Petition for Writ of Certiorari — City of Edgerton v. General Casualty Co.

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YU 941256 JAN 23 195

No.___ 656: ali idle iiss

IN THE SUPREME COURT

OF THE UNITED STATES

October Term, 1994

CITY OF EDGERTON,

AND EDGERTON SAND & GRAVEL, INC.,

Plaintiffs-Respondents-Petitioners,

[Caption Continued]

Joint Petition on Behalf of City of

Edgerton and Edgerton Sand & Gravel, Inc.

For Writ of Certiorari to the

Supreme Court of the State of Wisconsin

JOINT PETITION ON BEHALF OF CITY OF

EDGERTON AND

EDGERTON SAND & GRAVEL, INC.

FOR WRIT OF CERTIORARI

AND APPENDIX TO PETITION

Richard L. Cates David B. Goodwin

Counsel of Record Attorney at Law

Lawton & Cates, S.C. Heller, Ehrman, White &

214 West Mifflin Street McAuliffe

Madison, WI 53703 333 Bush St.

Attorney for Petitioner San Francisco, CA 94104-2878

City of Edgerton Attorney for Petitioner

(608) 256-9031 Edgerton Sand & Gravel, Inc.

(415) 772-6000

GENERAL CASUALTY COMPANY OF WISCONSIN,

Defendant-Appellant-Respondent,

WISCONSIN INSURANCE SECURITY FUND,

Defendant,

AETNA CASUALTY AND SURETY COMPANY,

Defendant-Co-Appellant-Respondent,

HANOVER INSURANCE COMPANIES,

WAUSAU INSURANCE COMPANIES,

AND LOCAL Seay ERNMENT PROPERTY

-INSURANCE FUND,

Defendants.

a —

ees ae ee ce fe, ee wee we ee Se

QUESTION PRESENTED

DO MONIES PAID PURSUANT TO SECTIONS

107(a)(4)(A) AND 107(a)(4)(C) OF CERCLA CONSTITUTE

DAMAGES AS CONSTRUED BY PRIOR DECISIONS OF

THIS COURT AND PRIOR DECISIONS OF CIRCUIT

COURTS OF APPEAL?

This petition is filed by the City of Edgerton, a

Wisconsin municipality, and Edgerton Sand & Gravel, Inc.,

a Wisconsin Corporation. The City of Edgerton and Edgerton

Sand & Gravel, Inc. were plaintiffs in the complaint and were

respondents before the Wisconsin Supreme Court.

The respondents are General Casualty Company of

Wisconsin and Aetna Casualty & Surety Company. The

respondents are insurance corporations named as defendants

in the complaint and were appellants before the Wisconsin

Supreme Court.

RS A ES 5

bois an Bee See Ba? oe

TABLE OF CONTENTS

PETITION FOR WRIT OF CERTIORARI ........ 1

OPINIONS BELOW ....... cc ccccecevevcees 2

FETT ob o6 oko ek hoe, a eee ceeds 2

STATUTORY PROVISIONS INVOLVED ........ 3

STATEMENT OF THE CASE ..........---++:. 4

REASONS FOR GRANTING THE PETITION ..... 9

I. | THE WISCONSIN SUPREME COURT'S

DECISION THAT THE CERCLA

RESPONSE COSTS ARE NOT DAMAGES

IS CONTRARY TO THE STATUTORY

LANGUAGE AND DECISIONS OF THIS

eas eer ss 5s 9

II. THERE IS A SPLIT AMONG THE CIRCUIT

COURTS OF APPEALS AND STATE

COURTS OF LAST RESORT AS TO

WHETHER CERCLA RESPONSE COSTS

CONSTITUTE DAMAGES ..........---: 16

CONCLUSION

AUTHORITIES CITED

Cases

A. J v. Aet alty t

cm, a2 F.20 G6 (ist Cir. 1991)......... 2, 16

A.Y. Id les V

ASNW24607 (la 1D) cco 6

vondale Industries v. veler

Indemnity Co., 887 F.2d 1200

(2d 1989), reh’g denied, 894 F.2d

498, cert. denied, 496 U.S. 906

I ee eas wrk ae 5 6 a 0565-0 0.0 1, 16

e - iv d

Ins. my 047 F.2d 1023

(2d Cir. 1991), cert. denied,

_ US. _, 112 S. Ct. 2939,

fo) & | Be) 1, 16

Grisham v. Commercial Union Insurance,

i & leg | « A |) 2, 16

Independent Petrochemical Co. v. Aetna

Casualty & Surety Co., 944 F.2d 940

(D.C. Cir. 1991), cert. denied

sub nom., Certain Underwriters

at Lloyd’s London v. Independent

Petrochemical Co.,__ U.S. __,

112 S. Ct. 1777, 118 L. Ed. 2d

Sa ee 1, 16

Key Tronic C United S

_ U.S. _, 62 U.S.L.W.

4441, 1148. Ct. 1960, 128

L. Ed. 2d 797 (June 6, 1994) ....... 1,9, 12, 14

Maryland Casualty Co. v. Armco, Inc.,

822 F.2d 1348 (4th Cir. 1987),

Continental Insurance Co. v.

Northeastern Pharmaceutical &

Chemical Co., 842 F.2d 977

(8th Cir.) (en banc), cert.

denied sub nom., 488 U.S. 821

fe Ee 2,

Mi a a a

Travelers Indemnity Co., 457 N.W.2d

DPI ss obs. he cc cates seces

rita sg: Shida Alt Caste of

Interior, 880 F.2d 432

ks vase ed nw

Pennsylvania v. Union Gas Co., 491 U.S.

