Petition for Writ of Certiorari — Citizens Electric Corp. v. United States Fidelity & Guaranty Co.

{

Bupreme Court, U.S,

FILED

92-23» AUG 5 1992

OFFICE OF THE CLERK

No.

IN THE

Supreme Court of the Hnited States

OcTOBER TERM, 1992

CrriZENS ELECTRIC CORPORATION,

Petitioner,

VS.

UNITED STATES FIDELITY AND GUARANTY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

JAMES W. Erwin*

JoHN C. HANNEGAN

CRYSTAL M. KENNEDY

THOMPSON & MITCHELL

One Mercantile Center

Suite 3400

St. Louis, Missouri 63101

(314) 231-7676

Counsel for Petitioner

*Counsel of Record

St. Louis Law Printing,Inc. 13307ManchesterRd. St Louis,MO 63131 314-231-4477

QUESTIONS PRESENTED

Does a complaint seeking the recovery of response, removal

and remedial costs incurred by the United States and the cost of

cleaning up a hazardous waste site pursuant to the Comprehen-

sive Environmental Response, Compensation and Liability Act

of 1980, 42 U.S.C. §9607(a) constitute a legal claim for money

damages or an equitable claim for the return of money expended

to restore the property to its former condition?

a pee

LIST OF PARTIES AND RULE 29.1 LIST

The parties to the proceeding below were the Petitioner,

Citizens Electric Corporation and Respondent, United States

Fidelity and Guaranty Company. Citizens Electric Corporation

has no parent, subsidiary or affiliate corporations to list pursuant

to Rule 29.1. United States Fidelity and Guaranty Company has

an affiliate known as Fidelity & Guaranty Underwriters, Inc.

which has issued shares to the public.

TABLE OF CONTENTS

PAF Eed ECPI PPREREIN NEED) voncccecccssssnssssccensecnssesssensneess

LIST OF PARTIES AND RULE 29.1 LIST.................

BED SE PT REET EO wssssenscossnsescssssssussnossncssnsensonceces

REASONS FOR GRANTING THE WRIT

THE EIGHTH CIRCUIT’S DECISION THAT

CERCLA COST RECOVERY ACTIONS ARE

“EQUITABLE” RATHER THAN “LEGAL” CON-

FLICTS WITH A PRIOR DECISION OF THIS

COURT THAT SUCH ACTIONS SEEK RELIEF

IN THE NATURE OF “MONEY DAM-

RR IIITTNE{ casciiaibtidheeiisastiadaessivanchiansd tnbniinsishahenadtaeaionaunnnniane

A. A Decision By This Court As To Whether

CERCLA Cost Recovery Actions Are “Le-

gal” Or “Equitable” Would Be Of Nationwide

Significance Because The Nature Of The Claim

Against An Insured Under Comprehensive

General Liability Insurance Policies Is The

Fundamental Threshold Issue In Coverage

Disputes Over Environmental Clean Up

PTE AIts iidshisish ecllainhise Shiela einbebsianisncslatinerinnendacaaions

yo

The Underlying Premise Of The Decision

Below That CERCLA Cost Recovery Actions

Are “Equitable” Rather Than “Legal’’ Con-

flicts With Pennsylvania v. Union Gas Com-

pany Which Held That Such Actions Are For

Money Damages And It Incorrectly Assumed

That Actions For Restitution Seeking Money

Judgments Were Not Actions Cognizable In

The Law Courts Of England .................

The Decision Below Raises An Important Is-

sue Of Federal Law Which If Resolved By

This Court, Because It Is Inextricably Inter-

twined With State Law Contractual Issues,

Would Reduce Litigation Over Insurance Cov-

erage, Discourage Forum Shopping And En-

courage The Use Of Limited Financial Re-

sources To Pay For Actually Cleaning Up

PUMOIIUS WORN TIOE occ cnceiescosscsincsciconsesneces

CED spiccciitiinrabiniaiaimeabeacendipvasiaimcdsaaphabiasmmaniahes

10

TABLE OF AUTHORITIES

Page

Cases:

Aetna Casualty & Surety Co. v. General Dynamics

Corp.,__ F.2d __, 1992 WL 150933 (8th Cir., July

Gy RE xiinrrsienisticinnnsshincsadesenann ace nana 23

Aetna Casualty and Surety Co. v. Pintlar Corp., P48 F. 2d

RMT COUN Gait WE D scckiccaconnecer ummeebiicnmindabiieen 10

AlU Ins.Co.v. FMC Corp., 51 Cal.3d 807, 799 P.2d 1253

CARE, RIG TT ovectasistsicastlinieectatete en scoe 12

Continental Ins. Co. v. Northeastern Pharmaceutical &

Chem. Co., 842 F.2d 977 (8th Cir.) (en banc), cert.

denied, sub. nom. Missouri v. Continental Ins.Cos.,

ME Chats TEE CIDE wise ssnscescoeenecnioaneed 6,8,11-13,

21,22

Curtis v. Loether, 415 U.S. 189 (1974) ...ccccccccscsscesseees 16

Downey v. Kansas City Gas Co., 338 Mo. 803,92 S.W.2d

AP LE PID enictiinicsactosniecenoguniatemiaeccn ence 23

Exxon Corp. v. Hunt, 475 U.S. 355 (1986) ......cccccccescee. 12,16

Gaunt v. John Hancock Mutual Life Ins. Co., 160 F.2d

PrP CORR: TPE ecko 12

In re Acushnet River & New Bedford Harbor, 712

Bae. FE CD. TAC, TO sissies cscsecsctsecccscaears 11

Independent Petrochemical Corp. v.Aetna Cas. & Surety

Co., 944 F.2d 940 (D.C. Cir. 1991), cert. denied,

cans Witte euch BRU Es Ge BEET UE cocoa 6,12,21,22

em een

Jack L. Baker Cos. v. Pasley Mfg. & Dist. Co., 413

Se BG CO, FIG E D vicsiacsncccicccnthanteesinsnaceionintin’ 16

Krombach v. Mayflower Ins. Co., 827 S.W.2d 208 (Mo.

NG: TIED iisccsdcncieasiacsenanadeeseeeee 12

Milliken v. Bradley, 433 U.S. 267 (1977) ................000. 16

Mraz v.Canadian Universallns.Co., 804 F.2d 1325 (4th

COW, BMI ico coseioxinansenutnie connec niguesenaeeeienasaegel aeaanaeeiae 12

Ohio v. Department of Interior, 88 F.2d 432 (D.C. Cir.

PG vissisicsesnasoncenannsstsgiuacanoienaestaeeesanmgeaaenannee 12

Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989)...... 6,8,10, |

13-15

Porter v. Warner Holding Co., 328 U.S. 395 (1946)..... 17,18

Ruhlin v. New York Life Ins. Co., 304 U.S. 202 (1938) 23

State of Missouri v. Union Electric Company, et al, No.

1:92CV-0088 (E.D. Mo., July 13, 1992)... 7 |

Tull v. United States, 481 U.S. 412 (1987) «0.0.0... 11

United States v. Cargill, Inc., 367 F.2d 971 (Sth Cir.

RII ssissisascnsniscaetecensenacoehanteatese ae 18

United States v. Northeastern Pharmaceutical & Chemi-

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

GBS ULB. Ge CREB asascseucssnsscennsecietaennnnan 11

United States v. Reilly Tar & Chemical Corp., 20 Env’t

Rep. Cas. 1052 (D. Minn. 1983) ..........cccsscsesessseees 1]

United States v. Union Electric Company, et al., No.

1:92CV-0078 (E.D. Mo., June 29, 1992)... 7

Wickland Oil Terminals v. ASARCO, 792 F.2d 887 (9th

CR, FEED vcs cesiscscscsasenscciseleininameghaclarestveadee saan 15

eee

— vli——

Wyandotte Transportation Co. v. United States, 389 U.S.

SO EMOTE siluci nhamanoninucaaate ee 17,18

Statutes:

Comprehensive Environmental Response, Compensa-

tion andLiability Act of 1980, 42 U.S.C.§9601 et

DD « scacsensansisatenusssenceesstianiistanios ademas 2-3,5,8-16,

19,20,22

TO SUES ce es 8-13,15,22,23

NE FOI IND ovr vciccicnrsarrecenarnaceee cs 12

(| cae tee et 12,15

|. Sa eee ae eae 12

Emergency Price Control Act of 1942, §205 ................ 17

Rivers and Harbors Act of 1899, 33 U.S.C. PES conccesss 18

Superfund Amendments and Reauthorization Act of

1986 (“SARA”), P.L. No. 99-499, 100 Stat.

