# Appendix — Missouri v. Continental Insurance Cos.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1988
- **Citation:** 488 U.S. 821

## Text

87-19 53 | ~ Supveme Cour, U8

hfILRED

sVSGPH F. SPANIOL JR

In the Supreme Court of the United-Seaten___|

OCTOBER TERM, 1987

CONTINENTAL INSURANCE COMPANIES,
Plaintiff-Respondent,

VS.
NORTHEASTERN PHARMACEUTICAL AND

CHEMICAL COMPANY, INC., et al.,
Defendants,

and

STATE OF MISSOURI,
Intervenor-Petitioner.

APPENDIX TO
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
EIGHTH CIRCUIT

WILLIAM A. WEBSTER
Attorney General
MICHAEL L. Boicourt*
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

E. L. Menpenuatt, Inc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030

TABLE OF CONTENTS
Opinion, United States Court of Appeals, Eighth Cir-

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Opinion, United States Court of Appeals, Eighth Cir-
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Order, United States District Court, Western District
of Missouri, Southern Division (Filed June 25,
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Order, United States District Court, Western District
of Missouri, Southern Division (Filed June 26,
MIE hn = casera asscpeaodcdedneneahce ecphioaninac + as saleaebenpaenihaee A83
Order Denying Rehearing, United States Court of a
peals, Eighth Circuit (Filed May 4, 1988) _............... A84
Complaint for Declaratory Judgment (Filed February
Rg I ands aoe sataccanasencapeb on cn ak ovncconaiocoenshstuemadacal A85
Excerpts From Suggestions in Support of Plaintiff’s
Motion for Summary Judgment (Filed November

A Ne weenie neon sacic ie tiaap aati hastanrmieuatecucds A106
Agenda and Minutes - Meeting of the General Liability

Governing Committee - October 28, 1969 —.................. All5
Commercial General Liability Coverage Form ............ A120

Excerpts From Reporters’ Transcript of Proceedings
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Excerpts From Reporters’ Transcript of Proceedings
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APPENDIX
(Filed February 26, 1988)

UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT

No. 85-1940

Continental Insurance Companies,
Appellee,
V.
Northeastern Pharmaceutical & Chemical Company, Inc..
Milton Turkel, Edwin B. Michaels, and John W. Lee,
Appellees,

State of Missouri,
Intervenor-appellant.

Appeal from the United States District Court for the
Western District of Missouri

Submitted: May 12, 1987
Filed: February 26, 1988

Before LAY, HEANEY, ROSS,* McMILLIAN, FAGG,
BOWMAN, WOLLMAN, and MAGILL, Circuit Judges,
en banc.

McMILLIAN, Circuit Judge.

This is an appeal from an order entered in the Dis-
trict Court’ for the Western District of Missouri granting

*The Honorable Donald R. Ross, active Circuit Judge of
this court at the time this case was argued and submitted,
took senior status on June 13, 1987.

1. The Honorable Russell G. Clark, United States District
Judge for the Western District of Missouri.

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summary judgment in favor of Continental Insurance Cos.
(Continental) on count I of its complaint and on the
counterclaim filed by the state of Missouri and granting
Continental’s motion to dismiss without prejudice count
II of its complaint. Continental Insurance Cos. v. North-
eastern Pharmaceutical & Chemical Co., No. 84-5034-CV-
S-4, slip op. at 11, 16 (W.D. Mo. June 25, 1985) (herein-
after district court order). On appeal, a panel of this
court affirmed in part and reversed in part. Continental
Insurance Cos. v. Northeastern Pharmaceutical & Chem-
ical Co., 811 F.2d 1180 (8th Cir. 1987) (hereinafter panel
opinion).* Subsequently, the court granted the petitions
for rehearing en banc filed by Continental and the state.
815 F.2d 51 (1987).

For the reasons discussed below, we hold that the
term “damages” in the standard-form comprehensive gen-
eral liability (CGL) policy does not include cleanup costs
and accordingly affirm the order of the district court.

FACTUAL BACKGROUND

The following factual summary is taken in large part
from the panel opinion, 811 F.2d at 1182-84. A more
detailed statement of the factual background of the Denney
farm site can be found in the underlying liability deci-
sions, United States v. Northeastern Pharmaceutical &
Chemical Co., 579 F. Supp. 823 (W.D. Mo. 1984) (EPA),
aff'd in part, rev’d in part and remanded, 810 F.2d 726
(8th Cir. 1986), cert. denied, 108 S. Ct. 146 (1987).

2. The panel opinion was withdrawn and vacated by order
of the court when rehearing en banc was granted. The fol-
lowing discussion refers to and cites the panel opinion because
the analysis set forth in the panel opinion is necessary to an
understanding of the development of the issues.

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From 1970 to 1972 the Northeastern Pharmaceutical
& Chemical Co. (NEPACCO) manufactured hexachloro-
phene in a factory in Verona, Missouri. (NEPACCO ef-
fectively ceased doing business sometime in 1974.) The
manufacturing process produced a variety of hazardous
wastes, including the highly toxic chemical, dioxin. In
July 1971 NEPACCO disposed of about eighty-five 55-
gallon drums of hazardous wastes by burying them in
a trench on a farm near Verona (hereinafter the Denney
farm site). Many of the drums had deteriorated and
were in poor condition at the time of disposal; many broke
open when they were dumped into the trench. A strong
chemical odor persisted in the immediate area of the
Denney farm site for several months thereafter.

In 1971 or 1972 NEPACCO hired Independent Petro-
chemical Corp. (IPC) to dispose of more hazardous wastes
containing dioxin. IPC in turn hired Russell Bliss to
actually dispose of NEPACCO’s hazardous wastes. In
1971-1973 Bliss allegedly transported and sprayed the
hazardous wastes, mixed with waste oil, as a dust sup-
pressant on the grounds of the Bubbling Springs Stables
in Fenton, Missouri, and on the roads of Times Beach,
Missouri. In 1974 an individual named Minker bought
dirt contaminated with NEPACCO hazardous wastes from
the Bubbling Springs Stables to use as landfill on his
property located in nearby Imperial, Missouri (the
Minker/ Stout/ Romaine Creek site).

From 1970-1972 NEPACCO was insured under three
standard-form CGL insurance policies issued by Conti-
nental. The first policy was in effect from August 5,
1970, to August 5, 1971, the second policy from August 5,
1971, to August 5, 1972, and the third policy from Au-
gust 5, 1972, to November 17, 1972, when it was cancelled.

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Each policy was slightly different, but each provided
that Continental would

pay on behalf of the insured all sums which the
the insured shall become legally obligated to pay as
damages because of .. . property damage to which
this insurance applies caused by an occurrence, and
[Continental] shall have the right and duty to de-
fend any suit against the insured seeking damages
on account of such .. . property damage.

The policies defined “property damage” as

(1) Physical injury or destruction of tangible
property which occurs during the policy period, in-
cluding the loss of use thereof at anytime resulting
therefrom,

(2) Loss of use of tangible property which has
not been physically injured or destroyed provided
such loss of use is caused by an occurrence during
the policy period... .

The policies further provided that “[t]his insurance ap-
plies only to . . . property damage which occurs during
the policy period” and defined “occurrence” as “an acci-
dent, including continuous or repeated exposure to con-
ditions, injury or property damage neither expected nor
intended from the standpoint of the insured.” Only the
second and third policies contained the following pollu-
tion exclusion clause:

It is agreed that the insurance does not apply to...
property damage arising out of the discharge, dis-
persal, release or escape of smoke, vapors, soot, fumes,
acids, alkalis, toxic chemicals, liquids or gases, waste
materials or other irritants, contaminants or pollu-

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tants into or upon land, the atmosphere or any water-
course or body of water; but this exclusion does
not apply if such discharge, dispersal, release or es-
cape is sudden or accidental.

For general information about standard-form CGL insur-
ance policies, see American Home Products Corp. v.
Liberty Mutual Insurance Co., 565 F. Supp. 1485, 1500-03
(S.D.N.Y. 1983), aff'd as modified, 748 F.2d 760 (2d Cir.
1984), and Note, The Pollution Exclusion Clause Through
the Looking Glass, 74 Geo. L.J. 1237 (1986).

In 1980 the Environmental Protection Agency (EPA)
investigated the Denney farm site. The EPA took soil
and water samples and found “alarming[ly] high con-
“entrations of dioxin” and other toxic chemicals. EPA,
579 F. Supp. at 831. The EPA secured and then “cleaned
up” the Denney farm site. In August 1980 the federal
government filed a lawsuit (the EPA lawsuit) against
NEPACCO and others, seeking tement costs, pursuant
to § 7003(a) of the Resource ervation and Recovery
Act of 1976 (RCRA) (also known as the Solid Waste
Disposal Act), as amended, 42 USC. § 6973(a). In
August 1982 the federal government filed an amended
complaint adding claims for injunctive relief and reim-
bursement of its response costs pursuant to §§ 104, 106,
107 of the Comprehensive Environmental Response, Com-
pensation and Liability Act of 1980 (CERCLA) (com-
monly known as Superfund), 42 US.C. §§ 9604, 9606,
9607 (reauthorized and amended in part by the Super-
fund Amendments and Reauthorization Act of 1986, Pub.
L. No. 99-499, 100 Stat. 1613 (1986) (effective Oct. 17,
1986)).* We will use the descriptive term “cleanup costs”

3. The 1986 Superfund Amendments do not affect this
appeal.

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to refer to both “abatement costs” under RCRA and
“response costs” under CERCLA.

In January 1984 the district court held NEPACCO
and several other defendants, jointly and severally, strictly
liable for cleanup costs under CERCLA, but not RCRA.
EPA, 579 F. Supp. at 834-37, 839-52. On appeal, a panel
of this court affirmed in part, reversed in part and re-
manded the case to the district court for further pro-
ceedings. 810 F.2d at 749-50. The majority held that
the federal government could recover cleanup ‘costs under
both RCRA and CERCLA. Id. at 732-46. The dissent
did not agree that past non-negligent off-site generators
or transporters of hazardous waste could be held liable
for cleanup costs under the 1984 RCRA amendments or
that the corporate officer defendants could be held liable
for cleanup costs under RCRA as generators and trans-
porters. Id. at 750-51 (J.R. Gibson, J., dissenting in part).

The EPA lawsuit prompted the filing of several other,
related lawsuits, including the present case.

In March 1983 several former residents of the com-
munities of Times Beach and Imperial filed an action in
Missouri state court against NEPACCO and other defen-
dants, seeking damages for present and future personal!
injury and property damage allegedly caused by the trans-
portation and spreading of hazardous wastes and dirt,
contaminated by dioxin and other toxic chemicals produced
by NEPACCO, on the roads of Times Beach and at the
Minker/ Stout/ Romaine Creek site. The plaintiffs also
sought recovery of the costs of cleaning up the contamin-
ated sites and punitive damages but asserted no RCRA or
CERCLA claims. Capstick v. Independent Petrochemical
Corp., No. 832-00453 (Mo. Cir. Ct. filed Mar. 7, 1983)
(Capstick).

AZ7

In November 1983 the state filed a lawsuit in federal
district court against NEPACCO and other defendants,
seeking declaratory judgment and recovery of present and
future response costs, pursuant to CERCLA and the com-
mon law of public nuisance, in connection with the state’s
cleanup of the Minker/ Stout/ Romaine Creek site. Mis-
souri v. Independent Petrochemical Corp., No. 83-2670-C
(E.D. Mo. filed Nov. 23, 1983) (IPC).

Somewhat later, in February 1985 the federal govern-
ment filed a garnishment action in federal district court
against Continental, as NEPACCO’s liability insurer, to
collect the CERCLA cleanup costs the federal government
had been awarded in the EPA lawsuit. United States v.
Continental Insurance Cos., No. 85-3069-CV-S-4 (W.D. Mo.
filed Feb. 25, 1985) (garnishment action). Discovery was
consolidated in the garnishment action and in the IPC
lawsuit. On June 25, 1985, the same day judgment was
entered in the case on appeal, the district court also entered
judgment in favor of Continental in the garnishment ac-
tion. The district court later granted the federal govern-
ment’s motion for reconsideration and the case was held in
abeyance pending disposition of the EPA appeal.

In the meantime, in February 1984 Continental filed
this action seeking a declaratory judgment concerning its
liability to NEPACCO arising out of the underlying EPA
and Capstick lawsuits. Continental Insurance Cos. v.
NEPACCO, No. 84-5034-CV-S-4 (E.D. Mo. filed Feb. 9,
1984). Count I sought deciaratory judgment concerning
the federal government’s EPA lawsuit (cleanup costs for
the Denney farm site); count II sought declaratory judg-
ment concerning the Capstick lawsuit (cleanup costs and
damages for personal injury and property damage in Times
Beach and at the Minker/ Stout/ Romaine Creek site).
NEPACCO and the other defendants failed to enter an

A8

appearance or file an answer. As noted earlier, in 1974
NEPACCO had ceased operations; its corporate assets had
been liquidated and the proceeds distributed to its share-
holders. Thus, by 1984 NEPACCO had been “defunct”
for ten years. In November 1984 Continental moved for
summary judgment.

In December 1984 the state filed a motion for leave to
intervene in the present case in order to protect its in-
terests in its related IPC lawsuit. In January 1985 the
district court granted the state’s motion to intervene, and
the state filed an answer and a counterclaim alleging that
Continental, as NEPACCO’s liability insurer, was obli-
gated to indemnify NEPACCO for anv judgment against
NEPACCO in the IPC lawsuit. In March 1985 the state
filed suggestions in opposition to Continental’s motion for
summary judgment. Continental later filed a motion to
dismiss count II without prejudice; the state filed sug-
gestions in opposition.

DISTRICT COURT DECISION

In June 1985 the district court granted summary judg-
ment in favor of Continental on count I (no liability in-
surance coverage for Denney farm site cleanup costs sought
in the EPA lawsuit) and on the state’s counterclaim (no
liability insurance coverage for cleanup costs for the
Minker/ Stout/ Romaine Creek site sought in the IPC
lawsuit). First, the district court held that, under Mis-
souri law, the time of an “occurrence” is the time the loss
or damage is sustained, not the time the wrongful act is
committed. District court order at 8 (citations omitted).
The district court held that the claims for cleanup costs
were not claims for compensation for “property damage.”
Id. at 10. Although the wrongful acts occurred in 1971-

A9

1973, when the policies were in effect, cleanup costs were
not incurred until 1980 and 1982, many years after the
policies expired. The district court held that the federal
and state governments did not suffer any “loss” or “dam-
age” until the cleanup costs were actually incurred. Id.
Thus, because there was no “occurrence” of loss or prop-
erty damage during the policy periods, the district court
held there was no coverage. Id. at 11.

