Petition for Writ of Certiorari — Employers Insurance Company of Wausau v. Johnson Controls, Inc.

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Supreme Court, US.

FilLe DB

031199FEB 17 2004

pa ESE THE Cet

IN THE

Supreme Court of the United States

E;MPLOYERS INSURANCE COMPANY OF WAUSAU,

Petitioner,

JOHNSON CONTROLS, INC., et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF WISCONSIN

PETITION FOR A WRIT OF CERTIORARI

SCOTT J. RYSKOSKI SETH P. WAXMAN

GREENBERG TRAURIG LLP Counsel of Record

13155 Noel Road PAUL R.Q. WOLFSON

600 Three Galleria Tower REBECCA J.K. GELFOND

Dallas, TX 75249 WILMER CUTLER

(972) 419-1250 PICKERING LLP

2445 M Street, N.W.

PATRICK J. BOLEY Washington, D.C. 20037

LARSON KING LLP (202) 663-6000

2800 Wells Fargo Place

30 East 7th Street

St. Paul, MN 55101

(651) 312-6500

QUESTION PRESENTED

Whether an appellate court departs from fundamental

principles of due process when it swa sponte decides an is-

sue—overruling its prior precedent—when that issue was

not among the matters presented to the court for review,

the issue was neither briefed nor argued by the parties, and

the court gave the parties neither notice that it intended to

resolve the issue nor opportunity to be heard on the matter

before the court’s decision.

(i)

PARTIES TO THE PROCEEDING

Petitioner, which was a defendant in the trial court and

respondent in the Wisconsin Supreme Court, is Employers

Insurance Company of Wausau, formerly known as Employ-

ers Insurance of Wausau A Mutual Company.

Respondent Johnson Controls, Inc., was plaintiff in the

trial court and petitioner in the Wisconsin Supreme Court.

In addition, the following parties were defendants in the

trial court: Affiliated FM Insurance Company, AIU Insur-

ance Company, Allstate Insurance Compeny (as successor to

Northbrook Excess and Surplus Insurance Company),

American Employers’ Insurance Company, American Home

Assurance Company, American Motorists Insurance Com-

pany, Central National Insurance Company of Omaha, Em-

pluyers Mutual Casualty Company, Employers Reinsurance

Corporation, Federal Insurance Company, First State In-

surance Company, Granite State Insurance Company, High-

lands Insurance Company, Landmark Insurance Company,

London Market (certain underwriters at Lloyd’s London and

London Market Insurance Companies), National Union Fire

Insurance Company of Pittsburgh, PA, Northbrook Excess

and Surplus Insurance Company (as predecessor to Allstate

Insurance Company), Puritan Insurance Company (i/n/a

Manhattan Fire and Marine Insurance Company), Stonewall

Insurance Company, Transamerica Premier Insurance

Company, Travelers Indemnity Company, United National

Insurance Company, Zurich Insurance Company, Interna-

tional Insurance Company, Westchester Fire Insurance

Company, Allianz Underwriters Insurance Company,

American Centennial Insurance Company, American Insur-

ance Company, Associated International Insurance Com-

pany, California Union Insurance Company, Continental In-

surance Company, Fireman’s Fund Insurance Company,

Harbor Insurance Company, North Star Reinsurance Cor-

poration, and Republic Insurance Company.

iii

CORPORATE DISCLOSURE STATEMENT

All of the stock in petitioner is owned by Liberty Mu-

tual Group Ine.

TABLE OF CONTENTS

Page

SELF Bias a CUE RR Fe OP ssrscsrnsicosidestonsitcinliaitecssanaibenniinanen i

PARTIES TO THE PROCEEDING............ccccccccccossscscosesesesess ii

CORPORATE DISCLOSURE STATEMENT .............c0000. ill

SR I Rr REE iit ssceeeeanesoenaadine es vii

SDE SOT PTR scitninccsieiiniitisoianniicenaiiiimgac Taare 1

PIES IT cntccinscnnieeaninteiaiaielncmantiee aiid nase l

CONSTITUTIONAL PROVISION INVOLVED ................ 2

EEF ROUEPRIET ESS PION caicssscarchhadnsintidiaaicmeaaiiedaamciaoumiaciaaaa maaan 2

STATEMENT OF THE CASI .....ceccscsesccsessssssosesorsessesnscosssees 4

1. The Insurance-Coverage Background of

RG IN sis iicccciostonnsatindetaimealaaia menos 4

2. Proceedings in this Case in the Wisconsin

IR svimirnssscstinsdaneiatidemndematia aah alli Ee 7

3. The Wisconsin Supreme Court’s Decision..........-+. 10

REASONS FOR GRANTING THE PETITION................. 13

I. THE WISCONSIN SUPREME COURT’S SUA

SPONTE RESOLUTION OF A MATTER NOT

BEFORE IT, WITHOUT GIVING THE PARTIES

NOTICE OR AN OPPORTUNITY TO BE HEARD

ON THAT MATTER, DENIED PETITIONER DUE

FE IOIF viiciciticiokotctnanitandeeahiniia dita te eian mera apa 13

A. Petitioner Was Denied Its Basic Rights To

Notice And An Opportunity To Be Heard............. 13

B. The Denial Of Any Hearing On The “Suit”

Issue Prejudiced Petitioner.............c.cccsccssossssosocesees 15

(v)

TABLE OF CONTENTS—Continued

Ii, THE WISCONSIN SUPREME COURT’S SUA

SPONTE RULING IN THIS CASE IS CONTRARY

TO UNIVERSALLY HELD UNDERSTANDINGS

OF HOW COURTS SHOULD DECIDE CASES. ...........006.

III. THIS COURT CAN MAKE CLEAR’ THAT

APPELLATE COURTS MUST ADHERE TO THE

FUNDAMENTAL REQUIREMENTS OF DUE

PROCESS WITHOUT UNDULY ENCROACHING

ON THE BROAD DISCRETION OF COURTS IN

POTOTACATING CARED cecsvatesrsinscvtiiagissitanannneinantiie

SF APTI TT ivarisisisninissinonicnimnunnmiinaaamintas

APPENDIX A: Decision of the Supreme Court of

Wisconsin, reported at 665 N.W.2d 257..........cseeeees

APPENDIX B: Decision of the Wisconsin Court of

Appeals, reported at 640 N.W.2d 205 ........eeeeeeeeeees

APPENDIX C: Unreported decision of the Wis-

consin Court of Appeals, filed October 13, 1998.........

APPENDIX D: Unreported decision of the Wis-

consin Circuit Court, filed February 24, 1995............

APPENDIX E: Judgment of the Wisconsin Circuit

Cami’, T00k Bae BD BE a wecccncssiscasesnssvopnsenevnnnsuiiannintie

APPENDIX F: Order for Judgment of the Wiscon-

sin Circuit Court, dated March 18, 2001 .................0

APPENDIX G: Proposed Order (signed) of the

Wisconsin Circuit Court, filed July 19, 2000..............

APPENDIX H: Order of the Supreme Court of

Wisconsin denying Motion for Reconsideration,

SE TCI TG, DOGS ssiesecnsiinsicrnsinsaoonessncsnnsisiitinnsaeininn

APPENDIX I: Miscellaneous pleading excerpts.............

Page

vii

TABLE OF AUTHORITIES

CASES

Page(s)

Allen v. Hardy, 478 U.S. 255 (1986)......ccccccccccssscessesescecescecees 28

Arcadia, Ohio v. Ohio Power Co., 498 U.S. 73 (1990) ......0. 28

_ Azar v. Prudential Insurance Co. of America,

68 P.3d 909 (N.M. Ct. App. 2008)...........c.cccccscsesssessssssesers 24

Baker v. Director, U.S. Parole Commission,

A Fae FEO CA, Cie, BOD) sscsscsscsnccnenesesecesrnsensnessansensivn 24

Batson v. Kentucky, 476 U.S. 79 (1986).......c.cccscccsssecessesescesees 27

Bazrowz v. Scott, 136 F.3d 1053 (5th Cir. 1998) ..........cccc00. 22

Bell v. Burson, 402 U.S. 535 (1971)......cccccccsccoscocssesceccessosesees 14

Bendet v. Sandoz Pharmaceuticals Corp., 308 F.3d

re ee Ss ND shoes bvedincessinieses Sh iaicoatsgaestnisbecenssnsntcnneniulae 21

Boyle v. O'Bannon, 458 A.2d 183 (Pa. 1983) .......cccscsseseseseees 24

Brandon v. District of Columbia Board of Parole,

Tame Be CRA, COR, TO i cseincncsccsmssesoseicconsensncensovene 23

Brinkerhoff-Faris Trust & Savings Co. v. Hill,

Pe ae Pe A vincinsihensccnicatiahie ahanna aeinesibinieaasainitca 12, 15

Brown v. Triple “D” Drilling Co., 585 P.2d 987

SIs SAP UIT ssesniasidsirbieniinienaeasioadaa patina ted paella teal 24

Capital Cities Cable, Inc. v. Crisp, 464 U.S. 813

CIT ciianscscstinsashirbeiaritehinihiiniesihebuiiliahatdanch aliagtiichdementasielbus 27

Carducci v. Regan, 714 F.2d 171 (D.C. Cir. 1983)... 20

Castro v. United States, 124 S. Ct. 786 (2003) ...........0.00. 15, 20

City of Edgerton v. General Casualty Company,

SLT N.W 2 465 (Wis. 19B4) ..cccccescconssascsecssnrssresncsienees 6, 18

City of Kenosha, Wisconsin v. Bruno, 412 U.S. 507

Frans cniiniiebesinapilieedabneinsanaleeisagsTinamiantciala ia siciaalMe donee

City of New Orleans v. Dukes, 427 U.S. 297 (1976) ...........0-. 27

Cleveland Board of Education v. Loudermill,

Fe Seis ee IE vnrrisinachnssirtesdsishanitandambdeicnanbanianancsaniins 14

Clorox Co. Puerto Rico v. Proctor & Gamble

Commercial Co., 228 F.3d 24 (1st Cir.

STE aisisntiinsisipuaiiiaialiamamamuiablauieiic aes 20, 21, 22, 23, 24

Colorado v. Connelly, 474 U.S. 1050 (1986).......ccccccsescesesees 27

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

Vili

TABLE OF AUTHORITIES—Continued

Page(s)

Creel v. District Attorney for Medina County,

Tews, GIB BD. WG SB CTO. TODD poerecacoscececccesccsccosscervoonces 24

Doe v. St. Joseph’s Hospital, 788 F.2d 411 (7th Cir.

MITTEN sisniiniasstacsinstcueipscadilbanbiddeuesitssnadaeatsoaitaguaiemmaniatinasialainnaie 22

Employment Division v. Smith, 494 U.S. 872 (1990)........... 28

English v. Cowell, 10 F.3d 434 (7th Cir. 1993) ......ccccccseseseees 21

Epic Metals Corp. v. Samari Lake East Condomin-

ium Ass’n, Inc., 547 So. 2d 198 (Fla. Dist. Ct.

PRE, TO e vinineiccmaitshisdasalassauiicsentpicanapaeasiiideaddasbibtoienaecistes 24

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) oo... eeeeeeeees 28

Foster-Gardner, Inc. v. National Union Fire In-

surance Corp., 959 P.2d 265 (Cal. 1998)..........sscssceseeeseee 16

Franklin v. Oregon State Welfare Division,

GUS. F 2a FSET THER Civ. 1GB1) serscscivesssnesensscvensecnessennscenseeves 21

Fuentes v. Shevin, 407 U 3S. GT (1987S) .ccsccscccosconsesssossscevsesseesees 14

General Casualty Co. v. Hills, 561 N.W.2d 718

EOP Tieiesicsninsscninesvnucancanapaicthenatannddealabesaanicaeadenisanmatamaniaaiies 6

Gladden v. Kansas City, 411 S.W.2d 228 (Mo. 1967)............ 25

Goldberg v. Kelly, 397 U.S. 254 (1970)..........sscsscscsssssssercerceees 14

(oben ©. Lages, 459 UB, GE CIT vsssccnessscncsincscisesnicinctinenssennces 19

Grannis v. Ordean, 234 U.S. 385 (1914) oc. ecccccssccssscccsesees 13

Grissom v. Grissom, 886 S.W.2d 47 (Mo. Ct. App.

EE Hiciessicsiacin ese diucseaa slicamaddeanidderssabaiuicaanataaa nina abausageteseias 24

Grotelueschen v. American Family Mutual Insur-

ance Co., 492 N.W.2d 131 (Wis. 1992) ........cccoccscccsscsssceees 18

Harleysville Mutual Insurance Co. v. Sussex

County, Delaware, 831 F. Supp. 1111 (D. Del.

1992), aff'd, 46 F.3d 1116 (8d Cir. 1994) (Table)............. 16

Heim v. California Federal Bank, 828 A.2d 129

(Conn. App. Ct.), cert. denied, 832 A.2d 70

A Ht eaectsccetincsatvniiernsinadc aeenain nasanbasankapuinnsanes 24

Hispanics for Fair & Equitable Reapportionment

Vv. Griffin, 968 F.2d 24 (Sd Cir. 1902) ncccccsecsessssvoressesecesses 21

Holzer v. Jochim, 557 N.W. 2d 57 (N.D. 1996) ............. cess 24

Hubbard v. United States, 514 U.S. 695 (1995) .........cceeeeeees 27

TABLE OF AUTHORITIES—Continued

Page(s)

Huminski v. Lavoie, 787 A.2d 489 (Vt. 2001) .....cccccsecceseseeees 25

In re M.B., 514 A.2d 599 (Pa. Super. Ct. 1986), affd,

a Re UF EE iy cect cssinniledieiseesinbsiciasaciasacashataiibiiicads 25

Jefferson Fourteenth Assocs. v. Wometco de Puerto

Rico, Inc., 695 F.2d 524 (11th Cir. 1983)...............00. 20, 22

Juidice v. Vail, 480 U.S. 327 (1977).......c.cccccosscscsscscccecsosssosseeee 7

Klier v. Sordoni Skanska Construction Co.,

766 A.2d 761 (N.J. Super. Ct. App. Div. 2001)............... 24

Kolstad v. American Dental Ass’n, 527 U.S. 526

Carer ssi sicsntosctiisidsbuciinimedianiniabaiaianiasedshbtiaiepialieiatcamiicensaetoania’ 28

Lachance v. Erickson, 522 U.S. 262 (1998) .......ccccccccsscsseesesees 13

Lankford v. Idaho, 500 U.S. 110 (1991) wees 15, 20

Lapham-Hickey Steel Corp. v. Protection Mutual

Insurance Co., 655 N.E.2d 842 (Ill. 1995)... 5,16

Link v. Wabash R.R. Co., 370 U.S. 626 (1962)..........ccccccccesee. 25

Lopez v. Smith, 203 F.3d 1122 (9th Cir. 2000) cee 22

Mannesman Demag Corp. v. M/V Concert Express,

See EE Rd COUR CP. BI) sesasinasconscssencrsssosonsnseenenentancssiouns 21

Mapp v. Ohio, 367 U.S. 643 (1961).......cccccccccssssssesssscceseseseseees 27

Mathews v. Eldridge, 424 U.S. 319 (1976) ........ccccccsseccsseseeeee 26

McKinney v. Oklahoma Department of Human

Services, 925 F.2d 363 (10th Cir. 1991).............ccccceesees 20

Michelin Tire Co. v. Wages, 423 U.S. 276 (1976)... 29

Michigan Millers Mutual Insurance Co. v. Bron-

son Plating Co., 519 N.W.2d 864 (Mich. 1994)................ 6

Minnesota Mining & Manufacturing Co. v. Travel-

ers Indemnity Co., 457 N.W.2d 175 (Minn.

FPO ciischmaiuensadueniadiniinmees iesinekaipspisaceledlieiiaapainchdsbaaiceindnicti 5

Mowry v. Badger State Mutual Casualty Co.,

BD FETE Ue 088 COD, RIOD sisiceninnnisntanssciinnesinsniucsasinsevanion 18

Mullane v. Central Hanover Bank & Trust Co.,

SRE Eas SU CR cececticsensitinibcalienciedinsctepaniacinten 13, 14, 28

Murphy v. Lancaster, 960 F.2d 746 (8th Cir. 1992)........ 20, 24

Myung Chun v. North American Mortgage Co.,

285 A.D.2d 42 (N.Y. App. Div. 2001)... cccecsccescseseeee 24

TABLE OF AUTHORITIES—Continued

Page(s)

Neitzke v. Williams, 490 U.S. 319 (1989) ..............cccccccccesseees 21

Nelson v. Adams USA, Inc., 529 U.S. 460 (2000) ..... 13, 15, 19

New Castle County v. Hartford Accident & Indem-

nity Co., 933 F.2d 1162 (3d Cir. 1991) .........c.cccccscccsssescess 16

Newhouse v. Citizens Security Mutual Insurance

COL, GPR FRWe ae B CHP R, FIG) crcsncensrsacestscesinsasasdoscevsesiconnes 18

Osborn v. Emporium Videos, 848 P.2d 237 (Wyo.

DT Tae \iithcstiltinsnndeivoaasdnsaeenbsdksithniaiiiitcgpeiaeioasetbliilindidhinuieiipaitahanscuaieensintions 25

Otis Elevator Co. v. George Washington Hotel

Tg EE Be re Ce es BG inv sivncnveccenstocnieveceanssersivcs 21

Outboard Marine Corp. v. Liberty Mutual Insur-

ance Co., 607 N.E.2d 1204 (Ill. 1992) 0.0.0... eens 5, 16

Patterson v. McLean Credit Union, 485 U.S. 617

[TE icetnveciecsieciediiinenusicateiisaaibieaniesiaiiialabeibeigiiescneionmimevndiniiiia 27

Payne v. Tennessee, 498 U.S. 1080 (1991)..........ccccscsssersseeees 27

People v. Kitchen, 727 N.E.2d 189 (Ill. 2000)..........cescesesseeee 24

Polk County v. Dodson, 454 U.S. 312 (1981) uu... eeesssssseseeeees 20

Professional Rental, Inc. v. Shelby Insurance Co.,

599 N.E.2d 423 (Ohio Ct. App. 1991)...........ccscessersesseseees 16

R. Wilson Plumbing & Heating, Inc. v. Wademan,

588 A.2d 444 (N.J. Super. Ct. App. Div. 1991)............... 25

Razzoli v. Federai Bureau of Prisons, 230 F.3d 371

ie Sa PD visa ciocutvestnan het acanianidiideeaceeipbnlomsaaahadseninbicniuiens 22

Richards v. Jefferson County, Alabama, 517 US.

FE CRE lich isisesovcn sibnapinn senteibovnsnasdiaactaviakiemaniielientainiginibanligiipiciis 15

Ricketts v. Midwest National Bank, 874 F.2d 1177

RES eID saislvscisginseniisi rsnleicenstcnapbdaldassiccsenbabioetegaatiinialainianen 23

Rubins v. Plummer, 813 P.2d 778 (Colo. Ct. App.