Other Authorities:

1 George E. Palmer, Law of Restitution See 11,18,19

D. Davis, “Insured Versus Insurers: Litigating Compre-

hensive General Liability Coverage in the CERCLA

Arena — A Losing Battle For Both Sides,” 43

Southwestern L.J. 969 (1990) ....ccccccccccccsecceececceee. 10,21

J.P. Acton and L.S. Dixon, Superfund and Transaction

Costs: The Experience of Insurers and Very Large

Industrial F irms( 1992) .................csccsecccssecososeessss, 20,21

— Vili —

Missouri Approved Jury Instructions §4.02, Notes On

RN ML IFIED cies salcenssnauvdeapuntehenaiesaumiasaveees 16

FOCSRIIIIIINE GF FURST ooo. csevcsscennisoesecccsnssssensccconnes 18,19

SIE BNI on ss Gish unencchacepekintaniaotnciecatoersalbicsenminsnns 18

Or 19

Ee n, AI Se OS Ee ae RET, 18

No.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

CrrizEns ELECTRIC CORPORATION,

Petitioner,

VS.

UNITED STATES FIDELITY AND GUARANTY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

The Petitioner Citizens Electric Corporation respectfully prays

that a writ of certiorari issue to review the judgment and opinion

of the United States Court of Appeals for the Eighth Circuit,

entered in this proceeding on March 20, 1992.

OPINIONS BELOW

The opinion of the Court of Appeals for the Eighth Circuit is

not reported. It is reprinted in the Appendix, p. A-1.

The memorandum opinion of the United States District Court

for the Eastern District of Missouri, Eastern Division (Jean C.

Hamilton, District Judge) has not been reported. It is reprinted

in the Appendix at p. A-4.

JURISDICTION

The Respondent brought this action in the United States Court

for the Eastern District of Missouri, Eastern Division invoking

jurisdiction under 28 U.S.C. §1332. On June 28, 1991, the

District Court rendered judgment in favor of the Respondent.

See App. D, p. A-12. Pursuant to 28 U.S.C. §1291, Petitioner

appealed to the United States Court of Appeals for the Eighth

Circuit, which affirmed the judgment on March 20, 1991. See

App. A. p. A-1, App. B. p. A-3. Petitioner sought a rehearing and

rehearing en banc, both of which were denied on May 7, 1992.

See App. E., p. A-13.

The jurisdiction of this Court to review the judgment of the

Eighth Circuit is invoked under 28 U.S.C. §1254(1).

STATUTE INVOLVED

42 U.S.C. §9607(a), Comprehensive Environmental Response,

Compensation and Liability Act of 1980:

[A]ny person who by contract, agreement, or otherwise

arranged for disposal or treatment, or arranged with a

transporter for transport for disposal or treatment, of haz-

ardous substances owned or possessed by such person .. .

at any facility . . . shall be liable for —

(A) all costs of removal or remedial action incurred

by the United States Government or a State . . . not

inconsistent with the national contingency plan;

(B) any other necessary costs of response incurred by

any other person consistent with the nationa! contin-

gency plan.

oni ome

STATEMENT OF THE CASE

Between 1953 and 1976 Petitioner Citizens Electric Corpora-

tion sent electrical equipment to Missouri Electric Works in

Cape Girardeau, Missouri for repair or resale. The equipment

included transformers which contained oil contaminated with

polychlorinated biphenyls (“PCB”). The PCBs allegedly leaked

or spilled from the transformers, resulting in soil and groundwa-

ter contamination at the site.

On June 30, 1987, the United States Environmental Protection

Agency notified Citizens Electric that it was a potentially re-

sponsible party (“PRP”’) under the Comprehensive Environmen-

tal Response, Compensation and Liability Act of 1980, 42

U.S.C. §§9601 etseg. (*CERCLA”) as amended by the Superfund

Amendments and Reauthorization Act of 1986 (“SARA”), P.L.

No. 99-499, 100 Stat. 1613, who could be liable for the response

and clean up costs at the site, including the costs of removal,

remediation, oversight and investigation. The EPA notice sug-

gested that Citizens Electric and forty other named PRPs form a

committee to represent their common interests, to perform

remedial action and to negotiate with the EPA. The EPA also

offered Citizens Electric and the other PRPs the option to

perform the remedial investigation/feasibility study (‘“RI/FS”)

under the Government’s supervision pursuant to CERCLA

§104(a).

From January 1968 through November 1972 and from No-

vember 1973 to November 1983, Citizens Electric was insured

under standard form policies of comprehensive general liability

insurance (“CGL”) issued by Respondent United States Fidelity

and Guaranty Company. Citizens Electric was also the insured

under excess policies of liability insurance issued by USF&G

from October 1969 to November 1983.!

On January 25, 1988, Citizens Electric notified USF&G of the

EPA claim with respect to the site. USF&G initially reserved its

rights and, on December 7, 1989, denied all coverage for “all

government required or mandated investigation and clean-up

expenses, including the claim(s) of the EPA or any potential

contribution rights that have been or may be asserted by other

PRPs involved at the MEW site.”

On December 30, 1988, the EPA issued an Administrative

Order on Consent pursuant to CERCLA §106 which required

Citizens Electric and other PRPs to conduct a remedial investi-

gation into the extent of PCB contamination and to undertake a

' The insuring clause in each of the primary CGL policies provides:

The Company 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 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 bodily

injury or property damage. .. .

App. C. at p. A-6.

The insuring clause in the excess insurance polices from 1969 to 1981

provided:

The Company will indemnify the Insured for all sums which the

Insured shall become obligated to pay as damages and expenses... by

reason of liability imposed upon the insured by law . . . because of

property damage.

App. C. at p. A-8.

After 1981, the coverage provision in the excess policies read as follows:

The Company will indemnify the Insured for all sums which the

Insured shall become legally obligated to pay as damages because of

... property damage.

App. C. at p. A-8.

a

feasibility study to determine appropriate remedial measures.

The Administrative Order also directed the PRPs to pay the

EPA’s oversight costs with respect to the RI/FS.

Citizens Electric paid its share of the RI/FS costs to the

Missouri Electric Works Steering Committee, a group of PRPs

formed to respond to the EPA action. The study results con-

firmed that PCB contamination existed in the soil and groundwa-

ter at the site. In September 1990, the EPA issued its Record of

Decision pursuant to CERCLA §113(k). The EPA determined

that the PCB-contaminated soil should be excavated and ther-

mally destroyed. The ground water was to be cleaned up by

extracting the contaminated water and treating it by air-stripping

following by vapor phase carbon adsorption. The estimated cost

of these remedial and cleanup actions was, at the time of trial,

$8,400,000.00 and $730,000.00, respectively.

On February 27, 1990, USF&G filed acomplaint in the United

States District Court for the Eastern District of Missouri, Eastern

Division, seeking a declaratory judgment that it had no obliga-

tion under its CGL or excess insurance policies to pay any part

of the liability of Citizens Electric for the costs of response,

remoyal, remediation or cleanup at the site, or to provide a

defense to Citizens Electric for any such claims. Citizens

Electric counterclaimed for a declaratory judgment seeking a

declaration that such coverage obligation existed and for breach

of contract for USF&G’s failure to defend and indemnify in

accordance with the terms of the policies.

? After the decision by the District Court, it was discovered that the

contamination was worse than originally thought. The estimated cost for

cleanup of the soil and groundwater is now $15,304,000 and $21,500,000

respectively. The EPA response costs incurred to date are $1,112,000. The

estimated future EPA response costs are $3,891,000 for the soil cleanup and

$1,251,000 for the groundwater cleanup. The total amount paid to date by the

PRPs for the Steering Committee’s expenses are $1,510,000. The PRPs are

thus liable for a total of approximately $45,000,000 with respect to this site.

The matter was submitted to the District Court on stipulated

facts. App. C. at A-4. The District Court entered judgment in

favorof USF&G. App. D. at A-12. [nits Memorandum Opinion,

the District Court noted that the Eighth Circuit in a divided and

controversial opinion had decided in Continental Ins. Co. v.

Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977 (8th

Cir.) (en banc), cert. denied, sub. nom. Missouri v. Continental

Ins. Cos., 488 U.S. 821 (1988) (‘NEPACCQO’’) that, under its

interpretation of Missouri law, the insurance policies covered

only damages for which the insured may be liable in actions at

law. App. C. at A-9. There was no coverage for the costs of

response, removal, remediation and cleanup because these claims

against Citizens Electric were deemed to be “equitable” rather

than “legal.” 842 F.2d at 985-987. While the District Court

found the reasoning in the dissent in NEPACCO, rather than the

majority, to be “consistent with the principles of construction of

insurance contract terms under Missouri law,” it believed itself

“constrained solely by reason of stare decisis to follow the

majority opinion.” App. C. at A-11.

On appeal, a panel of the Eighth Circuit affirmed the judgment

of the District Court, holding that it too must follow NEPACCO

until it was overruled by the Court en banc. App. A. at A-2.

Citizens Electric petitioned for a rehearing en banc, asking the

full Eighth Circuit to reconsider the continued vitality of

NEPACCO in light of a conflicting decision of the District of

Columbia Circuit in /ndependent Petrochemical Corp. v. Aetna

Cas. & Surety Co., 944 F.2d 940 (D.C. Cir. 1991), cert. denied,

__ U.S. __, 112 S. Ct. 1777 (1992) holding that NEPACCO

clearly misread Missouri law and in light of this Court’s decision

in Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989), character-

izing response, removai, remediation and cleanup costs as “money

damages.” On May 7, 1992, the Eighth Circuit declined to hear

a

the case en banc, with four judges dissenting. The Eighth Circuit

also denied Citizens Electric’s petition for rehearing.’ App. D.

at A-13.

* The United States and the Siate of Missouri filed complaints on June 29

and July 13, 1992, respectively, against Citizens Electric and the other PRPs

seeking implementation of the remedial action in the EPA’s Record of

Decision, reimbursement of all response costs incurred by them to date, and

a declaration that the PRPs are liable for all costs of future actions of response,

removal, remediation and cleanup. United States v. Union Electric Company,

etal., No. 1:92CV-0078 (E.D. Mo., June 29, 1992); State of Missouri v. Union

Electric Company, et al., No. 1:92CV-0088 (E.D. Mo., June 29, 1992).

Concurrently with the filing of the Complaints, Consent Decrees were lodged

with the Court for the purpose of giving the public notice and an opportunity

to provide comments. The Consent Decrees, if entered, will require the PRPs

to pay the response, remedial, removal and clean up costs incurred to date and

to make additional payments into a trust fund, which will be used to pay the

future costs of cleaning up the site. Citizens Electric’s share of the total cost

is estimated to be $4,767,000.

REASONS FOR GRANTING THE WRIT

THE EIGHTH CIRCUIT’S DECISION THAT

CERCLA COST RECOVERY ACTIONS ARE “EQ-

UITABLE” RATHER THAN “LEGAL” CONFLICTS

WITHA PRIOR DECISION OF THIS COURT THAT

SUCH ACTIONS SEEK RELIEF IN THE NATURE

OF “MONEY DAMAGES”

A. ADecision By This Court As To Whether CERCLA

Cost Recovery Actions Are “Legal”? Or “Equi-

table’? Would Be Of Nationwide Significance Be-

cause The Nature Of The Claim Against An In-

sured Under Comprehensive G< aeral Liability

Insurance Policies Is The Fundamental Threshold

Issue In Coverage Disputes Over Environmental

Clean Up Costs

The fundamental threshold question in every insurance cov-

erage case is the nature of the claim against the insured. In its

Opinion below, the Eighth Circuit reaffirmed its prior holding in

Continental Ins. Co. v. Northeastern Pharmaceutical & Chem.

Co., 842 F.2d 977 (8th Cir.) (en banc) cert. denied sub. nom.

Missouri v. Continental Ins. Co., 488 U.S. 821 (1988)

(“NEPACCO’) that an action for recovery of response, remedial,

removal and cleanup costs under §107(a) of the Comprehensive

Environmental Response, Compensation and Liability Act of

1980 (“CERCLA”), 42 U.S.C. §9607(a), is a claim for “equi-

table damages”’ because it seeks restitution of money spent by

governmental agencies or private parties upon restoring a haz-

ardous waste site to its former condition.

The Eighth Circuit’s holding ignores this Court’s subsequent

decision in Pennsylvania v. Union Gas Co.,491 U.S. 1 (1989)

where the Court characterized a claim for recovery of response

costs under CERCLA as one for “money damages” no less than

twenty-one times. Of course, a claim for “money damages” is

EE EE ee

a

the hallmark of a legal, as opposed to equitable, action. More-

over, the Eighth Circuit’s analysis depends upon an historically

inaccurate view of restitution, which is as much a legal as an

equitable remedy, having originated as a variant of the common

law action of assumpsit in the law courts of 17th Century

England.

The nature of a response cost recovery action under CERCLA

is of national significance because it can be determinative of the

question of coverage for such costs under the standard form

Comprehensive General Liability (“CGL’”) insurance policies

issued by insurance companies prior to 1986. The issue of

whether CERCLA response costs are covered under the insurin g

provisions of CGL policies has been litigated in numerous cases

in both the state and federal courts, which have reached conflict-

ing decisions under state law despite the presence of identical

policy language.

The root of the conflict can be traced to the ancient division

between law and equity. Those courts ruling in favor of the

insurance companies hold that the CGL coverage for “damages”

the insured is “legally obligated to pay” refers only to actions at

law. Those courts ruling in favor of the insured hold that the term

“damages” includes response costs or that the term is ambiguous

and tHerefore should be construed to include all forms of civil

liability, except fines or penalties.

It is apparent that this divergence of opinions construing the

same words in a standard form insurance policy arises from the

premise that the money judgments sought in CERCLA §107(a)

actions constitute “equitable” rather than “legal” relief. If, as

Petitioner contends, such actions seek money damages consti-

tuting legal relief, then there is coverage under the CGL policies

regardless of how one construes the term “damages.”

A decision by this Court authoritatively answering the ques-

tion of whether such claims are “legal” or “equitable” will help

— 10—

to bring uniformity and rationality to what is now a crazy quilt

patchwork of coverage decisions. By providing insureds and

insurers with a definitive interpretation of the nature of a re-

sponse cost recovery action under §107(a), the Court can mate-

rially reduce the transaction costs associated with Superfund

sites by reducing the amount of litigation over whether insurance

coverage exists. Thus, potentially responsible parties and (where

there exists insurance Coverage) insurers may concentrate their

financial resources on actual cleanup efforts, rather than upon

whether insurers have any legal liability to pay for the costs of

such cleanups.

B. The Underlying Premise Of The Decision Below

That CERCLA Cost Recovery Actions Are “Equi-

table” Rather Than “Legal” Conflicts With Penn-

sylvania v. Union Gas Company Which Held That

Such Actions Are For Money Damages And It

Incorrectly Assumed That Actions For Restitution

Seeking Money Judgments Were Not Actions Cog-

nizable In The Law Courts Of England

The standard form CGL insurance policy prior to 1986

provided that the insurance company would provide a defense

and pay for sums which the insured “shall be legally obligated to

pay as damages” because of property damage.‘ Litigation in this

area has primarily been over the state law question of whether the

money sought by governments in cost recovery actions consti-

tuted “damages” as defined in the policy.’ However, a funda-

* The new standard form CGL policy (now known as Commercial General

Liability policies) attempts to exclude unequivocally all liability for cleanups

of hazardous waste sites. See D. Davis, “Insured Versus Insurers: Litigating

Comprehensive General Liability Coverage in the CERCLA Arena — A

Losing Battle For Both Sides,” 43 Southwestern LJ. 969, 971 n. 13. (1990).