The district court also decided that summary judgment
was not appropriate on count II, with respect to the Cap-
stick lawsuit, because more information was necessary in
order to determine whether there was an “occurrence” of
bodily injury or property damage, or both, within the
policy periods and whether the pollution exclusion applied,
and granted Continental’s motion to dismiss without prej-
udice count II of its complaint. Id. at 11-17. The state
appealed.

PANEL DECISION

The panel decision reversed in part and affirmed in
part. The majority first held the policy definition of
“property damage” included contamination of the envi-
ronment by hazardous wastes, 811 F.2d at 1184-87, and
rejected Continental’s argument that any “injury” suf-
fered by the federal and state governments from envi-
ronmental pollution constituted only economic loss. Id.
at 1184-89. The majority held that, in addition to the
actual owners of the polluted land, water or air, the
federal and state governments also sustained “property
damage” “because of their ‘|quasi-sovereign] interest [in
natural resources] independent of and behind the titles
of its citizens in all the earth and air within [their]

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domain.’”’ Id. at 1187 & n.17, citing Georgia v. Tennessee
Copper Co., 206 U.S. 230, 237 (1907).

The majority also expressly rejected the argument
raised by amicus curiae American Insurance Association
(AIA) that even if environmental contamination had
caused “property damage,” cleanup costs under CERCLA
§ 107(a) (4)(A), 42 U.S.C. § 9607(a)(4)(A), were not
in themselves recoverable as “damages.” 811 F.2d at
1187-90. The majority reviewed the policy language and
the statutory language and concluded that “cleanup costs
under CERCLA are compensatory damages for ‘property
damage’ within the meaning of the CGL policies.” Id.
at 1189 & n.21; see also id. at 1187-88 & n.17 (citing cases).
Cf. EPA, 810 F.2d at 737-40 (abatement costs under
RCRA § 7003(a), 42 U.S.C. § 6973(a)).

The remaining issue was whether there had been an
“occurrence” of “property damage” during the period
when the policies were in effect. Although the wrongful
acts allegedly occurred during the early 1970’s, the federal
and state governments did not actually incur any cleanup
costs until the early 1980’s, many years after the third
and last policy had been cancelled. The majority dis-
agreed with the district court’s view that the federal and
state governments did not suffer any loss or damage until
cleanup costs were actually incurred. 811 F.2d at 1190-91
& n.28 (distinguishing Kirkham, Michael & Assocs. v.
Travelers Indemnity Co., 361 F. Supp. 189 (D.S.D. 1973),
aff'd, 493 F.2d 475 (8th Cir. 1974) (per curiam)). The
majority predicted that Missouri courts would follow the
majority view and adopt the “exposure” theory of cov-
erage, 811 F.2d at 1191-92 & n.29, and accordingly held
that “environmental damage occurs at the moment that

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hazardous wastes are improperly released into the envi-
ronment and that a liability policy in effect at the time
this damage is caused provides coverage for the subse-
quently incurred costs of cleaning up the wastes.” Id.
at 1189 (footnotes omitted).

Applying the “exposure” theory, the majority deter-
mined that “property damage” occurred at the Denney
farm site in July 1971, when the first CGL pSlicy was
in effect, when NEPACCO improperly disposed of the
hazardous wastes by dumping the barrels in the trench.
Id. at 1191. Accordingly, the majority reversed the grant
of summary judgment in favor of Continental on count I
and remanded for further proceedings to determine
whether Continental was liable to indemnify NEPACCO
for the award of cleanup costs in the EPA lawsuit. Id.
at 1192.

Because contaminated dirt from the Bubbling Springs
Stable was not used as landfill at the Minker/ Stout/
Romaine Creek site until 1974, two years after the third
CGL policy had been cancelled, the majority held that
Continental was under no duty to defend or indemnify
NEPACCO for liability arising out of the IPC lawsuit
and affirmed the grant of summary judgment in favor
of Continental on the state’s counterclaim. Id. Finally,
the majority agreed with the district court that factual
issues in the Capstick lawsuit precluded summary judg-
ment and affirmed the district court’s dismissal without
prejudice of count II. Id. at 1193.

The dissent disagreed with the panel majority only
on the issue of whether cleanup costs are “damages”
within the meaning of the CGL policies. Id. at 1193-95
(MeMillian, J., concurring in part and dissenting in part).

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REHEARING EN BANC

Both Continental and the state filed petitions for
rehearing en banc. Both petitions for rehearing en banc
were granted, and the parties, and several amici curiae,
including the federal government, several “hazardous
waste generators,” the AIA, and several other insurers,
filed supplemental briefs.

For reversal the state argues that (1) the district
court erroneously held “property damage’ did not occur
until the federal and state governments actually incurred
cleanup costs; (2) the plain meaning of the policy term
“damages” includes “equitable” monetary relief such as
cleanup costs or, alternatively, the policy term “damages”
is ambiguous and should be construed against the insurer
to include payment of cleanup costs; (3) cleanup costs
are merely a measurement of “damages” for “property
damage,” and the characterization of cleanup costs as
equitable for purposes of seventh amendment analysis
is inapplicable to questions involving insurance coverage;
and (4) finally, the public interest in mitigating envi-
ronmental pollution and cleaning up hazardous waste sites
strongly supports imposing liability for the cleanup costs
on the polluters and their insurers. The state also argues
that, although it is not necessary to reach the “trigger’’
of coverage issue on appeal, if the court reaches that
issue, Missouri courts would adopt the “injury-in-fact”
theory, not the “exposure” theory.

Continental argues that (1) the district court cor-
rectly held that “property damage” did not occur until
the federal and state governments actually incurred
cleanup costs; (2) cleanup costs are equitable costs, not
legal “damages,” and thus are not recoverable under the

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CGL policies; and (3) cleanup costs constitute economic
losses, not “property damage,” and thus are not recover-
able under the CGL policies. Continental agrees with
the state that it was not necessary to reach the “trigger”
of coverage issue, but argues that if the court reaches
that issue, there was no “occurrence” of property damage
within the policy periods because cleanup costs were not
incurred until sometime in 1980 at the earliest.

The amici curiae have advanced similar arguments.
The federal government filed an amicus brief in support
of the state, arguing that (1) for purposes of insurance
coverage, “property damage” occurs at the time of injury
or physical damage to the property itself, not at the time
cleanup costs are incurred, and (2) under Missouri law
cleanup costs are “damages’’ which NEPACCO is legally
obligated to pay because of “property damage.” Several
“hazardous waste generators” also filed an amicus brief
in support of the state, arguing that insurers are liable for
cleanup costs because such costs are “damages.” The AIA
and several London insurance underwriters filed amicus
briefs in support of Continental, arguing that, under the
CGL policies in question, (1) cleanup costs are not legal
“damages” and (2) cleanup costs constitute only economic
losses, not “property damage.”

The dispositive issue is whether the term “damages”
in the standard-form CGL policy includes cleanup costs.
We need not reach the other issues raised on appeal, such
as whether environment contamination caused by improper
disposal of hazardous wastes constitutes “property damage”
or whether Missouri would adopt the “exposure” theory
of coverage. However, we agree that environmental con-
tamination caused by improper disposal of hazardous
wastes can constitute “property damage.” See~ Port of

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Portland v. Water Quality Insurance Syndicate, 796 F.2d
1188, 1195-96 (9th Cir. 1986) (oil pollution of water con-
stitutes damage to tangible property); Maryland Casualty
Co. v. Armco, Inc., 643 F. Supp. 430, 433 (D. Md.) (holding
toxic waste dumps that contaminate the environment
cause “property damage”; also distinguishing ‘property
damage” from “damages”), aff'd, 822 F.2d 1348 (4th Cir.
1987), petition for cert. filed, 56 U.S.L.W. 3368 (U.S. Nov.
2, 1987) (No. 87-744); Lansco, Inc. v. Department-of_En-
vironmental Protection, 138 N.J. Super. 275, 350 A.2d 520,
524 (Ch. Div. 1975) (oil spill into water caused damage
to identifiable physical property), aff'd, 145 N.J. Super.
433, 368 A.2d 363 (App. Div. 1976), cert. denied, 73 N.J.
57, 372 A.2d 322 (1977); Kutsher’s Country Club Corp. v.
Lincoln Insurance Co., 119 Misc. 2d 889, 465 N.Y.S.2d
136, 139 (Sup. Ct. 1983) (oil spill into water constituted
property damage). But see Mraz v. Canadian Universal
Insurance Co., 804 F.2d 1325, 1328-29 (4th Cir. 1986)
(governmental claims for cleanup costs are not claims
for damages due to “property damage’), rev’g Mraz v.
American Universal Insurance Co., 616 F. Supp. 1173, 1177
(D. Md. 1985).

We also agree that Missouri would probably adopt the
“exposure” theory of coverage. See, e.g., Hawkeye-
Security Insurance Co. v. Iowa National Mutual Insurance
Co., 567 S.W.2d 719, 720 (Mo. Ct. App. 1978), citing Kirch-
ner v. Hartford Accident & Indemnity Co., 440 S.W.2d
751 (Mo. Ct. App. 1969); Kissel v. Aetna Casualty &
Surety Co., 380 S.W.2d 497, 509 (Mo. Ct. App. 1964). How-
ever, application of either the “exposure” or “injury-in-
fact” theory of coverage would make little difference be-
cause of the specific facts presented in the EPA and IPC
cases. Cf. Abex Corp. v. Maryland Casualty Co., 252 U.S.
App. D.C. 297, 790 F.2d 119, 125 (1986) (asbestos tort

=

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cases; following “injury-in-fact” theory adopted in Amer-
ican Home Products Corp. v. Liberty Mutual Insurance
Co., 748 F.2d 760, 765 (2d Cir. 1984) (coverage triggered
when injury actually occurs during policy period, whether
or not diagnosable during policy period)). Under the
specific facts presented, the crucial events—the improper
disposal of the hazardous wastes (wrongful act), the re-
lease of hazardous wastes into the environment (exposure),
the contamination of the environment (injury-in-fact)—all
happened virtually simultaneously. For example, in the
EPA case, the improper disposal of the hazardous wastes
immediately resulted in their release into the environment
in July 1971. Because by definition hazardous wastes are
extremely harmful, there was clearly both “exposure” and
“injury-in-fact” during the first policy period. In the
IPC case the contaminated dirt was not used as landfill
at the Minker/ Stout, Romaine Creek site until 1974, and
thus there was no exposure or injury-in-fact until after
the expiration of the third policy period. But cf. Eagle-
Picher Industries, Inc. v. Liberty Mutual Insurance Co.,
523 F. Supp. 110 (D. Mass. 1981), modified, 682 F.2d 12,
17 (1st Cir. 1982) (“manifestation” theory; coverage trig-
gered if asbestos-related disease became “reasonably
capable of medical diagnosis” during policy period), cert.
denied, 460 U.S. 1028 (1983).

As a threshold matter, the state argues that we should
not consider the “damages’”’ issue because it was raised by
the AIA on appeal and was not raised by a party until
Continental filed its supplemental brief for rehearing en
bane. Ordinarily, we consider only issues argued in the
briefs filed by the parties and not those argued in the
briefs filed by interested nonparties. See, e.g., Preserva-
tion Coalition, Inc. v. Pierce, 667 F.2d 851, 861-62 (9th Cir.
1982). Nonetheless, we can consider issues not raised in

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the briefs or in oral argument, particularly when substan-
tial public interests are involved. See, e.g., Consumers
Union v. FPC, 166 U.S. App. D.C. 276, 510 F.2d 656, 662
& nn.9-10 (1974) (per curiam on petition for rehearing).

The “damages” issue is properly before the court en
bane. It was expressly raised by the AIA in its initial
amicus brief, and the state responded to the AIA’s argu-
ment in its reply brief. The “damages” issue was con-
sidered and discussed at length by the panel majority,
811 F.2d at 1187-89, and the panel dissent, id. at 1193-95,
and in fact was the only point of significant disagreement
between the majority and dissenting opinions. Moreover,
the broad issue of the availability of liability insurance
coverage under standard-form CGL policies for the costs
of cleaning up hazardous waste sites is a question of sub-
stantial importance not only to liability insurers and their
insureds, but to the public as well.

This case involves the construction of standard-form
CGL insurance policies. “An insuring obligation is a
contract, and coverage exists only if assumed by the
terms of the policy.” Aetna Casualty & Surety Co. v.
Hanna, 224 F.2d 499, 503 (Sth Cir. 1955) (Hanna). The
district court correctly applied the law of Missouri, the
forum state. See Klaxon Co. v. Stentor Electric Manu-
facturing Co., 313 U.S. 487 (1941). Missouri has adopted
the most significant relationship test set forth in the Re-
statement (Second) Conflict of Laws § 188 (1971). See
American Institute of Marketing Systems, Inc. v. Brooks,
469 S.W.2d 932 (Mo. Ct. App. 1971) (contracts), and is
the state with the most significant contacts with the
parties and the CGL policies. See, e.g., Havenfield Corp.
v. H & R Block, Inc., 509 F.2d 1263, 1267-68 (8th Cir.),
cert. denied, 421 U.S. 999 (1975).

Al7

Under Missouri law

[t]he rules of construction applicable to insurance
contracts require that the language used be given
its plain meaning. If the language is unambiguous
the policy must be enforced according to such lan-
guage. If the language is ambiguous it will be con-
strued against the insurer. Language is ambiguous
if it is reasonably open to different constructions;
and language used will be viewed in light of “the
meaning that would ordinarily be understood by the
lay[person] who bought and paid for the policy.”

