988). The Eighth Circuit denied

petitioner’s petition for rehearing on May 4, 1988. Peti-

tioner state of Missouri seeks a writ of certiorari pursuant

to 28 U.S.C. § 1254(1).

PROVISIONS OF STATUTES AND RULES

INVOLVED IN THIS CASE

This case involves a dispute concerning insurance

coverage for liability asserted by the state of Missouri

against a comprehensive general liability imsurance

policyholder pursuant to section 107(a) of the Compre-

hensive Environmental Response, Compensation and Lia-

bility Act (“CERCLA”), 42 U.S.C. § 9607(a). This case

also involves the application of Rule 56(c) of the Federal

Rules of Civil Procedure. Pursuant to Supreme Court

Rule 21(f), the text of CERCLA section 107(a) and Rule

56(c) are set out below.

COMPREHENSIVE ENVIRONMENTAL RESPONSE,

COMPENSATION AND LIABILITY ACT

Sec. 107. (a) Notwithstanding any other provision

or rule of law, and subject only to the defenses set forth

in subsection (b) of this section—

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

facility,

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

any hazardous substance owned or operated any

facility at which such hazardous substances were

disposed of,

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

otherwise arranged for disposal or treatment, or ar-

ranged with a transporter for transport for disposal

or treatment, of hazardous substances owned or pos-

sessed by such person, by any other party or entity,

at any facility or incineration vessel owned or oper-

ated by another party or entity and containing such

hazardous substances, and

(4) any person who accepts or accepted any

hazardous substances for transport to disposal or

treatment facilities, incineration vessels or sites se-

lected by such person, from which there is a release,

or a threatened release which cause the incurrence

of response costs, of hazardous substance, shall be

liable for—

(A) all costs of removal or remedial action

incurred by the United States Government or

a State or an Indian tribe not inconsistent with

the national contingency plan;

(B) any other necessary costs of response

incurred by any other person consistent with the

national contingency plan;

or loss of natural resources, including the rea-

sonable costs of assessing such injury, destruc-

tion, or loss resulting from such a release: and

(D) the costs of any health assessment or

health effects study carried out under section

104(i).

42 U.S.C. § 9607(a).

XII

FEDERAL RULE OF CIVIL PROCEDURE 56

(for summary judgment] shall be served at least 10 days

before the time fixed for the hearing. The adverse party

prior to the day of hearing may serve opposing affidavits.

The judgment sought shail be rendered forthwith if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material

fact and that the moving party is entitled to a judgment

as a matter of law. A summary judgment, interlocutory

in character, may be rendered on the issue of liability

alone although there is a genuine issue as to the amount

of damages.

STATEMENT OF THE CASE’

This case arises out of standard-form comprehensive

general liability (“(CGL’’) insurance policies issued from

1970 to 1972 to Northeastern Pharmaceutical & Chemical

Co. (“NEPACCO”) and involves NEPACCO’s insurance

coverage for costs incurred by the United States and the

state of Missouri to clean up environmental contamination

pursuant to the Comprehensive Environmental Response,

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

3 9601, et seg., and other provisions of statutory and com-

mon law.

At issue in this appeal is the manner in which the

Eighth Circuit, in reviewing an entry of summary judg-

ment, interpreted a critical, disputed standard-form in-

surance policy term: “damages.” In affirming summary

judgment on grounds other than those relied upon by the

trial court the Eighth Circuit held that to a lay policy-

holder the term “damages” is ambiguous and broad enough

to cover CERCLA environmental cleanup costs, but con-

cluded that “damages” has a narrower, technical “plain

meaning” in the insurance context that excludes such

costs. Continental Insurance Cos. v. Northeastern Phar-

maceutical & Chemical Co., 842 F.2d 977, 985-86 (8th

Cir., en banc 1988). Appendix at A18-19.

In the trial court Continental conceded that govern-

mental claims for reimbursement of CERCLA hazardous

waste site cleanup costs were “damages.” See note 10,

infra. The Eighth Circuit’s finding that “damages’’ has

a “plain meaning” in the insurance context that differs

from its meaning to the layperson was not presented

to the trial court and has no factual support in the record.

—

1. Extensive discussions of the factual and procedural history

of this case are found in the en banc order, Continental Insur-

ance Cos. v. NEPACCO, 842 F.2d 977 (8th Cir. en banc 1988)

(Appendix at Al-30) and in the panel decision, Continental In-

surance Cos. v. Northeastern Pharmaceutical & Chemical Co.,

Inc., 811 F.2d 1180 (8th Cir. 1987). Appendix at A31-62.

Moreover, in this action based upon diversity jurisdic-

tion in which the law of Missouri is conceded by all to

apply. the Eighth Circuit interpreted the disputed policy

term by relying upon the law of other jurisdictions while

failing to apply Missouri’s rule of insurance policy con-

struction requiring that an insurance policy term be in-

terpreted as it would be understood by the lay policy-

holder.

1. The Underlying Claims Against NEPACCO

Based Upon Environmental Damage.

From 1970 to 1972 NEPACCO produced hexachloro-

phene at a chemical plant in Verona, Missouri. The pro-

cess produced a variety of wastes, including dioxin. In

July 1971 NEPACCO arranged to dispose of at least 85

55-gallon drums of these wastes in a trench on a farm near

Verona, Missouri, which has come to be known as the

‘Denney Farm site.”

Later in 1971 or 1972 NEPACCO hired Independent

Petrochemical Corporation (“IPC”) which, in turn, hired

Russell Bliss to dispose of more dioxin-contaminated

wastes. In 1971, 1972, and 1973, these wastes were spread

on the Bubbling Springs Stables in Fenton, Missouri and

on the roads of Times Beach, Missouri. In 1974 a Mr.

Minker purchased contaminated dirt from the Bubbling

Springs Ranch and used it as landfill on his property,

which came to be known as the ‘‘Minker/Stout/Romaine

Creek site.”

In 1980 the United States Environmental Protection

Agency (“EPA”) investigated the Denney Farm site and

found dioxin from the NEPACCO wastes. It cleaned up

the site and then sought to recover its costs through a

lawsuit against NEPACCO and others. United States v.