> See, e.g., Aetna Casualty and Surety Co. v. Pintlar Corp.,948 F.2d 1507,

1511-1512 (9th Cir. 1991) where the leading cases are collected.

mental underlying theme of each of these cases is the nature of

the cost recovery action. Many courts, such as the Eighth

Circuit, have held that cost recovery actions are “equitable”

rather than “legal” because the governmentis seeking restitution

of money spent by it when cleaning up a hazardous waste site.®

The decision in NEPACCO is typical of these cases. After

reviewing the state law principles of construction of insurance

contracts, the NEPACCO majority concluded that the term

“damages” as it appears in the CGL policy would be ambiguous

from the viewpoint of a lay insured. However, NEPACCO held

that the Missouri Supreme Court would, if ever presented with

the question, hold that the term “damages” is not ambiguous in

* The legal-equitable distinction in §107(a) actions has received the most

attention in the context of a PRP’s demand for a jury trial, where the division

between law and equity is also decisive. See, e.g., Tull v. United States, 481

U.S. 412, 417-418 (1987). Most courts have devoted little in-depth analysis

to the issue, satisfying themselves with the conclusion that §107 seeks relief

for the cost of restoring the property to the former condition, a form of

restitution. See, e.g., United States v. Northeastern Pharmaceutical & Chemi-

cal Co.,810 F.2d 726, 749 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987);

United States v. Reilly Tar & Chemical Corp., 20 Env’t Rep. Cas. 1052 (D.

Minn. 1983). They contrast restoration of the property with the payment of

compensation for property damage without recognizing that the relief is

identical in many cases. See, e.g., In re Acushnet River & New Bedford

Harbor, 712 F.Supp. 994, 1001-1004 (D. Mass. 1989) (analyzing state law

claims for cost of cleaning up public nuisance). Moreover, the conclusion of

the lower courts that a restitutionary remedy consisting of the payment of a

money judgment was equitable relief available only in the the chancery courts

of England is simply wrong. 1 George E. Palmer, Law of Restitution §1.2.

—_ oe

the insurance context and that it would refer only to “legal

damages.”

The Court then turned to the federal issue of the nature of an action

for recovery of response and cleanup costs under §107(a) of

CERCLA. While recognizing that there existed a common law

action for damages to real property, one of whose measures could

be the cost of restoring the property to its original condition, the

NEPACCO majonty noted that it was the type of relief sought under

§107(a) that was important in determining coverage. Even though

the plainuff in a cost recovery action under §107(a) sought money,

the court held that such lawsuits “‘are essentially equitable actions for

monetary relief in the form of restitution or reimbursement of costs.”

842 F.2d at 987. Accordingly, the NEPACCO majority held that

there was no coverage for federal and state government claims for

cleanup costs under CERCLA §107(a) as a matter of state law

because the nature of the federal action under that statute was

equitable rather than legal.*

? The District of Columbia Circuit held that the Eighth Circuit clearly

misread Missouri law by construing the policy language from the viewpoint

of an insurance specialist rather than a lay person. /ndependent Petrochemical

Corp. v. Aetna Casualty and Surety Co., 944 F.2d 940, 945-946 (D.C. Cir.

1991), cert. denied, __ U.S. __, 112 S.Ct. 1777 (1992). Cf. Krombach v.

Mayflower Ins. Co., 827 S.W.2d 208, 210-211 (Mo. banc 1992) [ambiguous

insurance contract construed from viewpoint of lay insured because “ ‘Insur-

ers who seek to impose upon words of common speech an esoteric signifi-

cance intelligible only to their craft, must bear the burden of any resulting

confusion,’ ” quoting Gaunt v. John Hancock Mutual Life Ins. Co., 160 F.2d

599, 602 (2d Cir. 1947)].

* Some courts have distinguished between cost recovery actions under

§107(a)(4)(A), (B) and natural resource damage actions under § 107(a)(4)(C).

Compare Mraz v. Canadian Universal Ins. Co.,804 F.2d 1325, 1329 (4th Cir.

1986) with Ohio v. Department of Interior, 880 F.2d 432, 459 (D.C. Cir.

1989). In Exxon Corp. v. Hunt, 475 U.S. 355 (1986) the Court held that

Congress intended the three statutory actions to be considered as a unit. 475

U.S. at 369. See also AIU Ins. Co. v. FMC Corp., 51 Cal.3d 807, 799 P.2d

1253, 1270-1271 (Cal. banc 1990). Such claims are, as is typical, excluded

from the proposed Consent Decree in this case.

peat |; Yoon

In the year following the NEPACCO decision, there came

before this Court the case of Pennsylvania v. Union Gas Co., 491

U.S. 1 (1989). In Union Gas, the United States sought recovery

of response and cleanup costs from Union Gas in connection

with the nation’s firstemergency superfund site. Union Gas filed

a third-party complaint against the State of Pennsylvania alleg-

ing thatit was responsible for at least a portion of the cost because

it was an owner or operator of the hazardous waste site within the

meaning of §107(a). The District Court dismissed the complaint

holding that the Eleventh Amendment barred suit against the

State.

Justice Brennan, speaking for a majority of the Court on the

Statutory interpretation issue, stated that the case presented the

question of whether CERCLA and the Superfund Amendments

and Reauthorization Act of 1986 (“SARA”), Public Law No.

99-499, 100 Stat. 1613:

permits a suit for monetary damages against a State in

federal court and, if so, whether Congress has the authority

to create such a cause of action when legislating pursuant to

the Commerce Clause. The answer to both questions is

‘ ,’

yes.

491 U.S. at 5 (emphasis added).

The plurality began its analysis by noting that the Court first

had to determine whether CERCLA and SARA clearly ex-

pressed “an intent to hold states liable in damages for conduct

described in the statute.” 491 U.S. at 7 (emphasis added). The

Court pointed out that CERCLA provided both a mechanism for

cleaning up hazardous waste sites and imposed the cost of

cleanup upon those responsible for the contamination. The court

said that §107(a) “provides for liability in damages, and liability

in damages is considered a special remedy requiring special

statutory language, only where the state’s immunity from suits

by private citizens is involved.” 491 U.S. at 12 (emphasis

ile OA ales

added). The opinion further noted that it would be very peculiar

to interpret the statute, given its definitional provisions, to signal

that only the United States, rather than private citizens, could sue

the states for “damages under CERCLA.” 491 U.S. at 12

(emphasis added). Finally, the plurality concluded that “the

language of CERCLA as amended by SARA clearly evinces an

intent to hold states liable in damages in federal court.” 491 U.S.

at 13 (emphasis added).

Justice Brennan wenton to say: “Ourconclusion that CERCLA

clearly permits suits for money damages against states in federal

court requires us to decide whether the Commerce Clause grants

Congress the power to enact such a statute.” 491 U.S. at 13

(emphasis added). A plurality of the Court concluded that the

Commerce Clause did authorize Congress to override the state’s

immunity when legislating under the power conferred by that

clause. The plurality further stated that congressional power

under the Commerce Clause would be incomplete “without the

authority to render states liable in damages.” 491 U.S. at 19

(emphasis added). The opinion further said thata CERCLA case

“brilliantly illuminates” the point that “only money damages . .

. will carry out Congress’ legitimate objectives under the Com-

merce Clause” in dealing with the problems in environmental

harm. 491 U.S. at 20 (emphasis added). Justice Brennan said

that “ we must often look to the federal government for environ-

mental solutions. And often these solutions, to be satisfactory,

must include a cause of action for money damages.” 491 U.S. at

21 (emphasis added).

Justice Brennan summarized the decision of the Court in

stating: “We hold that CERCLA renders states liable in money

damages in federal court and that Congress has the authority to

render them so liable when legislating pursuant to the Commerce

Clause.” 49: U.S. at 23 (emphasis added).

Justice Scalia’s concurring opinion joined with the plurality in

holding that CERCLA and SARA “clearly renders states liable

—: a

in money damages in private suits.” 491 U.S. at 29 (emphasis

added). The inclusion of states, apparently for all purposes,

within the statutory definition of. the word “persons,” bolstered

by other statutory language that assumes state liability is equiva-

lent to the liability of private individuals, “leaves no fair doubt

that states are liable to private persons for money damages.” 491

U.S. at 30 (emphasis added). The concurring opinion, finding

that the statute “renders states liable in private suits for money

damages,” 491 U.S. at 30 (emphasis added), then turned to

consideration of other Eleventh Amendment issues.

One can hardly come away from a fair reading of the opinions

in Union Gas without the firm conviction that this Court consid-

ered a Suit to recover response and cleanup costs under §107(a)

of CERCLA as an action for “money damages” authorized by

that statute. The Court no less than twenty-one times referred to

such a suit as one for “monetary damages,” “money damages,”

“liability in damages” or “damages.’”? In common legal par-

lance, an action for “money damages” denotes an action at law

rather than one in equity. Indeed, the fact that the Plaintiff’s

complaint can be redressed by the payment of money rather than

some other kind of relief is traditionally the distinctive difference

between law and equity.