IFPI vickinisici slap sucsioeaesiecasedepiecandeeinanihanicuiiieddades tnleantadbieaaniatiinteniiils 24

SCSC Corp. v. Allied Mutual Insurance Co.,

SD PE Ne Ak A CRONE, BO rnssccrenitnacerisevihigiersisiicenesonniviens 5

Sanborn Plastics Corp. v. St. Paul Fire & Marine

Insurance Co., 616 N.E.2d 988 (Ohio Ct. App.

aD nussetasicslanwansisiihlannahinbdindiuaabiceuaadeunetebenlapaladetiinantiiisiiadiiiiaptie 16

Shipley v. Shipley, 509 N.W.2d 49 (N.D. 1998) .......ccsecseseees 25

TABLE OF AUTHORITIES—Continued

Page(s)

Sniadach v. Family Finance Corp., 395 US. 337

CRIP v i iccossichenpnciesipainteoninasihiahsiisdlesanesstnduidacesonehectiaialtebsosoiiaiibe 14

Snider v. Melindez, 199 F.3d 108 (2d Cir. 1999).............. 20, 23

Square D Co. v. Niagara Frontier Tariff Bureau,

Inc., 760 F.2d 1347 (2d Cir. 1985), affd,

sci a he th ec, a ERO ENT OM 21

State ex rel. McLeod v. Brown, 294 S.E.2d 781 (S.C.

Ip EaD ssieiicbiisheudadessaieienicitcdaparelsahialiscoesibaiavamthagiialatiaambldasoasbed 25

State ex rel. Schatz v. McCaughtry, 664 N.W.2d 596

Sa AE Aaahiin ksisuessichnnstiociscepeaiiahecldakestacunseasavmmedocamsieiaeas 25

Steel Co. v. Citizens for a Better Environment,

et WE I sitsisstosilehsduieaogtsthseiscahem ceadasheniacatdawsiad 27

Stewart Title Guaranty Co. v. Cadle Co., 74 F.3d

i | Te en ea eee Ae >. 20

Storer Communications of Jefferson County, Inc.

v. Oldham County Board of Education,

850 S.W.2d 340 (Ky. Ct. App. 1998).......ccsccsscccccsssees 24

Surat v. Nu-Med Pembroke, Inc., 632 So. 2d 1136

OF BRE hy Bi FI csahiseseapesecconticnsaniesasictpsicvnriennvainn 24

Teague v. Lane, 489 U.S. 288 (1989)......cccccccccssccsssssessesssceseees 28

Terpstra v. Soiltest, Inc., 218 N.W.2d 129 (Wis.

SF Ul cstv spies sehibisipeetaonahedniaibdatheetdasstieh dean asceniinitbedidbenits 25

Tingler v. Marshall, 716 F.2d 1109 (6th Cir. 1983)... 20, 22, 23

United States Development Corp. v. Peoples Fed-

eral Savings & Loan Ass’n, 873 F.2d 731 (4th

SAN Re Sivcnonescvestaviceen sali aninece eiaciisaiinepacedaelagiaaalasectagniiblonioibeile 21

United States National Bank of Oregon v. Inde-

pendent Insurance Agents of American, Inc.,

CITE TL NR RL ee 27

United States v. Burke, 504 U.S. 229 (1992) wc eeeeeeseeeeess 20

United States v. Feola, 420 U.S. 671 (1975) ....cccccescsscessceeeess 20

Yashon v. Gregory, 737 F.2d 547 (6th Cir. 1984)... eee 21

STATUTES

cc SAINI. CUI, FEF cacciiniicnssinvnicesehotinsnnnondnaenicometcilatcoans 2

TABLE OF AUTHORITIES—Continued

\ Page(s)

EER a | | ee Onn ne spahabredcevesmiuceosonenscavas 2,12

FA A ee Is cits srcsasiscinninbiacnsenibaicebaileaieiinamicsl 22

ROS Sa | 9 ee er re eT 22

Ee RE ec OE sitsceasntcectesisnetsinisnieainsoesicleaniieclanitenipiiianseiaataiion 22

Comprehensive Environmental Response, Com-

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

SeIT aT weciiesissnscsieesbuecisiaectacictelindndileninantiethegeienancaiaalissibinndsibaaianinaialaies 4

A Or ee i itesincs bs scsessanoneinncinitinnniasiansnniidciniansingducadaaiaiaidiaae 5

6 I iiss siacisnssaeniveinenhncseteiinnitieieibieetbilemanaminaaiad 5

RE UE ee ED cvivncssieestiinsinesitabcseieitaiideiainbinesiddbtidasiaiil 5

EF a ids ssicisensinenectneesieiisicissbnbalaalibiiauidicdtipeiitiappiasamanih 5

Fg, ie IU seiderisstcsticaineeiacinicenen ciaetaetaubeiiesedeeindaaienauabamaal 9, 25

Pe ce ae aiiiisstianiita acini kipetaiinaaedniaiial 17

Sots Ae ec III Oda i stinecdisacosasicoecnipalias Geena cciadehnnstiniehasaaiaiaaaaiagsbiamnaaal 1

MISCELLANEOUS

Crook, D. Seott, Affirming the Untested: Affirming

A Trial Court Based On Issues Raised Sua

sponte, Utah Bar d., Oct. 2001, at 10 cvconneccsccrecserevecssnsosons 3

Milani, Adam A. & Smith, Michael R., Playing God:

A Critical Look At Sua Sponte Decisions By

Appellate Courts, 69 Tenn. L. Rev. 245 (2002).............0 3

Miller, Barry A., Sua Sponte Appellate Rulings:

When Courts Deprive Litigants Of An Oppor-

tunity To Be Heard, 39 San Diego L. Rev. 1253

CTIOEE )..x:sxisinsstiininreniicentiesietadidesabeneanaentaniainmtiaiammaieaaniaial 3

Ostrager, Barry R. & Newman, Thomas R., Hand-

book on Insurance Coverage Disputes (11th ed.

IOI) snscnsessinnshannsneisicunsdtiiniinloniniiduniiilimaiaaiieammimeimanelnd 16

Russ, Lee R., Couch on Insurance (3d ed. 2000) .............000000 5

Stern, Robert L. et al., Supreme Court Practice

BRD 0, TIED csersiexssneseitiacaisnictalidhemiaianianiiianeaieaaasaimemsndbaaa 12

xiii

TABLE OF AUTHORITIES—Continued

Page(s)

Wisconsin Department of Natural Resources

Remediation and Redevelopment Program,

Contaminated Land Database, at http://www.

dnr.state.wi.us/org/aw/rr/brrts/index.htm (last

I ccc sascsssecescesscescossesceceess 17

IN THE

Supreme Court of the United States

E;MPLOYERS INSURANCE COMPANY OF WAUSAU,

Petitioner,

JOHNSON CONTROLS, INC., et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF WISCONSIN

PETITION FOR A WRIT OF CERTIORARI

Petitioner Employers Insurance Company of Wausau

respectfully petitions for a writ of certiorari to review the

judgment of the Supreme Court of Wisconsin in this case.

OPINIONS BELOW

The decision of the Supreme Court of Wisconsin (App.

la-77a) is reported at 665 N.W.2d 257. The decision of the

Wisconsin Court of Appeals (App. 79a-91a) is reported at 640

N.W.2d 205. The orders and judgment of the Circuit Court

for Milwaukee County (App. 117a-14la) are unreported.

Prior decisions of the Circuit Court (App. 109a-116a) and the

Court of Appeals (App. 93a-108a) are unreported.

JURISDICTION

The judgment of the Supreme Court of Wisconsin was

entered on July 11, 2003. A timely motion for reconsidera-

tion (the equivalent of a petition for rehearing under this

Court’s Rule 13.3) was denied on September 18, 2003. App.

147a. On December 9, 2003, Justice Stevens extended the

time for filing a petition for a writ of certiorari to and includ-

ing January 16, 2004. On January 12, 2004, Justice Stevens

further extended the time for filing a petition for a writ of

certiorari to and including February 15, 2004 (the Sunday

before Presidents Day, a federal holiday). This Court has

jurisdiction pursuant to 28 U.S.C. § 1257(a).

CONSTITUTIONAL PROVISION INVOLVED

The Due Process Clause of the Fourteenth Amendment

to the United States Constitution provides: “No state shall

... deprive any person of life, liberty, or property, without

due process of law.” U.S. Const. amend. XIV, § 1.

INTRODUCTION

This case presents questions about an appellate court’s

authority to decide, swa sponte, issues that were never

briefed to that court and were not relevant to the subject

matter of the appeal, without permitting the litigants notice

or an opportunity to be heard. After submission of briefs

and oral argument in this case, the Wisconsin Supreme

Court decided a significant issue of insurance coverage that

was never raised in the policyholder’s petition for review to

the court or briefs on the merits, never identified by the

court as an issue of concern to the parties, and never ad-

dressed by any lower court. Moreover, in deciding that is-

sue, the court overruled one of its prior holdings, without

advising the parties that the issue was open to reexamina-

tion or providing an opportunity to address the stare decisis

concerns raised by doing so.

The Wisconsin Supreme Court’s decision—made with-

out giving petitioner notice or an opportunity to be heard—

will likely cost petitioner tens of millions of dollars. If a de-

partment of motor vehicles had acted in such a manner when

revoking a person’s driver’s license, the courts would have

found a plain denial of due process. Appellate courts, how-

ever, are bound by the Due Process Clause no less than state

licensing agencies. When an appellate court contemplates

reaching out to decide an issue not before it that involves

millions of dollars and implicates broad public policy issues,

in a context where the reliance interests underlying stare

decisis are very substantial, the Due Process Clause de-

mands that the court first give the parties an opportunity to

be heard.

Undoubtedly there are circumstances in which an appel-

late court may examine, swa sponte, issues necessary to the

proper resolution of claims that the parties have put before

it. At some point, however, swa sponte judicial decisionmak-

ing can breach the banks of the adversary system that is the

foundation of the American judicial system. That point was

reached in this case, when the Wisconsin Supreme Court

reached out to decide a matter that had neither been pre-

sented for the court’s review nor adjudicated by any lower

court. si

There is reason to believe that the kind of surprise judi-

cial decisionmaking engaged in by the Wisconsin Supreme

Court in this case may be on the rise in appellate courts.

Another petition currently before this Court seeks review of

a similar action by the Federal Circuit, which has frequently

adjudicated complex issues of patent claim construction saa

sponte on appeal without giving the parties notice or an op-

portunity to be heard on the question. See Turn-Key-Tech

LLC v. National Film Lab., Inc., No. 03-1138 (petition for

cert. filed Feb. 3, 2004). Commentators have also criticized

the practice of swa sponte decisionmaking by appellate

courts, noting that it conflicts with basic norms of our adver-

sary system of justice and reduces the public’s confidence in

the judicial system.’

' See Adam A. Milani & Michael R. Smith, Playing God: A Critical

Look At Sua Sponte Decisions By Appellate Courts, 69 Tenn. L. Rev. 245

(2002); Barry A. Miller, Sua Sponte Appellate Rulings: When Courts De-

prive Litigants Of An Opportunity To Be Heard, 39 San Diego L. Rev.

1253 (2002); D. Scott Crook, Affirming the Untested: Affirming A Trial

Court Based On Issues Raised Sua Sponte, Utah Bar J., Oct. 2001, at 10.

Although several decisions of this Court make clear that

the Wisconsin Supreme Court’s swa sponte action in this

case cannot stand, this Court has never directly addressed

the limits on an appellate court’s authority to decide signifi-

cant, unappealed issues without giving the parties either no-

tice or an opportunity to defend their interests. This case

presents a vehicle for the Court to clarify reasonable consti-

tutional limits on the power of appellate courts to decide is-

sues swa sponte. Without correction by this Court, the

abuses of swa sponte decisionmaking will persist unchecked,

destined to remain the subject of dissenting opinions.

STATEMENT OF THE CASE

1. The Insurance-Coverage Background of this Dispute

Respondent Johnson Controls, Ine. (“JCI”) manufac-

tured and sold automotive lead acid batteries and industrial

controls. As a result of the release of pollutants into the en-

vironment during JCI’s manufacturing processes and waste

disposal activities, numerous governmental and _private-

party claims have been made against it under the Compre-

hensive Environmental Response, Compensation, and _ Li-

ability Act (“CERCLA”), 42 U.S.C. §§ 9601-9675, and re-

lated state statutes. This case arises out of a dispute be-

tween JCI and its insurers over insurance coverage for

those environmental claims. :

In November 1989, JCI filed this suit against petitioner

~Employers Insurance Company of Wausau (“Wausau”) and

more than 30 of JCI’s other insurance carriers in Milwaukee

County Circuit Court. JCI’s lawsuit concerns two distinct

obligations of an insurer under a standard general liability

insurance policy. First, the indemnity obligation requires

the insurer 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 policy applies,

caused by an occurrence.” Second, under the insurer’s sepa-

rate defense obligation, the insurer has “the right and duty

to defend any suit against the insured seeking damages on

account of such ... property damage.” App. 15a (emphasis

added).”

In the context of environmental claims, these two obli-

gations have, in turn, generated two separate legal issues.

The first issue, under the indemnity obligation, is whether

the insured’s liability under CERCLA for costs of assessing

and remediating property contaminated by hazardous sub-

stances constitutes “damages.” The second issue, under the

defense obligation, is whether a letter to the insured from a

governmental agency, such as the Environmental Protection

Agency (“EPA”), identifying the insured as a “potentially

responsible party” (“PRP”) under CERCLA constitutes a

“suit” against the insured, even though no formal judicial

proceedings are instituted.’ The resolution of both issues

may expose the insurer to substantial financial obligation,

but the exposure in connection with the defense of “suit” is-

sue may be much greater, because, unlike the indemnity ob-

ligation, the defense obligation is typically not limited by any

policy limits.’

* An insurer’s duty to defend a lawsuit against its insured is separate

and distinct from its duty to indemnify its insured. See 14 Lee R.- Russ,

Couch on Insurance § 200:3 (3d ed. 2000).

“Under CERCLA, the federal government has two alternative

means for cleaning up contaminated property: EPA may clean up the

property and then seek recovery of response costs from other parties, or

EPA may seek an administrative or judicial order compelling another

party to undertake (and pay for) response actions. See 42 U.S.C. §§ 9604,

9607(a). In either event, the EPA typically seeks to identify and notify

any PRPs before selecting a response action, in order to achieve a negoti-

ated disposition. See 42 U.S.C. §§ 9613(k)(2)(D), 9622(e).

* Several State supreme courts have addressed the “suit” issue and

the “damages” issue in separate cases, reflecting the fact they are inde-

pendent legal issues. Compare Lapham-Hickey Steel Corp. v. Protection

Mut. Ins. Co., 655 N.E.2d 842 (Ill. 1995) (addressing the “suit” issue), with

Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Il.

1992) (addressing the “damages” issue); and compare Minnesota Min ing

& Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175 (Minn. 1990) (“dam-

ages” issue), with SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305

The Wisconsin Supreme Court addressed both the

“suit” and “damages” issues in City of Edgerton v. General

Casualty Co., 517 N.W.2d 463 (Wis. 1994), while this case

was still pending in the circuit court. First, Edgerton held

that a PRP letter to a policyholder does not constitute a

“suit” triggering the insurer’s defense obligation, because

“the primary attribute of a ‘suit’ is that parties to an action

are involved in actual court proceedings, initiated by the fil-

ing of a complaint.” Jd. at 474-475. Second, Edgerton held

that CERCLA response costs do not constitute “damages”

within the insurer’s indemnity obligation. Response costs

under CERCLA, the court reasoned, are not designed to

compensate for past wrongs, but are instead in the nature of

equitable relief, intended to prevent future contamination by

means of injunctive action. Jd. at 478.

The Wisconsin Supreme Court again addressed the

“damages” issue in General Casualty Co. v. Hills, 561

N.W.2d 718 (1997). Hills held that a private party’s lawsuit

against an insured seeking environmental response costs did

seek “damages,” where (unlike Edgerton) the insured had

not previously received a governmental directive or order

under CERCLA directing it to address the contamination.

Id. at 724-725. Chief Justice Abrahamson, in a concurring

opinion, characterized the court’s distinction of the facts of

Hills from those in Edgerton as “debatable.” Jd. at 726.

Over the next five years, the Wisconsin appellate courts

endeavored to apply the “damages” holdings of Edgerton

and Hills to environmental coverage claims in various fac-

tual scenarios. Eventually, the Wisconsin Court of Appeals,

in this case, synthesized the “damages” case law by estab-

lishing four categories of underlying environmental claims.

Three of the categories under this framework were consid-

ered claims for “damages”; the remaining category (denomi-

(Minn. 1995) (“suit” issue); see also Michigan Millers Mut. Ins. Co. v.

Bronson Plating Co., 519 N.W.2d 864 (Mich. 1994) (“suit” issue), overruled

in part by Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (Mich. 2003).

nated by the court of appeals as “Category 2”) was not. App.

82a-84a. The court commented that, although the distinc-

tions among the categories were based on a logical applica-

tion of Edgerton and Hills, they might seem “arbitrary .. . to

some.” App. 87a-88a.

By contrast, there is no indication that the Wisconsin

courts had any difficulty applying Edgerton’s bright-line rule

on the “suit” issue: a complaint filed in court commences a

“suit,” but a PRP letter does not. Nor, before this case, did

the Wisconsin Supreme Court suggest that it might be will-

ing to reconsider its “suit” ruling.

2. Proceedings in this Case in the Wisconsin Courts

Shortly after Edgerton was decided, Wausau moved for

summary judgment in this case against JCI. The circuit

court held that the underlying claims against JCI did not

constitute “damages” and therefore concluded that Wausau

was entitled to summary judgment. App. 114a-115a. The

circuit court did not address the “suit” issue at all, because

its ruling on the “damages” issue disposed of all claims.’

Consistent with the circuit court’s judgment, JCI’s ap-

peal to the Wisconsin Court of Appeals did not raise the

“suit” issue. JCI’s appellate brief identified three issues,

each pertaining only to the “damages” issue. In disposing of

JCI’s appeal, the court of appeals focused only on the “dam-

” Under the insurance policy at issue, an insurer has a duty to defend

a “suit” only if the suit is one “seeking damages.” App. 15a. Thus, if (as

the Wisconsin Supreme Court held in Edgerton), environmental response

costs are by definition not “damages,” then any action against the insured

demanding response costs, whether by way of PRP letter or lawsuit, by

definition cannot be a suit “seeking damages,” regardless of the meaning

of “suit.” On the other hand, even if environmental response costs are

considered damages, it does not follow that any action against the insured

demanding response costs is a “suit seeking damages” within an insurer’s

defense obligation. A complaint filed in court seeking recovery of re-

sponse costs would be a “suit ... seeking damages,” but a PRP letter

would not, because, while it might seek “damages,” it would not be a

“suit.”

ages” issue and announced the four-category “damages”

framework discussed above. As it was unclear to the court

of appeals whether the circuit court’s rulings with respect to

the multiple insurer-defendants were in accord with the

“damages” framework it had announced, the court of appeals

vacated the circuit court’s judgments and remanded for en-

try of a single global judgment. App. 97a, 108a.

On remand, the circuit court entered a global judgment,

ruling that all of JCI’s claims fell into a category other than

Category 2 and thus were not claims for “damages.” Once

again, the circuit court did not address the “suit” issue. App.