1, 109 S. Ct. 2273,

fee Se | ee 1, 10-12, 14

Port of Portland v. Water Quality

Insurance Syndicate, 796 F.2d 1888

(9th Cir. 1986) with Cincinnati

Insurance Co. v. Milliken & Co.,

857 F.2d 979 (4th Cir. 1988) ........... 2,

School Distri rew v. Wausau

Insurance Companies, 170 Wis. 2d

347, 488 N.W.2d 82 (1992),

reh’g denied, 174 Wis. 2d 726,

498 N.W.2d 823 (1993) ................

United States v. Union Gas Co., 792 F.2d

372 (3rd Cir. 1986) vacated,

479 U.S. 1025, 107 S. Ct. 865,

emp Be Pe rer 12

Federal Statutes

UO I i eles hee. 2

USC CU eile oo i tee 13

42 USC. § SU)... 2. ec 1, 2, 3, 9, 13, 14

45 USC SOI 6.6 e000 5ss Ge 15

MUSE ASR oo. i As 3, 9, 10

Wisconsin Statutes

. & 8 es ee ees ee ee 4

Other Authorities

43 CFR § 11.80(b), 59 Fed. Reg.

UE 6 6n-y-006 Bass A ee ke eres: BE

Schraff and Steinberg, RCRA and

Superfund, para. 1.01

(Shepard’s/McGraw-Hill, Inc. 1993) ........ 13

PETITION FOR WRIT OF CERTIORARI

Petitioners City of Edgerton and Edgerton Sand &

Gravel, Inc. pray that a writ of certiorari issue to review the

judgment and opinion of the Wisconsin Supreme Court in

City of Edgerton, et al. v. General Casualty Company of

Wisconsin, et_al., Case No. 91-1408, entered on June 16,

1994. Petitioners seek review of the erroneous construction

of substantive federal law by the Wisconsin Supreme Court.

The issue is the construction of remedial provisions of the

Comprehensive Environmental Response, Compensation and

Liability Act (CERCLA or Superfund), §§ 107(a)(4)(A) and

(C), 42 U.S.C. §§ 9607(a)(4)(A) and (C).

The Wisconsin Supreme Court erred in construing

§ 107(a)(4)(A), which provides for the recovery of response

costs as solely an “equitable remedy" and contrasted

§ 107(a)(4)(C), which provides for injuries to natural

resources as a damages remedy. This is contrary to this

Court’s prior determinations in Key Tronic Corp. v. United

States, _ U.S. __, 62 U.S.L.W. 4441, 114 S. Ct. 1960, 128

L. Ed. 2d 797 (June 6, 1994) and Pennsylvania v. Union Gas

Co., 491 U.S. 1, 7, 13, 109 S. Ct. 2273, 105 L. Ed. 2d 1

(1989).

There is also a split among the federal circuits on

whether response costs incurred pursuant to § 107(a)(4)(A)

are legal damages or merely equitable relief. Compare

Independent Petrochemical Co. v. Aetna Casualty & Surety

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

Certain Underwriters at Lloyd’s London _v. Independent

Petrochemical Co, ___ U.S. .., Bis &, ‘ 1777, 118

L. Ed. 2d 435 (1992); Gerrish Corp. Universal

Underwriters Ins. Corp., 947 F.2d 1023 (2d Cir. 1991), cert.

denied, __ U.S. __, 112 S. Ct. 2939, 119 L. Ed. 2d 864

(1992); Avondale Industries v. Travelers Indemnity Co., 887

F.2d 1200 (2d 1989), reh’g denied, 894 F.2d 498, cert.

denied, 496 U.S. 906 (1990); Port of Portland v. Water

Quality Insurance Syndicate, 796 F.2d 1888 (9th Cir. 1986)

with Cincinnati Insurance Co. v. Milliken & Co., 857 F.2d

979 (4th Cir. 1988); Maryland Casualty Co. v. Armco, Inc.,

822 F.2d 1348 (4th Cir. 1987), Continental Insurance Co. v.

Northeastern Pharmaceutical & Chemical Co., 842 F.2d 977

(8th Cir.) (en banc), cert. denied sub nom., 488 U.S. 821

(1988); Grisham v. Commercial Union Insurance, 951 F.2d

872 (8th Cir. 1991); A. Johnson v. Aetna Casualty & Surety

Co., 933 F.2d 66 (Ist Cir. 1991).

Review by this Court is necessary to correct the

erroneous construction of substantive federal law by the

Wisconsin Supreme Court and to resolve the substantial

conflict among the various circuits as to whether response

costs pursuant to § 107(a)(4)(A) are damages.

OPINIONS BELOW

The opinion of the Wisconsin Supreme Court is

reported at 184 Wis. 2d 750, 517 N.W.2d 463 (1994) and is

reprinted in the Appendix at App. 101. The opinion of the

Wisconsin Court of Appeals is reported at 172 Wis. 2d 518,

493 N.W.2d 768 (Ct. App. 1992) and is reprinted in the

Appendix at App. 147. The unreported decision of the

Circuit Court for Rock County dated May 10, 1991, is

reprinted in the Appendix at App. 189.