The conclusion that the “money damages” sought for re-

sponse and cleanup costs constitutes a legal rather than equitable

claim is bolstered by the fact that the Court considered an

Eleventh Amendment issue to be presented by the case. If the

payment of such sums of money were merely the equivalent of

the cost of complying with an injunction, as held by the Eighth

Circuit, then no Eleventh Amendment issue would have existed

* The Ninth Circuit has expressly held that §107(a)(4)(B) creates a private

cause of action for damages. Wickland Oii Terminals v. ASARCO, 792 F.2d

887, 890 (9th Cir. 1986).

=

in making such a claim against a State. See, e.g., Milliken v.

Bradley, 433 U.S. 267 (1977).

An essential underpinning of the NEPACCO decision, en-

dorsed by the Eighth Circuit in the decision below, is that

response and cleanup costs incurred by the state and federal

governments which form the basis for the claim against Citizens

Electric are “equitable monetary relief’ under CERCLA. The

Eighth Circuit concluded that the millions of dollars sought from

insureds was an “equitable” rather than “legal” claim because the

government was seeking the cost of restoring the property to its

former condition, which the Court below characterized as the

equitable remedy of restitution.’® The Eighth Circuit’s holding

that “restitution” is always and in every case an equitable remedy

cannot withstand analysis.

In the first place, this is not a case where Citizens Electric has

been ordered to pay back ill-gotten gains. It has received no

money from the United States, the State of Missouri or the

property owner. Rather, the governmentai plaintiffs are seeking

the recovery of response and cleanup costs which they have

spent on the site and which are necessary to clean it up. While

the cost of restoration is the measure of the damages sought, it is

in no way “restitution” in the sense of requiring Citizens Electric

“to disgorge funds wrongfully withheld” from anyone. Cf.

Curtis v. Loether, 415 U.S. 189, 197 (1974).

© In Exxon Corp. v. Hunt, 475 U.S. 355, 375-376 (1986), the Court said

that CERCLA did not create a cause of action to compensate third parties for

damages resulting from hazardous waste discharge. Such claims, forexample

by neighboring property owners, are left to state law. Under Missouri law,

claims by third parties for property damage are tried to juries and, depending

upon the facts of the particular case, the measure of damages may be the cost

of restoring the property to its former condition. See, e.g., Jack L. Baker Cos.

v. Pasley Mfg. & Dist. Co., 413 S.W.2d 268 (Mo. 1967); Missouri Approved

Jury Instructions §4.02, Notes On Use (4th ed. 1991).

—_—

Moreover, the Eighth Circuit’s invocation of “restitution” as

an exclusively equitable remedy is supported neither by recent

case law nor the historical antecedents of the doctrine. Most

cases which have rejected a contention that cost recovery claims

are legal rather than equitable rely upon two decisions of this

Court: Porter v. Warner Holding Co., 328 U.S. 395 (1946) and

Wyandotte Transportation Co. v. United States, 389 U.S. 191

(1967). However, neither case compels the conclusion that cost

recovery actions present equitable issues.

Porter involved the power of a federal court to grant monetary

relief in an enforcement proceeding under §205(a) of the Emer-

gency Price Control Act of 1942. In Porter, a landlord had

demanded and received rents in excess of the lawful maximum.

Although the time for recovery of the excess rents by the tenants

had expired, the United States nevertheless sought an injunction

restraining future overcharges and requiring the landlord to

return to the tenants the excess rents collected. This Court

reversed the lower court’s holding that there was no jurisdiction

to order restitution, holding that remedy was within the broad

grant of the equitable powers contained within the statute. 328

U.S. at 397-400. The Court distinguished the restitutionary

remedy under §205(a) sought by the United States from the

damage remedy under §205(e) available to the tenants, by noting

that the United States had asked the Court to “act in the public

interest by restoring the status quo and ordering return of that

which rightfully belongs to the purchaser or tenant.” 328 U.S. at

402.

Porter is simply not applicable to the cost recovery action. A

party in the position of Citizens Electric has nof received money

from a third party as a result of its conduct. Rather, the plaintiff

is seeking to recover from Citizens Electric sums of money

necessary to investigate and clean up the hazardous waste site.

The fact that the money is used to restore the property to its

former condition and that the measure of the cost recovery action

—

is the amount of that cost (thus returning both the property and

the government to their pre-injury status) does not make the

claim an equitable one. If merely restoring a party to his

pre-injury status were the test, then there would be very little left

in the realm of legal compensatory damages.

In Wyandoite, the United States sought to recover the costs

incurred in removing a negligently sunk vessel. The vessel

owner refused to pay, arguing that the exclusive remedy of the

United States under §19 of the Rivers and Harbors Act of 1899,

33 U.S.C. §414, was to raise the vessel and sell it upon removal.

The Court disagreed, implying a cause of action to the recovery

of costs. Citing the Restatement of Restitution §115, the Court

held that the United States could recover the costs of removal of

the vessel from the party who negligently sank it. The Court

never said whether the cause of action was legal or equitable,

although the Court of Appeals in ruling in favor of the govern-

ment had characterized its claim as one for damages. United

States v. Cargill, Inc., 367 F.2d 971, 979 (Sth Cir. 1966).

The Eighth Circuit’s assumption that restitution is exclusively

an equitable remedy ignores its history. In fact, the jurisdiction

of the law courts and the equity courts have always overlapped

with respect to restitution. Much of the relief which we now

think of as restitutionary was available in the English common

law courts in an action of assumpsit. Restatement of Restitution,

Introductory Note at 5-7, 9-10 (1937). The idea of unjust

enrichment is the connecting link between the legal and equi-

table theories of restitution. Nevertheless, it is inaccurate to

characterize restitution as simply an equitable remedy. The

author of the authoritative treatise on restitution points out the

principal remedy at Jaw under the doctrine is “quasi-contract”

leading to a money judgment. 1 George E. Palmer, Law of

Restitution §1.2, pp. 6-9. Although quasi-contract is sometimes

referred to as an equitable remedy, “‘it is clear that the action is

at law and the relief given is simply a money judgment.” 1

— =—

Palmer §1.2 at 9. Indeed, the Restatement of Restitution §4(f)

recognizes that one of the remedies appropriate to restitution is

“a judgment at law or a decree in equity for the payment of

money.”

C. The Decision Below Raises An Important Issue Of

Federal Law Which If Resolved By This Court,

Because It Is Inextricably Intertwined With State

Law Contractual Issues, Would Reduce Litigation

Over Insurance Coverage, Discourage Forum

Shopping And Encourage The Use Of Limited

Financial Resources To Pay For Actually Cleaning

Up Hazardous Waste Sites

Cleaning up hazardous waste sites is an enormous public

health problem facing society today. As of 1991, there are

approximately 1,200 sites on the National Priority List - a list of

sites compiled by the EPA as the ones most hazardous to the

human health and the environment. There are another 14,000

sites which have yet to be assessed for inclusion on the NPL.

The effort to clean up hazardous wastes presents enormously

complex public health, scientific and engineering issues as to the

most effective methods of addressing the problem. Inevitably,

they also present the question who will pay the bill for the cost

of determining and implementing the solutions. The question of

costs - alas, also inevitably - carries with it the overarching and

very practical legal issue facing all the litigants in CERCLA

actions, including the government, property owners, PRPs and

insurance companies: How should the massive costs be allo-

cated among the responsible parties?

CERCLA is, of course, a liability-based statute. Congress

determined that the cost of cleaning up hazardous waste sites is

to be apportioned on the basis of strict liability, joint and several

liability, and retroactive liability. Given the fact that legal

liability is the basis for imposing these costs on PRPs, it was only

natural that they would look to their liability insurers pay some

or all of that liability and the costs of defense in the litigation to

determine the amount due. Large companies may be able to pay

the CERCLA liabilities on either a self-insured basis or to absorb

relatively high deductibles under their insurance policies, thus

obviating the necessity to make claims. Medium and small

companies, on the other hand, may face financial devastation -

even bankruptcy - by a single CERCLA claim.