123a-14la. JCI again appealed to the Wisconsin Court of

Appeals. JCI’s brief raised only one issue for appeal:

whether the circuit court had properly applied the four-

category “damages” framework to JCI’s claims. Again,

JCI’s brief made no mention of the “suit” issue, as it had not

been addressed by the circuit court. The court of appeals

reaffirmed its four-category “damages” analysis and also

upheld the circuit court’s application of that framework to

each underlying claim. App. 82a-84a, 91a.

JCI then filed a petition for review in the Wisconsin Su-

preme Court. As with each of its prior appellate filings,

none of the four issues presented in the petition raised the

“suit” issue. The first three issues challenged the four-

category framework and its application by the circuit court.

The fourth question presented was: “Should [Edgerton] be

overruled in light of the ‘arbitrary’ and ‘debatable’ distinc-

tions it has produced and the discrediting of authorities upon

which it relied?” App. 149a-150a. This fourth question was

necessarily limited to Edgerton’s ruling on the “damages”

issue, because only that holding had ever been identified as

having produced “arbitrary” and “debatable” distinctions.

See supra, pp. 6-7 (discussing Chief Justice Abrahamson’s

concurrence on “damages” in Hills and court of appeals’

four-category “damages” framework).”

Consistent with its petition for review, JCI’s brief on

the merits also did not argue that the “suit” issue should be

addressed.’ JCI’s reply brief further confirmed JCI’s under-

standing that the “damages” question was the only issue

presented. The reply briefs summary of the issues referred

only to “damages” (App. 156a), and, in response to insurer

arguments that stare decisis supported leaving Edgerton’s

holding on “damages” intact, the reply brief asserted that

Edgerton’s “damages” holding was mere dicta and thus “ripe

for reversal,” but suggested that Edgerton’s “suit” holding

could be left in place (App. 157a & n.2).

* The body of JCI’s petition also made clear that JCI was not asking

the Wisconsin Supreme Court to reconsider its “suit” holding in Edgerton.

First, the heading of the argument section of the petition that corresponds

to the fourth issue presented asserted that “Edgerton’s ‘Damages’ Dictum

Should be Overruled Because Wisconsin Now Stands Virtually Alone in

Finding that CERCLA Response Costs are Not ‘Damages’ and Because

the Cases it Relied Upon are No Longer Good Law.” Second, the conclu-

sion of that argument section asserted that “Edgerton’s rationale is

flawed, as the eight years of “arbitrary” and “debatable” distinctions it

has produced amply demonstrates,” and asked that “Edgerton’s ‘damages’

dictum should be overruled.” Finally, nowhere in the text of the petition

did JCI argue that Edgerton’s “suit” holding should be overruled. App.

152a.

If a petition for review is granted by the Wisconsin Supreme Court,

the petitioning party “cannot raise or argue issues not set forth in the

petition unless ordered otherwise by the supreme court.” Wis. Stat.

§ 809.62(6). Accordingly, JCI’s Statement of Issues in its merits brief set

forth two questions, both of which concerned only the “damages” issue:

(1) “Should the ‘damages’ dictum in [Edgerton] be overruled in light of its

inconsistencies with prior Wisconsin law, the ‘arbitrary’ and ‘debatable’

distinctions it has produced, and the contrary decisions in the overwhelm-

ing majority of other jurisdictions?” and (2) “in applying its four-category

‘damages’ framework, did the court of appeals err ...?” App. 154a. JCI

further asserted in its brief that “{i]f Edgerton is overruled, Johnson Con-

trols is entitled to judgment on liability for cleanup costs at each” of the

sites (App. 154a-155a), but did not argue that, if Edgerton were overruled,

it would also be entitled to costs of defending “suits.”

At oral argument, JCI also gave no indication that it

sought consideration of the “suit” issue.” Nor did the court

direct by way of additional orders or suggest at oral argu-

ment that the parties should address the “suit” issue.”

3. The Wisconsin Supreme Court’s Decision

In its decision, the Wisconsin Supreme Court overruled

Edgerton on “damages,” as JCI had requested. App. 34a.

* From the outset of the argument, JCI’s counsel made clear that the

“damages” issue was the only question presented. In describing the policy

language at issue, he discussed only the indemnity obligation. In describ-

ing the relief sought, he stated that JCI only sought recovery of costs paid

to cleanup property “and the question arises ... are those damages.”

JCI’s counsel made passing reference to case law from other states pur-

portedly discussing the adversarial characteristics of PRP letters. How-

ever, of the three cases he mentioned, one did not decide the “suit” issue,

one was cited in JCI’s petition specifically for its “damages” holding, and

the third—vaguely referred to as “(t]he Indiana case, Travelers Indem-

nity”—was not cited in JCI’s petition or merits briefs. In any event, JCI’s

counsel stated that these cases concerned the insurer’s defense obligation,

and “[t}hat’s separate from the duty to indemnify,” and “[iJn this case, you

don’t even have to get to the duty to defend.”

A recording of the oral argument is available at

http://www. wicourts.gov/supreme/Wisconsin_Supreme_Court_Oral_

Arguments.html.

” Counsel for another insurer defendant, Travelers Indemnity Com-

pany, mentioned the “suit” issue in passing at oral argument. That men-

tion, however, was insufficient to put the parties on notice that the “suit”

issue might be considered by the court, and Wausau had no opportunity to

respond because counsel for Travelers argued after counsel for Wausau.

Travelers had also referred to both the “suit” and “damages” holdings of

Edgerton in its merits brief. That brief’s discussion of the “suit” issue,

however, was not framed as a response to any argument by JCI that the

“suit” holding of Edgerton should be overruled, as JCI had made no such

argument in its opening brief. Indeed, in its reply brief, filed after Travel-

ers’ brief, JCI never argued that the “suit” holding of Edgerton should be

overruled. Moreover, Travelers’ short mention of the “suit” issue could

not be sufficient to put Wausau on notice that the court might address the

issue, because Wausau had already filed its merits brief, and had no op-

portunity to reply to Travelers’ brief.

GDA BBR iis nese arse nete aiid Contato v

Then, for no apparent reason other than that (according to

the court) “(t]he Edgerton court’s definition of ‘suit’ gives us

pause,” the court also proceeded, swa sponte, to reconsider

and overrule Edgerton’s holding on the “suit” issue. App.

34a-4la.

Nowhere in the court’s ensuing discussion of the “suit”

issue is there any reference to any argument made by the

parties on that issue—for there had been no such argument.

Moreover, despite reiterating the court’s scrupulous adher-

ence to stare decisis and the need to set forth a “sufficient

justification” when departing from precedent, the decision

did not explain why it was appropriate to depart from stare

decisis and reverse Edgerton’s “suit” holding. Rather, the

entirety of the court’s lengthy discussion of stare decisis is

limited to reasons justifying overturning Edgerton’s “dam-

ages” holding. App. 41a-58a."°

Two justices dissented. App. 63a-77a. Those justices

would have given stare decisis effect to Edgerton. They

pointed out that stare decisis “concerns are particularly

strong where substantial reliance in the affected business

community occurs,” and observed that, on both the “dam-

ages” and “suit” issues, Edgerton had “become part of the

basic framework of the insurance industry.” App. 67a. On

the “suit” issue in particular, the dissenters criticized the

court’s new rule as dissolving the previously clear line de-

marcating the institution of formal judicial proceedings, and

argued that the new rule “fails to adequately rationalize un-

der what circumstances a PRP letter will trigger a duty to

defend.” App. 75a.

Wausau filed a motion for reconsideration arguing that

the court’s swa sponte reversal on the “suit” issue violated

si Having determined that Edgerton should be disapproved in toto,

the court remanded the case for further proceedings. The court noted

that the insurers had raised defenses to coverage. App. 59a-60a. The

court did not, however, identify any defenses to be decided on remand

that might relate to whether a PRP letter is a “suit.”

its right to due process under the Fourteenth Amendment

because it had had neither notice nor an opportunity to be

heard on the issue. Wausau pointed out that the court had

overlooked substantial reliance interests, principles of con-

tract interpretation, and insurance policy arguments sup-

porting adherence to prior law on the “suit” issue, and that

the reversal could cost Wausau tens of millions of dollars.

By a 3-2 vote, the court denied Wausau’s motion in a one-

sentence order. In so ruling, the court effectively foreclosed

any opportunity to correct the due process violation created

by its decision."

"' This Court has jurisdiction under 28 U.S.C. § 1257(a), even though

the Wisconsin Supreme Court did not expressly address petitioner’s due

process argument when it denied reconsideration, and even though that

court remanded the case to the lower state courts for further proceedings.

First, as in the very similar case of Brinkerhoff-Faris Trust & Savings

Co. v. Hill, 281 U.S. 673, 677-678 (1930), in which this Court ruled that a

state supreme court’s surprise decision violated the petitioner’s due proc-

ess rights as a litigant, Wausau properly presented its due process objec-

tion to the Wisconsin Supreme Court at the earliest possible opportunity,

in a motion for reconsideration. Second, the denial of reconsideration

amounts to a final judgment on the federal question of whether Wausau

was denied due process by that court’s decision on the “suit” issue. No

further proceedings in state court can affect the fact that the Wisconsin

Supreme Court failed to give Wausau notice or an opportunity to be heard

before resolving the “suit” issue against Wausau. This is therefore a case

in which “the federal issue will be unaffected and undiluted by the later

proceedings; hence for all practical purposes the ruling on the federal is-

sue is final.” Robert L. Stern et al., Supreme Court Practice 153 (8th ed.

2002). Moreover, if this Court reverses the Wisconsin Supreme Court,

Edgerton’s ruling that PRP ietters are not “suits” would once again be the

law in Wisconsin, and JCI will have no cause of action against Wausau

based on a duty to defend in situations where JCI had merely received a

PRP letter. This is therefore a case “where reversal of the state court on

the federal issue would be preclusive of any further litigation on the rele-

vant cause of action.” Cor Broadcasting Corp. v. Cohn, 420 U.S. 469, 482-

483 (1975).

REASONS FOR GRANTING THE PETITION

I. THE WISCONSIN SUPREME COURT’S SUA SPONTE

RESOLUTION OF A MATTER NOT BEFORE IT, WITHOUT

GIVING THE PARTIES NOTICE OR AN OPPORTUNITY TO

BE HEARD ON THAT MATTER, DENIED PETITIONER

DUE PROCESS

A. Petitioner Was Denied Its Basic Rights To Notice

And An Opportunity To Be Heard

Many controversies have raged about the cryptic

and abstract words of the Due Process Clause but

there can be no doubt that at a minimum they re-

quire that deprivation of life, liberty or property by

adjudication be preceded by notice and opportunity

for hearing appropriate to the nature of the case.

Mullane v. Central Hanover Bank & Trust Co., 339 U.S.

306, 313 (1950).

These fundamental due process requirements are

deeply entrenched in the American system of justice. This

Court established long ago that the basic prerequisites of

due process guaranteed under our Constitution are the in-

tertwined rights of a party to notice and an opportunity to

be heard. See, e.g., Lachance v. Erickson, 522 U.S. 262, 266

(1998) (“The core of due process is the right to notice and a

meaningful opportunity to be heard.”); Grannis v. Ordean,

234 U.S. 385, 394 (1914). “An elementary and fundamental

requirement of due process ... is notice reasonably calcu-

lated, under all the circumstances, to apprise interested par-

ties of the pendency of the action and afford them an oppor-

tunity to present their objections,” Mullane, 339 U.S. at 314,

and the basic right of the opportunity to be heard includes

the right to respond, Nelson v. Adams USA, Inc., 529 U.S.

460, 468 (2000).

These elemental due process guarantees were disre-

garded when the Wisconsin Supreme Court swa sponte de-

cided the “suit” issue and reversed the decade-old precedent

of Edgerton. Wausau had no notice that the Wisconsin

Supreme Court would raise and decide the “suit” issue. The

issue was not decided by either the circuit court or the court

of appeals. JCI’s petition for review concerned only the

“damages” issue and did not mention the “suit” issue. JCI’s

brief to the Wisconsin Supreme Court did not discuss the

“suit” issue. No justice of the Wisconsin Supreme Court

raised the “suit” issue at oral argument. In short, Wausau

had no notice, much less “notice reasonably calculated under

all the circumstances, to apprise” Wausau that the “suit” is-

sue was under consideration and “afford [it] an opportunity

to present [its] objections.” Mullane, 339 U.S. at 314. Asa

result, Wausau was deprived of an opportunity to be heard

by way of briefing or oral argument before the Wisconsin

Supreme Court raised the issue, departed from stare decisis,

and overturned existing precedent. This Court has had little

trouble in finding due process violations in similar peremp-

tory actions by government entities.”

The Wisconsin Supreme Court’s action stands in stark

contrast to this Court’s teachings in other cases involving

litigants’ fundamental due process rights of notice and an

opportunity to be heard. For example, this Court has held

that a party is deprived of its due process rights when a

state supreme court unilaterally reverses existing law—

without notice and an opportunity to be heard—leaving the

party effectively foreclosed from pursuing an administrative

7 See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 582, 542-545

(1985) (notice and opportunity to respond required before termination of

public employee); Fuentes v. Shevin, 407 U.S. 67, 96 (1972) (state pre-

judgment replevin statutes violated due process to the extent they did not

allow an opportunity to be heard before household goods were seized);

Bell v. Burson, 402 U.S. 535, 542 (1971) (state must provide prior hearing

before depriving an individual of driver’s license and vehicle registration);

Goldberg v. Kelly, 397 U.S. 254, 260-266 (1970) (due process requires that

welfare recipients receive an evidentiary hearing before termination of

welfare benefits); Sniadach v. Family Fin. Corp., 395 US. 337, 341-342

(1969) (state prejudgment wage garnishment procedure that deprived

individual of wages until resolution of the underlying litigation without

prior notice or an opportunity to be heard violated due process).

remedy in which to seek a lowering of tax valuations.

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673,

678 (1930). The Court has also held that the Due Process

Clause is violated when a party is bound under the doctrine

of res judicata to the rulings in another case as to which it

was not a party and had not received any notice. Richards

v. Jefferson County, Ala., 517 U.S. 793, 799 (1996).

Similarly, in Lankford v. Idaho, 500 U.S. 110 (1991), the

Court ruled that a capital defendant was denied due process

when a trial judge sentenced him to death, even though the

prosecution had given no notice to the defendant that it was

seeking the death penalty. As the Court explained in

Lankford, “(notice of issues to be resolved by the adversary

process is a fundamental characteristic of fair procedure.”

Id. at 126. The Court also recently held in Nelson, supra,

that “the proceedings did not ... comport with due process”

where an amended judgment was entered, without notice or

an opportunity to be heard, imposing liability on a corporate

officer not previously a party to the proceedings. 529 U.S. at

466." There is no doubt that the unilateral actions of the

Wisconsin Supreme Court in this case violated the minimum

due process requirements of prior notice and hearing and

would, as in Nelson, be “questioned even in systems, real

and imaginary, less concerned than ours with the right to

due process.” Jd. at 468.

B. The Denial Of Any Hearing On The “Suit” Issue

Prejudiced Petitioner

There can be no doubt that Wausau was deeply preju-

diced by the Wisconsin Supreme Court’s surprise decision.

By taking up the issue unilaterally, the Supreme Court of

Wisconsin deprived Wausau of the opportunity to marshal

® See also Castro v. United States, 124 S. Ct. 786 (2003) (holding that

a district court may not recharacterize pro se litigant’s motion for new

trial as a motion under 28 U.S.C. § 2255 without first warning the litigant

of the consequences of such recharacterization).

the significant legal, policy, and reliance-based arguments

against that court’s reversal on the “suit” issue. The argu-

ments in favor of adherence to stare decisis on the “suit” is-

sue are weighty—far more weighty than the Supreme Court

of Wisconsin likely understood, given the absence of briefing

on the issue. Moreover, the arguments favoring stare de-

cisis on the “suit” issue are different and stronger than they

were on the “damages” issue. Thus, if the court below had

asked for briefing on both issues, it would likely have recog-

nized that, even if Edgerton’s holding on the “damages” is-

sue might have been disapproved, its holding on the “suit”

issue should have been reaffirmed. *

(1) Unlike the “damages” issue, no changes or develop-

ments in the law have occurred on whether a PRP letter is a

“suit.” Many other courts around the country have reached

the same result as that reached in Edgerton: a PRP letter is

not a “suit.” Indeed, some courts expressly cited Edgerton

for that holding and relied on its rationale in reaching the

same conclusion. See, e.g., Foster-Gardner, Inc. v. Nat’l Un-

ion Fire Ins. Co., 959 P.2d 265, 280 (Cal. 1998); Lapham-

Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d

* Courts in several jurisdictions holding that CERCLA response

costs are “damages” have found that a PRP letter is not a “suit.” Com-

pare Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d

842, 846-848 (Ill. 1995) (PRP letter not “suit”), with Outboard Marine

Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212-1216 (Ill. 1992)

(CERCLA response costs are “damages”); compare Professional Rental,

Inc. v. Shelby Ins. Co., 599 N.E.2d 423, 430-431 (Ohio Ct. App. 1991) (PRP

letter not “suit”), with Sanborn Plastics Corp. v. St. Paul Fire & Marine

Ins. Co., 616 N.E.2d 988, 997-998 (Ohio Ct. App. 1993) (CERCLA re-

sponse costs are “damages”); compare Harleysville Mut. Ins. Co. v. Sus-

sex County, Del., 831 F. Supp. 1111, 1130-1132 (D. Del. 1993) (PRP letter

not “suit” under Delaware law), affd, 46 F.3d 1116 (3d Cir. 1994) (Table),

with New Castle County v. Hartford Accident & Indem. Co., 933 F.2d

1162, 1184-1191 (3d Cir. 1991) (CERCLA response costs are “damages”

under Delaware law).

” See Barry R. Ostrager & Thomas R. Newman, Handbook on In-

surance Coverage Disputes § 10.04{¢}[2] (11th ed. 2002) (citing cases).

842, 847 (Ill. 1995). Nor has there been any showing that

Edgerton’s holding on the “suit” issue has somehow been

detrimental to coherence and consistency in the law. Unlike

the “damages” ruling—which the Wisconsin Supreme Court

found had led to uncertain application in the lower Wisconsin

courts—the court reported no difficulties in the lower courts’

application of the “suit” ruling.

(2) Wausau would have alerted the court to the impor-

tant reliance interests implicated by a reversal of Edgerton

on the “suit” issue. Policyholders may well assert entitle-

ment for all past “defense costs” allegedly incurred for PRP

letters within the six years preceding the decision in this

case.” The volume of such claims could be massive. The

Wisconsin Department of Natural Resources’ list of con-

taminated sites contains more than 23,000 open sites.’ This

number only begins to reflect the actual number of claims

that might emerge from a site, considering that numerous

parties may receive PRP letters at any one site. In light of

this information, Wausau estimates the court’s swa sponte

decision on the “suit” issue could cost the company tens of

millions of dollars. The impact on the insurance industry will

be many times greater.