JURISDICTION

The judgment of the Wisconsin Supreme Court was

entered when the City’s timely filed motion for

reconsideration was denied on October 15, 1994. This Court

has jurisdiction to review the judgment of the Wisconsin

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

STATUTORY PROVISIONS INVOLVED

Section 107(a)(4) of CERCLA, 42 U.S.C. § 9607(a)(4)

provides:

(4) any person who accepts or accepted any

hazardous substances for transport to disposal

or treatment facilities, incineration vessels or

sites selected by such person, from which there

is a release, or a threatened release which

causes the incurrence of response costs, of a

hazardous substance, shall be liable for--

(A) all costs of removal or remedial

action incurred by the United States or

a State or an Indian tribe not

inconsistent with the national

contingency plan;

of or loss of natural resources,

including the reasonable costs of

assessing such injury, destruction, or

loss resulting from such a release; ...

Section 107(f\(1) of CERCLA, 42 U.S.C. § 9607(f)(1)

provides:

The measure of damages in any action under

subparagraph (C) of subsection (4)

[§ 9607(a)(4)(C)] shall not be limited by the

sums which can be used to restore or replace

such resources. There shall be no double

recovery under this Act for natural resource

damages, including the costs of damage

assessment or restoration, rehabilitation, or

acquisition for the same release of natural

resources...

STATEMENT OF THE CASE

This case arises from a declaratory judgment action

commenced in the Circuit Court for Rock County by the City

of Edgerton (City) and Edgerton Sand & Gravel, Inc. (ES&G)

against several insurers including General Casualty Company

of Wisconsin (General Casualty) and Aetna Casualty & Surety

Company (Aetna). The action was for a declaration of rights

pursuant to various insurance policies concerning an action by

the Wisconsin Department of Natural Resources (WDNR)

requiring the City and ES&G to incur costs for responding to

releases of hazardous substances. (R. 1.)

Edgerton Sand & Gravel, Inc. was the owner of the

land on which the landfill was located. The landfill, known

as the Edgerton Sand & Gravel Landfill, was used from the

early 1950’s until 1984 for waste disposal for local residents,

municipalities and industries for waste disposal. (R. 38,

4 18.) Pursuant to Wis. Stat. § 66.049 and its predecessors,

the City removed, collected and disposed of ashes, garbage

and rubbish (solid waste). It provided this municipal service

pursuant to state law by entering into agreements with the

owner to dispose of such wastes at the landfill. (R. 38, ¥ 19.)

The site was licensed and periodically inspected by the

WDNR. (R. 63, ¥ 2.)

In 1984, groundwater contamination by volatile

organic compounds (VOCs) was discovered beneath the

landfill and in private drinking wells near the landfill. (App.

at 107.) VOCs are a family of chemicals that are highly

mobile in groundwater and readily evaporate in the

atmosphere. Certain of the VOCs discovered in the

groundwater are known carcinogens and are hazardous

substances defined by CERCLA. The movement of VOCs

into the water supplies is continuous over time and as the

VOC plume spreads, additional contamination of water

supplies occurs. (R. 38, | 9.) Unfortunately, problems with

VOCs resulting from municipal landfills were largely

unknown until the early 1980s. (R. 63, § 2.)

Since groundwater drinking wells for property

surrounding the landfill were contaminated with VOCs,

WDNR included the landfill on the list of sites to be placed

on EPA’s list of highest priority cleanup sites. This list,

known as CERCLIS, was established by CERCLA. Listing

on the CERCLIS list makes the site eligible for the National

Priorities List (NPL). Listing on the NPL triggers EPA’s

enforcement. activities, including a federally supervised

cleanup. A federally sponsored cleanup is considerably more

expensive than a cleanup sponsored by private parties under

supervision of the appropriate state regulatory agency. (R. 38,

q 13.)

On June 22, 1989, the EPA initiated its investigation

of the landfill by a “Potentially Responsible Party" (PRP)

letter which was sent to all potentially responsible parties

(PRPs), including the City and ES&G. (R. 38, ¥ 14, exh. 1;

R. 39, exh. B.) CERCLA defines a PRP to include current

and former owners and operators of landfill facilities, waste

generators, waste transporters and disposers. 42 U.S.C. §

9607(a). These letters demanded information concerning the

operation of the landfill and chemicals deposited in the

landfill. (R. 38, exh. 1.)

On November 6, 1989, the WDNR instructed ES&G

to organize a group of PRPs to remediate the site. The City

was a PRP. (R. 38 at 9 15, 16, 19.) Specifically, the

WDNR demanded that ES&G and other PRPs present a "work

plan" to remediate the landfill. (R. 38, 9 15, exh. 2.) On

February 27, 1990, WDNR demanded a "work plan" from the

PRPs and stated it would begin legal action to require cleanup

of the site and pursue cleanup as a federal Superfund site. (R.

38, J 15, exh. 3.)

The WDNR established a deadline of May 31, 1991

for signing a contract with WDNR to clean up the site. Ina

letter dated February 8, 1991, shortly before the trial court’s

decision, the WDNR declared (R. 38, 9 21, exh. 4):

WDNR intends to pursue listing of this site on the

NPL unless potentially responsible parties (PRPs) for

the site enter into a contract with WDNR to undertake

investigation and clean-up activities. WDNR has

developed a model contract for that purpose....

The purpose of this letter is to notify you that unless

a PRP group signs a contract with WDNR for this site

by May 31, 1991, WDNR will request that this site be

listed ont he (sic) NPL....

In general, it has been WDNR’s experience that work

done under contract with WDNR goes much quicker,

is less complex and less costly than work done on

NPL sites. I would like to emphasize that this will be

your only opportunity to join a PRP group for the

purposes of entering into a contract with WDNR for

work at this site. I would also like to reiterate that

this contract is the only mechanism acceptable to

WDNR for stopping pursuance of listing this site on

the NPL.