The key to determining whether there is coverage under any

liability insurance policy is the nature of the claim. The myriad

of conflicting decisions arising out of determinations of state law

with respect to interpretations of the contractual language in

CGL policies is due to the failure of the courts below to focus on

the nature of the claim made against the insurers. If the claims

are, aS contended by the petitioner, legal claims for money

damages, then under any interpretation of the contractual lan-

guage of CGL policies there is coverage for such claims.

The wastefulness of continued extensive litigation over this

very basic issue has recently been highlighted by study per-

formed under the auspices of the RAND Corporation’s Institute

for Civil Justice. J.P. Acton and L.S. Dixon, Superfund and

Transaction Costs: The Experience of Insurers and Very Large

Industrial Firms (1992). This study estimated that in 1989, for

example, CGL insurance companies spent approximately

$470,000,000 on hazardous waste site claims. /d. at 31. Of this

total, 88%, or $410,000,000, was spent on transaction costs

compared to 30% on other types of claims. /d. at 26, 29, 31.

More than half of the 1989 transaction costs, $200,000,000, was

estimated to have been spent on coverage disputes. /d. at 31.

Thus, 42% of the total expenditures in 1989 by insurance

companies on hazardous waste sites went to pay for the cost of

determining whether the company had any obligations to honor

under their policies. /d. at 32. This figure, of course, does not

— ee

include the cost incurred by insureds in either defending or

prosecuting coverage disputes.

The 1989 experience was not atypical. In fact, the RAND

Study showed that insurers consistently spent more than three

times as much money contesting coverage than on paying the

costs of clean up from 1986 to 1989. /d. at 20, 23. For example,

the four insurance companies which were the specific subjects of

the study spent $20,761,000 on coverage disputes during

1986-1989, but only $6,013,000 in indemnity payments. /d. at

20. The average cost of the coverage disputes was $184,000,

ranging from an average of $52,000 to $400,000 per case among

the companies studied. /d. at 25. Only about 1 in 6 coverage

cases have been closed. /d. Thus, “a vast majority of coverage

cases are still pending and incurring costs.” Jd.

The variation in decisions among the courts has encouraged

this trend. Indeed, the lack of uniformity in court decisions has

fostered the grossest kind of forum Shopping and preemptive

filings. See e.g. D. Davis, “Insureds Versus Insurers: Litigating

Comprehensive General Liability Policy Coverage in the

CERCLA Arena -aLosin g Battle for Both Sides,” 43 Southwest-

ern L.J. 969, 994-995 (1990). Indeed, there is a striking lack of

uniformity even in cases which purport to interpret identical

policy language under the same state’s law.

For example, as a result of the NEPACCO decision and the

decision of the District of Columbia Circuit in Independent

Petrochemical v. Aetna Casualty & Surety Co., supra, the

question of insurance coverage for environmental clean-up costs

in Missouri is not answered by any principled application of the

law, but by the mere fortuity of who wins the race to the court

house. It is not beyond the realm of possibility to have a situation

where a single insurance company could have issued CGL

policies to two different insureds involved in the same hazardous

waste site, but to have conflictin g court decisions from different

iii i

jurisdictions deciding that the insurance company is liable to one

company but not the other.

Such a scenario seems much less far-fetched in light of the

unresolved conflict between NEPACCO and Independent Pet-

rochemical where two federal courts reached different conclu-

sions under Missouri law as to identical policy language for

different insurers who were involved in the same Superfund

sites. The result of these conflicts is the question of whether

insurance coverage exists to pay response and clean-up cost at a

hazardous waste site in Missouri now depends not upon the state

of what happens in the court house but the State the court house

happens to be in. The issue has been dropped squarely in the lap

of federal courts primarily because most of the large CGL

insurers have issued policies in numerous states, making diver-

sity the basis for jurisdiction. Once the insurers obtain a

favorable decision in federal courts such as the Eighth Circuit,

they frequently go to extraordinary lengths to make sure that

future coverage cases are decided there, rather than in state

courts which might disagree with the federal court’s prediction

of how they would rule.

A decision by this Court which sets forth a uniforra national

rule as to whether a cause of action for the recovery of response,

clean-up, remedial, and removal costs is “legal” or “equitable”

could resolve such irreconcilable conflicts. A decision that a

complaint under §107 seeks “legal” relief would go far to assure

the uniformity of coverage decisions, to reduce litigation costs

spent on insurance coverage disputes and to insure that a greater

proportion of insurance money will be spent on actually cleaning

up a Site rather than paying attorneys to quarrel over who will

pick up the bill. We do not suggest of course, that all coverage

litigation will cease if the Court determines that actions under

§107(a) are legal rather than equitable. However, once this

threshold issue is authoritatively decided, then the remaining

=. ae

contractual issues which implicate state law or mere factual

disputes will be all that remain for the grist of the judicial mill."

The Court does not decide state law contractual questions

involved in insurance coverage disputes even though the federal

circuits may be split on the issue. Ruhlin v. New York Life Ins.

Co., 304 U.S. 202, 206 ( 1938). However, this Court has the

power to decide authoritatively and definitively the underlying

federal question: Whether a cause of action for the recovery of

response, remedial, removal and clean-up costs under §107(a) is

“legal” or “equitable.” A decision by the Court on that issue will

have a significant effect upon whether parties continue to spend

millions on coverage disputes or instead channel their efforts and

financial resources towards cleaning up the environment.

'' In 1973 insurers began issuing new CGL policies which contained an

exclusion for releases of toxic or hazardous substances, except where the

release was “sudden and accidental.” This so-called “pollution exclusion”

clause is in the USF&G policies issued to Citizens Electric after 1973. App.

C. at A-7. The Eighth Circuit, in its latest decision on environmental insurance

issues under Missouri law, held that the “sudden and accidental” exception to

the pollution exclusion clause does not come into play where the release

occurs Over a period of time. Aetna Casualty & Surety Co. v. General

Dynamics Corp.,__ F.2d __, 1992 WL 150933 (8th Cir., July 6, 1992) at 2-

3. But see Downey v. Kansas City Gas Co., 338 Mo. 803, 92 S.W.2d 580, 587

(1936) (gradual infection developed over time was “sudden” and “accidental”

within meaning of worker’s compensation statute). The Eighth Circuit also

re-affirmed its holding in NEPACCO that §107(a) claims were equitable

actions for restitutionary relief. 1992 WL 150933 at a

In this case, the parties stipulated that the only issue was the coverage

question relating to the “damages” language in the policies and that “No other

questions arising out of USF&G’s denial of coverage . . . are presented and,

therefore, are deemed waived by the parties.” Stipulation of Facts, | 26. Even

if the application of the pollution exclusion clause remained an issue, Citizen

Electric’s evidence would be that the PCB-contaminated oil was not released

gradually but spilled as a result of the negligence of the property owner’s

employees. Thus, the releases would be “sudden and accidental” even under

the Eighth Circuit’s restrictive interpretation.

a

een. * oe

CONCLUSION

For these reasons, a writ of certiorari should issue to review

the judgment and the opinion of the Eighth Circuit.

Respectfully submitted,

* James W. Erwin

John C. Hannegan

Crystal M. Kennedy

THOMPSON & MITCHELL

One Mercantile Center

Suite 3400

St. Louis, Missouri 63101

(314) 231-7676

Counsel for Petitioner

Citizens Electric

* Counsel of Record

August 1992

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 91-2834EM

United States Fidelity and Guaranty Company,

Appellee,

V.

Citizens Electric Company,

Appellant.

Appeal from the United States District Court

for the Eastern District of Missouri.

[UNPUBLISHED]

Submitted: March 9, 1992

Filed: March 20, 1992

Before FAGG and BEAM, Circuit Judges, and GAITAN,*

District Judge.

PER CURIAM.

From 1953 to 1976, Citizens Electric Company (Citizens)

sent oil-filled electrical transformers to Missouri Electric Works,

Inc. (MEW) for repair or resale. During part of this time, United

States Fidelity and Guaranty Company (USF&G) insured Citi-

zens under general and excess liability policies. After the

Environmental Protection Agency (EPA) notified Citizens of its

potential responsibility for costs of cleaning up MEW’s prop-

erty, USF&G brought this action seeking a declaratory judgment

that it has no duty to defend or indemnify Citizens on the EPA’s

claim. Citizens counterclaimed for declaratory relief and dam-

* The HONORABLE FERNANDO J. GAITAN, JR., United States

District Judge for the Western District of Missouri, sitting by designation.