Robin v. Blue Cross Hospital Service, Inc., 637 S.W.2d
695, 698 (Mo. 1982) (banc) (citations omitted); see also
Pearce v. General American Life Insurance Co., 637 F.2d
536, 539 (8th Cir. 1980) (Missouri law); Bellamy v.
Pacific Mutual Life Insurance Co., 651 S.W.2d 490, 495-96
(Mo. 1983) (banc).

Case law on this issue is sharply divided. Compare
Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352-55
(under Maryland law, holding “damages” does not cover
cleanup costs; citing cases), with New Castle County v.
Hartford Accident & Indemnity Co., No. 85-436, slip op.
at 13-17 (D. Del. Nov. 2, 1987) (under Delaware law,
holding “damages” covers cleanup costs; citing cases).
For the reasons discussed below, we hold that the term
“damages” is not ambiguous in the insurance context
and that the plain meaning of the term “damages” used
in the CGL policies refers to legal damages and does
not cover cleanup costs.

Viewed outside the insurance context, the term ‘‘dam-
ages” is ambiguous: it is reasonably open to different
constructions. Webster’s Third New International Dic-

Al8

tionary 571 (1971) defines “damages” as “the estimated
reparation in money for detriment or injury sustained:
compensation or satisfaction imposed by law for wrong
or injury caused by a violation of a legal right.” The
dictionary definition does not distinguish between legal
damages and equitable monetary relief. E.g., New Castle
County v. Hartford Accident & Indemnity Co., No. 85-436,
slip op. at 16. Thus, from the viewpoint of the lay in-
sured, the term “damages” could reasonably include all
monetary claims, whether such claims are described as
damages, expenses, costs, or losses.

In the insurance context, however, the term “dam-
ages” is not ambiguous, and the plain meaning of the
term “damages” as used in the insurance context refers
to legal damages and does not include equitable monetary
relief. See Maryland Casualty Co. v. Armco, Inc., 822
F.2d at 1352. The CGL policies require Continental to
“pay on behalf of the insured all sums which the insured
shall become legally obligated to pay as damages because
of .. . property damage to which this insurance applies
caused by an occurrence.” (Emphasis added.) “The obli-
gation of the insurer to pay is limited to ‘damages,’ a
word which has an accepied technical meaning in law.”
Hanna, 224 F.2d at 503. Although not defined in the
CGL policies, “{t]he 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.” Maryland
Casualty Co. v. Armco, Inc., 643 F. Supp. at 432, citing
Haines v. St. Paul Fire & Marine Insurance Co.. 428 F-.
Supp. 435, 439-41 (D. Md. 1977) (applying Maryland
law), Hanna, 224 F.2d at 503-04, and Descrochers v. New
York Casualty Co., 99 N.H. 129, 106 A2d 196. 198-99

Al9

(1954). But see, e.g., New Castle County v. Hartford
Accident & Indemnity Co., No. 85-436, slip op. at 13-17
(applying Delaware law; citing cases); United States
Aviex Co. v. Travelers Insurance 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) (citing cases).

This limited construction of the term “damages” is
consistent with the provision defining the insurer’s obli-
gation as a whole. Continental did not agree to pay “all
sums which the insured shall become legally obligated
to pay.” Continental agreed to pay “all sums which
the insured shall become legally obligated to pay as
damages.” The expansive reading of the term “damages”
urged by the state would render the term “all sums”
virtually meaningless. “If the term ‘damages’ is given
the broad, boundless connotations sought by the [insured],
then the term ‘damages’ in the contract . . . would be-
come mere surplusage, because any obligation to pay
would be covered. The limitation implied by employ-
ment of the phrase ‘to pay as damages’ would be oblit-
erated.” Maryland Casualty Co. v. Armco, Inc., 822 F.2d
at 1352.

Such a limited construction of the term “damages” is
also consistent with the distinction drawn in insurance
law between money damages and injunctive relief. “Tra-
ditionally, 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.”
Maryland Casualty Co. v. Armco, Inc., 643 F. Supp. at 434.
See also Hanna, 224 F.2d at 503-04; Garden Sanctuary, Inc.
v. Insurance Co. of North America, 292 So. 2d 75, 77-78
(Fla. Ct. App. 1974); Ladd Construction Co. v. Insurance

A20

Co. of North America, 73 Ill. App. 3d 43, 29 Ill. Dec. 305,
307-08, 391 N.E.2d 568, 570-73 (1979).

The limited construction of the term “damages” is also
consistent with the statutory scheme of CERCLA §107(a)
(4), 42 U.S.C. §9607(a) (4), which differentiates between
cleanup costs and damages. Under CERCLA cleanup costs
are not substantially equivalent to compensatory damages
for injury to or destruction of the environment. Some
cases have overlooked the difference between recovery of
cleanup costs under CERCLA § 107(a)(4)(A) (by govern-
ments), (B) (by “any other person’’), 42 U.S.C. § 9607(a)
(4)(A), (B), and recovery of damages for injury, de-
struction or loss of natural resources under CERCLA
§ 107(a) (4)(C), 42 U.S.C. § 9607(a)(4)(C). For example,
in United States Aviex Co. v. Travelers Insurance Co.,
336 N.W.2d at 843 (citations omitted), the court was
persuaded that the distinction between recovery of cleanup
costs and recovery of damages for damage to natural re-
sources was “merely fortuitous from the standpoint of
either [the insured} or [the insurer].” The court rea-
soned that whether the government chooses to cleanup
the pollution itself and then sue to recover its cleanup
costs, or sues to recover damages for the damage to natural
resources, “|t|he damage ‘o the natural resources is simply
measured in the cost to restore the [environment] to its
original state,” and rejected the argument that the term
“damages” should be limited to legal damages and should
not include equitable costs. Id.

Moreover, the distinction between recovery of cleanup
costs and recovery of damages is not “merely fortuitous”
to either the insured as a CERCLA and RCRA defendant
or to the insurer. The cost of cleaning up a hazardous
waste site often exceeds its original value. On the other

A21 -

hand, some natural resources are of exceptional value and
their destruction could greatly exceed the cost of cleaning
up any hazardous waste contamination. A _ significant
difference between the measurement of liability for
cleanup costs and for damage to natural resources could
determine whether the government sues for cleanup costs
or for damages. See Maryland Casualty Co. v. Armco,
Inc., 822 F.2d at 1353, citing Peevyhouse v. Garland Coal
& Mining Co., 382 P.2d 109 (Okla. 1962) (restoration of
strip-mined land cost four times its potential value),
cert. denied, 375 U.S. 906 (1963); cf. Jack L. Baker Cos.
». Pasley Manufacturing & Distributing Co., 413 S.W.2d
268, 273-74 (Mo. 1967) (under Missouri law, measure of
damages to real property is lesser of either difference in
value before and after injury or cost of restoring property
to original condition).

Whether the government seeks recovery of cleanup
costs, damages for destruction or loss of natural resources,
or both, may make little difference to the insured as a
CERCLA or RCRA defendant. As noted above, there may
be little difference between the dollar amount the insured
may have to pay as cleanup costs under CERCLA § 107(a)
(4)(A), 42 U.S.C. § 9607(a) (4) (A), and the dollar amount
the insured may have to pay as damages under CERCLA
£ 107(a)(4)(C), 42 U.S.C. § 9607(a)(4)(C). Nonethe-
less, the type of relief sought is critical to the insured and
the insurer, because under the CGL policies the insurer
is liable only for legal damages, not for equitable mone-
tary relief, such as cleanup costs. “The insurance con-
tract, which controls the obligations between the parties
and therefore centers the focus of this court, is written in
terms of the relief sought... .”’ Maryland Casualty Co.
v. Armco, Inc., 822 F.2d at 1352. Here, the federal and
state governments seek recovery of cleanup costs under

EO ee

A22

CERCLA § 107(a)(4)(A), 42 U.S.C. § 9607(a) (4) (A)
(costs of removal or remedial action), and RCRA § 7003
(a), 42 U.S.C. § 6973(a) (abatement costs). These law-
suits are essentially equitable actions for monetary relief
in the form of restitution or reimbursement of costs. See
Maryland Casualty Co. v. Armco, Inc., 822 F.2d at 1352-53:
cf. EPA, 810 F.2d at 749 (for purposes of determining
seventh amendment jury trial issue; cases cited). The
federal and state governments have not sought recovery
of “damages for injury to, destruction of, or loss of natural
resources,” pursuant to CERCLA § 107(a)(4)(C), 42
U.S.C. § 9607(a) (4)(C).

Accordingly, we hold that the federal and state govern-
ments’ claims for cleanup costs under CERCLA § 107(a)
(4) (A), 42 U.S.C. § 9607(a) (4) (A), and RCRA § 7003(a),
42 U.S.C. § 6973(a), are not claims for “damages” under
these CGL policies.

The issues in the Capstick litigation require additional
factfinding and analysis and are therefore unsuitable for
summary disposition. The private individuals in Capstick
seek, in part, recovery of damages for personal injury
and property damage due to the improper disposal of haz-
ardous wastes. Cf. CERCLA § 107(a)(4)(C) (damages
for damage to natural resources), 42 U.S.C. § 9607(a) (4)
(C). These claims are claims for “damages,” not cleanup
costs, and are covered within the terms of the CGL policies.
We express no opinion on the issue of the insurer’s lia-
bility for claims for damages under the CGL policies.

The order of the district court is affirmed.

A23

HEANEY, Circuit Judge, with whom LAY, Chief Judge,
and FAGG, Circuit Judge, join, concurring and dis-
senting.

The majority opinion appears to be consistent with
the panel opinion of this Court, Continental Ins. Co. v.
Northeastern Pharmaceutical and Chem. Co., 811 F.2d
1180, 1189 (8th Cir. 1987), in all respects, save one. The
panel held that under Missouri law the term “damages’”’
in the standard-form comprehensive general liability
(CGL) policy includes clean-up costs. Id. at 1189. The
majority now disregards established Missouri law and
holds to the contrary.

We all agree that the question whether clean-up
costs are “damages” within the meaning of a CGL policy
is an issue of Missouri law. We also agree that under
Missouri law:

The rulesNof construction applicable to insurance
contracts require that the language used be siven
its plain meaning. If the language is unambiguous
the policy must be enforced according to such lan-
guage. If the language is ambiguous it will be con-
strued against the insurer. Language is ambiguous
if it is reasonably open to different constructions;
and language used will be viewed in light of “the
meaning that would ordinarily be understood by the
layman who bought and paid for the policy.”

Robin v. Blue Cross Hosp. Serv., Inc., 637 S.W.2d 695,
698 (Mo. 1982) (en banc) (citations omitted) (quoting
Stafford v. Travelers Ins. Co., 530 S.W.2d 23, 25 (Mo.
Ct. App. 1975)).

A24

Indeed, as this Court has pointed out, Missouri courts:

do not necessarily accept the construction accorded
to policy terms by astute insurance specialists or
perspicacious counsel but rather are concerned with
the meaning which the ordinary insured of average
intelligence and common understanding reasonably
would give to the words or language under consid-
eration.

McMichael v. American Ins. Co., 351 F.2d 665, 669 (8th
Cir. 1965) (quoting Hammontree v. Central Mut. Ins. Co.
385 S.W.2d 661, 666-67 (Mo. Ct. App. 1965)).

The majority concedes on page 16:

[Fjrom the viewpoint of the lay insured, the term
“damages” could reasonably include all monetary
claims, whether such claims are described as dam-
ages, expenses, costs, or losses.

Majority opinion at 16.

This concession should be dispositive. The Missouri
court en banc has unequivocally held that the language
of an insurance policy must be viewed in the light of
the meaning that would ordinarily be understood by the
lay person who bought and paid for the policy. Robin,
637 S.W.2d at 698.

The CGL policy does not define “damages.” If the
insurer wished to use a technical legal meaning for that
term which differed from the accepted dictionary defini-
tion, it should have explicitly done so. Thus. to the
extent the word “damages” is open to different con-
structions, it must be accorded the meaning ordinarily
given it by the lay person who bought and paid for

the policy.

ieee etait a

A25

Not surprisingly, the majority cites no Missouri case
under which this Court may ignore the lay definition
of “damages” and substitute in its place a “technical in-
surance” definition. Instead, the majority rejects the
dictionary definition of “damages” on the ground that
in the insurance context the word has a technical meaning
which does not include the cost of restoring real property
to the pre-damage condition. While this may be justified
under the law of some states, it certainly is not under
Missouri law. The legal definition of “damages” under
Missouri law, assuming we were free to recognize that
definition, includes the cost of restoring real property
to its pre-damaged condition. Jack L. Baker Companies,
Inc. v. Pasley Mfg. and Distribut. Co., 413 S.W.2d 268,
273 (Mo. 1967).

The majority finally argues that black letter insur-
ance law holds that claims for equitable relief “are not
claims for “damages” under liability insurance contracts.
It cites Maryland Casualty Co. v. Armco, Inc., 643 F.
Supp. 430, 432 (D. Md. 1987) (citing Haines v. St. Paul
Fire & Marine Insurance Co., 428 F. Supp. 435, 439-41
(D. Md. 1977) (applying Maryland law); Aetna Casualty
& Surety Co. v. Hanna, 224 F.2d 499, 503-04 (5th Cir.
1955); and Desrochers v. New York Casualty Co., 99
N.H. 129, 106 A.2d 196, 198-99 (1954)), in support of
this proposition. Then, with the candor that one expects
from one’s colleagues, the majority cites a number of
cases to the contrary: New Castle County v. Hartford
Accident & Indemn. Co., 673 F. Supp. 1359 (D. Del. 1987)
(applying Delaware law); United States Aviex Co. v.
Travelers Insurance Co., 125 Mich. App. 579, 336 N.W.2d
838, 843 (1983); Broadwell Realty Services, Inc. v. Fidel-
ity & Casualty Co.. 218 N.J. Super. 516, 528 A.2d 76, 82-83

A26

(App. Div. 1987) (citing cases). In view of the clear
conflict, we doubt that the term “black letter law” is
appropriate.’