(3) Wausau would have pointed out that reversal of

Edgerton’s “suit” holding could have sweeping consequences

that were apparently not foreseen by the court. Construing

a PRP letter as a “suit” places insurers in an extraordinary

dilemma. Under Wisconsin’s unique duty to defend case

law, an insurer may be estopped from raising its coverage

defenses if it fails either to provide its insured with a “free

defense” of a “suit,” or to intervene in the underlying action

and attempt to obtain a stay of the underlying proceedings

"The Wisconsin Statutes provide for a six-year statute of limita-

tions on breach of contract claims. See Wis. Stat. § 893.43.

" See Wisconsin Department of Natural Resources Remediation and

Redevelopment Program, Contaminated Land Database, at http://www.

dnr.state.wi.us/org/aw/rr/brrts/index.htm (last modified Nov. 18, 2003).

pending a declaratory judgment on coverage.” Insurers and

policyholders may disagree, however, on whether certain

costs are properly considered costs of defense (which usually

have no policy limit) or indemnity costs. The scope of these

disagreements is likely to be greatly magnified if PRP let-

ters are considered “suits.” For example, insurers and poli-

cyholders may disagree on how the (very substantial) costs

of investigating the extent of contamination at a site in re-

sponse to a PRP letter should be classified. Even if an in-

surer takes a reasonable position that certain costs under-

taken in response to a PRP letter are not properly classified

as defense costs and loses that argument, under Wisconsin

law it may lose its right to assert any coverage defenses or

limits.

The court’s decision on the “suit” issue also may have

inadvertently eroded several well-established principles of

contract construction under Wisconsin law. For example,

the Edgerton decision, applying the venerable principle that

unambiguous language in contracts should be controlling,

stressed that the term “suit” has a plain and unambiguous

meaning. 517 N.W.2d at 475. In the decision below, how-

ever, the court focused not on the plain meaning of the in-

surance contract, but on the insured’s reasonable expecta-

tions. App. 38a-39a. This difference in focus from language

to expectations might be taken to presage a dramatic shift in

Wisconsin contract law. In addition, the court’s decision

seems to disregard the fundamental principle of insurance

contract construction that all terms must be given meaning

and not rendered mere surplusage. See Grotelueschen v.

Am. Family Mut. Ins. Co., 492 N.W.2d 131, 136 (Wis. 1992).

The court suggested that the insurer’s duty to defend must

be interpreted broadly to mirror the insured’s obligation to

provide notice of an “occurrence, claim, or suit.” App. 36a-

39a. But “claims” and “suits” are not treated identically in

a See Newhouse v. Citizens Sec. Mut. Ins. Co., 501 N.W.2d 1 (Wis.

1993); Mowry v. Badger State Mut. Cas. Co., 8385 N.W.2d 171 (Wis. 1986).

insurance contracts, as evidenced by the fact that Wausau

has the right, but not the obligation, to settle a “claim”

against a policyholder, whereas it has the duty to defend

against a “suit.”

The Wisconsin Supreme Court did not hear any of these

substantial arguments, however, because the court took it

upon itself to decide the issue without hearing from the par-

ties. Moreover, the mere fact that Wausau had the opportu-

nity to file a motion for reconsideration after the court issued

its decision was insufficient to protect its due process inter-

ests. The Wisconsin Supreme Court has complete and unre-

viewable discretion under state law to decide whether to en-

tertain a motion for reconsideration, and it may deny such a

motion for any reason, or, as in this case, for no reason at all.

The mere possibility that a litigant may plead to a decision-

maker that it should exercise its uncabined discretion to

change its mind is obviously insufficient to establish the nec-

essary notice and an opportunity to be heard before adverse

action is taken by the state. The proper time for the Wis-

consin Supreme Court to hear the important arguments

against overruling Edgerton on the “suit” issue was before,

not after, it made its decision. Cf. Nelson, 529 U.S. at 466

(noting that even an appeal of right may be insufficient for

due process when a litigant has been denied notice and a

hearing by the trial court); Goss v. Lopez, 419 U.S. 565, 581

n.10 (1975) (possibility of postdeprivation judicial review of

school suspension order insufficient to ensure due process).

II. THE WISCONSIN SUPREME COURT’S SUA SPONTE

RULING IN THIS CASE IS CONTRARY TO UNIVERSALLY

HELD UNDERSTANDINGS OF How Courts SHOULD

DECIDE CASES

The Wisconsin Supreme Court’s sua sponte disposition

of the “suit” issue in this case is far out of line with the

established way in which courts in this country customarily

do business. Surprise swa sponte judicial decisionmaking is

fundamentally at odds with our adversary system of jus-

tice.” “The system assumes that adversarial testing will ul-

timately advance the public interest in truth and fairness.”

Polk County v. Dodson, 454 U.S. 312, 318 (1981). The ad-

versary system of justice not only protects basic guarantees

of fair treatment for the parties; it also focuses the parties’

attention on issues and prevents courts from lapsing into

error. As this Court stated in Lankford, “[i]f notice is not

given, and the adversary process is not permitted to function

properly, there is an increased chance of error, and with

that, the possibility of an incorrect result.” 500 U.S. at 127

(citation omitted).

Virtually every federal court of appeals has held that

courts should not dispose of parties’ claims without affording

them notice and an opportunity to be heard on the questien.

For example, numerous courts of appeals have held that, as

a general matter, district courts may not swa sponte dismiss

a complaint that sets forth an arguable claim for failure to

state a claim without first affording litigants notice and an

opportunity to defend the claim.” As expressed by Judge

4 As Justice Scalia has observed, “(t]he rule that points not argued

will not be considered is more than just a prudential rule of convenience;

its observance, at least in the vast majority of cases, distinguishes our

adversary system of justice from the inquisitorial one.” United States v.

Burke, 504 U.S. 229, 246 (1992) (Scalia, J., concurring); accord Castro, 124

S. Ct. at 794 (Scalia, J., concurring in part and concurring in the judg-

ment); Carducci v. Regan, 714 F.2d 171, 177 (D.C. Cir. 1988) (Scalia, J.);

see also United States v. Feola, 420 U.S. 671, 697 (1975) (Stewart, J., dis-

senting) (describing the refusal to consider points neither briefed nor ar-

gued as “the most basic principle of our adversary system of justice”).

*” See Clorox Co. Puerto Rico v. Proctor & Gamble Commercial Co.,

228 F.3d 24, 30 (1st Cir. 2000); Snider v. Melindez, 199 F.3d 108, 113 (2d

Cir. 1999); Stewart Title Guar. Co. v. Cadle Co., 74 F.3d 835, 836-837 (7th

Cir. 1996); Murphy v. Lancaster, 960 F.2d 746, 748 (8th Cir. 1992) (per

curiam); McKinney v. Okla. Dep’t of Human Servs., 925 F.2d 363, 365

(10th Cir. 1991); Tingler v. Marshall, 716 F.2d 1109, 1112 (6th Cir. 1983),

superseded in part by statute as recognized by Benson v. O'Brian, 179

F.3d 1014, 1015-1016 (6th Cir. 1999); Jefferson Fourteenth Assocs. v.

Wometco de Puerto Rico, Inc., 695 F.2d 524, 526 (11th Cir. 1983) (“The

)

Friendly, “the district court has no authority to dismiss a

complaint for failure to state a claim upon which relief can be

granted without giving the plaintiff an opportunity to be

heard.” Square D Co. v. Niagara Frontier Tariff Bureau,

Inc., 760 F.2d 1347, 1365 (2d Cir. 1985), affd on other

grounds, 476 U.S. 409 (1986). This Court has also noted this

practice and its underpinnings, explaining that “(t]his adver-

sarial process ... crystallizes the pertinent issues.” Neitzke

v. Williams, 490 U.S. 319, 329-330 (1989).

Similarly, the courts of appeals consistently require that

the parties have notice and an opportunity to present their

case before a district court may enter summary judgment or

convert a motion to dismiss into a motion for summary

judgment.” Thus, for example, recognizing that “[t]he op-

portunity to respond is deeply imbedded in our concept of

fair play and substantial justice,” the Seventh Circuit has

stated that “it is rudimentary that a court cannot swa sponte

enter summary judgment or dismiss a complaint without

notifying the parties of its intentions and allowing them an

opportunity to cure the defect in the complaint or to re-

spond.” English v. Cowell, 10 F.3d 434, 437 (7th Cir. 1993).

Several courts of appeals have explicitly grounded their

practice of requiring notice and an opportunity to respond

rule... emerges... that courts exercise their inherent power to dismiss a

suit that lacks merit only when the party who brought the case has been

given notice and an opportunity to respond.”); Franklin v. Oregon, State

Welfare Div., 662 F.2d 1337, 1340-1341 (9th Cir. 1981).

Bendet v. Sandoz Pharms. Corp., 308 F.3d 907, 912 (8th Cir. 2002);

Clorox, 228 F.3d at 31 (in converting motions to dismiss into motions for

summary judgment courts should “guard against allowing such a conver-

sion where it would come as a ‘surprise’ or be ‘unfair’ to the party against

whom judgment is rendered”); Mannesman Demag Corp. v. M/V Concert

Express, 225 F.3d 587, 595 (5th Cir. 2000); Otis Elevator Co. v. George

Washington Hotei Corp., 27 F.3d 903, 910 (3d Cir. 1994); English v. Cow-

ell, 10 F.3d 434, 437 (7th Cir. 1993); Hispanics for Fair & Equitable Reap-

portionment v. Griffin, 958 F.2d 24, 25 (2d Cir. 1992); United States Dev.

Corp. v. Peoples Fed. Sav. & Loan Ass’n, 873 F.2d 731, 736 (4th Cir. 1989);

Yashon v. Gregory, 737 F.2d 547, 552 (6th Cir. 1984).

before allowing a swa sponte dismissal on “basic fairness,”

Clorox Co. Puerto Rico v. Proctor & Gamble Commercial

Co., 228 F.3d 24, 32 (1st Cir. 2000). The courts of appeals

have recognized that failure to provide notice before sua

sponte dismissal of a claim is “unfair to the litigants,” Tin-

gler v. Marshall, 716 F.2d 1109, 1111 (6th Cir. 1983), swper-

seded in part by statute as recognized by Benson v. O’Brian,

179 F.3d 1014, 1015-1016 (6th Cir. 1999), because it can

“prejudice plaintiffs by depriving them of an opportunity to

amend their complaint or to argue against the dismissal,”

Doe v. St. Joseph’s Hosp., 788 F.2d 411, 415 (7th Cir. 1986),

overruled on other grounds by Alexander v. Rush N. Shore

Med. Ctr., 101 F.3d 487 (7th Cir. 1996); see also Jefferson

Fourteenth Assocs. v. Wometco de Puerto Rico, Inc., 695

F.2d 524, 526-527 (11th Cir. 1983) (district court’s saa sponte

dismissal of a complaint without prior notice deprives a

plaintiff of “its due process rights”).~

” Various provisions of the federal Prison Litigation Reform Act

permit, and in some cases require, courts to review certain prisoner and in

forma pauperis complaints swa sponte and to dismiss those that are frivo-

lous or fail to state a claim. See 28 U.S.C. §§ 1915(e)(2)(B)(ii), 1915A(b)(1);

42 U.S.C. § 1997e(c)(1). Even in applying these provisions, several courts

of appeals require district courts to exercise great caution in dismissing

complaints swa sponte. See, e.g., Razzoli v. Fed. Bureau of Prisons, 230

F.3d 371, 377 (D.C. Cir. 2000) (holding that § 1915A(b)(1) does not alter

the court’s “long-standing rule that a swa sponte dismissal for failure to

state a claim without leave to amend is reversible error unless the claim-

ant cannot possibly win relief”) (internal quotation marks and citation

omitted); Lopez v. Smith, 203 F.3d 1122, 1126-1130 (9th Cir. 2000) (en

banc) (holding that under § 1915(e)(2), the district court should grant leave

to amend even if no request to amend was made unless it determines that

the pleading could not possibly be cured by the allegation of other facts);

Bazrowsz v. Scott, 136 F.3d 1053, 1054 (5th Cir. 1998) (per curiam) (noting

that it is error for district court to dismiss pursuant to § 1997e unless it

provides notice and an opportunity to amend the complaint). Moreover,

there is no indication that courts would dismiss a case under these provi-

sions where, as here, the legal issue is complex and the court’s disposition

of the case would require overruling precedent.

Although in this case, the “suit” issue was decided on

appeal rather than by a trial court, the circumstances in

which the sua sponte action arises are analogous. Both in-

stances involve the courts’ swa sponte disposition of a legal

question that was never addressed by the parties. Indeed,

because the Wisconsin Supreme Court is a state court of last

resort from which Wausau has no appeal by right, its action

is even more inconsistent with fundamental fairness than a

federal court’s swa sponte dismissal of a complaint for failure

to state a claim, which may be appealed to a court of appeals

exercising de novo review.

The Wisconsin Supreme Court’s action also contravenes

the “sound prudential reasons,” Clorox, 228 F.3d at 32, un-

derlying the courts of appeals’ practice. The courts of ap-

peals have recognized that providing the parties with an op-

portunity to address issues raised swa sponte by the court

protects against erroneous judgments, see Snider v.

Melindez, 199 F.3d 108, 113 (2d Cir. 1999), particularly when

the issue before the court is complex and contested, see Clo-

rox, 228 F.3d at 32. As explained by the Second Circuit,

providing notice and an opportunity to be heard “plays an

important role in establishing the fairness and reliability of

the order” as “[i]t avoids the risk that the court may over-

look valid answers to its perception of defects in the plain-

tiff's case.” Snider, 199 F.3d at 118. Several courts of ap-

peals have also explained that “saa sponte dismissals are not

in accordance with our traditional adversarial system of jus-

tice because they cast the district court in the role of a ‘pro-

ponent rather than an independent entity.” Tingler, 716

F.2d at 1111 (citation omitted); accord Ricketts v. Midwest

Nat'l Bank, 874 F.2d 1177, 1184 (7th Cir. 1989); Brandon v.

D.C. Bd. of Parole, 734 F.2d 56, 59 (D.C. Cir. 1984).

There are very limited exceptions to the court of ap-

peals’ rule requiring prior notice and an opportunity to be

heard before a court may dispose of a party’s claim, but

those exceptions—themselves designed to ensure that jus-

tice is done to parties—are inapplicable here. In particular,

some courts of appeals have permitted the swa sponte dis-

missal of claims without prior notice where the claims are

frivolous, patently without merit, or incapable of being cured

by amendment.” That exception, which protects parties

against the burden of defending against baseless claims that

may be made for illegitimate purposes, plainly has no appli-

cation to this case. Under no circumstances could Wausau’s

position on the “suit” issue be considered frivolous; it was

supported by the holding in Edgerton, as well as numerous

other state court decisions.

State appellate courts also have recognized that it is

“arbitrary and unreasonable” for a court to take actions that

would dispose of a party’s claims without giving the party

notice and an opportunity to be heard. See Holzer v. Jochim,

557 N.W. 2d 57, 59 (N.D. 1996). Numerous state courts have

held that it violates due process for a court to act, swa sponte

and without notice to the parties, to dismiss a claim, to rein-

state a cause of action that had been dismissed for lack of

prosecution, or to impose sanctions on an attorney.

* See, e.g., Clorox, 228 F.3d at 30-31 (recognizing exceptions for

frivolous claims or claims whose defects could not be cured by amend-

ment); Murphy, 960 F.2d at 748 (swa sponte dismissal is authorized only

when it is “patently obvious” that plaintiff cannot prevail); Baker v. Direc-

tor, U.S. Parole Comm’n, 916 F.2d 725, 727 (D.C. Cir. 1990) (holding that

sua sponte dismissal was appropriate when its was “patently obvious”

that claimant could not prevail).

** See Heim v. California Fed. Bank, 828 A.2d 129, 1388 (Conn. App.

Ct.), cert. denied, 832 A.2d 70 (Conn. 2003); Surat v. Nu-Med Pembroke,

Inc., 682 So. 2d 1136, 1137-1138 (Fla. Dist. Ct. App. 1994); People v.

Kitchen, 727 N.E.2d 189, 194-195 (Ill. 2000); Brown v. Triple “D” Drilling

Co., 585 P.2d 987, 990 (Kan. 1978); Storer Communications of Jefferson

County, Inc. v. Oldham County Bd. of Educ., 850 S.W.2d 340, 341-342

(Ky. Ct. App. 1993); Grissom v. Grissom, 886 S.W.2d 47, 57-58 (Mo. Ct.

App. 1994); Klier v. Sordoni Skanska Constr. Co., 766 A.2d 761, 765-766

(N.J. Super. Ct. App. Div. 2001); Azar v. Prudential Ins. Co. of Am., 68

P.3d 909, 933-934 (N.M Ct. App. 2003); Myung Chun v. N. Am. Mortgage

Co., 285 A.D.2d 42, 45 (N.Y. App. Div. 2001); Boyle v. O’Bannon, 458 A.2d

183, 184-186 (Pa. 1983); Creel v. District Attorney for Medina County,

Tex., 818 S.W.2d 45, 46 (Tex. 1991); see also Rubins v. Plummer, 813 P.2d

778, 789 (Colo. Ct. App. 1990); Epic Metals Corp. v. Samari Lake East

25 |

By contrast, no decision of which we are aware defends

a judicial practice of ruling against a party, such as Wausau,

that has a position with a reasonable basis in fact and law,

without allowing that party to be heard beforehand.” Yet as

this case and as the pending petition in Turn-Key demon-

strate, courts do not always live up to the principles they

espouse. Moreover, this case well demonstrates why sur-

prise decisionmaking by courts should be curtailed. Without

notice or an opportunity to address the “suit” issue, Wausau

was precluded from raising its substantial arguments as to

why Edgerton’s holding on the “suit” issue should not have

Condo. Ass’n, 547 So. 2d 198, 199 (Fla. Dist. Ct. App. 1989); Gladden v.

Kansas City, 411 S.W.2d 228, 229-230 (Mo. 1967); R. Wilson Plumbing &

Heating, Inc. v. Wademan, 588 A.2d 444, 444-446 (N.J. Super. Ct. App.

Div. 1991); Shipley v. Shipley, 509 N.W.2d 49, 55 (N.D. 1993); In re M.B.,

514 A.2d 599, 600-601 (Pa. Super. Ct. 1986), aff'd, 5388 A.2d 495 (Pa. 1988)

(per curiam); State ex rel. McLeod v. Brown, 294 S.E.2d 781, 782 (S.C.

1982); Huminski v. Lavoie, 787 A.2d 489, 492-493 (Vt. 2001); Osborn v.

Emporium Videos, 848 P.2d 237, 241-242 (Wyo. 1993).

” Under very limited circumstances, some courts have approved swa

sponte decisions under the theory that the parties had constructive notice

of the court’s action based on a background uniform practice or statute.

E.g., Link v. Wabash R.R. Co., 370 U.S. 626, 632 (1962) (upholding dis-

missal without advance notice or hearing for failure to prosecute where

party should have been aware of the consequences of his own conduct);

State ex rel. Schatz v. McCaughtry, 664 N.W.2d 596, 604 (Wis. 2003) (up-

holding review procedure under Wisconsin’s Prisoner Litigation Reform

Act permitting a trial court to dismiss a pleading for failure to state a

claim without providing the prisoner prior notice or an opportunity be |

heard, in part, because the statute itself puts the prisoner on constructive |

notice). Under no circumstances, however, does this case fall under this |

exception. Here, both the existing background practice and statutory

constraints on review by the Wisconsin Supreme Court suggested that

the court would not consider the “suit” issue. The established practice of

the Wisconsin Supreme Court, like this Court, is not to consider issues

that were neither raised nor decided in the lower courts. See, e.g., Terp-

stra v. Soiltest, Inc., 218 N.W.2d 129, 133 (Wis. 1974). Moreover, by stat-

ute, JCI was precluded from “rais[ing] or argu[ing] issues not set forth in

the petition unless ordered otherwise by the supreme court.” Wis. Stat.