—_ son

ages for breach of contract. The sole question before the district

court was whetherclean-up costs are “damages” under USF&G’s

policies. This is aquestion of Missouri law. See Continental Ins.

Co. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d977,

985 (Sth Cir.) (en banc) (NEPACCO), cert. denied, 488 U.S. 821

(1988).

Relying on our divided decision in NEPACCO, the district

court held clean-up costs are not covered damages. Se id. at 987.

Citizens contends we should overrule NEPACCO and reverse

the district court because NEPACCO is inconsistent with Mis-

souri law and other courts hold clean-up costs are covered

damages. See, e.g., Independent Petrochem. Corp. v Aetna Cas.

& Sur. Co., 944 F.2d 940, 946-47 (D.C. Cir. 1991), petition for

cert. filed, 60 U.S.L.W. 3553 (U.S. Jan. 3, 1992) (No. 91-1252).

Like the district court, however, we must follow NEPACCO

until it is overruled by our court banc, Grisham v. Commercial

Union INs. Co., 951 F.2d 872, 875 (8th Cir. 1991), or a Missouri

appellate court “conclude[s] that we have misinterpreted [Mis-

souri] law,” Parker Solvents Co. v. Royallns.Cos.,950 F.2d 571,

572 (8th Cir. 1991). Citizens contends Hyatt Corp. v. Occidental

Fire & Cas. Co., 801 S.W.2d 382, 393-94 (Mo. Ct. App. 1990)

“is powerful evidence” our en banc court misread Missouri law.

We cannot say Hyatt makes NEPACCO’s interpretation of

Missouri law clearly wrong, however. Without mentioning

NEPACCO or environmental clean-up costs, Hyatt addresses

only whether sums paid as attorney’s fees are covered damages.

Thus, the district court correctly ruled in favor of USF&G.

Accordingly, we affirm.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS,

EIGHTH CIRCUIT.

— < a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 91-2834EMSL

United States Fidelity and Guaranty Company,

Appellee,

v.

Citizens Electric Company,

Appellant.

Appeal from the United States District Court

for the Eastern District of Missouri.

JUDGMENT

This appeal from the United States District Court was submit-

ted on the record of the district court, briefs of the parties and was

argued by counsel.

After consideration, it is hereby ordered and adj udged that the

judgment of the district court in this cause is affirmed in accor-

dance with the opinion of this Court.

March 20, 1991

A true copy.

Attest: /s/ Michael E. Gans

CLERK, U.S. COURT OF APPEALS,

EIGHTH CIRCUIT.

MANDATE ISSUED 5/18/92

—y sem

APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

Cause No. 90-350C(7)

UNITED STATES FIDELITY AND

GUARANTY COMPANY,

Plaintiff,

VS.

CITIZENS ELECTRIC COMPANY,

Defendant.

MEMORANDUM AND ORDER

[Filed: June 28, 1991]

~-Ptaintiff United States Fidelity & Guaranty Company (here-

inafter USF&G) and defendanycounterclaim plaintiff Citizens

Electric Corporation (hereinafter Citizens Electric) have filed

trial briefs and a joint stipulation of facts. Plaintiff USF&G seeks

a declaratory judgment that it has no duty to defend or indemnify

Citizens Electric as a potentially responsible party under

CERCLA, 42 U.S.C. §9601, et seq., for the cleanup and

remediation of PCB contamination at the Missouri Electric

Works site in Cape Girardeau, Missouri. Citizens Electric, by

counterclaim, seeks a declaration that the costs it has incurred

and will incur with respect to investigation and remediation at

the Missouri Electric Works site and the defense of the claim

brought against it by EPA are covered by the primary and excess

policies of insurance issued to it by USF&G. In addition

USF&G seeks damages for breach of contract. The parties

stipulate that the only issue before this Court is “whether the

costs and expenses which Citizens Electric has incurred and will

incur in the future for the Missouri Electric site are sums which

a

— os oo

Citizens Electric shall be legally obligated to pay as damages

because of property damage caused by an occurrence.” (§ 26

Joint Stipulation).

In June of 1987 the EPA notified Citizens Electric that

Citizens Electric was considered a potentially responsible party

as defined under CERCLA for costs of investigation, project

planning, and cleanup of polychoinated biphenyl (hereinafter

PCB) contamination at the Missouri Electric site. (¥ 3 Joint

Stipulation). The Environmental Protection A gency alleges that

Citizens Electric sent oil-filled electric equipment to the Mis-

souri Electric site from 1953 through 1976. ( 4 Joint Stipula-

tion). In December, 1988, Citizens Electric and other named

potentially responsible parties entered into an Administrative

Order on Consent. Under the terms of the Order on Consent,

Citizens Electric was required to conduct a remedial investiga-

tion and a feasibility study of the PCB contamination at the

Missouri Electric site. (4 6 Joint Stipulation). The studies were

completed in July, 1990. (q 7 Joint Stipulation). In September,

1990, EPA issued its Record of Decision. The estimated cost of

the remedial action will be $8.4 million for soil remediation

measures and $773,000 for ground water remediation measures.

({ 8 Joint Stipulation).

From January of 1968 through November of 1972 and No-

vember of 1973 through November of 1983, USF&G insured

Citizens Electric under its standard-form comprehensive gen-

eral liability policy (hereinafter CGL).' (4 9 Joint Stipulation).

‘At least fourteen separate general liability policies and thirteen excess

policies covered the period in question. (] 14, 15 Joint Stipulation). The

parties have stipulated that the standard insuring agreement and standard

definitions set forth in Exhibit 10 reflect the coverage terms from November

of 1968 to November of 1972. (§ 18 Joint Stipulation). Exhibit 31 reflects

the coverage terms from November of 1973 to November of 1976. ({ 19 Joint

Stipulation). Policy R1CC824421 (Exhibit 10) reflects the coverage terms

(Footnote 1 continued on next page)

—— © ven

USF&G insured Citizens Electric under excess policies of liabil-

ity insurance from October of 1969 through November of 1982.”

(q 10 Joint Supulation). After notice of the EPA claim, USF&G

responded with a reservation of rights pending completion of its

investigation. (¥§ 11, 12 Joint Stipulation). On December 7,

1989, USF&G denied coverage of the claim. (¥ 13 Joint

Stipulation).

All of the general liability coverage policies contain the same

coverage provision. That provision reads in pertinent part:

Coverage B — Property Damage Liability

The Company will pay on behalf of the /nsured all sums

which the /nsured shall become legally obligated to pay as

damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence,

and the Company shall have the nght and duty todefend any

Suit against the /nsured seeking damages on account of

such bodily injury or property damage, even if any of the

(Footnote 1 continued)

from November of 1976 through November of 1979. (¢ 20 Joint Stipulation).

Beginning during 1979, USF&G began using a revised CGL insurance form.

The parties stipulate that the insuring agreement and standard definitions in

Exhibit 10 reflect the coverage terms from November of 1979 through

November of 1983. (¢ 21 Joint Stipulation).

? The parties stipulate that the standard insuring agreement and standard

definitions set forth in Exhibit 32 reflect the coverage terms from October of

1969 through November of 1973. (¢ 2 Joint Stipulation). Exhibit 33 covers

the period from November of 1973 through November of 1981. (¢ 23 Joint

Stipulation). Exhibit 34 covers the period from November of 1981 through

November of 1982. (¢ 24 Joint Stipulation).

|

a is,

allegations of the suit are groundless, false or fraudulent,

and may make such investigation and settlement of any

claim or suit as it deems expedient, but the Company shall

not be obligated to pay any claim or judgment or to defend

any suit after the applicable limit of the Company’s liability

has been exhausted by payment of judgments or settle-

ments.

Policies from 1968 through 1972 defined damages as “damages

... for loss of use of property resultin g from property damage.”

Later policies did not define the term. The 1968 through 1972

policies defined occurrence as “an accident, including injurious

exposure to conditions, which results, during the policy period,

in bodily injury or property damage neither expected nor in-

tended from the standpoint of the insured.” Later policies added

the words continuous or repeated before exposure. The 1968

through 1972 policies defined property damages as “injury to or

destruction of tangible property.” Later policies defined prop-

erty damage as

(1) physical injury to or destruction of tangible property

which occurs during the policy period, including the loss of

use thereof at any time resulting therefrom, or

(2) loss of use of tangible property which has not been

physically injured or destroyed provided such loss of use

caused by an occurrence during the policy period.