The majority places great reliance on Aetna Casualty
and Surety Company v. Hanna, 224 F.2d 499 (5th Cir.
1955). The case is of doubtful applicability. It simply
holds that under Florida law an insurance company can-
not be required to defend an action in equity seeking
an injunction to prevent the insured from allowing con-
tinuing deposits of boulders, trash and dirt on another’s
land. It did not decide whether the insurer would have
been required to reimburse the insured if a judgment
for damages had been rendered. In so holding, the Fifth
Circuit noted that in Florida the measure of damages
is the difference in the property value before and after
a trespass. In the case before the Fifth Circuit, the Court
found no evidence of a dimunition in value as a result
of the trespass. Thus, the sole meaningful remedy avail-
able was injunctive relief. See Id. at 503.

Missouri has not adopted this inflexible rule. It rather
permits a plaintiff to recover, as damages, the cost of re-
storing real property to its pre-damaged condition. Jack
L. Baker, 413 S.W.2d at 273.

The majority concludes that because state courts are
divided on the question of whether recovery may be had
from an insurance company for the cost of restoring prop-
erty, it is free to choose what it feels is the better rule.
The fact of the matter, however, is that the Missouri courts
have clearly held that the cost of restoring real property

1. “Black letter law” is “an informal term indicating the
basic principles of law generally accepted by the courts and/or
embodied in the statutes of a particular jurisdiction.” Black’s

Law Dictionary 154 (5th ed. 1979).

A27

is the proper measure of damages where the cost of clean-up
does not exceed the value of the property interest damaged.
Id.

Here, there is no doubt that the cost of cleaning up
and abating environmental damage at the Denny farm site
is less than the value of the damage to the government’s
property interest in the environmental resources damaged.
Thus, Baker controls. (Moreover, were there any doubt
on this issue, we should remand to the district court for
a determination of the issue.)

The majority is also clearly in error when it states
that the limited construction that it gives to the term
“damages” is consistent with the statutory scheme of
CERCLA, § 107(a)(4). 42 U.S.C. § 9607(a)(4). In so
holding, it relies on Maryland Casualty Co. v. Armco, Inc.,

822 F.2d 1348 (4th Cir. 1987), cert. denied, ........ 8 AAO ;
56 L.W. 3460 (Jan. 11, 1988). There, the Fourth Circuit
stated:

Judicial decisions, although not rejecting the rule
of construction that terms of an insurance contract are
to be given their ordinary meaning, have nevertheless
limited the breadth of the definition of “damages”
somewhat more narrowly than the appellant suggests,
“Damages,” as distinguished from claims for injunctive
or restitutionary relief, includes “only payments to
third persons when those persons 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
meaning in law.” Hanna, 224 F.2d at 503. Maryland
law, which governs the construction of this agreement,

A28

has similarly adopted the somewhat narrow, tech-
nical definition of damages.

Id. at 1352.

It is clear that reliance on Armco is misplaced because
Maryland law is inconsistent with established Missouri
law. Under Maryland law, the term “ ‘damages’ is to be
construed in consonance with its” somewhat narrow tech-
nical definitior. of “damages”. Id. In Missouri, on the
other hand, we must accord the term the meaning that
lay persons would give it.”

2. It is an interesting sidelight to this case that in applying
Maryland law and finding for the insurer, the Armco court
noted another action involving damage to property in the same
vicinity as that involved in his case. In that action, Judge
Scott O. Wright of he United States District Court for the
Western District of Missouri appointed a special master, Pro-
fessor Robert H. Freilich, of the University of Missouri at Kansas
City, to help resolve the litigation. See Maryland Casualty Co.
v. Armco, Inc., 643 F. Supp. 430, 432-33 (D. Md. 1986) (citing
United States v. Conservation Chem. Co., 653 F. Supp. 152 (W.D.
Mo. 1986). After hearing the matter, Freilich stated that the
government's complaint (similar to the complaint in this case)
alleged “damages” for purposes of a comprehensive general lia-
bility policy. Judge Wright entered an order adopting the
special master’s recommendation, thus indicating his view as
to the proper interpretation of the term “damages” in a com-
prehensive general liability policy such as the one at issue in
this case. The Maryland court, in adopting a narrow technical
definition of the term damages, noted that Judge Wright’s order
was vacated as to Maryland Casualty and two other insurers
because they had entered into a settlement before the order
was entered. Id. at 432.

More recently, the view of the Maryland court has been
criticized. In United States Fidelity and Guaranty Co. v. Thomas
Solvent Co., No. K85-415 slip op. (W.D. Mich. Jan. 15, 1988)
the court stated:

Maryland Casualty rejected the recommendation of the spe-
cial master who suggested—in my view—a more reason-
able view of property damage from the standpoint of the
insured. It is clear to me that once property damage is
found as a result of environmental contamination, clean-up

(Continued on following page)

A29

CONCLUSION

A close reading of the cases cited by the majority in
support of its view as to the meaning of the term “dam-
ages” reveals that they all apply the law of a state which
has adopted a restrictive definition of the term “damages.”
On the other hand, the cases applying state law requiring
the words in an insurance policy to be given their ordinary,
non-technical meaning support the position of this dissent.
See Port of Portland v. Water Quality Ins. Syndicate, 796
F.2d 1188 (9th Cir. 1986); New Castle v. Hartford Acci-
dent and Indemnity Company, 673 F. Supp. 1359 (D. Del.
1987); Consolidated Rail Corp. v. Certain Underwriters at
Lloyds, Civ. No. 84-2609 (E.D. Pa. June 5, 1986) (un-
reported decision available on Westlaw at 1986 WL 6547);
Fireman’s Fund Ins. Co. v. Ex-Cell-O Corp., 662 F. Supp.
71 (E.D. Mich. 1987); Independent Petrochemical Corp. v.
Aetna Casualty & Surety Co., 654 F. Supp. 1334 (D. D.C.
1986), reconsideration in part denied, 674 F. Supp. 354
(1987); CPS Chem. Co. v. Continental Ins. Co., No.
A-3799-86TS (N.J. Super. Ct. App. Div. Jan. 15, 1988);
Broadwell Realty Services, Inc. v. Fidelity & Casualty

Footnote continued—

costs should be recoverable as sums that the insured was
liable to pay as a result of property damage. In this con-
text the argument concerning the historical separation of
damages and equity is not convincing and it seems to me
that the insured ought to be able to rely on the common
sense expectation that property damage within the meaning
of the policy includes a claim which results in causing
him to pay sums of money because his acts or omissions
affected adversely the rights of third parties. * * * The
short answer is that from the standpoint of the insured
damages are being sought for injury to property. It is
that contractual understanding rather than some artificial
and highly technical meaning of damages which ought to
control.

Id. at 55.

A30

Co., 218 N.J. Super. 516, 528 A.2d 76 (N.J. Super. Ct. App.
Div. 1987); City of Thief River Falls v. United Fire &
Casualty Co., 336 N.W.2d 974 (Minn. 1983); Seaboard
Surety Co. v. Ralph Williams Northwest Chrysler Plym-
outh, Inc., 81 Wash.2d 740, 504 P.2d 1139 (1973). Be-
cause Missouri law is clear that words in an insurance
policy are to be given their ordinary meaning, we are obli-
gated to do the same.

Accordingly, we would adhere to the panel opinion.
A true copy.
Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH
CIRCUIT.

A31

(Filed January 22, 1987)

UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT

No. 85-1940

Continental Insurance Companies,
Appellee,

Le

Northeastern Pharmaceutical and Chemical Company, Inc.,
Milton Turkel, Edwin B. Michaels and John W. Lee,
Appellees,

State of Missouri,
Intervenor-Appellant.

Appeal from the United States District Court for the
Western District of Missouri.

Submitted: January 15, 1986
Filed: January 22, 1987

Before HEANEY and McMILLIAN, Circuit Judges, and
MURPHY’, District. Judge.

HEANEY, Circuit Judge.

This appeal raises the question of whether hazardous
waste cleanup costs under the Comprehensive Environ-
mental Response, Compensation and Liability Act, 42

*The Honorable DIANA E. MURPHY, United States Districi
Judge for the District of Minnesota, sitting by designation

A32

U.S.C. §§ 9601-9657 (1982) (CERCLA) are recoverable
under a liability policy that covers “property damage” that
“occurs” during the life of the policy, where disposal and en-
vironmental contamination took place during the policy pe-
riod but cleanup costs were incurred later. We reverse the
district court’s order on Count I of Continental's complaint,
affirm its dismissal of the State of Missouri’s counterclaim,
and hold that state and federal governments suffer “prop-
erty damage” at the time hazardous wastes are improp-
erly “released” into their environment and that cleanup
costs are a recoverable measure of damages for this envi-
ronmental property damage. We also affirm the district
court’s dismissal without prejudice of Count II of Con-
tinental Insurance Company’s complaint relating to cov-
erage for private individuals’ personal and property dam-
age due to improper hazardous waste disposal.

I. FACTS.

From 1970 to 1972, the Northeastern Pharmaceutical
and Chemical Company (NEPACCO) produced hexachlo-
rophene at a chemical plant in Verona, Missouri. The
process produced a variety of wastes, among which was
dioxin, a highly toxic chemical. In July, 1971, NEPACCO
made arrangements to dispose of at least eighty-five fifty-
five-gallon drums of these wastes in a trench on a farm
near Verona, Missouri (the “Denny farm” site). When
the deteriorated drums were dumped in the trench in
July, 1971, a “strong odor” shortly emerged. persisting
for several months. United States v. Northeastern Pharm.
& Chem. Co., 579 F. Supp. 823, 828-30 (W.D. Mo. 1984)
Later in 1971 or 1972, NEPACCO hired Independent Petro-
chemical Corporation (IPC) which, in turn, hired Russell
Bliss to dispose of more dioxin-contaminated wastes. In

Times Beach, Missouri.’ Later, in 1974, a Mr. Minker

During the two-year pericd from 1970 to 1972 that
NEPACCO was in business, it was insured under a Com-

1971, to August 5, 1972: and August 5, 1972, to Novem-
ber 5, 1972.3 Each policy requires Continental to:

-<ccesenasnsiensteeesinee,
l. Times Beach was a town of approximately 2.200 people

areas. In February, 1983, the EPA announced that the govern-
ment would purchase the entire town of Times Beach using $33.7
million from the federal Superfund. The State of Missouri con-
tributed an additional $3.3 million to the buy-out.

2. The drafting history and background of the standard-
form CGL Policy is discussed in American Home Prods. Corp. v.
Liberty Mut. Ins. Co., 565 F Supp. 1485. 1500-03 (Sp NLY.
1983). aff'd as modified, 748 F.2d 760 (2d Cir. 1984).

The latter two Policies, covering the period August 5,
1971, to November 17, 1972. contain the following “pollution and
contamination” exclusion clause:

It is agreed that the imsurance does not apply to bodily in-

Persal, release or escape of smoke. Vapors, soot, fumes, acids.
aikalis, toxic chemicals. liquids or Bases, waste materials or
other irritants. contaminants or Pollutants into or upon land.
the atmosphere or any watercourse or body of Water: but
this exclusion does not apply if such discharge. dispersal, re-
lease or escape is sudden or accidental].

(Continued on following Page)

A34

pay on behalf of the insured all sums which the insured
shall become legally obligated to pay as damages be-
cause of A. bodily injury or B. property damage'*!
to which this insurance applies caused by an occur-
rence,*) and the Company shall have the right and

Footnote continued—

The United States Court of Appeals for the First Circuit has held
that coverage for damages caused by hazardous wastes improperly
disposed of by the plaintiff in the regular course of its business
is excluded by the same “pollution exclusion” clause. Great
Lakes Container Corp. v. National Union Fire Ins. Co., 727 F.2d
30 (ist Cir. 1984); see also Travelers Indemn. Co. v. Dingwell,
414 A.2d 220 (Me. 1980). Other courts have reached the opposite
conclusion where the hazardous waste discharge was sudden
or accidental or the wastes were negligently disposed of by a
third-party contractor or were disposed of in full compliance
with all applicable rules and regulations, or the wastes were
generated other than in the regular course of the insured’s busi-
ness. See, e.g., Payne v. United States Fid. and Guar. Co., 625
F. Supp. 1189 (S.D. Fia. 1985); Technicon Electronics Corp. v.
American Home Assurance Co., No. 08811/85 (N.Y. Sup. Ct.
Feb. 13, 1986); Buckeye Union Ins. Co. v. Liberty Solvents &
Chemicals Co., 17 Ohio App. 3d 127, 477 N.E.2d 1227 (Ohio Ct.
App. 1984), Niagara County v. Utica Mutual Ins. Co., 80 A.D.2d
415, 439 N.Y.S.2d 538 (N.Y. App. Div.), mot. for lv. to app. dism.,
54 N.Y.2d 608, 427 N.E.2d 1191, 443 N_Y.S.2d 1030 (1981); Lansco,
inc. v. Department of Envtl. Protection, 138 N.J. Super. 275, 350
A.2d 520 (N.J. Super. Ct. Ch. Div. 1975), aff'd, 145 N.J. Super.
433. 368 A.2d 520 (N.J. Super. Ct. App. Div. 1976), cert. denied,
73 N.J. 57, 372 A.2d 322 (1977). Whether the “pollution exclu-
sion” clause excludes coverage in this case is not at issue on
appeal because the district court found a lack of coverage on
other grounds.

4 All three policies define “property damage” as follows:

(1) Physical injury or destruction of tangible property
which occurs during the policy period, including the loss
of use thereof at anytime resulting therefrom,

(2) Loss of use of tangible property which has not
been physically injured or destroyed provided such loss of
use is caused by an occurrence during the policy period * * °.

5 All three policies define “oecurrence” as “an accident,
including continuous or repeated exposure to conditions, injury
or property damage neither expected nor intended from the
standpoint of the insured.” Several courts have held that the
discharge of hazardous wastes is an “oecurrence”™ within this type

(Continued on following page)

A35

duty to defend any suit against the insured seeking
damages on account of such bodily injury or property
damage.

All three provide that: “[t]his insurance applies only
to bodily injury or property damage which occurs during
the policy period.”

In 1980, the EPA investigated the Denny farm site
and found that the NEPACCO wastes in the trench and
underlying soil contained “alarming[{ly] high concentra-
tions of dioxin.” Id. at 831. It cleaned up the site, and
then sought to recover its costs through a lawsuit against
NEPACCO and others. United States v. Northeastern
Pharm. & Chem. Co., 579 F. Supp. 823 (the “EPA” suit).
The district court found NEPACCO and the other defen-
dants jointly and severally liable under CERCLA for
the cost of the cleanup.’ A separate appeal in that action
is now pending before another panel of this Court.