Northeastern Pharmaceutical & Chemical Co., 579 F. Supp.

823 (W.D. Mo. 1984), aff'd in part, rev'd in part and re-

manded, 810 F.2d 726 (8th Cir. 1986), cert. denied, ........

MEA occas 108 S.Ct. 146 (1987). This lawsuit is referred

to in the decisions below as the “EPA suit.” Asa result of

that lawsuit, NEPACCO and the other defendants have

been held jointly and severally liable for cleanup costs

of more than $150,000.”

2. NEPACCO’s Insurance Coverage.

From 1970 to 1972 NEPACCO was insured under

three standard-form comprehensive general liability

(“CGL”) insurance policies issued by Continental Insur-

ance Company. Each policy requires Continental to:

Pay on behalf of the insured all sums which the in-

sured shall become legally obligated to pay as damages

because of . . . property damage to which this in-

surance applies caused by an occurrence... .

(Emphasis added.) Although several policy clauses have

been the subject of contention in this action, this clause is

the only one at issue in this petition.®

2. CERCLA establishes a trust fund—typically referred to

simply as the “Superfund’’—administered by EPA to pay for a

variety of activities to identify, investigate and clean up where

necessary sites at which hazardous substances are posing a health

or environmental threat. CERCLA § 111, 42 U.S.C. § 9611.

Often these sites are old, abandoned hazardous waste disposal

sites.

When EPA incurs costs to clean up a hazardous waste dis-

posal site it may sue pursuant to CERCLA § 107(a) (1-4) (A),

42 U.S.C. § 9607(a) (1-4) (A), any of several classes of poten-

tially responsible parties to reimburse it for its cleanup costs,

sometimes referred to as “response costs.” See, e.g., U.S. v.

NEPACCO, 810 F.2d 726, 731.

States, including the state of Missouri, also frequently under-

take their own hazardous waste site cleanup activities. States

also may sue potentially responsible parties pursuant to CERCLA

§ 107(a) (1-4) (A) to recover their cleanup expenses.

Such state and federal governmenis’ cost recovery claims

pursuant to CERCLA § 107 and pursuant to other statutes or

common law seeking reimbursement for their costs incurred in

cleaning up hazardous waste site contamination are at the heart

of this insurance coverage dispute.

3. The Eighth Circuit expressly stated that because of its

ruling on the meaning of the word “damages” in this clause,

it did not need to reach the other numerous issues raised on ap-

peal. Appendix at Al3-14.

3. Proceedings in the District Court.

a. Continental’s Declaratory Judgment Ac-

tion.

In February 1984 Continental filed in the United

States District Court for the Western District of Missouri

this action against NEPACCO and its former officers and

directors. Continental Insurance Cos. v. NEPACCO, No.

84-5034-CV-S-4 (W.D. Mo. filed Feb. 9, 1984). Continental

sought a declaratory judgment that it had no duty to de-

fend or to indemnify NEPACCO or its former officers for

liability arising out of NEPACCO’s waste disposal, includ-

ing the judgment in the EPA suit.

The district court’s jurisdiction was invoked by diver-

sity of citizenship, with an amount in controversy exceed-

ing $10,000, pursuant to 28 U.S.C. § 1332.4. Throughout the

district and appellate court proceedings, all parties have

agreed that Missouri law applies.

NEPACCO and the other defendants failed to enter an

appearance or file an answer.® Rather than seeking a

default judgment against NEPACCO and the other defen-

dants, in November 1984 Continental moved for summary

judgment pursuant to Rule 56 of the Federal Rules of

Civil Procedure.

b. State of Missouri Action to Intervene.

In December 1984 the state of Missouri moved to in-

tervene in the present case to protect its interest as a

4. The plaintiff, Continental, was a New Hampshire cor-

poration with its principal place of business in New York. De-

fendant NEPACCO had been a Delaware corporation with its

principal place of business in Connecticut (U.S. v. NEPACCO,

810 F.2d at 729). Defendants Turkel, Michaels, and Lee,

NEPACCO’s former officers, were residents of Connecticut.

5. By 1984 NEPACCO essentially had been defunct for ten

vears. See United States v. Northeastern Pharmaceutical & Chem-

ical Co., 579 F. Supp. 823, 827 (W.D. Mo. 1984).

potential judgment creditor of NEPACCO.’ The district

ccurt granted the state’s motion.

The state filed suggestions opposing Continental’s mo-

tion for summary judgment. Among other grounds, the

state asserted that disputed issues of material fact, includ-

ing the parties’ intent in entering the contracts for insur-

ance coverage, precluded summary judgment under Rule

56(c).‘ At the time the district court entered summary

judgment, discovery was pending.*

In the district court proceedings Continental did not

raise the contention—later adopted by the Eighth Circuit

in its en banc decision—that the term “damages” in the

standard-form policies issued to NEPACCO excluded gov-

ernmental claims for reimbursement of environmental

cleanup costs asserted against NEPACCO pursuant to

CERCLA. Although its complaint in this action contains

23 pages of detailed allegations stating why Continental

believed it should not be required to provide coverage, and

6. The state of Missouri has filed three actions against

NEPACCO and others as a result of costs incurred in cleaning up

dioxin contamination in Times Beach, the Minker/Stout/Romaine

Creek site, and the Bliss farm site (at which Mr. Bliss also al-

legediy sprayed dioxin-contaminated oil). Missouri v. Syntex

U.S.A., Inc. et al., No. 85-2856-C-6 (E.D. Mo. filed Nov. 27,

1985); Missouri v. Independent Petrochemical Corp., et al., No.

83-3670 (E.D. Mo. filed Nov. 23, 1983) (referred to as the “IPC

Suit” in the district court and court of appeals opinions) ; Missouri

v. Bliss, et al., No. 84-1447-C(4) (E.D. Mo. filed June 20, 1984).

As of November 1986 the state of Missouri already had

spent nearly $3 million to clean up the dioxin contamination at

these sites, and cleanup is ongoing. The state’s projected share of

the cost to clean up the four primary dioxin-contaminated sites

in Missouri (Times Beach, the Minker/Stout/Romaine Creek site,

Quail Run, and Castlewood) is $20 million.