The City and ES&G demanded that their insurers

defend and indemnify them for responding as required by the

WDNR. General Casualty and Aetna denied both a duty to

defend and to indemnify pursuant to their policies. (R. 36,

exhs. B and E; R. 38, exhs. SA-5P.) In part, the insurers

relied upon the following language to deny coverage:

The company will pay on behalf of the insured

all sums which the insured shall become

legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies...

(R. 36, exh. 5; R. 38, exhs. SA-5P; emphasis added.) The

City and ES&G commenced this action seeking a

determination that the policies require the insurers to defend

and indemnify it as to the cleanup of VOC contamination of

the groundwater. Both the trial court and the Wisconsin

Court of Appeals determined that the insurers had a duty to

defend and that the term "damages" included Superfund

response costs. (App. at 112.)

The Wisconsin Supreme Court, however, determined

that response costs pursuant to § 107(a)(4)(A) were by

definition equitable relief and reflected a congressional intent

to differentiate between response costs and damages to natural

resources. The court reasoned:

Response costs assigned either under CERCLA

or secs. 144.442(8) and (9), Stats., are, by

definition, considered to be equitable relief and

reflect 2 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).

(App. at 137.) The court further cited federal administrative

regulations in support of its position. (App. at 137.)

Essentially, the court relied upon a distinction between

liability for response costs pursuant to subsection A and for

natural resources injuries pursuant to subsection C. Thus, the

court based its decision on an erroneous construction of the

substantive federal law and remedies available pursuant to

CERCLA. (Id.)

The City and ES&G filed a timely motion for

reconsideration which was denied by the Wisconsin Supreme

Court without opinion on October 25, 1994. (App. at 195.)

Petitioners now seek review in this Court of the decision of

the Wisconsin Supreme Court dismissing their complaint

based upon an erroneous construction of CERCLA.

REASONS FOR GRANTING THE PETITION

I. THE WISCONSIN SUPREME COURT’S

DECISION THAT THE CERCLA RESPONSE

COSTS ARE NOT DAMAGES IS CONTRARY

TO THE STATUTORY LANGUAGE AND

DECISIONS OF THIS COURT.

An important consideration for granting review is

when a state court had decided an important question of

federal law in a way that conflicts with decisions of this

Court. Supreme Court Rule 10.1(c). The Wisconsin Supreme

Court has decided that response costs awarded pursuant to

§ 9607(a)(4)(A) are not damages, but costs awarded pursuant

to § 9607(a)(4)(C) are damages. This conflicts with both the

statutory language and applicable decisions of this Court in

Pennsylvania v. Union Gas Co., 491 U.S. 1, 109 S. Ct. 2273,

105 L. Ed. 2d 1 (1989) and Key Tronic Corp. v. United

States, _ U.S. ___, 62 U.S.L.W. 4441, 1145S. Ct. 1960, 128

L. Ed. 2d 797 (June 6, 1994).

A review of the statutory language of CERCLA

demonstrates that there is no distinction drawn between

response costs and damages. One of the requirements

imposing liability pursuant to CERCLA is "a release or a

threatened release which causes the incurrence of response

costs..." § 9607(a)(4). This is a requirement regardless of

whether the ultimate action seeks relief pursuant to subsection

A for cleanup or subsection C for natural resources, or both.

Moreover, the measure of natural resources damages, which

the Wisconsin Supreme Court declared were damages,

includes cleanup costs. § 9607(f)(1); 43 CFR § 11.80(b), 59

Fed. Reg. 14262, 14283.

The statutory language of CERCLA expressly defines

natural resources damages to include cleanup costs. 42

U.S.C. § 9607(f)(1) provides:

The measure of damages in any action under

subparagraph (C) of subsection (a)

[§ 9607(a)(4)(C)] shall not be limited by the

sums which can be used to restore or replace

such resources. There shall be no double

recovery under this Act for natural resource

damages, including the costs of damage

assessment _or restoration, rehabilitation, or

acquisition for the same release of natural

resources...

While precluding double recovery, the language clearly

includes cleanup costs as part of natural resources damages

recovery pursuant to subsection C.

Thus, the Wisconsin Supreme Court drew a distinction,

where none exists, between response costs pursuant to

subsection A as opposed to injuries to natural resources

pursuant to subsection C which is nonexistent in federal law.

The statute requires "response costs" to trigger any remedy,

whether it be pursuant to subsection A or C, and measures

damages under subsection C to include costs which would be

incurred under subsection A.

This Court previously considered whether response

costs constitute damages in Union Gas Co. In Union Gas

Co., the United States brought an action for recovery of its

response and cleanup costs pursuant to §§ 104 and 106 of

CERCLA against the operator of a coal gasification plant.

The action was for the cleanup of a hazardous waste spill for

the operator’s former facility. The operator filed a third-party

complaint against the State of Pennsylvania alleging that its

flood control efforts had negligently caused or contributed to

the spill. Union Gas Co., 491 U.S. at 5-6.

The third-party complaint was dismissed by the trial

court and the dismissal affirmed by the court of appeals on

the ground that there was no clear expression of

Congressional intent to hold states liable for monetary

damages pursuant to CERCLA as required by the Eleventh

Amendment. Id. This Court initially remanded the matter to

the lower courts for reconsideration in light of the 1986

amendments to CERCLA (SARA) and the court of appeals

did, on remand, hold that the states were liable for monetary

damages pursuant to CERCLA as amended.