§ 809.62(6). Thus, by all indications to Wausau, the state supreme court

was not going to consider or decide the “suit” issue.

been overruled. Without the benefit of argument from the

parties on this complicated issue that has divided state

courts, the Wisconsin Supreme Court may well have reached

an incorrect result in this case. Thus, as this case shows, not

only fairness of process for litigants but also basic need for

better justice dictate that such surprise action by courts

should be disapproved.

Ill. THis COURT CAN MAKE CLEAR THAT APPELLATE

CourRTs Must ADHERE TO THE FUNDAMENTAL

REQUIREMENTS OF DUE PROCESS WITHOUT UNDULY

ENCROACHING ON THE BROAD DISCRETION OF

COURTS IN ADJUDICATING CASES

The due process principle advocated here is an emi-

nently reasonable one: an appellate court should not reach

out to decide a claim that no party has presented to it for

resolution where there are substantial arguments on both

sides without, at a minimum, permitting the parties to be

heard on the matter first. This rule would not impose any

undue restrictions on the workings of appellate courts. We

do not suggest, for example, that an appellate court must, as

a matter of due process, afford oral argument to parties on

any particular issue, or indeed at all. When the question at

issue is a purely legal one, the opportunity to submit written

briefs may well be sufficient to protect the parties’ due proc-

ess rights and to inform the court’s decisionmaking.” Nor do

we suggest that courts are inhibited as a matter of due proc-

ess from raising issues for the parties to address. Although,

as a matter of practice, appellate courts customarily confine

themselves to the questions presented by the parties for re-

view, due process does not bind courts to adopt any of the

particular legal theories advanced by the parties, and courts

have authority to discern and provide the correct legal rule

° Cf Mathews v. Eldridge, 424 U.S. 319, 344-346 (1976) (concluding

that decisionmaking on paper record was sufficient to satisfy due process).

that governs the controversy. In addition, courts have a

well-settled obligation to examine their subject matter ju-

risdiction to entertain a case, even when that jurisdiction is

not contested by the parties—a principle that is perhaps as

fundamental to our constitutional system as the guarantees

of due process.”

But while the scope of permissible judicial discretion in

disposing of cases is broad, there is a line that may not be

crossed, and that line was not respected in this case. The

problem in this case is not just that the Wisconsin Supreme

Court decided to reexamine one of its precedents without

directing briefs from the parties on that question. An appel-

late court is not obligated to decide an issue put to it by the

parties based on a line of decisions that, the court concludes

on reexamination, is unsound.” Nor is an appellate court

*" United States Nat'l Bank of Oregon v. Independent Ins. Agents of

Am., 508 U.S. 439, 445-447 (1993) (upholding court of appeals’ exercise of

its discretion to examine validity of statute, after requesting supplemental

briefing from parties); see also Payne v. Tennessee, 498 U.S. 1080 (1991)

(requesting that parties brief whether Booth v. Maryland, 482 U.S. 496

(1987), should be overruled); Patterson v. McLean Credit Union, 485 U.S.

617 (1988) (requesting that parties brief whether Runyon v. McCrary, 427

U.S. 160 (1976), should be overruled); Colorado v. Connelly, 474 U.S. 1050

(1986) (requesting parties to address validity of waiver of Miranda

rights); Capital Cities Cable, Inc. v. Crisp, 464 U.S. 813 (1983) (requesting

that parties brief preemption question).

* See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 88, 94 (1998)

(courts’ resolution of cases outside their subject matter jurisdiction “of-

fends fundamental principles of separation of powers”); see also Juidice v.

Vail, 430 U.S. 327, 331 (1977) (examining parties’ standing sua sponte);

City of Kenosha, Wis. v. Bruno, 412 U.S. 507 (1973) (concluding sua

sponte that federal question jurisdiction was lacking), overruled in part by

Monell v. Dep't of Social Servs. of New York, 436 U.S. 658 (1978).

‘9 Thus, on numerous occasions, this Court has overruled its own de-

cisions without expressly directing briefing from the parties on that par-

ticular question, when it has concluded that the governing precedent was

unsound. See, e.g., Hubbard v. United States, 514 U.S. 695 (1995); Batson

v. Kentucky, 476 U.S. 79 (1986); City of New Orleans v. Dukes, 427 U.S.

297 (1976); Michelin Tire Co. v. Wages, 423 U.S. 276 (1976); Mapp v. Ohio,

obligated to disregard important threshold legal issues that

might prevent it from adjudicating the merits of a contro-

versy put to it by the parties, even if those threshold issues

are not raised by the parties.” Rather, the problem in this

case is that the Wisconsin Supreme Court adjudicated, with-

out notice, a matter that was entirely separate and distinct

from any issue that JCI had submitted to that court for re-

view or that JCI and Wausau had briefed and argued to that

court.

As this Court has stated on many occasions, due process

is a flexible principle, not a mathematical formula. See, e.g.,

Mullane, 339 U.S. at 314. The Court need not and should

not establish a code of procedure for appellate courts to fol-

low in adjudicating cases. But as this case and as the pend-

ing petition in Turn-Key, supra, demonstrate, there is rea-

son for concern that some appellate courts are not scrupu-

lously observing the basic due process obligations of notice

and an opportunity to be heard. Review by this Court is

warranted to make clear that appellate courts must provide

litigants with these fundamental requirements of fair proce-

dure.

CONCLUSION

The petition for a writ of certiorari should be granted.

367 U.S. 643 (1961); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Simi-

larly, the Court has on occasion reformulated the legal standard governing

a particular controversy, even when the parties had submitted the case

for the Court’s decision under a different legal standard. See Kolstad v.

American Dental Ass’n, 527 U.S. 526 (1999); Employment Div. v. Smith,

494 U.S. 872 (1990).

” See, e.g., Arcadia, Ohio v. Ohio Power Co., 498 U.S. 73 (1990);

Teague v. Lane, 489 U.S. 288 (1989); Allen v. Hardy, 478 U.S. 255 (1986)

(per curiam).

‘hi

Respectfully submitted,

SCOTT J. RYSKOSKI SETH P. WAXMAN

GREENBERG TRAURIG LLP Counsel of Record

13155 Noel Road PAUL R.Q. WOLFSON

600 Three Galleria Tower REBECCA J.K. GELFOND

Dallas, TX 75249 WILMER CUTLER

(972) 419-1250 ~ PICKERING LLP

2445 M Street, N.W.

PATRICK J. BOLEY Washington, D.C. 20037

LARSON KING LLP (202) 663-6000

2800 Wells Fargo Place

30 East 7th Street

St. Paul, MN 55101

(651) 312-6500

FEBRUARY 2004

APPENDIX A

2003 WI 108

NOTICE

This opinion is subject to further

editing and modification. The fi-

nal version will appear in the

bound volume of the official re-

ports.

[STAMP: FILED

JUL 11, 2003

Cornelia G. Clark

~ Clerk of Supreme Court]

No. 01-1198

(L.C. No. 89 CV 16174)

STATE OF WISCONSIN _ : IN SUPREME COURT

JOHNSON CONTROLS, INC.

PLAINTIFF-APPELLANT-PETITIONER,

EMPLOYERS INSURANCE OF WAUSAU, A MUTUAL

COMPANY (F/N/A EMPLOYERS MUTUAL LIABILITY

INSURANCE COMPANY OF WISCONSIN),

AFFILIATED FM INSURANCE COMPANY, AIU

INSURANCE COMPANY, ALLSTATE INSURANCE

COMPANY (AS SUCCESSOR TO NORTHBROOK

EXCESS AND SURPLUS INSURANCE COMPANY),

AMERICAN EMPLOYERS’ INSURANCE COMPANY,

AMERICAN HOME ASSURANCE COMPANY, AMERICAN

MOTORISTS INSURANCE COMPANY, CENTRAL

NATIONAL INSURANCE COMPANY OF OMAHA,

EMPLOYERS MUTUAL CASUALTY COMPANY,

EMPLOYERS REINSURANCE CORPORATION,

FEDERAL INSURANCE COMPANY, FIRST STATE

INSURANCE COMPANY, GRANITE STATE

INSURANCE COMPANY, HIGHLANDS INSURANCE

COMPANY, LANDMARK INSURANCE COMPANY,

LONDON MARKET (CERTAIN UNDERWRITERS AT

LLOYD’S LONDON AND LONDON MARKET

INSURANCE COMPANIES), NATIONAL UNION FIRE

INSURANCE COMPANY OF PITTSBURGH, PA,

NORTHBROOK EXCESS AND SURPLUS INSURANCE

COMPANY (AS PREDECESSOR TO ALLSTATE

INSURANCE COMPANY), PURITAN INSURANCE

COMPANY (F/N/A MANHATTAN FIRE AND MARINE

INSURANCE COMPANY), STONEWALL INSURANCE

COMPANY, TRANSAMERICA PREMIER INSURANCE

COMPANY, TRAVELERS INDEMNITY COMPANY,

UNITED NATIONAL INSURANCE COMPANY, ZURICH

INSURANCE COMPANY, INTERNATIONAL

[2] INSURANCE COMPANY, AND WESTCHESTER FIRE

INSURANCE COMPANY,

DEFENDANTS-RESPONDENTS,

ALLIANZ UNDERWRITERS INSURANCE COMPANY,

AMERICAN CENTENNIAL INSURANCE COMPANY,

AMERICAN INSURANCE COMPANY, ASSOCIATED

INTERNATIONAL INSURANCE COMPANY,

CALIFORNIA UNION INSURANCE COMPANY,

CONTINENTAL INSURANCE COMPANY, FIREMAN’S

FUND INSURANCE COMPANY, HARBOR INSURANCE

COMPANY, NORTH STAR REINSURANCE

CORPORATION, AND REPUBLIC INSURANCE

COMPANY,

DEFENDANTS.

REVIEW of a decision of the Court of Appeals. Re-

versed and cause remanded.

{1 DAVID T.PROSSER,J. In 1980 Congress

adopted the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA), popularly

known as “Superfund,” to promote the cleanup of hazardous

waste. The Act empowered the federal government,

through the Environmental Protection Agency (EPA), to

identify hazardous waste sites and pursue remedial activi-

ties. As part of the remedial process, the government was

authorized to clean up properties and seek compensation

from responsible parties or to require polluters and other [3]

responsible parties to perform the cleanup themselves. 42

U.S.C. §§ 9601-9675 (2000).’

{2 CERCLA outlines a range of remedial procedures,

beginning with requests to furnish information or docu-

ments, and ending with stringent enforcement actions to im-

pose fines for noncompliance with orders or costs to recover

the government’s own expenditures. 42 U.S.C. §§ 9606,

9607.’ For responsible parties, there is strict liability.

q3 Nine years ago, this court considered its first case

dealing with the insurance issues raised by CERCLA. In

City of Edgerton v. General Casualty Co. of Wisconsin, 184

Wis. 2d 750, 517 N.W.2d 463 (1994), cert. denied, 514 U.S.

1017 (1995), we were asked to interpret key terms in the

standard Comprehensive General Liability (CGL) policy in

relation to CERCLA environmental damage claims.’ A di-

' All subsequent references to the United States Code are to the

2000 volumes unless otherwise indicated.

? Following the implementation of CERCLA, state legislatures en-

acted similar legislation that would apply to hazardous waste identified

under the federal program as well as other substances that other states

saw the need to control. See City of Edgerton v. Gen. Cas. Co. of Wis., 184

Wis. 2d 750, 756 n.2, 517 N.W.2d 463 (1994) (citing Howell A. Burkhalter,

Comment, Liability for CERCLA Cleanup Costs—Are Insurers the Vic-

tims of Judicial Activism?, 26 Wake Forest L. Rev. 221, 222 n.8 (1991)).

For purposes of simplicity, some references to CERCLA in this

opinion are intended to include similar state legislative enactments.

> The provision at issue in the Edgerton case reads in part:

ay 4a

vided court decided that the [4] issuance of letters by the

EPA or the Wisconsin Department of Natural Resources

(DNR), which either requested or directed an insured to

participate in the environmental cleanup of contaminated

property, did not constitute a “suit” sufficient to trigger the

insurer’s duty to defend. Jd. at 771. We also held that

cleanup and remediation costs under CERCLA did not con-

stitute “sums that the insured may become legally obligated

to pay as damages” within the indemnification provisions of

CGL policies. Id. at 782.

44 Today the problems created by the Edgerton deci-

sion have become so obvious and so acute that they cannot

be ignored. The court is convinced that we did not correctly

analyze the term “damages” in the standard CGL policy in

relation to environmental cleanup costs under CERCLA.

We relied too heavily on a previous decision of this court in-

volving very different [5] facts and laws. We also created an

unworkable interpretation of the insurer’s duty to defend in

the specialized context of CERCLA letters and orders. The

process of restoring consistency and coherence to the law

must begin by overruling the Edgerton decision.

45 We hold that an insured’s costs of restoring and

remediating damaged property, whether the costs are based

on remediation efforts by a third party (including the gov-

The company will 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, and

the company shall have the right and duty to defend any suit

against the insured seeking damages‘on account of such...

property damage, even if any of the allegations of the suit are

groundless, false, or fraudulent, and may make such investiga-

tion and settlement of any claim or suit as it deems expedient . .

Edgerton, 184 Wis. 2d at 769.

5a |

ernment) or are incurred directly by the insured, are cov-

ered damages under applicable CGL policies, provided that

other policy exclusions do not apply. We also conclude that

receipt of a potentially responsible party (PRP) letter* from

the EPA or an equivalent state agency, in the CERCLA

context, marks the beginning of adversarial administrative

legal proceedings that seek to impose liability upon an in-

sured. A PRP letter significantly affects legal interests of

the insured. Therefore, a reasonable insured would expect

this letter to trigger its CGL insurer’s duty to defend.

[6] 16 This case involves a CGL policy coverage dispute

between Johnson Controls, Inc., the plaintiff-insured, and

more than 30 of its general liability insurance carriers (the

insurers). The case has a long history. It began almost

three years before this court decided School District of

Shorewood v. Wausau Insurance Cos., 170 Wis. 2d 347, 488

N.W.2d 82 (1992), and it has been buffeted ever since by a

succession of contentious, inconsistent appellate decisions.

{7 In November 1989 Johnson Controls brought suit in

the Milwaukee County Circuit Court against its liability in-

surers seeking a declaratory judgment and coverage for

‘A potentially responsible party letter (PRP letter) is a letter is-

sued by the EPA notifying the recipient that the EPA considers it to be a

potentially responsible party for contamination at a given site. 42 U.S.C.

§ 9622(e). Under CERCLA, potentially responsible parties (PRPs) are

expected to conduct cleanup or pay for the cleanup performed by others.

See Prof Rental v. Shelby Ins., 599 N.E.2d 423, 430-31 (Ohio Ct. App.

1991). The EPA identifies the PRPs at each site, negotiates with PRPs to

do the cleanup, and recovers from PRPs the cleanup costs spent by the

EPA. 42 U.S.C. 8§ 9606, 9607, 9622.

* Johnson Controls is a Milwaukee-based manufacturer of products

and services that manage the use of energy, control, comfort, and that

protect life and property in commercial buildings. In 1978 Johnson Con-

trols acquired Globe Union, Inc. (Globe Union), a manufacturer of automo-

tive batteries, and the two companies eventually merged as Johnson Con-

trols, Inc. For purposes of this opinion, references to “Johnson Controls”

also include Globe Union, unless otherwise indicated.

various costs relating to the environmental cleanup of

21 property sites. These sites are located in 16 different

states where Johnson [7] Controls and/or Globe Union faced

liability under CERCLA.° Most of the sites are lead smelt-

ing plants to which Johnson Controls and/or Globe Union

delivered spent lead acid batteries and plant scrap for recy-

cling. Some are contaminated landfills. Three of the 21 sites

were owned and operated by Johnson Controls.’ At 2 of the

21 sites, the coverage issues became moot because Johnson

Controls ultimately incurred no costs or liability.

[8] 78 For 8 sites, Johnson Controls is seeking coverage

for cleanup costs that it incurred in complying with a pre-

suit demand from a federal agency, a state agency, or a non-

government third-party to remediate the sites in accord

® CERCLA, the Comprehensive Environmental Response, Com-

pensation and Liability Act, Pub. L. No. 96-510, 94 Stat. 2767 (1980), em-

powers the executive branch of the federal government to identify and

administer the cleanup of hazardous waste sites. 42 U.S.C. § 9604(a)(1).

Response actions may include both removal and cleanup of spilled sub-

stances, along with other remedial actions. 42 U.S.C. § 9601(23)-(25).

CERCLA established the Superfund as a source of expeditious payment

for response actions, although ultimately the liability for response costs is

placed on specified classes of responsible parties, which include: past and

present owners and operators of the sites; waste generators or other per-

sons who arranged for disposal, treatment or transport of hazardous sub-

stances; and transporters of hazardous substances. 42 U.S.C. 88

9611(a)(1), 9607(a). Responsible parties may be required to perform the

cleanup under the mandate of a federal injunction, or the EPA will per-

form the cleanup itself and then sue responsible parties for reimburse-

ment of costs it incurred. 42 U.S.C. §§ 9606(a), 9607(a)(A)-(B).

Congress amended CERCLA in 1986 in the Superfund Amendments

and Reauthorization Act (SARA), Pub. L. No. 99-499, 100 Stat. 1613

(1986). This amendment served to strengthen the original legislation. Of

note, SARA created a statutory right of contribution for responsible par-

ties, allowing them to seek reimbursement of response costs from other

parties responsible for contaminating the site. See 42 U.S.C. § 9613(f)(1).

Unless otherwise specified, references to CERCLA in this opinion

refer to the statute as amended and codified at 42 U.S.C. §§ 9601-9675

(2000).

7 TCI-Atlanta, JCI-Owosso, and JCI-Goshen.

with CERCLA. These include the 8 sites that Johnson

Controls owned.

{9 For the remaining 11 sites, Johnson Controls was ei-

ther sued or settled prior to suit for part of the costs of

cleanup performed by another party. In some of these cases,

the party seeking reimbursement for cleanup was a govern-

ment agency. In the others, one or more private parties

sought a contribution from Johnson Controls for contamina-

tion cleanup. Johnson Controls claims that in 6 of these 11

cases, its first awareness of any environmental problem was

a lawsuit or demand from a government agency for money to

pay costs for cleanup activities that had already been per-

formed by other parties.’

[9] 110 Johnson Controls avers that in every instance it

promptly notified its applicable CGL insurer or insurers of

the CERCLA liability claims being made. In every instance

the insurers refused to defend Johnson Controls or to in-

demnify it for any cleanup costs flowing from CERCLA or

CERCLA-type claims. The insurers justified their refusal

on grounds that the CGL policies did not cover the costs im-

posed under CERCLA.