7. Defendant-Intervenor State of Missouri’s Suggestions in

Opposition to Plaintiff's Motion for Summary Judgment, at pp.

6-7, served March 8, 1985.

8. Continental Insurance Cos. v. NEPACCO, No. 84-5034-

CV-S-4 (W.D. Mo. filed June 25, 1985). Appendix at A66-67.

cites no fewer than 9 policy terms and provisions, no-

where does the complaint assert that costs at issue are not

“damages.” Indeed, Continental conceded that the en-

vironmental cleanup cost recovery claims asserted against

NEPACCO and its former officers in the EPA suit con-

stituted claims for “damages.’”®

c. The District Court Decision.

In June 1985 the district court granted summary

judgment in favor of Continental.'' Among its rulings,

the court held that the environmental cleanup costs sought

by the United States and the state were not “property dam-

age” as that term is defined in the CGL policies. Appen-

dix at A75. Moreover, the court held that “no

damages were incurred by the governmental entities

during the time of the policies’ effective dates” because

the policies were in effect only from 1970 to 1972, where-

as the cleanup costs were incurred many years later,

in 1980 and 1982, after the policies had expired. Appendix

at A68, 74-76.%

9. Continental’s complaint is supplied in the Appendix at

A85-105.

10. See Suggestions in Support of Plaintiff's Motion for

Summary Judgment in Continental Insurance Cos. v. NEPACCO,

No. 84-5034-CV-S-4 (W.D. Mo. filed Nov. 14, 1984). Con-

tinental said, “CERCLA authorizes the government to seek

as damages the reimbursement of hazardous waste clean-

up costs .’ (emphasis added) at 38; and, “All damages

claimed [in the EPA suit] are in the nature of ‘clean-up’ costs”

(emphasis added) at 42. See also id. at 19-20, 29, 32, 38 and

52 (characterizing CERCLA cost recovery actions as seeking

“damages”). Excerpts are supplied in Appendix at A106-14;

see particularly, pp. Al08-09, 111, 113.

11. Continental Insurance Cos. v. NEPACCO, No. 84-5034-

CV-S-4 (W.D. Mo. June 25, 1985). Appendix at A63-83.

12. Notably, the district court concluded, without discus-

sion, that the state and federal government CERCLA cost re-

covery claims sought “damages” against NEPACCO. Appendix

at A71-72, 74 (referring to such claims as “damages’’) and

A75-76 (referring to such claims as claims for “loss or dam-

age’).

4. Proceedings in the Court of Appeals.

a. The Panel Decision.

The state of Missouri appealed the district court’s

order. The argument that environmental cleanup costs

under CERCLA do not constitute “damages” under the

standard-form CGL policy was raised for the first time

—by amicus curiue American Insurance Association

(“AIA”)—before the Eighth Circuit panel.

The majority rejected the district court’s rationale

for holding that insurance coverage did not apply to the

EPA suit. The majority rejected the view that the fed-

eral and state governments did not suffer any loss or

damage until cleanup costs actually were incurred. Ap-

pendix at A42-44. The panel also rejected the argument

advanced by AIA that cleanup costs under CERCLA

were not “damages.” Appendix at A44-49.

The court discussed the events that trigger coverage

under standard-form CGL policies (Appendix at A77-81),

but that discussion is not the subject of this petition.

b. Rehearing En Banc.

The Eighth Circuit granted motions for rehearing

en banc and in a 5-to-3 decision reversed the panel opin-

ion. In doing so the court stated, “The dispositive issue

is whether the term ‘damages’ in the standard-form CGL

policy includes cleanup costs.” Appendix at A13.

The court held that the term “damages” is ambig-

uous to laypersons and would be interpreted by the pol-

icyholder to include governmental claims for reimburse-

ment of hazardous waste site cleanup costs. Neverthe-

less, the court found—-without any basis in the factual

record before the court—that in the insurance context

the term “damages” is not ambiguous and has a nar-

rower, technical meaning that precludes coverage for such

costs. The court noted that claims for these costs are

considered “equitable” claims for monetary relief, and

stated that CGL policies do not provide coverage for

equitable relief. Appendix at A17-18.

The court did not cite any Missouri cases for these

propositions, but cited cases applying the law of Maryland,

Florida and New Hampshire. Appendix at A18-20.

The state of Missouri now brings this petition seeking

review of the Eighth Circuit’s en banc order.

ARGUMENT AND AUTHORITIES

I. The Court of Appeals’ Summary Finding That

‘‘Damages’’ Has An Unambiguous Narrow, Tech-

nical Meaning In The Insurance Industry Is A

Factual Determination Which Cannot Be Made

In An Evidentiary Void On A Motion For Sum-

mary Judgment.

The Eighth Circuit's result is premised upon its con-

clusion on page 16 of its February 26, 1988 order:

|T}he plain meaning of the term “damages” as used

in the insurance context refers to legal damages and

does not include equitable monetary relief.

Appendix at 18. Although stated in a conclusory fashion,

this determination is based upon the implicit factual find-

ing'* that the term “damages” has a meaning in the in-

13. While the court attempted to frame its finding as a mat-

ter of law, it was a factual finding First, the court stated

that the term “damages” excludes claims for equitable reliei

as a matter of “[bJlack letter insurance law.” Appendix at

Al8. As the dissent notes, however, the conflict in the courts

renders this characterization inappropriate. Appendix at 26.

Moreover, while courts may impart a particular meaning

to a contract term, this does not create a presumption that

such a meaning was intended unless courts repeatedly have

interpreted certain words as having a particular meaning and

(Continued on following page)

]

surance context that differs from its meaning elsewhere.

In the preceding paragraph of its opinion the court held

that

outside the insurance context, the term “damages” is

ambiguous .. . [F]rom the viewpoint of the lay in-

sured, the term “damages” could reasonably include

all monetary claims, whether such claims are de-

scribed as damages, expenses, costs or losses.