This Court then granted certiorari to decide "whether

CERCLA, as amended by SARA, clearly expresses an intent

to hold states liable in damages for conduct described in the

statute." Union Gas Co., 491 U.S. at 7 (emphasis added). In

considering the State’s claim of immunity pursuant to the

Eleventh Amendment, the Supreme Court noted:

CERCLA both provides a mechanism for

cleaning up hazardous-waste sites, 42 U.S.C.

§§ 9604, 9606 (1982 ed. and Supp. IV), and

imposes the costs of the cleanup on those

responsible for contamination, § 9607.

Id. This Court concluded:

We thus hold that the language of CERCLA as

amended by SARA clearly evinces an intent to

hold States liable in damages in federal court.

Union Gas Co., 491 U.S. at 13 (emphasis added; footnote

omitted).

The issue squarely decided in Union Gas Co. was

whether an action against a State for response costs pursuant

to § 9607(a)(4)(A) was an action for damages in violation of

the Eleventh Amendment. The Supreme Court decision itself

does state that the underlying case was for response costs

already expended in the amount of $720,000 for cleanup and

the lower court opinions clearly confirm this fact. Union Gas

Co., 491 U.S. at 5-6; United States v. Union Gas Co., 792

F.2d 372, 374-75 (3rd Cir. 1986) vacated, 479 U.S. 1025, 107

S.Ct. 865, 93 L.Ed.2d 821 (1987). Indeed, in

distinguishing cases involving other statutes, the court of

appeals noted:

[T]he citizen suit provisions in the other three

statutes [not CERCLA] are fundamentally

different from § 9607, for whereas those

provisions permit only injunctive relief to

enforce the terms of each statute, § 9607

permits recoupment of clean-up expenses, an

action for damages.

Union Gas Co., 792 F.2d at 382 (emphasis added). It was

against this backdrop that the Supreme Court declared that the

action in question was for damages, found congressional

intent to override Eleventh Amendment immunity and

determined that Congress had the power pursuant to the

Commerce Clause.

Similarly, in Key Tronic, 62 U.S.L.W. at 4443, this

Court held that PRPs have an implied private right of action

against other PRPs for response costs pursuant to § 9607.

This implied private right of action was recognized prior to

the 1986 amendments. Key Tronic, 62 U.S.L.W. at 4443,

n.7. In addition, as part of the 1986 amendments, Congress

expressly created a private action for contribution pursuant to

§ 9613(f). Id. The Key Tronic Court held that while there

is a right to contribution, that right does not extend to

litigation-related fees and expenses. The Key Tronic decision

treats response costs as damages by recognizing an implied

right of contribution for response costs which Congress made

explicit by amendment in 1986. However, consistent with the

American rule, attorneys fees were not part of damages and

not part of the right to contribution.

In deciding response costs were not damages, the

Wisconsin Supreme Court failed to consider the substantial

distinction between the Resource Conservation and Recovery

Act (RCRA) and the Comprehensive Environmental Response,

Compensation and Liability Act (CERCLA or Superfund).

Historically, the Resource Conservation and Recovery Act

(RCRA), 42 U.S.C. § 6901 et seq., was enacted in 1976 as an

amendment to the Solid Waste Disposal Act. RCRA, as

amended in 1980 and 1984, provided for tracking, handling,

storing and disposal of hazardous wastes. In 1980, Congress

enacted CERCLA due to concerns that serious gaps existed as

to abandoned or dormant sites which were causing

environmental damage.

Two principal concerns motivated Congress in

adopting CERCLA. First, Congress intended to provide the

government with all of the tools necessary for prompt,

adequate and appropriate remedies for releases of hazardous

substances. Second, Congress sought to require the parties

who created or otherwise contributed to the disposal of the

hazardous substances to pay for the costs of cleanup as

opposed to the taxpayers. Schraff and Steinberg, RCRA and

Superfund, para. 1.01 (Shepard’s/McGraw-Hill, Inc. 1993).

Section 9607(a)(4) generally establishes liability for

the costs of responding to and remedying the release of

hazardous substances. Schraff & Steinberg point out with

reference to the liability imposed at para. 1.08(2]:

Two observations are pertinent about the

categories of response costs for which a party

is liable under Section 107. First, CERCLA

includes extremely broad definitions of

"removal" and "remedial" action, as well as

"response." As a consequence, once liability is

established, it is relatively easy for the federal

government to impose upon a responsible party

virtually any cost associated with the clean-up

of a release of hazardous substances. Second,

private parties may recover their response costs

from a responsible party under Section 107.

The fundamental policy underlying CERCLA liability was to

achieve fast and efficient remediation of environmental

damage at minimal cost to taxpayers.

To effectuate this fundamental policy, as this Court’s

decisions in both Union Gas and Key Tronic recognize,

Congress enacted § 9607(a)(4) to insure that all costs of

responding to the release of hazardous substances are covered

by those responsible for the release. In essence, Congress

defined "damages" in the context of environmental clean-up

to include all response costs, regardless of whether these costs

were greater than the diminution of market value caused by

the release.

The administrative regulations provide that the

measure of damages are the costs of restoration of the natural

resources. The regulations provide in relevant part:

The purpose of the Damage Determination

phase is to establish the amount of money to

be sought in compensation for injuries to

natural resources resulting from a discharge of

oil or release of a hazardous substance. The

measure of damages is the cost of restoration,

rehabilitation, replacement, and/or acquisition

of the equivalent of the injured natural

resources _and the services those resources

provide.