Footnote continued—

of provision where the discharge or the extent of the damage
was not expected or intended. See, e.g., Mraz v. American Uni-
versal Ins. Co., 616 F. Supp. 1173, 1177-78 (D. Md. 1985), appeal
docketed, No. 85-2399 (4th Cir., Dec. 27, 1985); Steyer v. West-
vaco Corp., 450 F. Supp. 384, 388 (D. Md. 1978); Waste Manage-
ment of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340
S.E.2d 374, 380 (1986); CPS Chem. Co. v. Continental Ins. Co.,
199 N.J. Super. 558, 489 A.2d 1265, 1269 (NJ. Super. Ct. Law
Div. 1984), rev’d and remanded on other grounds, 203 N.J. Super.
15, 495 A.2d 886 (N.J. Super. Ct. App. Div. 1985); Buckeye
Union Ins. Co., 477 N.E.2d at 1233. But see American States Ins.
Co. v. Maryland Cas. Co., 587 F. Supp. 1549 (E.D. Mich. 1984).
This is not an issue on this appeal because the district court
found a lack of coverage on other grounds.

6. The district court entered judgment in favor of the EPA
for $155,171.93. Although the court noted that the stored wastes
at the Denny farm site no longer present an imminent and sub-
stantial danger to health and environment, 579 F. Supp. at 832,
the waste necessitates future monitoring and further response
costs for which NEPACCO and the other defendants remain
liable Id. at 852-53,

rica ii, |

A36

On March 7, 1983, a number of former residents
of Times Beach and Imperial, Missouri, filed an action
against NEPACCO and others which seeks recovery for
personal injuries and property damage allegedly caused
by the dumping of NEPACCO’s wastes at the Minker/
Stout/Romaine Creek site and on the streets of Times
Beach. Capstick v. Independent Petrochemical Corp., No.
832-0453 (Cir. Ct. City of St. Louis, Mo. filed Mar. 7,
1983) (the “Capstick” suit).

To protect against potential liability arising out of
its status as insurance carrier for NEPACCO during the
time NEPACCO’s hazardous wastes were improperly dis-
posed of, Continental filed this action against NEPACCO
and its former officers and directors. Count I seeks a
declaration that Continental is under no duty to defend
or indemnify NEPACCO for liability arising out of the
EPA’ suit. Count II seeks the same declaration with
respect to the Capstick suit. On November 14, 1984,
Continental moved for summary judgment. NEPACCO
and the other defendants failed to enter an appearance
or file an answer.®

7. On February 25, 1985, the United States filed a garnish-
ment action seeking to collect from Continental, as NEPACCO's
liability insurer, the sums awarded in the underlying EPA suit
United States v. Continental Ins. Co., No. 85-3069-CV-S-4 (W.D
Mo. filed Feb. 25, 1985). The district court initially eniered
judgment in favor of Continental based on its judgment in the
present action, Continental v. NEPACCO, No. 84-5034-CV-S-4g
(W.D. Mo. filed June 25, 1985), then granted the United States's
motion for reconsideration. Continental then moved for sum-
mary judgment, and resolution of this motion has been held in
abeyance until the appeal in the EPA suit, 579 F. Supp. 823 is
resolved.

8. NEPACCO’s corporate charter was forfeited by the Dela-
ware Secretary of State in August, 1976. NEPACCO never filed
a formal certificate of dissolution, but in 1974, its assets were

(Continued on following page)

A37

The State of Missouri was then granted leave to
intervene to protect its interests arising out of claims
that it had made against NEPACCO and the other defen-
dants in a third hazardous-waste lawsuit filed in the
United States District Court for the Eastern District of
Missouri. Missouri v. Independent Petrochemical Corp.,
No. 83-3670 (E.D. Mo. filed Nov. 23, i983) (the “IPC”
suit). The complaint in IPC alleges that NEPACCO, its
officers, and others are liable under CERCLA for costs
incurred by the state in excavating and removing dioxin-
contaminated soil from the Minker/Stout/Romaine Creek
site. The state filed an answer to Continental’s complaint
and a counterclaim alleging that Continental is obligated
to indemnify the state for the amount of any judgment
imposed on NEPACCO in the underlying IPC lawsuit.

On June 25, 1985, the district court granted summary
judgment to Continental on Count I of its complaint (no
insurance coverage for the EPA claims), and against the
state on its counterclaim (no coverage for the IPC claims).
The court reasoned that the cleanup costs sought by the
United States and the state in the EPA and IPC suits
are not “property damage” as that term is defined in
the CGL policies and that “no * * * damages were in-
curred by the government entities during the policies’
effective dates” because the policies were only in effect
from 1970 to 1972, and the cleanup costs were incurred
later. The court also granted Continental’s motion to
dismiss without prejudice Count II of its complaint (the

Footnote continued—

liquidated and the proceeds distributed to shareholders after
payment of outstanding debts. See United States v. Northeastern
Pharm. & Chem. Co., 579 F. Supp. 823, 827 (W.D. Mo. 1984).
Thus, at the time Continental filed its complaint, NEPACCO had
been a defunct or “shell”’ corporation for some ten years.

A38

Capstick claims), stating that “more specific findings of
bodily injury and property damage” were needed first.
The State of Missouri appeals.”

II. DISCUSSION.
A. EPA and IPC Claims.

The first issue is whether the district court erred
in holding that cleanup costs under CERCLA are not
“property damage” as defined in the CGL policies.’ Al-
though the district court cited no case and gave no ex-
planation for its holding, Continental and amicus AIA
advance two arguments in support.

Continental argues that only the actual owners of
the land on which hazardous wastes are improperly dis-
posed of sustain “property damage,” and that any injury
suffered by governmental entities from the improper dis-
posal is merely an economic injury.’ We disagree.

9. The United States and Armco, Inc., AT&T Technologies,
Inc., FMC Corporation, and Internationa! Business Machines Corp-
oration appear as amicus curiae in support of the state. The
American Insurance Association (AIA) appears as amicus curiae
in favor of Continental.

10. We agree with the district court that Missouri law
governs the interpretation of the insurance policies at issue be-
cause that state has the most significant relation with the negotia-
tion and terms of the insurance contract. Havenfield Corp. v. H.
R. Block, Inc., 509 F.2d 1263 (8th Cir.), cert. denied, 421 US.
999 (1975); Ryder Truck Rental, Inc. v. U. S. Fid. and Guar. Co.,
527 F. Supp. 666 (E.D. Mo. 1981); National Starch & Chem.
Corp. v. Newman, 577 S.W.2¢d 99 (Mo. Ct. App. 1978).

11. Continental cites to Giddings v. Industrial Indemn. Co.,
112 Cal. App.3d 213, 219, 169 Cal. Rptr. 278, 281 (Cal. Ct. App.
1981), where the court stated that “strictly economic losses like
lost profits, loss of goodwill, loss of anticipated benefit of a
bargain, and loss of an investment, do not constitute damage or
injury to tangible property covered by a comprehensive general
liability policy.” See also CMO Graphics, Inc. v. CNA Ins., 115
Ill. App.3d 491, 450 N.E.2d 860, 863-64 (Ill. App. Ct. 1983).

A39

The Supreme Court of the United States has held
that state and federal governments suffer injury to their
“quasi-sovereign” interests when pollutants are released
into the soil, water, and air within their jurisdiction.
See Georgia v. Tennessee Copper Co., 206 US. 230, 51
L.Ed.2d 1038, 1044 (1907) (state); cf. Illinois v. City of
Milwaukee, 406 U.S. 91, 31 L.Ed.2d 712, 722-26 (1972)
(federal). The question here is whether this injury
to governmental “quasi-sovereign” interests constitutes
“property damage” within the meaning of an insurance
policy. Although the Supreme Court has not squarely
confronted the issue, two thoughts expressed in cases
decided by the Court lead us to reject Continental’s
argument. First, it has implied that an injury to a gov-
ernment’s quasi-sovereign interest in natural resources
is a form of property damage. Second, it has held that
the government has power, in its quasi-sovereign capacity,
to seek redress for the environmental property damage
suffered by the actual owners of the land affected by
pollution.

In Georgia v. Tennessee Copper Co., 206 US. 230,
51 L.Ed. 1038, for example, the State of Georgia brought
suit against certain Tennessee copper companies to en-
join the discharge of noxious gases over its territory. In
holding that it had jurisdiction and that Georgia was
entitled to an injunction, the Court stated:

The state owns very little of the territory alleged
to be affected, and the damage to it capable of esti-
mate in money, possibly, at least, is small. This is
a suit by a state for an injury to it in its capacity
of quasi-sovereign. In that capacity the state has
an interest independent of and behind the titles of
its citizens, in all the earth and air within its domain.

A40

It has the last word as to whether its mountains
shall be stripped of their forests and its inhabitants
shall breathe pure air. It might have to pay indi-
viduals before it could utter that word, but with it
remains the final power. The alleged damage to
the state as a private owner is merely a make-weight,
and we may lay on one side the dispute as to whether
the destruction of forests has led to the gullying of
its roads.

51 L.Ed. at 1044.

The Court’s discussion of a governmental interest in “title”
to all the soil, water, and air within its jurisdiction sug-
gests that the government has a property interest in
natural resources. A similar implication arises from Mis-
souri v. Illinois, 180 U.S. 208, 45 L.Ed. 497 (1901), where
the Court held that Missouri was permitted to sue as
parens patriae to enjoin the discharge of sewage from
Chicago, Illinois into the Illinois and Mississippi rivers:
“impairment of the health and prosperity of the towns
and cities of the state situated on the Mississippi river
* * * would injuriously affect the entire state.” 45 L.Ed.
at 512. The Court suggested that although a dispute
between states over interstate waters may not involve
“direct property rights” of a state, the injury to the
state’s “quasi-sovereign” rights is akin to an injury to
state property rights.* Id. Furthermore, the Court
stressed that in environmental damage suits, a state has
the power to seek redress in court for the property dam-
age caused to the general public. Id.; see also Maryland
vy. Louisiana, 451 U.S. 725, 68 L.Ed.2d 576, 608 (1981)

12. See also, e.g., State v. Leavitt, 105 Me. 76, 79, 72 A.
875. 877. 72 A. 875 (1909) (Each state’s interest in the natural
resources within its borders “is in fact a property right.’’).

A41

(Rehnquist, J., dissenting on other grounds) (pointing
out that when a state sues to advance its quasi-sovereign
interests, it is not suing simply to protect the economic
interests of its citizens). Similarly, in Toomer v. Witsell,
334 U.S. 385, 408, 68 S. Ct. 1156, 92 L.Ed. 1460 (1948),
Mr. Justice Frankfurter, joined by Mr. Justice Jackson,
concurring, stated:

A state may care for its own in utilizing the bounties
of nature within her borders because it has technical
ownership of such bounties or, when ownership is
in no one, because the state may for the common
good exercise all the authority that technical owner-
ship ordinarily confers.

This conclusion is supported by statements in a wide
array of cases and statutes that state and federal gov-
ernments have property interests in wildlife* inter-
and intra-state waters," and natural resources in gen-

13. See, e.g., Geer v. Connecticut, 161 U.S. 519 (1896) (State
has property interest in and police power over wild game within
its jurisdiction because of its sovereign capacity as representa-
tive of the people in their common ownership of wild game.) ;
State v. Taylor, 358 Mo. 279, 214 S.W.2d 34, 36 (1948) (State
has “property right” in wildlife of state.); Mo. Ann. Stat.
§ 252.030 (Vernon 1963) (‘The ownership of and title to ail
wildlife of and within the state * * * are hereby declared to be
in the State of Missouri.”). The federal government would also
seem to have a protectable interest in wildlife, an interest which
might be characterized as a form of property right. Cf. Missouri
v. Holland, 252 U.S. 416 (1920).

14. It has been generally stated that interstate navigable
waters and their watersheds are “public property of the nation,”
United States v. Chicago. M., St. P. & P. R. Co., 312 U.S. 592,
85 L.Ed. 1064, 1069 (1941), and that “waters of the state,” see
Mo. Ann. Stat. § 260.500(11) (Vernon 1963) (defining “waters
of the state’’ as all rivers, streams, lakes and other bodies of
water’) are property of the state. See McCready v. Virginia, 94
U.S. 391, 394, 24 L.Ed. 248 (1876) (“The principle has long

(Continued on following page)

A42

eral.» Moreover, state and federal governments have “di-
rect property interests” in public land holdings which may
be damaged by environmental contamination.

Footnote continued—

been settled in this Court, that each State vwns the beds of all
tide-waters within its jurisdiction. * * * In like manner, the
states own the tide-waters themselves, and the fish in them, so
far as they are capable of ownership while running. For this
purpose the State represents its people, and the ownership is
that of the people in their united sovereignty.); United States
v. Turner, 175 F.2d 644, 647 (9th Cir.), cert. denied, 338 U.S.
85 (1949) (State has property interest in intrastate navigable
waters.) ; Maine v. M/V Tamano, 357 F. Supp. 1097, 1100 (D. Me.
1973) (State has sufficient quasi-sovereign or property interest
in its coastal waters and marine life to maintain suit for damages
caused by oil spill.); Maryland v. Amerada Hess Corp., 350 F.
Supp. 1060, 1066-67 (D. Md. 1972) (State has “proprietary in-
terest” in its waters and may recover damages for cost of clean-
ing up oil-spill damage to these waters.); California v. S. S.
Bournemouth, 307 F. Supp. 922, 929, clarified, 318 F. Supp.
839 (C.D. Cal. 1970) (State suffers property damage when its
waters are damaged by oil spill.); Hickey v. Hazard, 3 Mo. App.
480 (Mo. Ct. App. 1877) (State of Missouri has property in-
terest in waters of the state.).