Appendix at Al7-18. Thus, the court drew a clear dis-

tinction between the manner in which laypersons inter-

pret the term “damages” and what the court perceived

to be a narrower interpretation of that term in the

“insurance context.” The only basis asserted for creating

this distinction is the fact that governmental claims under

CERCLA for reimbursement of hazardous waste site clean-

up costs have been held to be “equitable,” rather than

“‘legal,’’ monetary claims for restitution. Appendix at Al7-

18."*

Footnote continued—

drafters continue to use such words with knowledge of the

courts’ interpretation. See, e.g., Parker wv. Provident Life &

Acc. Ins. Co., 582 S.W.2d 380, 383 (Tenn. 1979).

In addition, as discussed in Subpart 1B., infra, the court

implicitly found a custom and usage in the insurance industry.

This is a factual determination requiring factual support.

Finally, the authorities on which the court relied do not

adequately support its conclusion that “damages” has a specialized

meaning in the insurance context. This determination, in the

first instance, must be based on factual evidence. None of the

courts cited by the majority conducted any factual inquiry re-

garding the manner in which insurers interpret the term “dam-

ages." Absent such an inquiry and a well-supported factual

finding, the issue cannot be disposed of as a matter of law.

14. Courts which have discussed the “equitable” nature

of environmental cost recovery claims under CERCLA have

done so in the context of ruling that defendants in actions brought

pursuant to CERCLA do not have a right to a trial by jury

guaranteed by the Seventh Amendment to the United States

Constitution. See U.S. v. NEPACCO, 810 F.2d at 749 and cases

cited therein.

The argument that the term “damages” does not in-

clude governments’ CERCLA cost recovery claims was not

presented to the trial court, however, and there is not a

single fact in the record to support the conclusion that the

term “damages” in the insurance industry is interpreted

any differently than it is understood by lay policyholders.

It was improper for the Eighth Circuit to affirm summary

judgment on the basis of an argument which was not

presented to the trial court and which is not supported by

the record. Moreover, it was improper for the court of

appeals, on summary judgment pursuant to Rule 56 and

without the benefit of any evidence, to make the factual

determination that the term “damages” has a “plain mean-

ing” in the insurance industry that differs from its meaning

elsewhere. Indeed, a substantial body of evidence makes

clear that both the insurance industry and Continental con-

sistently use the term “damages” to include environmental

cleanup and CERCLA response costs. Because of the

procedural posture of this case, the state never had an

opportunity to develop or present that evidence. Its

existence makes clear, however, that judgment in Con-

tinental’s favor was inappropriate because there remained

at least one disputed issue of raaterial fact.

A. It Was Improper For The Eighth Circuit To

Affirm Summary Judgment On The Basis Of

An Argument Presented For The First Time

On Appeal For Which There Is No Support In

The Record.

The Eighth Circuit rejected the rationale of the dis-

trict court, but elected to affirm summary judgment be-

cause of the appellate court’s narrow interpretation of the

term “damages” in the insurance context. The issue

whether “damages” includes governmental claims for re-

imbursement of environmental cleanup cecsts first was

raised by amicus AIA on appeal. The issue was not

raised by a party until Continental filed its supplemental

brief for rehearing en banc. Appendix at Al5. Undoubt-

edly based upon Continental's concessions on the matter,

the district court assumed without discussion that those

claims were “damages.’** Needless to say, no evidence

was presented to the district court to support AIA’s asser-

tion. It was, therefore, inappropriate for the Eighth Cir-

cuit to affirm summary judgment on this ground.

A court reviewing an entry of summary judgment is

“merely authorized to review the propriety of the grant

on the basis of matters of record at the time the summary

judgment was entered.” Munoz v. International Alliance

of Theatrical Stage Emp. & Moving Picture Mach. Opera-

tors, 5963 F.2d 205, 209 (Sth Cir. 1977) (emphasis supplied).

Evidence and factual assertions not presented to the trial

court will not be considered on appellate review. Id. at

209; Denis v. Liberty Mutual Ins. Co., 791 F.2d 846, 849

(llth Cir. 1986). “Failure to raise an issue, objection or

theory of relief in .. . the trial court generally is fatal.”

Denis, 791 F.2d at 849."*

A reviewing court may affirm summary judgment on

grounds which differ from those of the trial court. Ross

v. Communications Satellite Corp., 759 F.2d 355, 363 (4th

Cir. 1985). At least one court has held that the ground

for affirmance need not have been addressed by the trial

court, but it must be supported by the record. Katter v.

Arkansas Louisiana Gas Co., 765 F.2d 730, 734-35 (8th Cir.

1985). In the present case, the court affirmed summary

judgment on grounds for which there is no record and

15. See discussions at notes 10 and 12, supra.

16. See also, Federal Deposit Ins. Co. v. Lauterbach, 626

F.2d 1327, 1331 n.8 (7th Cir. 1980) (objections); Frank C. Bailey

Enterprises, Inc. v. Cargill, Inc., 582 F.2d 333, 334 (5th Cir.

1978) (allegations); Lacey v. Lumber Mutual Fire Ins. Co. of

Boston, 554 F.2d 1204, 1205 (ist Cir. 1977) (arguments).

a a

—

which were conceded away in the trial court. See Appen-

dix A108-09, 111, 113.

The Eleventh Circuit has held that “the appellate

court has the discretion to resolve a question for the first

time on appeal, especially if the issue is legal in nature

and failure to consider it would result in a miscarriage

of justice.” Denis, 791 F.2d at 849. This Court also

has recognized the appellate court’s discretion to consider

questions not presented to the trial court but only when

“the proper resolution is beyond any doubt [citation

omitted| or where ‘injustice might otherwise result.’”’

Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 2877

(1976).

As discussed in note 13, supra, this case involves a

factual question, not a legal issue. Moreover, the state

has not had the opportunity to contest, in an appropriate

forum, the factual conclusion that the term ‘“damages’’

has a specialized meaning in the insurance industry. The

state is prepared to contest this finding, however, as dis-

cussed, infra, Subpart I.C. Thus, the existence of a “plain

meaning” of the term “damages” in the insurance context

not “beyond any doubt,” as required by this Court’s rul-

ng in Singleton. Finally, as in Singleton, “injustice [is]

more likely to be caused than avoided by deciding the issue

petitioner's having had an opportunity to be

heard 428 U.S. at 121, 96 S.Ct. at 2877. Because evi-

fer oe which directly controverts the Eighth Cir-

iit # finding (Appendix at Al106-27), this case must be

ernanded to the trial court to avoid manifest injustice.