43 CFR § 11.80(b), 59 Fed. Reg. at 14283 (emphasis added).

This is consistent with the decision of the Court of

Appeals for the District of Columbia in Ohio v. United States

Dep’t of Interior, 880 F.2d 432, 441-59 (D.C. Cir. 1989).

The court ordered the Department of the Interior "to revise its

regulations to reflect the statutory preference for using

restoration costs as a measure of damages." Final Rule for 43

CFR Part 11, 59 Fed. Reg. 14262, 14270-71.

The decision of the Wisconsin Supreme Court

significantly thwarts the policy of rapid and efficient

remediation by private parties. The goal of avoiding

substantial numbers of individual common law claims by

hundreds of PRPs with attendant expenses and delays is

thwarted where that is the only means to obtain insurance

coverage. As the Wisconsin Supreme Court acknowledged,

Congress expressly contemplated that insurance coverage

would be available to assist PRPs in paying for cleanup costs.

City of Edgerton, 184 Wis. 2d at 785-86 (App. at 138) citing

42 U.S.C. § 9607(e)(1). In many instances, insurance

coverage is a major means for bearing the burden of

remediation of environmental contamination by small

businesses and municipalities. Denial of insurance coverage

for CERCLA response costs renders CERCLA largely

ineffective.

The decision of the Wisconsin Supreme Court

construes CERCLA in a manner inconsistent with the

statutory language, regulations and prior decisions of this

Court. Furthermore, the decision substantially undercuts the

efficacy of CERCLA in promoting rapid and efficient

remediation. Therefore, review of the decision by this Court

is warranted and the petition for writ of certiorari should be

granted.

II. THERE IS A SPLIT AMONG THE CIRCUIT

COURTS OF APPEALS AND STATE COURTS

OF LAST RESORT AS TO WHETHER CERCLA

RESPONSE COSTS CONSTITUTE DAMAGES.

Rule 10.1(b) provides that an important consideration

supporting review by this Court is a conflict between the

circuits or between courts of last resort on a federal question.

There is a significant split between both federal circuit courts

of appeals and state courts of last resort on the issue of

whether CERCLA response costs constitute damages. The

spilt of the decisions of the courts of appeals is shown by the

previously cited cases. Compare Independent Petrochemical

Co., 944 F.2d 940; Gerrish Corp., 947 F.2d 1023; Avondale

Indusiries, 887 F.2d 1200; Port of Portland, 796 F.2d 1888

with Cincinnati Insurance Co., 857 F.2d 979; Maryland

Casualty Co., 822 F.2d 1348; Continental Insurance Co., 842

F.2d 977; Grisham v. Commercial Union Insurance, 951 F.2d

872; A. Johnson, 933 F.2d 66. The state court decisions are

collected in Minnesota Mining & Manufacturing Co. v.

Travelers Indemnity Co., 457 N.W.2d 175, 180-81 n.6 (Minn.

1990) and A. Y. McDonald Industries v. Insurance Company

of North America, 475 N.W.2d 607, 622-26 (Ia. 1991).

Wisconsin and Maine are the only state courts of last resort

to date to hold that CERCLA response costs are not covered

by insurance policies.

Ordinarily, the applicability of insurance policies is a

matter of state law contract interpretation. Here, however, the

issue is the appropriate construction of substantive remedies

available pursuant to federal law. Moreover, the construction

of federal law in this case substantially impacts on those very

federal policies underlying the adoption of CERCLA.

The issue is not merely whether response costs are

characterized as an equitable or legal form of relief. The

Wisconsin Supreme Court had previously emphasized in

School District of Shorewood v. Wausau __ Insurance

Companies, 170 Wis. 2d 347, 369, 488 N.W.2d 82 (1992),

reh’g denied, 174 Wis. 2d 726, 498 N.W.2d 823 (1993)

(costs of complying with an injunctive decree ordering

desegregation of school system not covered). Rather, the

Wisconsin Supreme Court characterized response costs

pursuant to CERCLA as injunctive relief distinct from

compensatory relief. The court reasoned:

Therefore, as an equitable form of relief,

response costs were not designed to

compensate for past wrongs; rather, they were

intended to deter any future contamination by

means of injunctive action, while provided for

remediation and cleanup of the affected site.

This type of relief is distinct from that which

is substitutionary--monetary compensation

provided to make up for a claimed loss.

City of Edgerton, 184 Wis. 2d at 785 (App. at 137).

As previously noted, the characterization of CERCLA

response costs as a unique form of relief for which there is no

insurance coverage substantially hinders CERCLA’s ability to

accomplish its objectives. More importantly, the conflict

between various states and various courts of appeals, in and

of itself, causes a significant difficulty in the cleanup of

various sites. Depending on the characterization of CERCLA

response costs by a particular state or circuit court, there may

or may not be insurance coverage. This means there may be

coverage for all PRPs at some sites, certain PRPs at other

sites, but no PRPs as to other sites, depending on the location

of the site, the location of the PRP or the location of the

insurance company. This creates tremendous uncertainty,

confusion and inconsistency.

To effectuate CERCLA, it is necessary to have a

uniform, consistent treatment of response costs. To allow

states to construe federal law to deny access to available funds

for cleanup by virtue of mischaracterization of CERCLA

remedies interferes with the statute’s ability to accomplish its

objectives of a rapid and efficient cleanup of environmental

contamination. Accordingly, this Court should grant the

petition for the writ of certiorari to review the decision by the

Wisconsin Supreme Court.