15. See, e.g., Mo. Const., art. 4 § 12 (establishment of de-
partment of conservation and Department of Natural Resources) ;
Mo. Ann. Stat. § 67.870-.910 (Vernon Supp. 1986) (open space
conservation); Mo. Ann. Stat. § 253.010 (Vernon 1963) (state’s
interest in “land” includes “every estate, interest and right,
legal or equitable, in land or water’); Mo. Ann. Stat. § 256.010
(Vernon 1963) (appointment of state geologist to survey state
resources); Mo. Ann. Stat. § 260.435-.550 (Vernon Supp. 1986)
(state’s interest in preventing harm to property and people by
abandoned hazardous waste dumps); Clean Air Act, 42 U.S.C.A.
§§ 7401-7642 (1982) (protection of “nation’s air resources’’) ;
National Environmental Quality Act, 42 U.S.C.A. 8§ 4321-4396
(1982) (protection of “nation’s environment”); Federal Water
Pollution Control Act, 33 U.S.C. §§ 1251-1376 (1982) (protection
of “nation’s waters”); CERCLA, supra (see 42 U.S.C. § 9601(16),
which states: ‘ ‘natural resources’ means land, fish, wildlife,
biota, air, water, ground water, drinking water supplies, and
other such resources belonging to, managed by, held in trust by,
appertaining to, or otherwise controlled by the United States
(including the resources of the fishery conservation zone estab-
lished by the Magnuson Fishery Conservation and Management
Act [16 U.S.C.A. § 1801 et seq.]) any State or local government,
or any foreign government.”

A43

In light of these extensive statements of governmen-
tal property interests in environmental resources, it does
not seem unreasonable to assume that an insurance com-
pany, providing liability coverage for a chemical pro-
ducer, would contemplate environmental damage as a
form of covered “property damage for which govern-
ments may seek recovery.” See Lansco, Inc. v. Depart-
ment of Envtl. Protection, 138 N.J. Super. 275, 350 A.2d
520, 524-25 (NJ. Super. Ct. Ch. Div. 1975), aff'd, 145
N.J. Super. 433 (N.J. Super. Ct. App. Div. 1976), cert.
denied, 73 N.J. 57, 372 A.2d 322 (1977). The policies’
definition of “property damage” as damage to “tangible
property” or “physical injury” seems to contemplate dam-
age to tangible property such as land, trees, air, and
water. Supportive of this is the inclusion in the latter
two of the three policies at issue of clauses generally
excluding environmental damage from coverage for prop-
erty damage. See Port of Portland v. Water Quality
Ins. Syndicate, 549 F. Supp. 233, 235 (D. Ore. 1982) (The
pollution exclusion clause “itself states that ‘property
damage’ may result from the discharge of pollutants.”).

Finally, all of the cases which have squarely con-
sidered Continental’s argument have rejected it.® In
Mraz v. American Universal Ins. Co., 616 F. Supp. 1173

16. The two cases cited by Continental are inapposite. In
Atlantic City Mun. Util. Auth. v. CIGNA, No. A-1320-84TF (N.J.
Super. Ct. App. Div. Dec. 19, 1985), the court held that costs
incurred by a municipal water authority in drilling new wells and
adding filtering devices to prevent potential contamination of
its wells by nearby hazardous waste dumps are not recoverable
under a CGL policy. In Linda Walls v. Waste Resources Corp.,
No. 2-83-418 (E.D. Tenn. Oct. 11, 1983), the court adopted a
magistrate’s report suggesting distinction, for statute of limita-
tions purposes, between suits for recovery of cleanup costs
and suits claiming damages for injury to or loss of natural re-
sources.

A44

(D. Md. 1985), for example, the court rejected as “un-
tenable” the insuror’s claim that state and federal gov-
ernments do not sustain “property damage” for insurance
policy purposes when hazardous wastes are improperly
disposed of and ultimately cleaned up by the govern-
ment. A similar conclusion was reached in Lansco, 350
A2d at 524-25, and Kutsher’s Country Club Corp. v.
Lincoln Ins. Co., 119 Misc.2d 889, 465 N.Y.S.2d 136, 139
(N.Y. Sup. Ct. 1983).*

In sum, we agree with the position taken in Mraz
Lansco, and Kutsher’s that the improper release of toxic
wastes may cause “property damage’’ not only to the
actual owner of the land, water, or air, but also to state
and federal governments because of their “interest inde-
pendent of and behind the titles of its citizens in all
the earth and air within [their] domain.” Tennessee
Copper Co., 51 L.Ed.2d at 1044.

Amicus AIA assumes, at least for purposes of argu-
ment, that environmental contamination may cause “prop-
erty damage” for which state and federal governments
may seek relief. However, it argues that while the gov-
ernments might be able to recover for the diminution

17. For other cases implicitly finding that cleanup costs are
recoverable “property damage,” see, e.g., Mercury Refining Co. v.
Hartford Fire Ins. Co., No. 84-CU-495 (N.D. N.Y. July 19, 1985);
Payne v. United States Fid. and Guar. Co., 625 F. Supp. 1189,
1193 (S.D. Fla. 1985); Port of Portland, 549 F. Supp. at 235;
Technicon Electronics Corp. v. American Home Assurance Co.,
No. 08811/85 (N.Y. Sup. Ct. Nov. 1, 1985); Shapiro v. Public
Service Mut. Ins. Co., 19 Mass. App. Ct. 648, 477 N.E.2d 146, 154
(Mass. App. Ct. 1985); Buckeye Union Ins. Co. v. Liberty Solvents
and Chem., 17 Ohio App.3d 127, 477 N.E.2d 1227, 1239 (Ohio Ct.
App. 1984); Waste Management of Carolinas, Inc. v. Peerless Ins.
Co.. 72 N.C. App. 80, 323 S.E.2d 726, 735 (N.C. Ct. App. 1984),
rev’d on other grounds, 315 N.C. 688, 340 S.E.2d 374 (1986);
CPS Chem. Co. v. Continental Ins. Co., 199 N.J. Super. 558, 489
A 2d 1265. 1269 (N.J. Super. Ct. Law Div. 1984).

A45

in value of environmental resources, cleanup costs them-
selves are not recoverable. It bases this argument on
the language of section 107 of CERCLA which provides:

(4) any person who accepts or accepted any
hazardous substances for transport to disposal or
treatment facilities or site selected by such person,
from which there is a release, or a threatened re-
lease which causes the incurrence of response costs,
of a hazardous substance, shall be liable for—

(A) all costs of removal or remedial action in-
curred by the United States Government or a State
not inconsistent with the national contingency plan;

(B) any other necessary costs of response in-
curred by any other person consistent with the na-
tional contingency plan; and

(C) damages for injury to, destruction of, or
loss of natural resources, including the reasonable
costs of assessing such injury, destruction, or loss
resulting from such a release.

42 USC. § 9607(a) (4).

A close reading of this section fails to support AIA’s
argument that only an action under the last subsection,
section 9607(a)(4)(C), is an action for “property dam-
age.”'* 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. This

18. The CERCLA claims in the EPA and IPC suits were
brought solely under 42 U.S.C. § 9607(a)(4)(A) for cleanup
costs.

A46

conclusion is supported by all of the on-point cases cited
by the parties or revealed by our independent research.”
See, e.g., Askew v. American Waterways Operators, 411
U.S. 325, 36 L.Ed.2d 280, 286 (1973) (In discussing the
Water Quality Improvement Act of 1970, 84 Stat. 91, 33
U.S.C. §§ 1161 et seq. (1972), and a similar Florida Act,
the Court stated, “While the Federal Act determines
damages measured by the cost to the United States for
cleaning up oil spills, the damages specified in the Florida
Act relate in part to the cost to the State of Florida in
cleaning up the spillage.”); Riehl v. Travelers Ins. Co..,
22 Env’t Rep. Cas. (BNA) 1544, 1546 (W.D. Pa. Aug. 7,
1984), rev’d on other grounds, 772 F.2d 19 (3d Cir. 1985)
(Measure of damages to ground water and streams caused
by seepage of wastes from insured’s landfill “is not pre-
cisely calculable but includes abatement costs relative
to preventing further pollution.”); Port of Portland, 549
F. Supp. at 235 (Cost of cleaning up oil spill is recover-
able “property damage” under CGL policy.); Chem. Ap-
plication Co. v. Home Indem. Co., 425 F. Supp. 777, 778
(D. Mass. 1977) (Cleanup and removal expenses incurred
by insured measure the “damages” for which indemni-
fication is available.); Waste Management of Carolinas,
Inc. v. Peerless Ins. Co., 72 N.C. App. 80, 323 S.E.2d 726,
735 (N.C. App. 1984), rev’d on other grounds, 315 N.C.

19. On March 10, 1986, the United States Supreme Court in
Exon Corp. v. Robert Hunt, 106 S. Ct. 1103, 89 L.Ed.2d 364 (1986),
held that the New Jersey Spill Compensation and Control] Act’s
(N.J. Stat. Ann. §§ 58:10-23.11 to 58:10-23.112 (West 1982 and
Supp. 1985) imposition of a “spill fund” tax on major petroleum
and chemical facilities in the state is partially preempted by
section 114(c) of CERCLA, 42 U.S.C. § 9614(c). Dicta in the
opinion points both ways as to whether governmental cleanup
costs may be considered “property damage.” Given that the
issues there have no relation to the issues here, we find this
dicta not helpful in resolving the present case.

A47

688, 340 S.E.2d 374 (1986) (Cleanup costs are “essentially
compensatory damages for injury to common property,”
the ground water of the State of North Carolina.);
Kutsher’s Country Club Corp., 465 N.Y.S.2d at 139 (“The
cost of cleanup * * * is clearly reflective of the state's
power to establish damages with respect to legislation
designed to preserve the sovereign state’s interest in the
Preservation of natural resources.”): Lansco, Inc. v. De-
partment of of Envtl. Protection, 350 A.2d at 525 (Mea-
sure of damages for pollution discharge in river is “the
cost of eliminating the harmful substance from “Se waters
of the state.”). But cf. Atlantic City Mun. Util. Auth.,
No. A-1320-94TF (N.J. Super. Ct. App. Div. 1985): Linda
Walls, No. 2-83-418 (E.D. Tenn. Oct. 11, 1983).

Finally, the language of the CGL policies at issue
supports the view that cleanup costs are a measure of
recoverable damages for injury to environmental re-
sources. The language of the policies specifically require
Continental to “pay on behalf of the insured all sums
which the insured shall become legally obligated to pay

Cos. v. Pasley Mfg. & Distrib. Co., 413 S.W.2d 268 (Mo. 1967),
suggests that Missouri would follow this majority view. There.
the Court held that under Missouri law, damages in rea] property
cases are calculated as either the difference in value before the
injury and after, or the cost of restoring the real property to
its original condition, whichever is the lesser. Id. at 273-74.
Because the hazardous waste contamination alleged in the EPA
and IFC suits spread widely from the originally contaminated
Property to other property and the groundwater of the state, it
seems clear that the cost of cleaning up the contamination would
be the lesser measure of damage. Moreover. although the Mis-
souri courts have not squarely confronted the issue, the appro-
priate measure of damages in a case involving improper disposa!
of hazardous wastes may include both the cost of cleanup and the
damages measured by the remaining diminution in the value of
natural resources. In the case at hand, we are faced, however,
only with the question of whether cleanup costs are recoverable.

A48

as damages * * * because of property damage.” This
language suggests that once there is property damage—
here, environmental contamination—then the damages
that flow from that property damage—here, cleanup costs
—are recoverable.”

In sum, the cases, the CGL policy language, the com-
mon meaning of “property damage,” and section 107 of

21. The state points out that this distinction between prop-
erty damage and their compensatory damages is so well established
it is set forth in Black’s Law Dictionary (4th ed. 1951):

Damage. Loss, injury or deterioration, caused by the neg-
ligence, design or accident of one person to another, in re-
spect of the latter's person or property, The word is to be
distinguished from its plural,—"damages’”’—which means a
compensation in money for a loss or damage.

Citation to meaning given ordinary language in a respected
dictionary is particularly relevant in a case involving the con-
struction of insurance policy terms because of the well-estab-
lished principle that insurance policy language must be given
the meaning that it would convey to an ordinary insured. Robin
vy. Blue Cross Hospital Service, Inc., 637 S.W.2d 695, 698 (Mo.
1982} (en banc). We agree with the state and supporting amici
that an ordinary insured chemical company would read the
term “property damage’ to include environmental damage and
would also conclude that the cost of cleaning up such damage
is recoverable. Moreover, to the extent the term “property dam-
age” is ambiguous as applied te environmental property damage,
the ambiguities must be construed against the insurer and in
favor of finding coverage for the insured. See Hon v. Director,
Office of Workers’ Comp. Programs, 699 F.2d 441, 443 (8th Cir.
1983); Bellamy v. Pacific Mut. Life Ins. Co., 651 S.W.2d 490,
495-96 (Mo. 1983).

Additionally, the United States Supreme Court’s decision in
St. Paul Fire and Marine Ins. Co. v. Barry, 438 U.S. 531 (1978),
supports the state’s claim that under an “occurrence” policy like
that at issue here, only the property damage rather than the
claim for compensation for this damage must occur during the
policy period:
An “occurrence” policy protects the policyholder from
liability for any act done while the policy is in effect, whereas
a “claims made” policy protects the holder only against
claims made during the life of the policy.

Id. at 535.

A49

CERCLA all support the governments’ argument that clean-
up costs under CERCLA are compensatory damages for
“property damage” within the meaning of the CGL pol-
icies. Accordingly, we adopt this view.

The remaining issue is whether the district court erred
in holding that the governments did not suffer an “occur-
rence” of property damage during the policy period be-
cause, although the improper waste disposal occurred dur-
ing the policy period, the cleanup costs were not incurred
until long after the policies expired.22 We hold that it
did and adopt the majority view that environmental dam-
age occurs at the moment that hazardous wastes are im-
properly released* into the environment and that a liabil-
ity policy in effect at the time this damage is caused pro-
vides coverage for the subsequently incurred costs of
cleaning up the wastes.* In Mraz, 616 #. Supp. at 1179,
for example, the court rejected the same argument made
by the insurer here and held that further fact findings
were called for on an allegation that “environmental dam-
age began to take place immediately in 1969 upon dumping
at the Leslie site creating the potential for liability within

22. Under Missouri law, the time of an “occurrence” within
the meaning of an indemnity policy is the time the loss or damage
was sustained and not the time when the negligent or wrongful
act was committed. Hawkeye-Security Ins. Co. v. Iowa Nat’l
Mut. Ins. Co., 567 S.W.2d 719, 720 (Mo. Ct. App. 1978).