This Court recently has reaffirmed the non-movant’s

responsibility to come forward with sufficient evidence

to require the fact finder to resolve the issue at trial.

Anderson v. Liberty Lobby, 447 U.S. 242, ......, 106 S.Ct.

2505, 2510 (1986). See also, Celotex Corp. v. Catrett,

677 U.S. S17, ......:, 106 S.Ct. 2548, 2553 (1986). The non-

rr el

moving party, however, is entitled to adequate time for

discovery. Celotex, 106 S.Ct. at 2552-53. When a non-

movant is presented with an issue for the first time on

appeal, the non-movant is denied not only adequate time

for discovery, but also access to a proper forum in which

to present evidence of a factual dispute. The state is

prepared to present sufficient evidence to demonstrate

the existence of a factual dispute regarding the meaning

of ‘damages’ in the insurance industry. Remand to the

trial court is necessary to provide this opportunity.

B. Remand To The Trial Court For A Factual

Determination Is Necessary Before Any Court

Can Conclude That The Term ‘‘Damages”’

Has A Narrow, Technical ‘‘Plain Meaning’’

In The Insurance Context That Differs From

Its Broader, Ambiguous Meaning To Lay

Policyholders.

The Eighth Circuit’s ruling amounts to a decision

that in the insurance industry there is a special custom

and usage of interpreting the term “damages’’ differently

than in other contexts.'"' The existence of custom and

usage in a particular context, however, is a factual in-

quiry. Transportation-Commun. Emp. U. v. Union Pac.

R. Co., 385 U.S. 157, 163, 87 S.Ct. 369, 373 (1966) (quoting

Order of Ry. Conductors v, Pitney, 326 U.S. 561, 566-67,

66 S.Ct. 322, 325 (1946)) (interpreting collective bar-

gaining agreements). This includes the insurance con-

text. Home Ins. Co. v. Aetna Cas. & Sur. Co., 528 F.2d

1388 (2d Cir. 1976) (understanding and custom of the

insurance industry regarding the meaning of “batch

17. See, Restatement (Second) Contracts § 219, comment

a and § 220, comment a (“usage” is a habitual or customary

practice of interpretation that may prevail in a special trade

or other group; usage gives particular meaning to an agree-

ment). See also, J. Appleman & J. Appleman, Insurance Law

and Practice, § 7388 at 187 (1976) (discussing practices in the

insurance industry as usage of trade).

clauses” are issues of material fact precluding summary

judgment).’* Putting aside the question whether it was

appropriate for the court of appeals to apply an inter-

pretation peculiar to the insurance industry after finding

that to a layperson the term would include the cleanup

costs at issue,’ the existence and effect of a custom

and usage in the insurance context requires factual sup-

port.*°

The Eighth Circuit fails to cite a single fact sup-

porting its decision to treat the term “damages” in the

insurance context differently than in other contexts. This

failure is not surprising because no factual record was

developed on this point in the trial court. None was ap-

propriate. Continental did not raise any issue in the

trial court about the meaning of “damages” and conceded

numerous times that the claims in question were “dam-

ages,”

Under Rule 56(c), summary judgment may be en-

tered only if the facts and evidence before the trial

court demonstrate that there is no “genuine issue as to

any material fact.” Fed. R. Civ. P. 56(c). In the ab-

sence of essential factual support it was inappropriate

for the Eighth Circuit to affirm summary judgment based

on the assumption that the term “damages” has a nar-

row, technical meaning in the insurance context.

18. See J. Appleman, supra, § 7388 (“Where no evidence

as to custom is shown or where no custom is found to exist

the rights of the parties will be determined strictly from the

contract.”” Id. at 184-85. “[W]ords used in insurance “con-

tracts are to be understood according to their ordinary scope

and meaning unless a more restricted use is established by gen-

eral mercantile usage, or expressly brought to the notice of both

‘parties.””” Id. at 185).

19. See discussion in Part II., infra.

20. Under Missouri law, parol evidence is appropriate to

determine the technical meanings of contract terms that are

peculiar to certain occupations. Busch & Latta Painting Corp.

v. State Highway Comm’n, 597 S.W.2d 189, 202-03 (Mo. App.

1980).

21. See note 10, supra.

Indeed, summary judgment frequently is denied in

insurance coverage cases because of issues of fact about

whether the underlying claim is within the scope of the

insurance policy. Determining coverage frequently in-

volves “questions requiring the construction of the policy

in light of the parties’ understanding and customs of

the insurance industry.” 10A Wright, Miller & Kane,

Federal Practice and Procedure, § 2730.1 at 293. “When

evidence of the custom and usage of the trade is required

in order to interpret an agreement, the Rule 56 motion

will be denied.” Id. at 284.

The Eighth Circuit circumvented these long-standing

principles by affirming summary judgment on the basis

of a factual finding for which it had no factual support.

The state is prepared to contest the court’s finding, how-

ever, as discussed in Subpart I.C. The existence of this

disputed factual issue renders summary judgment im-

proper under Federal Rule of Civil Procedure 56(c).

The cause should be remanded to the trial court for a

factual hearing to determine whether, indeed, there ex-

ists in the insurance industry a custom and usage or

technical meaning of the term “damages.”

C. Insurers Regularly Have Described Environ-

mental Cleanup Costs And CERCLA Cost Re-

covery Claims As “‘Damages,’’ Precluding A

Finding That In The Insurance Context The

Term Has A ‘‘Plain Meaning’’ That Excludes

Those Costs.

Available evidence* demonstrates that the insurance

industry as a whole and Continental in particularghave

22. This Court, of course, is not the appropriate forum in

which to present mew evidence to resolve this factual dispute.