411 The Johnson Controls CGL policies were issued at

various times between the years of 1954 and 1985, and they

are either primary, excess, or umbrella comprehensive gen-

eral liability policies. These policies provide that:

* These 8 sites are: National Steel & Tube Distributors, Lakeland

Disposal, JCI-Atlanta, National Smelting & Refining (N L-Atlanta),

Maxey Flats, JCI-Owosso, USS Lead Refinery Inc., and JCI-Goshen.

” These sites, according to Johnson Controls, are: Bennington Land-

fill, NL Pedricktown, NL-Granite City, Auto Ion, Union Scrap Iron &

Metal Company, Inc., and Delaware Sand & Gravel. The latter 2 sites,

according to Johnson Controls, involved suits by the government for past

cleanup costs already incurred, without any previous government direc-

tive having been issued to JCI. At the remaining 5 sites, Johnson Con-

trols claims that a private party suit followed some prior directive from

the government requesting that Johnson Controls remediate the site.

These sites are: Bay Drums, Keefe Environmental Services, Inc., Hunt’s

Disposal, NL-Portland (Gould), and Tonolli.

The company will pay on behalf of the insured all

sums which the insured shall become legally

obligated to pay as damages because of bodily [or

personal] injury or property damage to which the

policy applies, caused by an occurrence, and the

company shall have the right and duty to defend

any suit against the insured seeking damages on

account of such, bodily injury or _ property

damage... .'”

412 Johnson Controls’ complaint asserted that this lan-

guage required its insurers to reimburse Johnson Controls

for its costs in complying with its liabilities at the 21 sites,

and it sought a declaratory judgment to that effect.

{13 The complexity of the case led to an extended pe-

riod of discovery. On May 20, 1992, before the case could go

to trial, this court decided Shorewood, by a 4-3 vote, in a

manner [10] that would have helped Johnson Controls. See

Sch. Dist. of Shorewood v. Wausau Ins. Cos., 168 Wis. 2d

390, 484 N.W.2d 314 (1992) (Shorewood I). Three months

later, after a motion for reconsideration, the court withdrew

its mandated opinion and a new 6-1 majority issued an opin-

ion with a contrary analysis and an opposite result. Sch.

Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 488

N.W.2d 82 (1992) (Shorewood).

{14 In November 1992 the court of appeals issued a

unanimous decision in City of Edgerton v. General Casualty

Co. of Wisconsin, 172 Wis. 2d 518, 493 N.W.2d 768 (Ct. App.

1992). This decision distinguished the Shorewood case and

was helpful by implication to Johnson Controls. Nineteen

months later, as the present case was awaiting trial, this

court reversed and [11] issued its own Edgerton opinion.

'© Although there is some minor deviation from this language in

some of the policies at issue, for purposes of this appeal we view the lan-

guage in the contested policies as substantively similar to the language

presented.

City of Edgerton v. Gen. Cas. Co. of. Wis., 184 Wis. 2d 750,

517 N.W.2d 463 (1994)."

[12] 415 In Edgerton, we concluded that standard CGL

policies do not provide indemnification coverage for an in-

sured who cleans up an environmentally contaminated site,

regardless of whether or not the insured owns the property,

when the remediation is done pursuant to a government di-

rective or request under CERCLA. Id. at 782-86. This hold-

'! Edgerton involved the owner of a landijill site, Edgerton Sand and

Gravel, Inc. (ES&G), and the City of Edgerton, the latter of which leased

the site for use as the city landfill from 1968 to 1984. City of Edgerton v.

Gen. Cas. Co. of Wis., 184 Wis. 2d 750, 758-59, 517 N.W.2d 463 (1994). By

1978 the DNR had informed ES&G by letter that it suspected groundwa-

ter contamination at the site, and the DNR recommended that the landfill

be closed and capped. Jd. at 759. In 1984 volatile organic compounds were

detected in the groundwater underneath and in the vicinity of the site. Id.

ES&G closed the landfill in 1984 and, during the next year, the site was

capped. Jd. Though the site was closed, groundwater contamination re-

mained, which compelled the DNR to recommend the landfill for place-

ment on the EPA’s list of contaminated sites for priority cleanup. Jd. In

June 1989 the EPA notified both ES&G and the City by certified letter

that the EPA was investigating the site and the circumstances surround-

ing the presence of hazardous substances in and around the landfill. Jd. at

750-60. The EPA then requested that the insureds respond to the DNR’s

request for information regarding the disposal of hazardous substances at

the landfill from 1950 to 1984. Id. at 760.

In July 1989 the insureds forwarded the letters received from the

EPA to their primary insurance carrier, General Casualty. Jd. Each in-

sured separately requested defense coverage, with ES&G specifically

requesting that General Casualty pay any costs that it may have incurred

regarding the site. Jd. In February 1990 the DNR sent certified letters

to both insureds, giving each 30 days to propose a plan for remediation of

the site. Jd. The DNR also indicated that failure to respond would result

in the listing of the site on CERCLA’s National Priorities List or the tak-

ing of immediate state action. Jd. at 760-62. In response, ES&G notified

its excess insurer of its receipt of the EPA information request letter and

the DNR enforcement letter, requesting coverage of defense costs as well

as any liability resulting from EPA or DNR claims. /d. at 762. The insur-

ers denied liability coverage and refused to provide a defense for both the

City and ES&G, prompting the insureds to seek a declaratory judgment

- defining the obligations of the insurance companies under their policies.

Id.

10a

ing was based on a conclusion that environmental response

costs under CERCLA” constitute equitable relief, not legal

damages, under the policy, and, thus, the insurer had no

duty to indemnify its insured for these expenditures. Id. at

782. The majority also held that neither a potentially re-

sponsible party (PRP) letter nor a comparable notification

letter from a state agency constituted a “suit” triggering the

insurers’ duty to defend. Jd. at 771, 775. The court con-

cluded that the primary attribute of a suit—that the parties

are involved in “actual court proceedings”—was not present

where an insured merely receives notification of potential

liability from the EPA or the DNR. Id. at 775.

416 Following the Edgerton decision, the insurers in

this case moved for summary judgment, arguing that Edger-

ton established that no liability insurance coverage is pro-

vided for any insured who cleans up contaminated property

pursuant to a government directive or request under

CERCLA or similar state laws. On February 24, 1995, the

Circuit Court for Milwaukee [13] County, George A. Burns,

Jr., Judge, granted summary judgment to the insurers and

the case was dismissed as to all sites. Johnson Controls then

appealed the various judgments and orders.”

417 Before the appeal was heard, this court clecided an-

other case bearing on legal issues at play in both Edgerton

and the Johnson Controls appeal. In General Casualty Co.

of Wisconsin v. Hills, 209 Wis. 2d 167, 561 N.W.2d 718

(1997), the insured, a service station owner, sought liability

insurance coverage for a claim brought against him by a

waste oil recycler seeking recovery of environmental re-

'2 CERCLA defines “response costs” to include the costs of remov-

ing hazardous substances from the environment and the costs of other

remedial work. See 42 U.S.C. § 9601(25).

'5- At this time, one of Johnson Controls’ insurers filed a cross-appeal

to address the circuit court’s dismissal of its counterclaim against Johnson

Controls. The court of appeals ultimately reversed this decision. Johnson

Controls, Inc. v. Employers Ins. of Wausau, Nos. 95-1796 & 95-2591, un-

published slip op. at 15-16 (Wis. Ct. App. Oct. 13, 1998).

lla

sponse costs associated with a contaminated recycling site.

Id. at 171-172. The EPA had placed the recycling site on the

National Priorities List'* and the United States had brought

suit against the recycler and other defendants, but not

against the service station owner. Jd. No government

agency had ever notified the insured service station owner

of potential liability under CERCLA or requested that he

develop a remediation plan or incur remediation and [14]

response costs. /d. at 180. This court held that, so long as

there was no request or directive by the government, the

insured was covered under his CGL policy for

compensatory, monetary relief sought by third parties for

losses they incurred due to the insured’s alleged past

contamination of the property. Id. at 185.

418 After Hills was decided in April 1997, the court of

appeals addressed Johnson Controls’ appeal. In an

unpublished decision dated October 13, 1998, the court of

appeals attempted to apply the holdings of Edgerton and

Hills in assessing whether response and remediation costs

incurred by Johnson Controls qualified as “damages” under

Johnson Controls’ CGL policies. Johnson Controls, Inc. v.

Employers Ins. of Wausau, Nos. 95-1796 & 95-2591,

unpublished slip op. (Wis. Ct. App. Oct. 13, 1998) (Johnson

Controls I). The court developed four categories to

determine whether the varic:s sites would or would not be

covered.

{19 The first category « asists of Edgerton-type sites.

These involve situations where the insured is responsible for

cleaning up the contamination at a site pursuant to a

government directive under CERCLA, or a. sstate

counterpart, and the insured performs the cleanup. Citing

Edgerton and Amcast Industrial Corp. v. Affiliated FM

'* The National Priorities List is a list of polluted sites compiled by

the EPA, as required by CERCLA. 42 U.S.C. § 9605. A site’s placement

on the list makes it eligible to be cleaned up through CERCLA-related

means. See Blasland, Bouck & Lee, Inc. v. City of N. Miami, 283 F.3d

~ 1286, 1289 n.1 (11th Cir. 2002) (citing 42 U.S.C. § 9605).

12a

Insurance Co., 221 Wis. 2d 145, 584 N.W.2d 218 (Ct. App.

1998), the court said that the costs of this type of

remediation are not “damages” and, therefore, no insurance

coverage is required in connection with the remediation of

these sites.

[15] 920 The second category consists of situations

governed by Hills. An insured is responsible for at least

part of the contamination of a site that it does not own. The

insured is not contacted by the government in any manner

regarding cleanup of the property. Instead, a government

agency has directed others responsible for the contamination

to remediate the site and they, in turn, file suit against the

insured to recover the cleanup costs attributable to the

insured. Pursuant to the Hills holding, CGL coverage is

given to an insured for remediation at these sites. Id.

421 The court of appeals then devised two new

categories that it said were the logical extensions of the

Edgerton and Hills decisions. Johnson Control I, Nos. 95-

1796 & 95-2591, unpublished slip op. at 7-10.

422 The third category consists of situations in which

the insured is at least partially responsible for contaminating

a site that it does not own. It is then directed by a

governmental entity to remediate the site, but fails to do so.

The insured in category three, like the insured in Regent

Insurance Co. v. City of Manitowoc, 205 Wis. 2d 450, 463,

556 N.W.2d 405 (Ct. App. 1996), is swed by the government

to recover [16] money that the government spent to

remediate the site. According to the court of appeals’

'S Regent Insurance Co. v. City of Manitowoc, 205 Wis. 2d 450, 556

N.W.2d 405 (Ct. App. 1996), held that where the government sues “an

insured to recover incurred cleanup costs under § 107(a)(4)(A) of [CER-

CLA]... or to impose a plan for remediation, that action is not a ‘suit for

damages’ but is, rather, a suit for ‘equitable monetary relief.” Id. at 463.

Johnson Controls argued before the court of appeals that our decision in

Hills overruled Regent. The court of appeals disagreed, noting that the

vitality of Regent was reaffirmed post-Hills by Hydrite Chemical Co. v.

Aetna Casualty & Surety Co., 220 Wis. 2d 26, 39 n.5, 582 N.W.2d 423 (Ct.

App. 1998). .

<= —i“<(<;72S ; ;SC:<‘( ts”

13a

analysis, the recovery sought by the government remains

equitable in nature and, therefore, no insurance coverage is

obtained in the situations encompassed by category three.

Johnson Control I, Nos. 95-1796 & 95-2591, unpublished slip

op. at 11.

423 A fourth category consists of situations similar to

category three, except that the insured is sued by the site’s

owner or by other third parties who are also responsible for

the contaminat.on, any of whom cleaned up the site at the

government’s direction. The government is not involved in

the suit against the insured. As with categories one and

three, the court of appeals concluded that there is no

insurance coverage for sites in this category. Id.

{24 The court of appeals indicated that categories three

and four are subsumed under the rationale of Edgerton,

since neither the government nor the third party in these

cost recovery actions is seeking “legal damages” for injury

to [17] property caused-by an insured. The rationale for

non-recovery was later explained as follows:

Rather, the government and property owners

forced by the government to clean up contamination

allegedly caused by Johnson Controls are seeking

what Edgerton noted was “equitable monetary

relief,” that is, recompense for monies spent in

complying with the nation’s’ environmental-

protection laws—money that would have been spent

by Johnson Controls if it had complied with the

government’s cleanup directives.

Johnson Controls v. Employers Ins. of Wausau, 2002 WI

App 30, 49, 250 Wis. 2d 319, 640 N.W.2d 205 (Johnson

Controls II), (citing Edgerton, 184 Wis. 2d at 784).

725 Having articulated the preceding categories, the

court of appeals remanded the matter for the entry of a

global judgment, instructing the circuit court to break down

its decision into subparts reciting: “(1) the property

involved; (2) the insurance company or companies and the

relevant dates of their policies that relate to the property;

and (3) the result required by this opinion.” Johnson

a ceseemenemesngrerererennemeseasmmmmmmmmmmammmmmmmmmmaiil

l4a

Controls I, Nos. 95-1796 & 95-2591, unpublished slip op. at

12.

426 On remand, the Milwaukee County Circuit Court,

Michael P. Sullivan, Judge, determined that all 21 sites at

issue fell into categories one, three, or four, meaning that the

costs incurred by Johnson Controls at these sites were not

“legal damages” entitled to insurance coverage under its

CGL policies. Johnson Controls appealed once again. After

concluding that the circuit court’s findings of fact were not

clearly erroneous, the court of appeals affirmed the circuit

court’s finding that no [18] coverage was afforded to

Johnson Controls. Johnson Controls II, 250 Wis. 2d 319,

426. Johnson Controls petitioned this court for review,

which we granted.

427 The core of this matter is the continuing vitality of

Edgerton. While Johnson Controls maintains that, even if

Edgerton is upheld, the insurers must provide coverage in

situations governed by categories three and four of the

Johnson Controls I schema, it nonetheless launches an overt

assault on Edgerton’s holdings. Johnson Controls asks this

court to overrule Edgerton because the decision was a

misapplication of Wisconsin law, it created an arbitrary and

unworkable system for resolving issues that arise in the

context of insurance coverage for environmental damage,

and the legal rationales for the decision have completely

eroded. Conversely, the insurers beseech this court to

uphold its precedent, adhere to the rationale of Edgerton,

and, upon doing so, recognize that categories three and four

must necessarily be denied consonant with Edgerton.

428 In determining whether Edgerton should survive,

we engage in two levels of analysis. First, we must assess

whether the conclusions of Edgerton were incorrect as a

matter of law. If we determine that the opinion was

fundamentally wrong, then we must grapple with Edgerton’s

standing as controlling legal precedent in Wisconsin. In

other words, even if this court determines conclusively that

15a

Edgerton misapplied principles of Wisconsin insurance law

and misconstrued the nature of the [19] relief sought in

CERCLA cost recovery actions, we still must decide

whether these errors require the court to overrule its recent

precedent and deviate from the doctrine of stare decisis.

Ill

{29 Johnson Controls seeks coverage under its various

CGL policies. With regard to the insurers’ duty to

indemnify, the policies provide: “The [insurer] will 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 the policy applies, caused by an

occurrence.” As for the insurers’ duty to defend, the policies

provide that the insurer “shall have the right and duty to

defend any suit against the insured seeking damages on

account of such... property damage.” All policies at issue

have language either identical or substantially similar to the

preceding terms.

{30 The interpretation of words or clauses in an

insurance contract is a question of law that we review de

novo. See Just v. Land Reclamation, Ltd., 155 Wis. 2d 737,

744, 456 N.W.2d 570 (1990). As we explained in Hills, the

method by which Wisconsin courts determine whether an

insurance contract requires coverage of a particular claim is

familiar:

In general, the interpretation of an insurance

contract is controlled by principles of contract

construction. See, e.g., Kuhn v. Allstate Ins. Co.,

193 Wis. 2d 50, 60, 532 N.W.2d 124 (1995); Maas [v.

Ziegler], 172 Wis. 2d [70], 79, 492 N.W.2d 621

[(1992)]. The primary objective in interpreting a

contract is to ascertain and carry out the intentions

of the parties. See, e.g., Maas, 172 Wis. 2d at 79;

Kremers-Urban Co. v. American Employers Ins.

Co., 119 [20] Wis. 2d 722, 735, 351 N.W.2d 156

(1984). “Of primary importance is that the language

of an insurance policy should be interpreted to

16a

mean what a reasonable person in the position of

the insured would have understood the words to

mean.” Sprangers, 182 Wis. 2d at 536; accord, e.g.,

Kuhn, 193 Wis. 2d at 60; Kremers-Urban Co., 119

Wis. 2d at 735.

Hills, 209 Wis. 2d at 175. These principles guide our

interpretation of the policy language at issue in this case.

A. Are CERCLA Response Costs Damages?

431 We first address whether CERCLA response costs

are “sums which the insured shall become legally obligated

to pay as damages.” To answer this question, we must

comprehend the nature of environmental response costs as

understood by a reasonable insured faced with CERCLA

liability.’®

432 The insurers contend that, when the government

seeks cleanup costs under the authority of CERCLA (or

similar state regulation), the government is seeking relief in

the form of (a) restitution through a cost-recovery action,"’

or (b) injunction [21] through administrative order."

16 As we stated in Hills, the focus of our analysis in this case is on

interpretation of the insurance policies and not on environmental law.

General Casualty Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 175, 561

N.W.2d 718 (1997). The parties and amici curiae have extensively argued,

in varying forms, how competing interpretations of the CGL policy will

impact on the efficient and effective remediation of pollution. While we

are sensitive to these issues, these discussions are not probative of

whether coverage obtains under Johnson Controls’ policies.

17 42 U.S.C. § 9607(a)(4)(A).

'§ Section 107(a)(4) of CERCLA, codified as 42 U.S.C. § 9607(a)(4),

establishes the right of a cost recovery action of parties against other par-

ties responsible for contamination at a site remediated under CERCLA.

It provides that all responsible parties

shall be liable for—

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

United States Government or a State or an Indian tribe not in-

consistent with the national contingency plan;

17a

Because the insurers argue that both forms of relief are

“equitable,” that is, not legal damages,” coverage is

excluded.

[22] 433 Johnson Controls takes the opposite position.

It contends that response costs are “damages” from the

perspective of an ordinary insured because the law imposes

costs on the insured to remediate property that the insured

‘previously damaged. These response costs should thus be

covered.

434 When this issue was first addressed in Edgerton, a

majority of the court concluded that CERCLA response

costs do not constitute “damages” under standard CGL

policies. Edgerton, 184 Wis. 2d at 782. The Edgerton

majority looked primarily to School District of Shorewood,

(B) any other necessary costs of response incurred by

any other person consistent with the national contingency plan;

ral resources, including the reasonable costs of assessing such

injury, destruction, or loss resulting from such a release[.]