CONCLUSION

Petitioners respectfully request the writ of certiorari be

granted to review and resolve the conflict between the

Wisconsin Supreme Court and this Court, other federal circuit

courts of appeals, and state courts of last resort on an

important question of federal law concerning the appropriate

nature of response costs pursuant to CERCLA.

A ome od

Respectfully submitted,

Richard L. Cates

Counsel of Record

Lawton & Cates, S.C.

214 West Mifflin St.

Madison, WI 53703

(608) 256-9031

Counsel for Petitioner

City of Edgerton

thn Beh: Rand a eatin eh at |

David B. Goodwin

Attorney at Law

Heller, Ehrman, White & McAuliffe

333 Bush St.

San Francisco, CA 94104

Counsel for Petitioner

Edgerton Sand & Gravel, Inc.

APPENDIX TO PETITION

INDEX TO APPENDIX

Page

WISCONSIN SUPREME COURT

Opinion Filed June 16, 1994 101

WISCONSIN COURT OF APPEALS,

DISTRICT IV

Decision Dated November 25, 1992 147

CIRCUIT COURT FOR ROCK COUNTY,

WISCONSIN

Decision by Judge John H. Lussow

dated May 10, 1991 189

WISCONSIN SUPREME COURT

Decision on Motion for

Reconsideration dated |

October 25, 1994 195 |

APPENDIX PAGE

101

STATE OF WISCONSIN : IN SUPREME COURT

No. 91-1408

City of Edgerton and

Edgerton Sand & Gravel, Inc.,

Plaintiffs-Respondents,

General Casualty Company

of Wisconsin,

Defendant-Appellant-Petitioner,

Wisconsin Insurance Security Fund,

Defendant,

Aetna Casualty and Surety Company,

Defendant-Co-Appellant-Petitioner,

Hanover Insurance Companies,

Wausau Insurance Companies and

Local Government Property Insurance Fund,

Defendants.

APPENDIX PAGE

102

REVIEW of a decision of the Court of Appeals.

Affirmed in part, reversed in part, and remanded.

Filed June 16, 1994.

JANINE P. GESKE, J. This is a review of a

published decision of the court of appeals, City of Edgerton

v. General Cas. Co., 172 Wis. 2d 518, 493 N.W.2d 768 (Ct.

App. 1992), which affirmed in part and reversed in part a

judgment of the circuit court for Rock County, John H.

Lussow, Circuit Judge. The circuit court granted summary

judgment to the plaintiffs, City of Edgerton (the City) and

Edgerton Sand and Gravel, Inc. (ES&G). The City and

ES&G sought a declaration of their rights under insurance

policies issued by General Casualty Company of Wisconsin

(General Casualty) and Aetna Casualty and Surety Company

(Aetna).' The City and ES&G claimed that the policies

provided coverage for environmental remediation costs

resulting from the operation of a landfill located in the City.

reo ere Te ee

‘Both the City and ES&G maintained insurance policies for personal

injury liability from approximately 1973 to 1986. Specifically, ES&G

received primary coverage from Iowa National Mutual Insurance Co. for

the period of January, 1973 to January, 1984 (Iowa National is now

insolvent). Primary coverage from January, 1984 to January, 1986 was

provided by General Casualty. ES&G also maintained an excess coverage

policy, issued by Aetna, from April, 1974 to April, 1977.

Iowa National also issued a primary coverage policy to the City

for April, 1977 to April, 1981. That coverage was then carried by General

Casualty from April, 1982 to April, 1986. Aetna did not issue a policy to

the City at any time.

Both ES&G and the City agree that General Casualty’s policies

commencing after 1984 do not provide coverage.

APPENDIX PAGE

103

The circuit court agreed and granted the motion for summary

judgment. The court of appeals reversed that decision.

General Casualty and Aetna filed cross-motions for

summary judgment in the circuit court, claiming that (a) no

suit seeking damages had been filed which would trigger a

duty to defend, and (b) the failure of ES&G to provide notice

of an occurrence or claim precluded coverage. The circuit

court denied the cross-motions, and the court of appeals

affirmed.

We now affirm the court of appeals decision with

regard to the City’s and ES&G’s motion for summary

judgment and reverse the court of appeals decision with

regard to General Casualty’s and Aetna’s cross-motions for

summary judgment.

Of paramount concern in this case is whether the

insurance policies for which ES&G and the City contracted

require a duty to defend against federal and state agencies’

demands for environmental cleanup. Consequently, the

following issues of first impression are before the court:

(1) Does the receipt of certain letters from a

governmental agency requesting voluntary participation in

environmental cleanup efforts constitute a "suit seeking

damages" sufficient to trigger an insurance company’s duty to

defend?

APPENDIX PAGE

104

(2) Do cleanup and remediation costs under

CERCLA’ and equivalent state statutes’ constitute "damages"

within the context of a comprehensive liability insurance

policy?

(3) Do the personal injury provisions of an

insurance policy provide coverage for environmental cleanup

*CERCLA, or the Comprehensive Environmental Response,

Compensation and Liability Act of 1980, is also known as "Superfund"

and was designed to provide for 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

activities. As part of the remedial process, the government may perform

the cleanup and seek compensation from responsible parties or require the

polluters to do the cleanup.

Following the implementation of CERCLA in 1980, state

legislatures enacted similar legislation which would apply to hazardous

waste identified under the federal program, as well as reach to other

substances that individual states had the need to control. See Howell A.