This discussion of evidence is presented to demonstrate the types

of facts, documents and testimony that are available to determine.

upon remand to the district court, whether the insurance in-

dustry has attached a narrow, technical meaning to the term

“damages.”

interpreted the term “damages” to include equitable

monetary relief such as environmental cleanup costs. Thus,

the term does not have a specialized, narrow “plain mean-

ing’’ in the insurance context that differs from its broader

meaning to laypersons.

Continental itself in the trial court explicitly referred

to the underlying claims as claims for “damages.”** Con-

tinental did not even raise the question whether govern-

mental claims under CERCLA for reimbursement of haz-

ardous waste site cleanup costs constituted “damages”

until rehearing before the Eighth Circuit. Certainly Con-

tinental has not attached a “plain meaning” to the term

“damages” that precludes its application to such claims.**

The insurance industry as a whole also has not ap-

plied the narrow, technical “plain meaning” of the term

“damages” attributed to it by the Eighth Circuit that

would preclude the term from providing coverage for

environmental cleanup costs.*® The minutes of an Octo-

ber 28, 1969 meeting of the Insurance Rating Board

General Liability Governing Committee*® describe a dis-

23. See note 10, supra.

24. Under Missouri law, such a practical construction by the

insurer of the meaning of a policy term is given great weight in

interpreting the policy and is binding upon the insurer. Aetna

Casualty & Surety Company v. Haas, 422 S.W.2d 316, 320 (Mo.

1968).

25. The court stated, “The dispositive issue is whether the

term ‘damages’ in the standard-form CGL policy includes cleanup

costs.”” Appendix at Al3.

26. The Insurance Rating Board was the successor to the

National Bureau of Casualty Underwriters and the predecessor

to the current Insurance Services Office. These organzations for

decades have developed standard-form CGL policies that are

used throughout the property and casualty insurance industry.

For a discussion of the drafting history of standard-form CGL

insurance policies, see American Home Products Corp. v. Liberty

(Continued on following page)

cussion of pollution exclusion clauses then being pro-

posed for inclusion in the insurance industry’s standard-

form CGL policies. Expressing concern about the effect

on the insurance industry of several then-recent off-shore

oil spills, the minutes state, “Damages, including the cost

to clean up, may be catastrophic.” Appendix at A115.

(Emphasis added.) Clearly, in 1969 the insurance in-

dustry understood that environmental cleanup costs were

“damages.””**

This understanding continues today. The 1984 In-

surance Services Office Commercial General Liability

Occurrence Form includes a specific exclusion for envi-

ronmental cleanup costs (Appendix at A120) which would

not be necessary if the industry had a clear understanding

that the “plain meaning” of the term “damages” does

not include environmental cleanup costs.”

In addition, Richard E. Stewart, who formerly was

a Senior Vice-President and Director and Chief Financial

Officer of the Chubb Group of Insurance Companies

Footnote continued—

Mutual Ins. Co., 565 F. Supp. 1485, 1500-03 (S.D.N.Y. 1983),

aff'd as modified, 748 F.2d 760 (2d Cir. 1984), and Chesler,

Rodburg, and Smith, Patterns of Judicial Interpretation of In-

surance Coverage for Hazardous Waste Site Liability, 18 Rutgers

L.J. 9, 14-16 (1986).

Expressions by the policy drafters of the terms’ intent have

been accepted as evidence of policy meaning in numerous cases.

American Home Products, supra; Broadwell Realty Services,

Inc. v. Fidelity & Casualty Co., 528 A.2d 76 (N.J. Super. Ct.

App. Div. 1987); New Castle County v. Hartford Accident &

Indemnity Co., 673 F. Supp. 1359 (D. Del. 1987); Kipin Indus-

tries, Inc. v. American Universal Ins. Co., No. C-860658 (Ohio

Ct. App., Ist Dist. Aug. 12, 1987) (Available in Westlaw and

Lexis databases).

27. This is but one of thousands of pages of documents

containing expressions of the insurance industry’s understanding

of the meaning of its standard policy forms.

28. Cf. CPS Chemical Co., Inc. v. Continental Ins. Co., 222

N.J. Super. 175, 536 A.2d 311 (App. Div. 1988).

and a former Superintendent of Insurance for the state

of New York, on March 7 and 8, 1988 testified that the

term “damages” in standard-form CGL insurance _pol-

icies includes environmental cleanup and CERCLA re-

sponse costs and that such expenses are covered under

the policies. Appendix at A121-27.

This evidence, along with other evidence that is avail-

able and can be developed through discovery, makes

clear that, like the lay policyholders described by the

Kighth Circuit, both Continental and the insurance in-

dustry use the term “damages” to “include all monetary

claims, whether those claims are described as damages,

expenses, costs or losses.” Appendix at A1l7-18. Like the

policyholders’ understanding, the insurance industry’s

meaning of “damages” certainly is broad enough to en-

compass equitable monetary claims under CERCLA to

reimburse governmental hazardous waste site cleanup

costs.

This evidence provides significant support for the

state's interpretation of the term “damages” in Continen-

tal’s policies. It need not be conclusive: it demonstrates

that facts supporting the state’s interpretation exist. At

the very least, the evidence raises an issue of mate

rial fact, making improper summary judgment under

Rule 56(c).

It would be unfair in the face of this available evi-

dence to deny the state the opportunity to develop such

evidence and present it to a fact finder. The unfairness

particularly is acute here because the state had no indi-

cation in the district court that Continental would assert

this basis as a limitation on its coverage to NEPACCO.

Accordingly, this case should be remanded to the trial

court for a factual determination.

Il. The Eighth Circuit Misapplied the Erie Doctrine

By Ignoring Missouri Rules Of Insurance Policy

Construction Under Which Policy Terms Are

Interpreted As They Would Be Understood By

A Layperson And Instead, Interpreting The Term

‘Damages’ According To A Technical Mean-

ing Applied By Laws Of Other Jurisdictions.