Policies after 1972 also included pollution exclusions as follows:

This insurance does not apply . . .

(f) to bodily injury or property damage arising out of the

discharge, dispersal, release or escape of smoke, vapors,

soot, fumes, acids, alkalis, toxic chemicals, liquids or gases,

waste materials or other irritants, contaminants or pollut-

ants into or upon the land, the atmosphere or any water-

course or body of water; but this exclusion does not apply

a ee

if such discharge, dispersal, release or escape is sudden and

accidental.

The coverage provision in the excess policies from 1969

through 1981 provided:

3.1 Coverage. The Company will indemnify the /nsured

for all sums which the /nsured shall become obligated to

pay as damages and expenses . . . by reason of liability

imposed upon the insured by law, or by contractual liabil-

ity, because of

(1) personal injury or property damage, cause by or

(2) advertising liability arising out of an occurrence which

takes place anywhere.

After 1981, the coverage provision read as follows:

Coverage. The Company will indemnify the /nsured for all

sums which the /nsured shall become legally obligated to

pay as damages because of bodily injury, personal injury,

property damage, or advertising injury to which this policy

applies caused by an occurrence which takes place any-

where.

The excess policies covering the period 1969 through 1973

defined property damage and occurrence as the general liability

policies defined them from 1968 to 1973. Damages is defined

in the excess policies as “all sums which the /nsured, or any

company as his Insurer, or both, become legally obligated to pay

as damages, whether by reason of adjudication or settlement. . .

.” The term expenses is defined as “all reasonable expenses

incurred by the /nsured in the investigation, settlement, and

defense of any claim or suit seeking such damages. ...”” Policies

from 1973 through 1982 added the same pollution exclusion as

found in the general liability policies.

ee

— a

In Continental Ins. Cos. v. Northeastern Pharmaceutical &

Chem. Co., the Eighth Circuit held that the term damages is not

ambiguous in the insurance context and that the plain meaning

of the term damages used in CGL policies refers to legal

damages and does not coverclean up costs. Continental Ins. Cos.

v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977,

985 (8th Cir. 1988), cert. denied, Missouri v. Continental Ins.

Cos., 488 U.S. 821 (1988). The Eighth Circuit cited Robin v.

Blue Cross Hospital Service, 637 S.W.2d 695, 698 (Mo. banc

1982) as the source from the applicable Missouri law. No

Missouri case is directly on point, but Robin sets out the rules of

insurance agreement construction as follows:

The rules of construction applicable to insurance contracts

required that the language used be given its plain meaning.

If the language is unambiguous the policy must be enforced

according to such language. If the language is ambiguous

it will be construed against the insurer. Language is

ambiguous if it is reasonably open to different construc-

tions; and language used will be viewed in light of the

“meaning that would ordinarily be understood by the lay

[person] who bought and paid for the policy.”

Robin v. Blue Cross Hospital Service, 637 S.W.2d at 698 (Mo.

banc 1982) (citations omitted). The Eighth Circuit, while

holding the term damages was not ambiguous, stated:

Viewed outside the insurance context, the term “damages”

is ambiguous: it is reasonably open to different construc-

tions. ... The dictionary definition does not distinguish

between legal damages and equitable monetary relief... .

Thus, from the viewpoint of the lay insured, the term

“damages: could reasonable include all monetary claims,

whether such claims are described as damages, expenses,

costs, or losses.

— A-10 —

Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem

Co., 842 F.2d at 985. The dissent views this concession as

dispositive and notes that, to the extent the word damages is open

to different constructions, it must be accorded the meaning

ordinarily given it by a lay person. /d. at 988 (Heaney, J.,

dissenting). Robin v. Blue Cross Hospital Service provides a

formula for determining if language is ambiguous. Under that

standard aterm such as damages is ambiguous if it is “reasonably

open to different constructions,” and that determination must be

made “‘in light of ‘the meaning that would ordinarily be under-

stood by the lay [person] who bought and paid for for policy.’ ”

Robin, 637 S.W.2d at 698. The majority admits that the lay

person would understand the term damages to include equitable

remedies. Furthermore, the majority recognizes that under

Missouri law the cost of restoring property to its original condi-

tion is one measure of damages. Continental Ins. Cos. v.

Northeastern Pharmaceutical & Chem. Co., 842 F.2d at 987.

Defendants urge this Court to follow the reasoning in Jones

Truck Lines v. Transport Ins. Co., No. 88-5723, 1989 WL 49517

(E.D. Pa. May 10, 1989). That court addressed the same issue

applying Missouri law and concluded that costs incurred in the

investigation and cleanup of hazardous waste sites are covered

“damages” under a CGL policy. It specifically recognized the

contrary Eighth Circuit holding and stated it would defer to the

Eighth Circuit decision unless it found that the Circuit Court

ignored clear signals emanating from the state courts or clearly

misread state law. The Court in Jones Truck Lines concluded

that to be consistent with the Eighth Circuit holding in McMichael

v. AmericanIns. Co., 351 F.2d 665, 669 (8th Cir. 1965), the term

ee

—

damages must be give a meaning ordinarily understood by a

layperson.?

While the reasoning of the dissent in Continental Ins. Cos. v.

Northeastern Pharmaceutical & Chem. Co. and the reasonin gof

the Federal District Court in Pennsylvania in Jones Truck Lines

v. Transport Ins. Co. are consistent with the principles of

construction of insurance contract terms under Missouri law,

this Court is constrained solely by reason of stare decisis to

follow the majority opinion in Continental Ins. Cos. v. North-

eastern Pharmaceutical & Chem. Co.

ACCORDINGLY,

IT IS HEREBY ORDERED that JUDGMENT is entered in

favor of Plaintiff United States Fidelity & Guaranty Corporation

and against Defendant Citizens Electric Corporation.

Dated this 28th day of June, 1991.

/s/ Jean C. Hamilton

UNITED STATES

DISTRICT JUDGE

>See also, Note, Jones Truck Lines v. Transport Insurance Co.: More Fuel

for the Heated Debate over Insurance Coverage for CERCLA Clean Up

Costs, 35 S.D.L. Rev. 298 (1990). (emphasizing that the Eighth Circuit’s

reasoning and the Jones Truck Lines Court’s reasoning conform to each other

in most respects while reaching opposite conclusions). This note addresses

the distinction made by the Eighth Circuit as follows:

In the absence of such a distinction in the policy, it is difficult to

conceive how a definition of “damages” that is grounded upon the

ancient division between law and equity — such as the definition

proffered by the Eighth Circuit —could be labeled as the “ordinary and

accepted meaning” of “damages” in the eyes of a reasonably prudent

layperson.

Id. at §1V. The author reached the conclusion that there was “no basis in

Missouri law for the Eighth Circuit’s quantum leap into the highly technical

realm of insurance terminology.” /d. at §IV.

APPENDIX D

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

Cause No. 90-350C(7)

UNITED STATES FIDELITY AND

GUARANTY COMPANY,

Plaintiff,

VS.

CITIZENS ELECTRIC COMPANY,

Defendant.

JUDGMENT

[Filed: June 28, 1991]

In accordance with the memorandum June 28, 1991, and

incorporated herein,

ITIS HEREBY ORDERED, ADJUDGED, AND DECREED

that Plaintiff United States Fidelity and Guaranty Company,

shall have judgment against Defendant Citizens Electric Com-

pany.

Dated this 28th day of June, 1991.

/s/ Jean C. Hamilton

UNITED STATES

DISTRICT JUDGE

A-13

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 91-2834E* {SL

United States Fidelity and Guaranty Company,

Appellee,

VS.

Citizens Electric Company,

Appellant.

Order Denying Petition for Rehearing and

Suggestion for Rehearing En Banc

The suggestion for rehearing en banc is denied. Judge John R.

Gibson, Judge Fagg, Judge Beam, and Judge Hansen would

grant the suggestion for rehearing en banc.

The petition for rehearing is also denied.

May 7, 1992

Order Entered at the Direction of the Court:

/s/ Michael E. Gans

Clerk, U.S. Court of Appeals, Eighth Circuit