23. CERCLA section 107, 42 US.C. § 9607, provides for
liability under the Act whenever there is a “release, or a threat-
ened release which causes the incurrence of response costs, of a
hazardous substance.” 42 U.S.C. § 9601(22) states, in relevant
part, «

“release” means any spilling, leaking, pumping, pouring,

emitting, emptying, discharging, injecting, escaping, leaching,

dumping, or disposing into the environment{. ]

24. However, various other policy provisions and exclusions
may exclude coverage, but these issues are not before us on this

appeal.

A50

the scope of the 1969 policy.” A similar conclusion has
been reached in numerous other cases. See, @.g. Payne,
625 F. Supp. at 1103 (Implicitly finding that improper
disposal of hazardous wastes during policy period is an
“occurrence” of “property damage” at the time of release
into the environment.); Mercury Refining Co. v. Hartford
Fire Ins. Co., No. 84-CU-495, (N.D. N.Y. July 19, 1985)
(same); Riehl, 22 Envtl. Rep. Cas. (BNA) at 1546, rev’d and
remanded on other grounds for further findings, 772 F.2d
19 (3d Cir. 1985) (same); Buckeye Union Ins. Co., 477
N.E.2d at 1233 (Insurer during the time period when haz-
ardous wastes were “released” into surrounding soil and
groundwater has duty to defend CERCLA cleanup suit
under CGL policy.); CPS Chem. Co., 489 A.2d at 1269
(“Time of discovery of the accident does not determine
when [damage] took place. The complaint alleges dam-
ages commencing with the date of dumpings.”’).”°

Quite similar to this line of decisions are cases involv-
ing insurance coverage for “progressive diseases” where
exposure to a harmful substance occurred during the pol-
icy period but the disease or illness developed later after
the policy expired. The majority of federal cases on this
issue have found coverage by adopting the ‘“exposure,’”° or

25. See also Shapiro, 477 N.E.2d at 149: Techalloy Co. v.
Reliance ins. Co., 338 Pa. Super. 1, 487 A.2d 820, 823-26 (Pa.
Super. Ct. 1984). Cf. Jackson Tp. Mun. Util. Auth. v. Hartford
Accident & Indem. Co., 186 N.J. Super. 156, 451 A.2d 990, 995
(N.J. Super. Ct. Law Div. 1982); Waste Management of Carolinas,
393 S.E.2d 726; Port of Portland, 549 F. Supp. at 233; Kutsher’s,
465 N.Y.S.2d at 136; Niagara County, 439 N.Y.S.2d at 538.

26. See, e.g., Commercial Union Ins. Co. v. Sepco Corp.,
765 F.2d 1543, 1546 (11th Cir. 1985); Hancock Laboratories, Inc.,
v. Admiral Ins. Co., 777 F.2d 520, 524 (9th Cir. 1985); Ducre
v. Executive Officers of Halter Marine Co., 752 F.2d 976, 994 (5th
Cir. 1985); Forty-Eight Insulations, Inc., 633 F.2d 1212, 1223
(6th Cir. 1980), aff'd and clarified on reh’g, 657 F.2d 816, cert.
denied, 451 U.S. 1109 (1981) (Date of occurrence is the date
on which the injury-producing agent first contacts the body.).

A51

the “continuous exposure,”*’ theory of when injury occurs.
These decisions rest on the view that exposure to the dan-
gerous substance at issue during the policy period caused
immediate, albeit undetectable, physical harm which ulti-
mately led to disease or physical impairment after the ex-
piration of the policy period. For example, in Forty-Eight
Insulations, 633 F.2d at 1223, the Court, in finding coverage
for a progressive disease which manifested itself after the
policy period, stated, “We see nothing in the policy which
requires that the underlying cause of action accrue within
the policy period. There exists a clear distinction between
when bodily injury occurs and when the bodily injury that
has occurred becomes compensable.” Accord Porter v.
American Optical Corp., 641 F.2d 1128, 1145 (5th Cir.),
cert. denied, 454 U.S. 1109 (1981).

These cases are distinguishable from cases where a
negligent act was committed during the policy period but
an accident or injury did not occur until after the policy
expired.** For example, if one negligently fails to shovel

27. See, e.g., Keene Corp. v. Insurance Co. of North America,
667 F.2d 1034, 1047 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007
(1982) (Date of occurrence is the continuous period from ex-
posure to manifestation.).

28. The case which the district court relied on, Kirkham and
Michael & Assoc., Inc. v. Travelers Indem. Co., 361 F. Supp. 189
(D. S.D. 1973), aff'd, 493 F.2d 475 (8th Cir. 1974), falls into
this category. In Kirkham, an engineering corporation contracted
with the City of Rapid City, South Dakota, to design, oversee the
construction of, and to make a final inspection of a waste treat-
ment plant for the city. Once the plant was finally inspected,
turned over to the city, and set in operation, the city learned that
the plant was “deficient” in several respects. The city sued
the engineering firm and the firm’s insurance carrier brought
an action seeking a declaration that its policy during the construc-
tion period (later policies contained an exclusion fur damages
arising from professional malpractice/negligence suits) did not
provide coverage. The insurer’s argument was that, although

(Continued on following page)

A52

snow off his sidewalk during the policy period, there is no
compensable accident until and if someone slips and in-
jures himself during the policy period. This distinction
was discussed in Mueller Fuel Oil Co. v. Insurance Co. of
North America, 95 N.J. Super. 564, 232 A.2d 168, 175 (N.J.
Super. Ct. App. Div. 1967), a case involving insurance cov-
erage for a claim of malicious prosecution, where the court
wrote:

The tort of negligence is not committed unless and
until some damage is done. Therefore, the important
time factor in determining insurance coverage where
the basis of the claim is negligence, is the time when
the damage has been suffered. In a claim based on
malicious prosecution the damage begins to flow from
the very commencement of the tortious conduct—the
making of the criminal complaint. The wrong and
damage are practically contemporaneous * * *.

Footnote continued—

the negligent construction and supervision occurred during the
policy period, the city did not suffer damage until the plant
was turned over to it and operation of the plant revealed its
deficiencies. The district court agreed and held that there was
no coverage and, thus, no duty to defend the firm in the city’s
suit. 361 F. Supp. at 193-94. This Court affirmed on the basis
of the district court’s opinion. 493 F.2d at 475. Kirkham is
distinguishable from the present case in many respects. First of
all, the factual situation is inapposite. Second, it is an example
of a negligence case where the negligence was not accompanied
by immediate damage or injury, as was the case in the above-
cited hazardous waste and progressive disease cases. See also
Kissel v. Aetna Cas. & Sur. Co., 380 S.W.2d 497 (Mo. Ct. App.
1964) (Finding insurance coverage for damage manifested after
policy lapsed because the act of negligence during the policy
period was accompanied by immediate physical damage or in-
jury.). Third, the city in Kirkham had no ownership interest in
the sewage plant until it was turned over to it. It was only at
that time. after the relevant policy lapsed, that the city was in-
jured by learning that the plant did not work as projected.

A53

It seems to us that in the case of improper hazardous
waste disposal, the wrong and the resulting damage may
also be practically contemporaneous.

The decision in Kissel v. Aetna Cas. & Sur. Co., 380
S.W.2d 497 (Mo. Ct. App. 1964), is particularly relevant
on the crucial question of how the Missouri courts would
likely rule on the question of when property damage
occurs for purposes of insurance coverage. In Kissel,
a building contractor hired to build a school employed a
subcontractor to dig the foundation and to do landscaping
work. During the excavation work in 1952, a series of
pressure cracks developed in the ground around the school.
The cracks were filled in with dirt and the school con-
struction and landscaping were completed in 1953. The
contractor carried a comprehensive general liability policy
which covered property damage done by itself and its
subcontractors in the course of their construction work.
The CGL policy expired in late 1952. In 1957, the cracks
reappeared and spread to several pieces of property ad-
joining the school. Five owners of these pieces of prop-
erty brought suit, and the construction company insti-
tuted suit seeking a declaration that the CGL policy in
effect in 1952 covered the damage which occurred in
1957. The insurance carrier argued “that the accident
in question occurred in 1957, and not during the policy
period, which was November 1951 to November 1952.
Under those circumstances, * * * it cannot be held re-
sponsible for the damages shown in evidence.” 380 S.W.
2d at 507. The court rejected this contention, noting
that there was not merely an act of negligent excavation
during the policy period, but that this negligence also
caused immediate property damage during the policy
period which, by 1957, after the policy period, spread to

A54

adjoining property. “We agree * * * that the accident
mentioned in the policy may be a process and the evi-
dence in the instant case is sufficient to show that the
process started during the term of the policy and pro-
gressed until the filing of the lawsuits. We rule this
point against defendant.” Id. at 509. We find that the
Kissel case clearly indicates that Missouri would follow
the majority view of the courts which have ruled that
“property damage,” within the meaning of a CGL policy,
generally occurs at the time hazardous wastes are im-
properly disposed of and that the insurer at that time
may be held liable for cleanup costs incurred after the
policy expired.

Applying these principles, it is clear that the “prop-
erty damage” proved in the EPA case, 579 F. Supp. at
830, first occurred in July, 1971, during the period of
time when the first insurance policy issued by Conti-
nental to NEPACCO was in effect. EPA, 579 F. Supp.
at 830 (noting that NEPACCO’s agents dumped leaking,
deteriorated barrels into the trench at the Denny Farm
site and that, upon dumping of the wastes, a “strong
odor emitted” and “continued for several months, maybe
years.”).2? Under Kissel, it is also clear that Continental

29. We hold that in a cleanup cost recovery case, the date
of the insured “occurrence” is the date on which the hazardous
wastes were improperly disposed of. In other words, we adopt
the “exposure” view of coverage. Accordingly, only the first
CGL policy at issue provides coverage for the damages proved
in the EPA case. See, e.g., Hancock Laboratories, Inc., 777 F.2d
at 524-25. A recent Harvard Law Review comment argues that
the appropriate standard for property damage caused by hazardous
waste should be the “continuous trigger’ rule which provides
that the property damage occurrence is continuous, extending
from disposal to manifestation of the damage. Developments
in the Law, Toxic Waste Litigation, 99 Harv. L. Rev. 1458, 1581-83

(Continued on following page)

A55

may additionally be liable for the continuing spread of
the “property damage” at and around the Denny farm
site, which first began in July, 1971. Kissel, 380 S.W.2d
at 509. Accordingly, we reverse the district court’s order
with respect to Count I of Continental’s complaint and
remand for resolution of the remaining issues*® which
must be resolved before it can be determined whether
Continental must indemnify NEPACCO for the damages
awarded in the EPA suit.

It also follows, however, from our holding on the
question of the time of the relevant “property damage”
“occurrence,” that Continental is not liable to defend or

Footnote continued—

(1986). See also, Note The Applicability of General Liability
Insurance to Hazardous Waste Disposal, 57 S. Cal. L. Rev. 745,
758-59 (1984). Perhaps most supportive of the continuous trig-
ger theory is the presumption of maximum coverage. See Ameri-
can Home Prods. Corp., 565 F. Supp. at 1491-92. Additionally,
hazardous waste damage is a continuous process, which suggests
that the time of the property damage occurrence extends from
the time of improper disposal to the time the damage is mani-
fested. However, the Kissel case suggests that, under Missouri
law, the continuing damage would be covered under the policy
in effect when the damage first occurred, 380 S.W.2d at 509, at
least where, as here, this can be readily determined. As the
Harvard Law Review article suggests, the continuous trigger
theory might have merit in fact situations different from that
posed here, such as where it is impossible to determine when
the improper release occurred. In this situation, it may be rea-
sonable to view the time of the occurrence as the time the acci-
dent or release is first discovered. We are not faced with such
a situation here, however, and we are not persuaded that the
continuous trigger theory has merit in a cleanup cost recovery
case such as this one where the date of the first property damage
occurrence is clear and where the cleanup efforts have been
pinpointed at the site of this damage.

30. See supra note 5, on the “occurrence” question. There is
no remaining issue on the “pollution exclusion” clause, however,
because the property damage proved in the EPA case occurred
during the first CGL policy does not contain a pollution exclusion
clause.

A56

indemnify NEPACCO for liability arising from the IPC
suit. The complaint in IPC alleges that in 1971 or 1972,
Russell Bliss, pursuant to an agreement with IPC and
NEPACCO, transported dioxin-contaminated waste oil
from the NEPACCO plant in Verona, Missouri, and spread
the contaminated oil on the premises of the Bubbling
Springs Stable in Fenton, Missouri. This would be the
relevant time of the “property damage” “occurrence” for
purposes of cleaning up the Bubbling Springs Stable.
However, the IPC complaint does not seek to recover
costs for cleaning up the Bubbling Springs Ranch, nor
does it seek recovery for the diminution in the value
of resources at or around the Bubbling Springs Ranch
and its watershed. Instead, the state seeks to recover
the costs of cleaning up the Minker/Stout/Romaine Creek
site which was contaminated when twenty loads of con-
taminated fill dirt from the Bubbling Springs Ranch were
deposited there in 1974, after the CGL policies had ex-
pired. Because the damage at the Minker/Stout/Romaine
Creek site first occurred after the last CGL policy’s
effective date, we find that it would be beyond the
reach of the reasoning in Kissel to hold Continental liable
for this damage which began after the policy lapsed.
Accordingly, we affirm the district court’s finding on
the state’s counterclaim that Continental has no duty
to defend or indemnify NEPACCO for potential liability
in the pending IPC suit.

B. Capstick Claims.

The State of Missouri contends that the district court
erred in dismissing, without prejudice, Count II of Con-
tinental’s complaint which seeks a declaration of no duty
to defend or indemnify NEPACCO in the Capstick law-

A57

suit. The Capstick suit differs in several respects from
the EPA and IPC suits. The latter involve governmen-
tal cleanup cost recoveries under CERCLA; the former
involves claims by private individuals for personal and
property damage arising out of improper disposal of
NEPACCO’s hazardous wastes. We agree with the trial
court that resolution of the insurance coverage issues in
Capstick requires additional fact finding and analysis,
see Independent Petrochemical Corp. v. Aetna Cas. and
Sur. Co., Civ. No. 83-3347, (D. D.C., filed Feb. 4, 1986),
which may be pursued most effectively in a different
proceeding. Accordingly, the district court’s decision
granting Continental’s motion to voluntarily dismiss
Count II without prejudice is affirmed.