As agreed by all parties and the Eighth Circuit, and

under the choice of law doctrine set out in Erie Railroad

Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938), the

Eighth Circuit was bound to apply the substantive law

of Missouri to determine whether the term “damages”

includes environmental cleanup costs. Missouri prin-

ciples of insurance policy construction lead inarguably

to the conclusion that such claims come within the

term “damages.” The Eighth Circuit, however, did not

follow Missouri law. Instead, it followed conflicting law

of other jurisdictions. This violated the Eighth Circuit’s

duty under Erie and imposed the law of a foreign juris-

diction upon the state of Missouri.

In a diversity action, a federal appellate court must

ascertain and apply state substantive law whenever it

is controlling. Huddleston v. Dwyer, 322 U.S. 232, 64

S.Ct. 1015 (1944). The Eighth Circuit should have applied

Missouri law even if it believed the law was wrong or

contrary to the great weight of authority elsewhere. West

v. AT&T, 311 U.S. 223, 235-36, 61 S.Ct. 179, 182-83 (1940).

In Missouri, the rules of insurance policy construc-

tion are clear. Policy terms are interpreted as they

would be understood by a lay policyholder, not as they

might be interpreted by persons well-versed in the in-

surance industry. Robin v. Blue Cross Hospital Services,

Inc., 637 S.W.2d 695, 698 (Mo. en banc 1982); Greer v.

Zurich Ins. Co., 441 S.W.2d 15, 27 (Mo. 1969) (layman’s

definition will be applied over a technical definition) ;

Stafford v. Travelers Ins. Co., 530 S.W.2d 23, 25 (Mo.

App. 1975) (same principle). Moreover, ambiguous pol-

icy terms are construed against the insurer, Robin, supra,

and “fa|n insurance contract reasonably susceptible of

any interpretation favorable to the insured will be so

construed.” Bellamy wv. Pacific Mut. Life Ins. Co., 651

S.W.2d 490, 495 (Mo. 1983) (emphasis added).

The Eighth Circuit correctly noted that the term

“damages” is ambiguous to laypersons outside the insur-

ance industry and broad enough to include governmental

claims for reimbursement of CERCLA hazardous waste site

cleanup costs. Appendix at Al7-18. Based upon Mis-

souri’s rules of insurance policy construction, this should

have ended the inquiry. The court should have ignored

the narrow, technical definition. Wheeling Stamping Co.

v. Birdsboro Steel Foundry & Machine Co., 245 F.2d 752

(3d Cir. 1957) (state rules of construction are to be used

by federal court when state law applies).

In choosing to adopt the narrow, technical definition of

“damages,” the Eighth Circuit did not cite a single Mis-

souri case. Primarily, the court relied upon Maryland

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

cert. denied, ........ US. ........, 108 S.Ct. 703 (1988), decided

under Maryland law. Maryland does not apply the rule,

applicable in Missouri and elsewhere, that insurance policy

terms are construed most strongly against the insurer.”

Moreover, the Fourth Circuit in Armco noted that “Mary-

29. Compare Robin, 637 S.W.2d at 698, with Truck Ins. Ex-

change v. Marks Rentals, Inc., 288 Md. 428, 418 A.2d 1187, 1191

(1980).

land law ... has . . . adopted the somewhat narrow,

technical definition of damages.” Id. at 1352 (citing

Haines v. St. Paul Fire & Marine Ins. Co., 428 F. Supp. 435

(D. Md. 1977)). The Eighth Circuit also cited cases ap-

plying the laws of Florida and New Hampshire. Reliance

on these cases is an abandonment of controlling Missouri

law in favor of law established in other jurisdictions.

Regardless of how other jurisdictions have ruled,*” the

Missouri Supreme Court would include cleanup costs with-

in the term “damages.” Indeed, the Missouri Supreme

Court has held that restoration costs incurred to put prop-

erty in its former condition, which are analogous to costs

incurred to clean up environmental contamination, are

recoverable as damages. Jack L. Baker Co., Inc. v. Pasley

Mfg. & Distrib. Co., 413 S.W.2d 268 (Mo. 1967). See also,

Zipkin v. Freeman, 436 S.W.2d 753, 761 (Mo. en banc

1968) (“The word ‘damages’ is not limited to any par-

ticular kind of damage or injury ...”’). Given these

principles, and given Missouri’s rule of construing insur-

ance policies as they would be understood by the lay

policyholder, there is no basis upon which to conclude

that the Missouri Supreme Court would rule that govern-

mental claims for reimbursement of hazardous waste site

30. As the dissent correctly notes, there is a split in au-

thority among those jurisdictions that have considered whether

the CGL policy term ‘damages’ includes governmental claims

for reimbursement of hazardous waste site cleanup costs. Ap-

pendix at A25-26. The majority also recognizes this split, citing

cases contrary to its decision here. Appendix at Al18-19 (citing

New Castle County v. Hartford Accident & Indemnity Co., 673

F. Supp. 1359 (D. Del. 1987); U.S. Aviex Co. v. Travelers Ins.

Co., 125 Mich. App. 579, 336 N.W.2d 838, 843 (1983); Broadwell

Realty Services Inc. v. Fidelity & Casualty Co., 218 N.J. Super.

516, 528 A.2d 76, 82-83 (App. Div. 1987)). Thus, the issue of

whether monetary claims for equitable relief can be claims for

“damages” under liability insurance contracts is by no means

a settled point of “black letter law’’ as characterized by the ma-

jority. Appendix at Al8g.

cleanup costs are not “damages” under standard-form

CGL policies merely because such claims have been char-

acterized as “equitable.”’

Clearly, the Eighth Circuit's abandonment of Missouri

law was improper and constituted reversible error. There-

fore, this Court should grant this petition, reverse and re-

mand for an appropriate application of Missouri law.

Ill. The Issues Presented In This Case Are Material

And Of Substantial Importance To The State Of

Missouri As A Claimant Seeking To Recover

Environmental Cleanup Costs From NEPACCO

And Others, And To The Federal And State

Governments Who Have Similar Claims Pending.

The state of Missouri has established a hazardous

waste remedial fund administered by the Missouri Depart-

ment of Natural Resources. Section 260.480.1 R.S.Mo.