42 U.S.C. § 9607(a)(4). In the alternative, the government can seek, under

certain circumstances, a court order to require responsible parties to per-

form remedial actions through a Unilateral Administrative Order. This

authority is granted under Section 106 of CERCLA, which provides in

part:

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

government, when the President determines that there may be

an imminent and substantial endangerment to the public health

or welfare or the environment because of an actual or threat-

ened release of a hazardous substance from a facility, he may

require the Attorney General of the United States to secure

such relief as may be necessary to abate such danger or threat,

and the district court of the United States in the district in

which the threat occurs shall have jurisdiction to grant such re-

lief as the public interest and the equities of the case may re-

quire. The President may also, after notice to the affected

State, take other action under this section [22] including, but

not limited to, issuing such orders as may be necessary to pro-

tect public health and welfare and the environment.

42 U.S.C. § 9606(a).

18a

170 Wis. 2d at 347, for guidance in interpreting the “as

damages” language in the insureds’ CGL policies.

435 In Shorewood, two school districts sought liability

insurance coverage under their CGL policies for their costs

in defending an action for declaratory and injunctive relief

and their costs in complying with the terms of subsequent

settlement to correct alleged practices of illegal segregation

and racial discrimination in education. Jd. at 356-62." The

court noted that:

[23] The apparent goal of the plaintiffs in the

underlying action was the desegregation of the

Milwaukee area school system. The amended

complaint sought only declaratory and injunctive

relief whose purpose was “to eliminate the

remaining vestiges of segregation in the school

districts and schools in the Milwaukee metropolitan

area.” The amended complaint did not seek to

presently compensate the victims of past

discrimination. Therefore, no “damages” were

sought in the underlying action.

Id. at 371.

436 The Shorewood court recognized that the types of

costs being sought were largely to indemnify the school

district for future public expenditures. To explain why such

costs did not fall within our traditional concept of “damages,”

the court concluded that the term “damages,” when used in

CGL insurance policies, unambiguously means “legal

damages”—that is, “legal compensation for past wrongs or

injuries’—which are generally pecuniary in nature. Jd. at

368. Then the court added: “The term ‘damages’ does not

encompass the cost of complying with an injunctive decree.”

Id.

'9 Asin this case and in Edgerton, the policies at issue in Shorewood

qualified the insurer’s duty of indemnification to only those sums which

the insured is “legally obligated to pay as damages.” Sch. Mist. of Shore-

wood v. Wausau Ins. Cos., 170 Wis. 2d 347, 358 n.1, 488 N.W.2d 82 (1992).

19a

{37 This last sentence was critical. Citing Black’s Law

Dictionary, Professor Dan Dobbs’ Handbook on the Law of

Remedies (1973), Pure Milk Products Cooperative v.

National Farmers Organization (Pure Milk ID, 90 Wis. 2d

781, 280 N.W.2d 691 (1979), and Milliken v. Bradley

(Milliken II), 483 U.S. 267 (1977), the court hammered the

distinction between compensation for past wrongs and

injunctive relief that looks to the future.

An injunction looks to the future conduct of the

parties and is preventive in nature. Damages, on

the other hand, are remedial in nature, not

preventive. The remedy of injunction in only

available if the plaintiff can establish that a

continuing or [24] anticipated injurious act is not

adequately compensable in damages.

Shorewood, 170 Wis. 2d at 370 (citing Pure Milk II, 90 Wis.

2d at 800).

738 In retrospect, the rationale for the Shorewood

decision was too broadly stated, and we reject its overly

restrictive definition of damages.

139 Succeeding courts should have noticed that the

Shorewood court’s key sentence—“The term ‘damages’ does

not encompass the cost of complying with an injunctive

decree”—was inconsistent with the language of authorities

quoted in the opinion.

740 For instance, Shorewood cited Dobbs, Handbook on

the Law of Remedies, for the proposition that judicial

remedies fall into four major categories: damage remedies,

restitutionary remedies, coercive remedies (such as

injunctions that are backed by the court’s contempt power),

and declaratory remedies. Shorewood, 170 Wis. 2d at 368

(citing Dobbs, supra, § 1.1 at 1 (1973)). The court then

summarized the law: “This classification scheme is based on

the nature and purpose of the relief awarded. ... A

classification based on the form of the action, as either

equitable or legal, is irrelevant.” Id. at 369 (emphasis

added). The substance of Dobbs’ 1973 treatise is that if the

purpose of a remedy is to compensate a party for some loss,

20a

the purpose of the remedy overshadows the form of the

action.

[25] 941 We note that Justice Abrahamson cited the

same Dobbs treatise and the exact same page in the original

Shorewood opinion, writing that “Although the main purpose

of ‘damages’ at law is generally viewed as compensatory, the

damages remedy is not wholly compensatory. At the same

time, mandatory injunctive relief may also be ‘compensatory’

in nature.” Shorewood I, 168 Wis. 2d at 416 (citing Dobbs,

Handbook on the Law of Remedies § 1. 1, at 1 (1978)).

42 Shorewood also quoted from Pure Milk II: “{AJn

injunction is designed to prevent injury, not to compensate

for past wrongs, and [ ] an injunction may issue merely upon

proof of a sufficient threat of future irreparable injury.”

Shorewood, 170 Wis. 2d at 370 (quoting Pure Milk II, 90

Wis. 2d at 802) (emphasis added). But Pure Milk IT also

explained that:

The injunction is a preventive order looking to

the future conduct of the parties. To obtain an

injunction, a plaintiff must show a sufficient

probability that future conduct of the defendant will

violate a right of and will injure the plaintiff. To

invoke the remedy of ijunction the plaintiff must

moreover establish that the injury is irreparable,

i.e. not adequately compensable in damages.

Pure Milk II, 90 Wis. 2d at 800 (citations omitted) (emphasis

added).

443 A careful reading of these authorities suggests that

if an equitable action is providing compensation for past

wrongs—if it is “remedial in nature”—it cannot be lumped

[26] indiscriminately with a typical injunction, because it is

serving a different purpose from a typical injunction.

444 The Edgerton opinion was too quick to embrace the

strict dichotomy between legal damages and equitable

actions set out in Shorewood. The Edgerton court’s five-

page discussion of damages relied heavily on Shorewood’s

key sentence that “The term ‘damages’ does not encompass

Z2la

the cost of complying with an injunctive decree,” and it

constructed its analysis to conform to that faulty principle.

Edgerton, 184 Wis. 2d at 783 (quoting Shorewood, 170 Wis.

2d at 368).

{45 Edgerton made a second mistake. It misapplied

Shorewood’s holding regarding the scope of the “as

damages” limitation in CGL policies because it did not

appreciate the nature of liability for environmental cleanup

costs under CERCLA or how that liability would be

understood by a reasonable insured. The Edgerton majority

summarily concluded that response costs under CERCLA

were equitable relief similar to the school districts’

settlement in Shorewood, Edgerton, 184 Wis. 2d at 785,”

and, as such, were not designed to compensate aggrieved

parties for past wrongs and did not fall within the policy

coverage. Id. The majority reasoned that response costs

were designed to deter future contamination by means of an

[27] injunctive action, “while providing for remediation and

cleanup of the affected site[s].” Id. (emphasis added).

146 The distinction between legal and equitable

remedies relied upon in Shorewood has very limited

applicability to CERCLA. Because CERCLA serves dual

purposes and provides multiple avenues for achieving these

purposes, the operation of the statute and its legal

obligations will be confused if one attempts to fit the nature

of the liability imposed into a strict equitable/legal damages

dichotomy. See John A. Mathias, Jr., et al. Insurance

Coverage Disputes § 9.02[1], at 9-18 (1996 & Supp. 2003).

{47 CERCLA attempts to promptly remediate polluted

sites to bring land back to its original uncontaminated

0 This conclusion seems to follow a subtle error in the Shorewood

decision. The paradox of Shorewood is that it correctly instructed courts

not to look to the form of the action but to the nature of the relief re-

quested, Shorewood, 170 Wis. 2d at 369, but it then ignored this command

itself in deeming all injunctive relief as being equitable in nature.

22a

condition. However, CERCLA also imposes liability.”’ The

costs of accomplishing remediation efforts are expressly

expected to be borne by the parties responsible for the

polluted condition of the land.” The only reason Johnson

Controls had to expend money for the sites named in its

complaint, either to clean up the properties directly or to

reimburse others who had remediated [28] the properties,

was because its liability under CERCLA had been

established, based on its contribution, in some form, to the

pollution of the properties.

448 Under this system, the nature of relief in CERCLA

response cost actions is not confined to future injuries; it

includes “legal recompense for injuries sustained.” See

Shorewood, 170 Wis. 2d at 372.” Thus, there is both a

prospective and remedial element to an insured’s response

cost liability. Because CERCLA proceedings seek the costs

of repairing damaged property, rather than the cost of

conforming one’s future conduct, the nature of relief is, at

least in part, compensatory. See Boeing Co. v. Aetna Cas. &

Sur. Co., 784 P.2d 507, 511 (Wash. 1990). The harm for

which CERCLA liability attaches is based on past wrongs

and injuries to property, Shorewood, 170 Wis. 2d at 368, and

21 See Aviall Servs., Inc. v. Cooper Indus., Inc., 312 F.3d 677, 681

(5th Cir. 2002) (“CERCLA’s twin purposes are to promote prompt and

effective cleanup of hazardous waste sites and the sharing of financial re-

sponsibility among the parties whose actions created the hazards.”).

22 See, e.g., Smith Land & Improvement Corp. v. Celotex Corp., 851

F.2d 86, 91-92 (3d Cir. 1988); Blake A. Watson, Liberal Construction of

CERCLA Under the Remedial Purpose Canon: Have the Lower Courts

Taken a Good Thing Too Far?, 20 Harv. Envtl. L. Rev. 199, 279 (1996).

23 See Fed. Ins. Co. v. Susquehanna Broad. Co., 727 F. Supp. 169,

174 (M.D. Pa. 1989) (“To recognize that damages are not equitable relief

does not answer the specific question whether the costs of restoring land

to its original condition are, nevertheless, recoverable in damages.”); C.D.

Spangler Const. Co. v. Indus. Crankshaft & Eng’g Co., Inc., 388 S.E.2d

557, 568 (N.C. 1990) (citing Port of Portland v. Water Quality Ins. Syndi-

cate, 796 F.2d 1188, 1194 (9th Cir. 1986)) (“once ‘property damage’ occurs

injuring a third party, costs associated with remedying it are ‘damages’

within the meaning of the liability policy”).

23a

may be characterized as consequential damages flowing

from the direct damage caused to the environment. See

Minn. Mining & Mfg. Co. v. Travelers Indem. Co., 457

N.W.2d 175, 182 (Minn. 1990).

[29] 149 The availability of cost recovery actions under

Section 107 of CERCLA shows that a responsible party’s

liability under CERCLA is adequately compensable as

damages. In fact, a government injunction to an insured to

remediate contaminated property is an alternative to a

monetary damages action for injury to the property.”

Under CERCLA, injunctive relief may be available even

though legal or restitutive remedies are adequate. See AIU

Ins. Co. v. Superior Court, 799 P.2d 1253, 1277 (Cal. 1990).

This option is one of several factors that distinguish

CERCLA remedies from the traditional injunctions

described in Shorewood.

{50 CERCLA does not regulate prospective conduct in

the traditional sense that governments regulate commercial

behavior. See New York v. Shore Realty Corp., 759 F.2d

1032, 1041 (2d Cir. 1985) (“CERCLA is not a regulatory

standard-setting statute such as the Clean Air Act.”).

Rather, it seeks to impose strict liability on corporations and

other entities for damages to [80] property done in the past.

None of the costs at issue in this case appear to have been

incurred by Johnson Controls to improve the cleanliness of

ongoing processing or to comply with government

4 See Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507, 512 (Wash.

1990) (quoting United States Aviex Co. v. Travelers Ins. Co., 336 N.W.2d

838, 843 (Mich. App. 1983)):

If the state were to sue in court to recover in traditional “dam-

ages”, including the state’s costs incurred in cleaning up the

contamination, for the injury to the ground water, defendant’s

obligation to defend against the lawsuit and to pay damages

would be clear. It is merely fortuitous from the standpoint of

either plaintiff or defendant that the state has chosen to have

plaintiff remedy the contamination problem, rather than choos-

ing to incur the costs of clean-up itself and then suing plaintiff

to recover those costs.

24a

regulations requiring business practices conforming to some

standard.’ Therefore, an injunction in this context is

materially distinguishable from a traditional injunction, such

as the one at issue in Shorewood.

451 It is true that the protection of human health and

welfare is a future benefit from remediating damaged

property. However, shifting the focus from remediating

past damages to- preventing future injury from

contamination does not change the remedial nature of

CERCLA response costs for completed past actions.

452 The Edgerton opinion points to 42 U.S.C. § 9607(a),

paragraphs (A) and (C), to justify its conclusion that

response costs are not damages, asserting that response

costs “are, by [81] definition, considered to be equitable

relief and reflect a congressional intent to differentiate

between cleanup or response costs under 42 U.S.C. sec.

9607(a)(4)(A) and damages for injury, destruction, or the loss

of natural resources under 42 U.S.C. sec. 9607(a)(4)(C).”

Edgerton, 184. Wis. 2d at 784. This conclusion was then, and

is now, disputed by other courts.”

953 In § 9607(a), CERCLA outlines four kinds of

liability, one of which speaks of “damages.” However, while

the four kinds of liability are not congruent, that does not

5 In fact, another federal statute, the Resource Conservation and

Recovery Act (RCRA), 42 U.S.C. §§ 6901-6992, which preceded CERCLA

by a few years, regulates the present-day handling of hazardous wastes

and carries its own enforcement mechanisms. See Meghrig v. KFC West-

ern, Inc., 516 U.S. 479, 483 (1996) (“RCRA is a comprehensive environ-

mental statute that governs the treatment, storage, and disposal of solid

and hazardous waste. Unlike [CERCLA] RCRA is not principally de-

signed to effectuate the cleanup of toxic waste sites or to compensate

those who have attended to the remediation of environmental hazards.

RCRA’s primary purpose, rather, is to reduce the generation of hazardous

waste and to ensure the proper treatment, storage, and disposal of that

waste which is nonetheless generated, ‘so as to minimize the present and

future threat to human health and the environment.”’) (citations omitted).

6 See, e.g., United States Aviex Co. v. Travelers Ins. Co., 336

N.W.2d 838, 843 (Mich. App. 1983).

25a

mean they do not overlap, nor does it mean that a reasonable

insured would expect coverage for one government response

to environmental damage but not for another. In any event,

Edgerton implies that any government involvement with

the insured precludes coverage, whether the coverage is

sought as damages under (A) or (C) of § 9607(a)(4).

154 In Shorewood, the court acknowledged that the

school districts had cited many cases “which have held that

environmental cleanup costs under [CERCLA] constitute

‘damages’ under the terms of insurance policies.”

Shorewood, 170 Wis. 2d at 372-73. It went on to say that

courts around the country “do not uniformly agree that

clean-up costs under CERCLA constitute ‘damages’ under

the terms of insurance policies.” Jd. at 373. Then,

significantly, the court said:

The issue of whether clean-up costs constitute

“damages” under the terms of an insurance contract

has [32] never been addressed by a Wisconsin

court. Such an important issue should not be

decided in a cursory fashion by this court.

Therefore, we decline to adopt or apply the analogy

posited by the school districts.

Id. at 374 (emphasis added). Unfortunately, the Edgerton

court treated CERCLA response costs as though the issue

had been decided in Shorewood, when it had not.

{55 There is a third deficiency in the Edgerton opinion.

Shorewood quoted extensively from Professor Dan Dobbs, a

“noted authority on remedies.” Shorewood, 170 Wis. 2d at

368-69. The quotations were taken from the 1973 edition of

Dobbs’ Handbook on the Law of Remedies. In the 1993

revision of his treatise, Professor Dobbs directly addresses

the issue of response costs in environmental damages actions

and concludes:

Response costs recoverable [under CERCLA] are

analogous to repair costs and consequential

damages that a private landowner-plaintiff might

recover in similar situations. . . . Such items [of

response costs] are closely analogous to common

26a

law consequential damages. . . . Response costs are

very high, but in spite of the terminology, they

closely resemble familiar common law types of

damages.

Dan B. Dobbs, Law of Remedies § 5.2(5), at 727 €1993).

456 Professor Dobbs then made clear that there is no

fundamental distinction between response costs (sought

under 42 U.S.C. § 9607(a)(4)(A)-(B)) and natural resource

damages (sought under § 9607(a)(4)(C), as to their

classification as “damages.”

The normal terminology of the law would probably

treat the recovery for natural resource damages

and also the recovery of response costs as damages.

Both compensate for loss incurred. It often

happens, however, compensation and restitution

turn out to yield the same dollar ‘amount. That

might be the case with response costs... .

[33] . . . [I]t is important to characterize a liability

as restitutionary only if restitution differs in

amount from damages or if there is no substantive

basis for recovery as damages. Under [CERCLA],

there is a substantive basis for recovery of

“response costs,” which are not otherwise

characterized by the statute. The amount to be

recovered does not differ according to the

characterization as~ restitution or damages.

Attempts to characterize the recovery of response

costs as either restitution or damages do not seem

helpful. Usually the attempt is made only to

determine whether an insurance policy covers

liability for release of hazardous substance. It is

doubtful that the term “damages” in an insurance

policy carries with it any such inchoate set of

distinctions and the question whether response

costs are covered by the policy probably cannot

turn on proposed definitions of those costs as

restitution without distorting the remedial concepts

involved.

27a

Id. at 729-30 (footnote omitted) (emphasis added). The

explanation offered by Professor Dobbs severely weakens

Edgerton’s basis for construing the “as damages” language

as exempting CERCLA response costs based on their

remedial nature. The dissent in Edgerton quoted from the

1993 treatise. Edgerton, 184 Wis. 2d at 792-93 (Abrahamson,

J., dissenting). The majority opinion never rebutted the

dissent’s use of Dobbs or acknowledged that one of the main

props of the Shorewood opinion had been removed.

{57 There is a fourth problem with Edgerton, as was

revealed in Hills. The court stated in Hills that, “It has long

been the law of this state that the cost of repairing and

restoring damaged property and water to its original

condition is a proper measure of compensatory damages.”

Hills, 209 Wis. 2d at 181 (emphasis added). The court cited a

number of [34] cases and authorities to support this

proposition.” The Edgerton opinion simply did not address

this body of law.

458 This brings us to Hills. In Hills, we concluded

that, when a third party sues an insured for reimbursement

of the third party’s response costs under CEKULA and the

insured then seeks liability insurance coverage, the insure”

is seeking coverage for legal damages to compensate t!

third party for past wrongs. Jd. at 181.

7 In support of this proposition, the Hills court cited Jost v. Dairy-

land Power Coop., 45 Wis. 2d 164, 172 N.W.2d 647 (1969); Anstee v. Mon-

roe Light & Fuel Co., 171 Wis. 291, 177 N.W. 26 (1920); Pedelty v. Wiscon-

sin Zinc Co., 148 Wis. 245, 134 N.W. 356 (1912); Fortier v. Flambeau

Plastics Co., 164 Wis. 2d 639, 476 N.W.2d 593 (Ct. App. 1991); 1 Russell M.

Ware, The Law of Damages in Wisconsin §§ 18.4 & 18.22 (1988 & Supp.