A58

McMILLIAN, Circuit Judge, concurring in part and dis-
senting in part.

For the reasons discussed below, I would affirm the
order of the district court, although for reasons different
than those set forth in its memorandum order. This ap-
peal presents difficult issues the resolution of which will
have a substantial effect upon liability insurance cases in-
volving hazardous waste disposal.

I agree with much of the analysis set forth in the
majority opinion. Specifically, I agree that Missouri law
applies to these insurance policies. Missouri is the state
that has the most significant relationship with the com-
prehensive general liability (CGL) insurance policies at
issue. Slip op. at 8, note 10. I also agree with the ma-
jority that environmental damage is “damage to prop-
erty” and that the release into the environment of hazard-
ous wastes may cause property damage not only to the
actual owners of land, water and air, but also to the quasi-
sovereign interests of governmental entities. Slip op. at
8-14.

I also agree with the majority, slip op. at 18-25, that
under Missouri law “the issue of liability under a policy
insuring against ‘loss’ or ‘damage’ occurring during the
policy period is determined by the time when the loss or
damage occurs and not by the time of the negligent [or
wrongful] act.” Hawkeye-Security Insurance Co. v. Iowa
National Mutual Insurance Co., 567 S.W.2d 719, 720 (Mo.
Ct. App. 1978), citing Kirchner v. Hartford Accident & In-
demnity Co., 440 S.W.2d 751 (Mo. Ct. App. 1969).

Given the specific facts in the present case, | further
agree that property damage “occurred” in mid-July 1971,
at a time within the policy period of the first CGL policy.

A59

Slip op. at 23. Here, the crucial events—the wrongful act,
the release of hazardous wastes into the environment
(“property damage”) and the “occurrence”—all happened
virtually simultaneously. In some hazardous waste dis-
posal cases, the act of disposal may cause the release of
hazardous wastes into the environment at some point in
the future. For example, the initial disposal may not re-
sult in a release of hazardous wastes within the policy
period but much later after the policy has lapsed. In the
present case, however, the disposal of the hazardous
wastes immediately resulted in their release into the en-
vironment and, because by definition hazardous wastes
are extremely harmful, there was clearly an “occurrence”
of “property damage” within the policy period. Here, the
geological and hydrological characteristics of the site made
it unsuitable for the disposal of hazardous wastes; the
hazardous wastes had been stored in drums that at the
time of disposal were in a deteriorated condition; the
drums were simply buried in an excavated trench: a strong
odor emerged shortly thereafter and persisted for several
months. Thus, the “occurrence” issue is something of a
false issue on these facts.

I do not agree, however, with the majority that
“cleanup costs under CERCLA are compensatory damages
for ‘property damage’ within the meaning of the CGL pol-
icies.” Slip op. at 18 (emphasis added). I would hold
that under these CGL policies the insurer has no obligation
to pay cleanup costs because cleanup costs constitute
equitable monetary relief but not legal damages.

“An insuring obligation is a contract, and coverage
exists only if assumed by the terms of the policy.” Aetna
Casualty & Surety Co. v. Hanna, 224 F.2d 399, 503 (5th
Cir. 1955). Here, under the terms of the CGL policies,

A60

the insurer is required to “pay on behalf of the insured all
sums which the insured shall become legally obligated to
pay as damages because of ... B. property damage to
which this insurance applies caused by an occurrence. . . .”
“The obligation of the insurer to pay is limited to ‘dam-
ages,’ a word which has an accepted technical meaning in
law.” Aetna Casualty & Surety Co. v. Hanna, 224 F.2d at
503. “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.” Maryland Casualty Co. v. Armco,
Inc., 643 F. Supp. 430, 432 (D. Md. 1986), citing Haines
v. St. Paul Fire & Marine Insurance Co., 428 F. Supp. 435,
439-41 (D. Md. 1977), Aetna Casualty & Surety Co. v.
Hanna, 224 F.2d at 503-04, and Desrochers v. New York
Casualty Co., 99 N.H. 129, 106 A.2d 196, 198-99 (1954).
See also Garden Sanctuary, Inc. v. Insurance Co. of North
America, 292 So. 2d 75, 77-78 (Fla. Ct. App. 1974); Ladd
Construction Co. v. Insurance Co. of North America, 73 Il.
App. 3d 43, 391 N.E.2d 568, 570-73 (1979). But see United
States Aviex Co. v. Travelers Insurance Co., 125 Mich.
App. 579, 336 N.W.2d 838, 843 (1983) (rejecting analysis
in Aetna Casualty & Surety Co. v. Hanna as interpreting
“damages” too narrowly).

“Traditionally, courts have found no insurance cover-
age for the costs of complying with an injunction even in
cases where the suits could have been brought for dam-
ages.” Maryland Casualty Co. v. Armco, Inc., 643 F. Supp.
at 434. Here, the federal government in the EPA lawsuit
and the state of Missouri in the ]PC lawsuit seek recovery
of cleanup or response costs pursuant to CERCLA § 107
(a) (4) (A), 42 U.S.C. § 9607(a) (4) (A). These actions are
essentially equitable actions for monetary relief in the

A61

form of restitution or reimbursement of costs. See United
States v. Northeastern Pharmaceutical & Chemical Co., No.
84-1837, slip op. at 44 (8th Cir. Dec. 31, 1986). The federal
and state governments do not seek recovery of “damages
for injury to, destruction of, or loss of natural resources,”
pursuant to CERCLA § 107(a)(4)(C) (emphasis added),
42 U.S.C. § 9607(a)(4)(C) (emphasis added).

In short, I cannot agree that cleanup costs are the
equivalent of “damages,” Maryland Casualty Co. v. Armco,
Inc., 643 F. Supp. at 435. CERCLA defendants are liable
for both cleanup costs under CERCLA § 107(a) (4) (A), 42
U.S.C. § 9607(a) (4) (A), and for damages to natural re-
sources under CERCLA § 107(a) (4)(C), 42 U.S.C. § 9607
(a)(4)(C); in a particular case, the measure of liability
for cleanup costs and for damages to natural resources may
be the same. Slip. op. at 15-20 & note 20, citing Jack L.
Baker Cos. v. Pasley Manufacturing & Distributing Co., 413
S.W.2d 268, 273-74 (Mo. 1967). Merely because “no prac-
tical difference exists between the sums which the insured
|, that is, the CERCLA defendant,} must pay the court
under some equitable remedy as opposed to sums payable
for damages,” Maryland Casualty Co. v. Armco, Inc., 643
F. Supp. at 435 (emphasis added), does not mean that
the sums constitute equivalent obligations to pay on the
part of the insurer.

In United States Avier Ce. v. Travelers Insurance
Co., 336 N.W.2d at 843, the court described as “merely
fortuitous from the standpoint of either plaintiff [insured]
or defendant [insurer] whether the state chooses to pur-
sue an equitable remedy rather than to sue to recover
damages, because “the damage to the natural resources
is simply measured in the cost to restore the [environ-
ment] to its original state.” In my view, that analysis

|

A62

must be limited to the liability of the insured and the
measurement of that liability under environmental laws
like CERCLA. ‘The liability of the insurer is a distinct
issue, and I would argue that, at least with respect to
the liability of the insurer under the CGL policies,
whether the federal and state governments choose to
pursue equitable remedies or to recover damages is not
“merely fortuitous.”

I also agree that the insurer has no duty to defend
the IPC lawsuit because the property damage occurred
in 1974 after the policies lapsed, slip op. at 24-25, and
because, as discussed above, cleanup costs are not “dam-
ages.”

I also agree that the issues in the Capstick lawsuit
require additional factfinding and analysis and are there-
fore unsuitable for summary disposition. Slip op. at 25.
Because the private individuals in Capstick are seeking
damages for personal injury and property damage due
to the improper disposal of hazardous wastes and not
cleanup costs consistent with the national contingency
plan pursuant to CERCLA § 107(a)(4)(B), 42 USC.
§ 9607(a) (4) (B), I would hold the insurer cannot refuse
to defend the Capstick lawsuit for that reason.

Accordingly, I would affirm the order of the district
court.

A true copy.
ATTEST:

CLERK, U.S. COURT OF APPEALS,
EIGHTH CIRCUIT.

A63

(Filed June 25, 1985)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
SOUTHERN DIVISION

No. 84-5034-CV-S-4

CONTINENTAL INSURANCE COMPANIES,
Plaintiff,

VS.

NORTHEASTERN PHARMACEUTICAL AND CHEM-
ICAL COMPANY, INC., et al.,
Defendants.

ORDER
PROCEDURAL AND FACTUAL BACKGROUND

Continental Insurance Company filed this declaratory
judgment action on February 9, 1984. The declaratory
judgment action sought a declaration of the rights and
liabilities concerning two separate lawsuits concerning
certain hazardous wastes initially produced by the defen-
dant Northeastern Pharmaceutical and Chemical Com-
pany (NEPACCO) at their manufacturing site near
Verona, Missouri. The initial suit, United States ». North-
eastern Pharmaceutical and Chemical Company (NEPAC-
CO), 80-5066-CV-SW-4 (hereinafter referred to as the
EPA suit) was tried before this Court and a memorandum
opinion was issued January 31, 1984, reported at 579 F.
Supp. 823 (W.D. Mo. i984). In that order, the Court
found the defendants jointly and severally liable pursu-
ant to §§ 104, 106(a) and 107(a) of the Comprehensive
Environmental Response, Compensation, and Liability Act

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(CERCLA) of 1980, 42 U.S.C. §$ 9604, 9606(a) and 9607
(a) for costs of removal or remedial action incurred in
cleaning up certain disposed of hazardous wastes at the
Denney farm site, near Verona, Missouri, after Decem-
ber 10, 1980, as well as litigation costs, including attor-
ney’s fees, salaries and expenses and future costs of re-
moval or remedial action. The second lawsuit is Capstick
v. Independent Petrochemical Corp., et al, filed March 7,
1983 in the Circuit Court of the City of St. Louis, Mis-
souri, No. 832-00453 (hereinafter referred to as the Cap-
stick suit). The Capstick lawsuit named as defendants
the same defendants in the EPA suit, as well as numerous
individuals and corporations which were alleged to have
transported and spread upon the streets and roads of
Times Beach, Missouri certain hazardous wastes in 1972
or 1973. In addition the Capstick lawsuit includes an
allegation that certain hazardous wastes produced at the
NEPACCO plant, near Verona, Missouri, were sprayed
by certain defendants on the Bubbling Springs Stables
farm in Fenton, Missouri. Allegedly, the contaminated
soil was subsequently taken and spread on adjacent prop-
erty in Imperial, Missouri.

The plaintiffs in the Capstick lawsuit seek: (1) re-
covery for present and future personal injury and prop-
erty damage; (2) payment for clean-up operations; and
(3) punitive damages. No claims pursuant to CERCLA
or § 7003 of the Resource Conservation and Recovery Act
of 1976 (RCRA), 42 U.S.C. § 6973 (1980) were made.

On December 24, 1985, the State of Missouri filed
a motion for leave to intervene. Plaintiffs did not oppose
the motion to intervene but sought to respond to the
State’s allegation. The motion to intervene was granted
on January 25, 1985. The State's interest arises from a

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suit filed by the State of Missouri against Independent
Petrochemical (IPC); NEPACCO, Michaels, Lee, Bliss,
Jerry-Russell Bliss, Inc., Syntex Laboratories, Inc., Syntex
Agribusiness, Inc. in the United States District Court for
the Eastern District of Missouri, Eastern Division, No.
83-26.0-C-C (hereinafter referred to as the IPC suit),
filed November 23, 1983, pursuant to § 107(a) of CERCLA,
42 U.S.C. § 9607(a) (1976) and Supp. VI (1981), and
Missouri common law of public nuisance. The action was
filed for the purpose of seeking (1) the reimbursement
to the State of Missouri by the defendants of money ex-
pended by the State and its agencies in protecting mem-
bers of the general public and the environment from
the danger of soil contamination and (2) a declaratory
judgment that defendants are liable for all future costs
of remedial action at the above sites. The IPC and Cap-
stick lawsuits are factually similar.

The State filed an answer to Continental’s declaratory
judgment action on January 25, 1085 and made a coun-
terclaim against Continental for the reimbursement of past
and future clean up costs at the sites noted in the IPC
lawsuit.

On February 11, 1985, a motion was filed by Ray-
mond F. Wehner to intervene. In support of said motion,
the movant notes that numerous lawsuits by Wehner and
approximately 1,000 other individuals are or will be pend-
ing in the United States Court, Eastern District of Missouri
and the Circuit Court for the City of St. Louis, State
of Missouri. The actions are substantially identical in
fact to the EPA, IPC and Capstick lawsuits. In addition,
the actions seek damages for personal injury and prop-
erty damage based upon negligence, strict liability, and
products liability. The movant suggests that there are

a |

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common legal and factual issues. Plaintiff filed a re-
sponse and suggestions in opposition to Wehner’s motion
to intervene on March 11, 1985. Essentially, the plaintiff
contends that the movant Wehner lacks standing, his
claims are unrelated to the subject lawsuits, and that
whatever interests the movant Wehner has are already
protected by the State of Missouri. To date, the Court
has not ruled upon the pending motion to intervene by
Wehner.

The plaintiff, Continental Insurance Company, filed
a motion for summary judgment on November 14, 1984.
Intervenor, State of Missouri, filed suggestions in oppo-
sition to plaintiff's motion for summary judgment on
March 11, 1985. Pending a resolution of this motion for
summary judgment, plaintiff filed a motion to dismiss
Count II of its complaint for declaratory judgment with-
out prejudice relative to its obligation to defend and in-
demnify the defendants in the Capstick lawsuit. The
defendant intervenor, State of Missouri, filed suggestions
in opposition to plaintiff's motion to dismiss Count II
without prejudice.

On March 29, 1985, this Court granted a joint motion
by the State of Missouri and the United States to con-
solidate their lawsuits for purposes of discovery since
there were common questions

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1807%3A2. Public record. Not legal advice.