(1986). Missouri uses this fund to pay for the costs of

conducting hazardous waste site cleanup activities when

no responsible party will undertake the cleanup. In ad-

dition, this fund pays for Missouri’s share of the cost

of cleanups financed by the federal Superfund.’ When

Missouri is compelled to spend money from its hazardous

waste remedial fund, it seeks to replenish its fund by

recovering those costs from responsible parties pursuant

to state and federal law, including CERCLA.

The circumstances surrounding NEPACCO provide

a good example. To recover its costs in responding to

contamination caused by NEPACCO’s wastes at Times

Beach, Missouri, the Minker/Stout/Romaine Creek site,

31. Under CERCLA, states must pay at least 10 percent of

the cost of many environmental cleanup activities conducted

within their borders and paid for by the Superfund. CERCLA §

104(c)(3)(C), 42 U.S.C. § 9604(c)(3)(C).

and the Russell Bliss farm site, the state of Missouri

has pursued claims against NEPACCO and others in three

lawsuits. See note 6, supra. NEPACCO is defunct,” and

the only known sources from which NEPACCO’s liability

to Missouri can be paid and the state’s fund replenished

are NEPACCO’s insurance policies.

As of January 1, 1988, 51 hazardous waste disposal

sites throughout the state of Missouri had been classified

as abandoned or uncontrolled hazardous waste disposal

sites pursuant to Missouri law.“ Like NEPACCO, the

liable parties at many of these sites are defunct and

their standard-form CGL insurance policies containing

the same provisions as NEPACCO’s are the only source

from which Missouri can recover even a portion of its

cleanup costs. Under the Eighth Circuit’s interpretation

of the term “damages” in the standard-form CGL insur-

ance policy, those potential sources of reimbursement

suddenly have evaporated.

The adverse effect of the Eighth Circuit’s decision

is not limited to the state of Missouri, or even to states

within the Eighth Circuit's jurisdiction. The Eighth Cir-

cuit’s factual finding that in the insurance context the

term “damages” has a narrow, technical meaning that

does not include governmental claims under CERCLA

for reimbursement of hazardous waste site cleanup costs

already is being cited by insurance companies through-

out the nation seeking to avoid providing coverage under .

the standard-form policies they issued to companies liable

32. See discussion at note 5, supra, and Appendix at A&8.

33. Section 260.440 R.S.Mo. (1986). See Confirmed Aban-

doned and Uncontrolled Hazardous Waste Disposal Sites in Mis-

souri, Fiscal Year 1987 Annual Report (Missouri Department of

Natural Resources 1988).

for such costs.** It is improper and unfair to allow to

stand the factual finding—undeveloped in the trial court

and unsupported by any record before the district court

or the Eighth Circuit—that in the insurance context there

is a narrow, technical “plain meaning” of the term “dam-

ages” that differs substantially from the term's broader,

ambiguous meaning to the public at-large.

CONCLUSION

There can be no doubt that the Eighth Circuit in

this action committed error. First, it leaped to an un-

supported—and unsupportable—factual conclusion that in

the insurance context the term “damages” has a nar-

row, technical meaning that does not include environ-

mental cleanup costs. Even if the Eighth Circuit had

been inclined to believe that “damages” should have a

specialized meaning in the insurance context, it is not

the role of the appellate court to hold that such a meaning

exists until presented with a trial court finding and with

testimony, documents and other evidence developed in

the trial court to support such a factual finding. The

Eighth Circuit should have remanded to the district court

for development of evidence to determine whether, in-

deed, there exists a narrow, specialized meaning of the

ee —

34. See, eg.. “Appellate Court Denies Cover for Cleanup

Costs,’ Business Insurance, March 7, 1988, pp. 1, 100 (statement of

Barry Ostrager). The potentially widespread effect of this decision

is demonstrated by noting that the U.S. Environmental Protection

Agency has listed or proposed for listing more than 1,000 haz-

ardous waste disposal) sites in al) fifty states on its National

Priorities List. a list of sites potentially eligible for cleanup with

money from the Superfund, 52 Fed. Reg. 27,620. et seq. (July

21, 1987). For a discussion of the pervasive nature of asserted

and potential claims based on hazardous waste site liability costs,

and the role of insurance coverage in helping to shoulder the

burdens of that liability, see Chesler, at note 21, supra.

term that differs from its broader, ambiguous meaning

to laypersons. Permitting appellate courts to affirm a

drastic remedy such as summary judgment on the basis

of a factual issue never presented to the trial court and

a factual finding unsupported by the record denies the

non-moving party the opportunity to respond to the fac-

tual issue in the proper forum. Such action circumvents

the basic principles of appellate review and renders

summary judgment a tool to unfairly and permanently

foreclose the opportunity to a full and fair hearing.

Second, the Eighth Circuit failed to follow the re-

quirements of the Erie doctrine. It did not apply the

Missouri rule of insurance policy construction under

which an insurance policy must be interpreted as a lay-

person would understand it. The Eighth Circuit con-

ceded that to a layperson the term “damages” is ambig-

vous and would include environmental cleanup costs.

Under the Missouri rule of insurance policy construction,

that finding should have ended the inquiry. Instead,

the court reached out to find and apply the laws of other

forums which rely on different rules of interpretation.

In so doing, the Eighth Circuit ignored the fundamental

principles set forth by this Court in Erie.

The cost of these errors is high. The rule established

by the Eighth Circuit denies the state of Missouri any

opportunity to replenish its hazardous waste remedial

fund for costs it has incurred for which NEPACCO is

responsible. Moreover, it adversely affects the ability

of Missouri, other state governments and the federal

government to secure reimbursement from proceeds of

CGL insurance policies with identical terms issued to

companies throughout the country.

WHEREFORE, the state of Missouri prays this Court

grant the state’s petition for certtoran to review the

Eighth Circuit’s judgment.

Respectfully submitted,

WILLIAM A. WEBSTER

Attorney General

MICHAEL L. Botcourt*

Chief Counsel,

Special Litigation Division

SHELLEY A. Woops

Assistant Attorney General

P.O. Box 899

Jefferson City. Missouri 65101

Attorneys for Petitioner

“Counsel of Record

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