1996); Wis JI—Civil 1804. See also Wisconsin Public Serv. Corp. v. Heri-

tage Mut. Ins. Co., 200 Wis. 2d 821, 830, 548 N.W.2d 544 (Ct. App. 1996),

affd, 209 Wis. 2d 160, 561 N.W.2d 726 (1997) (“Nischke [v. Farmers &

Merchants Bank & Trust, 187 Wis. 2d 96, 522 N.W.2d 542 (Ct. App. 1994)}

is instructive because it stands for the proposition that when a landowner

spends money in response to a government directive to remediate, the

money can be recovered as legal damages from the tortfeasor.”).

—

28a

459 Hills made a valiant attempt to coexist with

Shorewood and Edgerton. It explained why principles of

Wisconsin law on remedies afforded coverage to Hills. The

court said that the third party seeking contribution from the

insured was not seeking a remedy based on the insured’s

failure to take corrective action or failure to aid in the

prospective remediation of the property. Rather, “the

fundamental remedy Arrowhead [third party] seeks from

Hills [insured] is [85] compensatory damages for the past

injuries he allegedly inflicted on the Arrowhead site.” Id. at

182 (emphasis added). In truth, this language simply

relabeled the contribution to response costs as

compensatory damages for past injuries.

460 Although Hills purported to sustain the rule of

Edgerton, it effectively obliterated its intellectual

foundation. To find coverage under the same CGL policies

that were at issue in Edgerton, Hills concluded that the

nature of the relief sought in the cost recovery action was

not merely equitable relief.“ Furthermore, Hills, unlike

Edgerton, faithfully applied long-standing principles of

Wisconsin insurance contract law and factored into its

calculus the reasonable expectations of an insured. It

recognized that “The CGL policy was designed to protect an

insured against liability for negligent acts resulting in

damage to third parties.” Id. [36] at 183-84 (quoting Arnold

P. Anderson, Wisconsin Insurance Law § 5.14, at 136 (3d ed.

1990 & Supp. 1997)).”

8 The rule of contribution is an equitable rule. See Wagner v. Daye,

68 Wis. 2d 123, 125, 227 N.W.2d 688 (1975); Hartford Accident & Indem.

Co. v. Worden-Allen Co., 238 Wis. 124, 132, 297 N.W. 436 (1941). Al-

though the right to contribution in CERCLA actions is now statutorily

granted, the nature of the relief remains the same. Moreover, “The fact

that an action may be founded in principles of equity, however, does not

mean that the suing party does not seek monetary compensation.” Sauk

County v. Employers Ins. of Wausau, 202 Wis. 2d 433, 443 n.1, 550

N.W.2d 439 (Ct. App. 1996).

9 This view has been subsequently applied by the court of appeals.

See Sauk County v. Employers Ins. of Wausau, 202 Wis. 2d 433, 443, 550

29a

{61 The basic differences between the Edgerton facts

the Hills facts are as follows: (1) Edgerton owned the

contaminated property, Hills did not; (2) Edgerton cleaned

up the damaged property, Hills was asked to contribute to

government cleanup costs; (3) Edgerton was contacted

directly by government, Hills was not; (4) Hills was brought

into a formal lawsuit, Edgerton was not. The principal

distinction between the Hills category of cases and the court

of appeals’ fourth category is that there was contact

between the government and the insured before the insured

was sued by a third party.

{62 This distinction is arbitrary. If we were to honor

this distinction, coverage for CERCLA response cost

liability would turn on the fortuity of whether the insured

had ever been contacted in some manner by the government

regarding the remediation of a site for which the insured

was a potentially responsible party. In short, government

contact would mean loss of coverage.

163 If we were to conclude that this distinction is

indefensibly arbitrary and contrary to the expectation of a

[37] reasonable insured, we would realize that the principal

distinction between the third category and the fourth

category is that the government files suit for compensation

instead of a private party. This again is fortuitous and not

what a reasonable insured would expect.

464 It makes’ little sense in determining whether

“damages” have occurred under the policy whether the

party bringing a legal action for contribution to remediate

damaged property is a governmental agency or some other

entity.” Certainly this distinction was not bargained for, nor

N.W.2d 439 (Ct. App. 1996) (“Hills held that the purpose of CGL policies

is to indemnify insureds for damage they cause to others’ property.”) (re-

ferring to the court of appeals decision in Hills, 201 Wis. 2d 1, 548 N.W.2d

100 (Ct. App. 1996), which was subsequently affirmed by this court).

the Facts?: New Hope for Insureds Seeking Defense and Indemnification

from Insurance Companies for Environmental Cleanup Costs, 6 Wis.

eS ee ie Qype a a ae Sie ee

30a

is it manifested anywhere in the CGL policies. The nature of

the relief sought against an insured for damage that it

caused should not change based on the identity of the

claimant ina CERCLA cost recovery action.”!

465 Perhaps the best example of the arbitrariness of

these distinctions is illustrated by Hills. The defendants in

the [38] underlying action in Hills, who were sued by the

EPA for declaratory relief and recovery of response costs,

would be precluded from coverage under a standard CGL

policy if they were governed by Edgerton. They would fall

into the court of appeals’ category three. Meanwhile, Hills

and the hundreds of other potentially responsible parties

(PRPs) who were impleaded by these original defendants

would receive coverage, despite the fact that the third-party

complaint against them sought contribution for the same

CERCLA response costs. We do not believe it is rational or

equitable that an insured’s coverage should depend upon the

assiduousness of the government in contacting the insured

as a potentially responsible party. In a cost recovery action

under CERCLA, the EPA is not required to sue all PRPs,

nor is it required to locate or contact all PRPs at earlier

stages in the remediation process. See William T. Stuart,

Comment, City of Edgerton: Creating a Friendlier Forum

for Insurance Companies, 80 Marq. L. Rev. 853, 873 (1997).

Envtl. LJ. 119, 140 (1999) (“To an insured [facing liability under

CERCLA], there is no real difference between being sued by another

party and being sued by a government agency.”).

31 We doubt that Edgerton contemplated the consequences of this

artificial distinction. In Edgerton, the majority compared cost recovery

actions under § 107(a)(4)(A) with natural resource damages claims under

§ 107(a)(4)(C), the latter of which the court acknowledged were “dam-

ages.” Edgerton, 184 Wis. 2d at 784-85. However, only the government

can bring a natural resource damages claim under this subsection. See 42

U.S.C. § 9607(f)(1). Yet, under the government-as-a-claimant theory pro-

pounded by the insurers, costs under § 106(a)(4)(C) actions should not be

covered under the policies.

32 A similarly odd result can be imagined under the Edgerton case if

its facts had changed slightly, as explained by one commentator:

3la

[39] 466 The interplay between Hills and Edgerton has

created an exceedingly tenuous situation. We have no doubt

that the court of appeals, in creating categories three and

four, was attempting quite admirably to reconcile the Hills

and Edgerton holdings.” It did so by constructing a system

that did not create perverse incentives for insureds to

purposefully refuse to respond to a government remediation

directive, allow the pollution to go unremediated, and wait to

be sued before undertaking cleanup actions, so that coverage

would result. But the court’s four-category schema exposed

how arbitrary the distinctions are. The only sensible

conclusion is that CERCLA response costs for which a party

becomes liable, in whatever form that liability is pursued,

are “damages” for that party’s liability for prior damage to

property and must be indemnified.

The only difference in Hills and Heritage is that in those cases

the DNR contacted a third party, who then was forced to file a

suit to bring in Hills and WPS respectively, instead of the

DNR or EPA contacting them directly. Based on this distinc-

tion, Edgerton would have been covered by its CGL (ignoring

the owned-property exclusion) if the EPA and DNR had di-

rectly contacted only ES&G, and ES&G had filed a suit against

Edgerton, because then the costs incurred by Edgerton would

have constituted “damages” rather than response costs. In

practice, this distinction seems to be irrelevant and merely

technical, and may lead to insureds manipulating their situa-

tions to ensure that they will never incur response costs but

will wait until a third party files a suit against them to recover

“damages.”

Turall, supra, at 138 (footnotes omitted).

3 We also note that the Seventh Circuit of the United States Court

of Appeals provided a cogent analysis and basis for its decision in Wiscon-

sin Power & Light Co. v. Century Indemnity Co., 130 F.3d 787 (7th Cir.

1997). The court concluded that if the costs an insured would incur in re-

sponse to a government directive to clean up land would not be recover-

able “damages,” then when the insured ignores the request and is thereaf-

ter sued by another party for contribution in the costs of remediating that

land, no coverage should follow. Jd. at 792. If coverage did obtain, the

uncovered response costs could be transmuted into legal damages. Id.

This is the category four scenario.

32a

[40] 467 An especially disconcerting result of the nearly

decade-old Edgerton line of cases is that the categorization

scheme for determining liability coverage is now well

removed from the language of the insurance contract.” The

source of this problem can be traced to Edgerton’s failure to

comport with the broad language of Johnson Controls’ CGL

policy and with the reasonable expectations of the insured.

968 As stated in Hills, CGL polices are expected to

cover liabilities incurred because of prior damage to

property. Hills, 209 Wis. 2d at 183-84. We fail to see how

the policy language signals clear limitations to the coverage

afforded for these liabilities. As was well explained by the

court of appeals in its decision in Edgerton:

[O]nce property damage is found as a result of

environmental contamination, cleanup costs should

be recoverable as sums that the insured was liable

to pay as the result of property damage. In this

context the argument concerning the historical

separation of damages and equity is not convincing

_.. 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 [41] him to pay sums of

money because his acts or omissions affected

adversely third parties. While such claims might be

characterized as seeking “equitable relief’ the

[cleanup] costs are essentially compensatory

damages for injury to common property and for

34 As Johnson Controls correctly notes, categories three and four

imply a type of “intentional wrongdoing” standard to the insured’s actions.

However, such an exception is entirely inappropriate because it does not

ask whether the act giving rise to the coverage (the contamination) was

intentional. See Loveridge v. Chartier, 161 Wis. 2d 150, 166, 468 N.W.2d

146 (1991) (discussing nature of intentional acts exclusion in insurance

policy). This notion also erroneously assumes there is no good faith basis

for the insured to contest liability under a government directive and fails

(to consider that CERCLA remediation actions are frequently complex

and can involve innumerable permutations of factual situations.

33a

that reason the insured has a duty to defend... .

(T]he 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.

City of Edgerton v. Gen. Cas. Co. of Wis., 172 Wis. 2d 518,

543, 493 N.W.2d 768 (Ct. App. 1992) (quoting Upjohn Co. v.

Aetna Cas. & Sur. Co., 768 F. Supp 1186, 1199-1200 (W.D.

Mich. 1990)). .

{69 By determining that CERCLA response costs are

recoverable under these CGL policies, we are not rendering

the “as damages” phrase a mere surplusage. Edgerton, 184

Wis. 2d at 784 (citing Shorewood, 170 Wis. 2d at 369-70). On

the contrary, the language of these CGL policies still

precludes coverage for costs that the insured would pay in

order to comply with general government regulations or

prospective conduct. See, e.g., A.Y. McDonald Indus., Inc.

v. Ins. Co. of N. Am., 475 N.W.2d 607, 625-26 (Iowa 1991);

Bausch & Lomb Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021,

1033 (Md. 1993); Minnesota Mining, 457 N.W.2d 175, 180 n.4;

see also Wis. Power & Light Co. v. Century Indem. Co., 130

F.3d 787, 791 (7th Cir. 1997) (“A claim for damages must be

distinguished from a demand for compliance with a legal

duty.”).

{70 In deciding the Edgerton case, the court relied on

two federal decisions to hold that CERCLA response costs

are not “damages” under CGL policies. Edgerton, 184 Wis.

2d at 784 [42] (citing Maryland Cas. Co. v. Armco, Inc., 822

F.2d 1348, 1352 (4th Cir. 1987) (applying Maryland law), cert.

denied, 484 U.S. 1008 (1988), and Cont’l Ins. v. Northeastern

Pharm. & Chem. Co., 842 F.2d 977 (8th Cir. 1988)

(NEPACCO) (applying Missouri law), cert. denied sub nom.

Missouri v. Cont’l Ins. Cos., 488 U.S. 821 (1988)). The

Armco and NEPACCO decisions have since been rejected

by the highest courts of the states whose laws the decisions

were attempting to apply. See Farmland Indus., Inc. v.

Republic Ins. Co., 941 S.W.2d 505, 512 (Mo. 1997); Bausch &

34a

Lomb Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021 (Md. 1998).

This fact is not dispositive, but it erodes the credibility of the

original Edgerton decision.

471 We conclude that the Edgerton decision was

incorrect insofar as it relied on the too-confining, overly

technical definition of “damages” in Shorewood and held that

terms of the standard CGL policy.

B. Do PRP Letters Trigger the Insurer’s Duty to Defend?

72 Having determined that CERCLA response costs

for restoring and remediating contaminated property should

have been determined to be “damages” under the relevant

CGL policies, we [43] turn to the other holding in Edgerton:

that the receipt of a potentially responsible party (PRP)

letter from the EPA, or a similar letter from a state agency,

does not constitute a “suit” for which an insurer has a duty

to defend.

{73 The Edgerton court stated the problem in the

following manner:

The expansive authority granted to state and

federal agencies under CERCLA, in order to

initiate environmental cleanup of hazardous waste,

has had the effect of producing a flood of litigation

so as to determine who will pay the cleanup costs—

the PRP or the PRP’s insurer. . . . [T]here has been

no definitive, nationwide resolution of the ultimate

issue—whether the general comprehensive liability

policy—the “CGL”—imposes a duty to defend a

federal or state demand for environmental

remediation and cleanup costs. Instead, courts

35 NEPACCO itself was a sharply divided Eighth Circuit en banc

decision that reversed an earlier panel decision. Cont’l Ins. Cos. v. North-

eastern Pharm. & Chem. Co., 811 F.2d 1180 (8th Cir. 1987). The Eighth

Circuit has subsequently rejected the rationale of the second NEPACCO

decision. See Lindsay Mfg. Co. v. Hartford Accident & Indem. Co., 118

F.3d 1263, 1270-71 (8th Cir. 1997) (predicting Nebraska law).

35a

have developed competing definitions of what

constitutes a “suit” when environmental cleanup is

required.

Edgerton, 184 Wis. 2d at 766-68.

474 The court went on to observe that:

Some courts have concluded that PRP letters

have a unique nature within the context of a

CERCLA administrative proceeding. These courts

have held that the receipt of PRP letters is the

“functional equivalent of a suit” because (a) the

letters maintain a confrontational and adversarial

posture, and (b) they create the spectre of

devastating financial consequences if voluntary

cooperation is not forthcoming. As a result, PRP

liability for immediate and long-range cleanup and

remediation costs necessitates a legal defense.

Id. at 770.

175 Then the court provided its own answer:

We conclude that neither a PRP letter nor a

comparable notification letter by a state agency

such as the DNR triggers the insurers’ duty to

defend.

[44]....

[T]he primary attribute of a “suit” is that parties to

an action are involved in actual court proceedings,

initiated by the filing of a complaint.

[Definitions of suit or legal process all involve a

court action.

We find no ambiguity in the term “suit” as it

has been used in the insurance policies. “Suit”

denotes court proceedings, not a “functional

equivalent.” The dissent believes that a reasonable

policyholder would view letters fom a federal or

state agency advising an insured of liability as a

“suit.” To the contrary, the word “suit” is easily

ferences pacmmmaecacmanimmmmmmmmaal

36a

understood and unambiguous to a_ reasonable

policyholder. The proof is in the decisions that hold

that a “PRP letter” is the “functional equivalent of

a suit.” Either there is a suit or there is not. When

there is no suit, there is no duty to defend.

Id. at 771, 775, 781.

{76 The Edgerton court’s definition of “suit” gives us

pause. An insurance policy is a contract between parties,

and it is normally not the province of the court to enlarge the

terms of a policy the parties have agreed upon. At the same

time, the specific term being applied needs to be put in

context.

{77 Comprehensive general liability policies not only

provide protection to insureds through indemnification for

damages for which the insured becomes liable, but also for

defense costs. John N. Bolus, Coniractual Liability

Insurance Provisions: Overview, in Reference Handbook on

the Comprehensive General Liability Policy: Coverage

Provisions, Exclusions, and Other Litigation Issues 43

(Peter J. Neeson ed. [45] 1995). A literal definition of the

term “suit” in the CGL policy presents some practical

difficulties in understanding and reconciling the obligations

of the parties in the presence of a CERCLA claim.

478 For instance, the CGL policy imposes duties upon

the insured. The standard policy has long required that the

insured provide notice to the insurer as soon as practicable.

The 1973 version of the policy provides:

In the event of an occurrence, written notice

containing particulars sufficient to identify the

insured and also reasonably obtainable information

with respect to the time, place and circumstances

thereof, and the names and addresses of the injured

and of available witnesses, shall be given by or for

the insured to the company or any of its authorized

agents as soon as practicable.

Dorothy Dey & Susan Ray, Annotated Comprehensive

General Liability Policy § 3-1, 41 (1985).

37a

479 A second provision of the CGL policy requires the

insured to immediately forward process to the insurer: “Ifa

claim is made or suit is brought against the insured, the

insured shall immediately forward to the company every

demand, notice, summons or other process received by him

or his representative.” Dey, supra, at § 3-2, 44.

{80 This CGL policy language is reinforced in two

statutes. See Wis. Stat. §§ 631.81, 632.26 (2001-02). These

two sections “govern the notice provisions in Wisconsin

insurance policies and set out the rights and duties of the

insured and the insurer.” Neff v. Pierzina, 2001 WI 95, 430,

[46] 245 Wis. 2d 285, 629 N.W.2d 177. They have been a part

of Wisconsin law for more than a half-century.

481 A third provision in the CGL policy imposes a duty

on the insured to cooperate in the event of an occurrence,

claim, or suit:

The insured shall cooperate with the company

and, upon the company’s request, assist in making

settlements, in the conduct of suits and in enforcing

any right of contribution or indemnity against any

person or organization who may be liable to the

insured because of injury or damage with respect to

which insurance is afforded under this policy; and

the insured shall attend hearings and trials and

assist in securing the giving evidence and obtaining

the attendance of witnesses. The insured shall not,

except at his own cost, voluntarily make any

payment, assume any obligation or incur any

expense other than for first aid to others at the

time of accident.

Dey, supra, at § 3-3, 45.*°

F. Supp. 777 (D. Mass 1977), a pre-CERCLA case under the Federal Wa-

ter Pollution Control Act of 1972, 33 U.S.C. § 1321(f)(2), the court decided

that the insured’s costs in cleaning up an oil spill in navigable waters was

covered property damage. /d. at 778-79. It also concluded that the in-

sured, who under governmental and public pressure cleaned up the spill

38a

482 The CGL policy then addresses the insurer’s duty

to defend. The relevant clause in the policy provides that

the insurer “shall have the right and duty to defend any suit

against the insured seeking damages.” This language

appears to imply an equivalency between the insurer’s

“right” and the [47] insurer’s “duty.” The insurer’s “right”

is partially defined in the previously noted duties imposed on

the insured.

483 “(T]he duty to defend is generally acknowledged to

be broader than the insurance company’s duty to pay... .”

Bolus, supra, at 43 (emphasi

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