Burkhalter, Comment, Liability for CERCLA Cleanup Costs--Are Insurers

the Victims of Judicial Activism?, 26 Wake Forest L. Rev. 221, 222 n.8

(1991).

CERCLA was amended by the Superfund Amendments and

Reauthorization Act of 1986 (SARA) and is codified at 42 U.S.C. secs.

9601-9675 (1988 & Supp. 1992). This amendment served to buttress the

original legislation.

Throughout this opinion, CERCLA will be cited as 42 U.S.C. sec.

*Sections 144.43 to 144.79, Stats., comprise subch. IV of ch. 144 and

focus upon solid waste, hazardous waste, and refuse. Specifically, secs.

144.442 and 144.443 establish the process for environmental repair and the

financial responsibility associated with it. Various sections within this

subchapter will be referred to in pertinent part throughout this opinion.

APPENDIX PAGE

105

costs when there has been no allegation of wrongful entry,

eviction, or other invasion of the right to private occupancy?

(4) Is the "insured’s own property" exclusion

applicable so as to preclude coverage for cleanup and

response costs incurred to remediate the insured’s own

property?

The threshold question in this case is whether the

receipt by ES&G and the City of letters by the Wisconsin

Department of Natural Resources (DNR), requesting

remediation of a contaminated site, triggered General

Casualty’s and Aetna’s duty to defend the City and ES&G as

their insureds. The court of appeals concluded that the duty

to defend arose when a federal or state environmental agency

identified a potentially responsible party (PRP)’ which it

442 U.S.C. sec 9622(e)(1) provides in pertinent part:

Whenever the President determines that a period of

negotiation under this subsection would facilitate an

agreement with potentially responsible parties for taking

response action (including any action described in

section 9604(b) of this title) and would expedite

remedial action, the President shall so notify all such

parties...

Once a PRP is notified of its status under this section, it has three options:

(1) do nothing and wait for the government to recover the costs of the

cleanup; (2) clean up the affected site or join with other PRPs to effect a

cleanup; or (3) litigate with the government so as to possibly secure a

more favorable future result. See Joanna L. Johnson, Comment, Whether

Insurers Must Defend PRP Notifications: An Expensive Issue C omplicated

by Conflicting Court Decisions, 10 N. Ill. U.L. Rev. 579, 581 n.8 (1990)

{hereinafter Whether Insurers Must Defend].

APPENDIX PAGE

106

unequivocally required to pay the cost of, or participate in

paying the cost of, landfill remediation. Edgerton, 172 Wis.

2d at 530. However, the duty to defend is not triggered

unless the suit seeks damages. /d. (citing Shorewood School

Dist. v. Wausau Ins., 170 Wis. 2d 347, 366, 488 N.W.2d 82

(1992)). Damages, according to the court of appeals, are

remedial in nature, not preventive, and therefore do not

encompass the cost of complying with an injunctive decree.

See Shorewood School Dist., 170 Wis. 2d at 370. Though

General Casualty and Aetna argued that Superfund

remediation and cleanup costs were incurred in response to

claims for injunctive relief, the court of appeals concluded

that the manner in which the term "damages" was used in the

insurance policies at issue contemplated costs incurred when

responding to the Superfund initiative.

We now hold that the DNR’s notification to ES&G

and the City by letter that ES&G and the City were

potentially responsible parties and liable for hazardous waste

site remediation costs does not trigger the insurers’ duty to

defend because the letters do not constitute a "suit seeking

damages” within the plain meaning of the insurance policies

contracted for and issued to ES&G and the Citv.

This holding makes it unnecessary for us to further

analyze the personal injury and pollution exclusion provisions

of the policies at issue.

The relevant facts are as follows. ES&G owns a

landfill site in Rock County, consisting of approximately ten

a gery eee x“

APPENDIX PAGE

107

acres.’ The site, located on the southern border of the City,

accommodated sand and gravel operations as well as serving

the City’s landfill from 1968 to 1984.

By 1978, the DNR informed ES&G by letter that it

suspected groundwater contamination at the site. The DNR

recommended that the landfill be closed and capped. In 1984,

volatile organic compounds (VOCs) were detected in the

groundwater under and in the vicinity of the site. ES&G

closed the landfill on December 30, 1984, and, during the

next year, the site was capped.° Though the site was closed,

groundwater contamination remained, and the DNR

recommended the landfill for placement on the EPA’s list of

contaminated sites for priority cleanup.

‘The site of the landfill was owned by the Sweeney family (owners of

ES&G). From the early 1950’s until the time of its closing in December

of 1984, the landfill was used as a dump and burn site for waste materials.

From 1968 to 1984, the City of Edgerton leased the site for landfill

operations. Licensing information indicates that the site was to be a

depository for municipal waste, not hazardous or industrial wastes.

However, ES&G and the City have claimed that sludge from the City’s

water treatment plant was also dumped at the site.

*“Capping” of the landfill required the construction of a clay cap,

consisting of approximately two and one-half feet of clay material, over

which was deposited six inches of topsoil. Ground cover was planted over

the cap to ensure soil stability. Construction of the clay cap was done

with DNR approval.

APPENDIX PAGE

108

On June 22, 1989, the EPA notified ES&G and the

City by certified letter’ that the EPA was investigating the

circumstances surrounding the presence of hazardous

substances in and around the landfill." The EPA then

requested that ES&G and the City (now considered PRPs)

respond to the DNR’s request for information regarding the

disposal of hazardous substances at the landfill from 1950 to

1984.

eee ee ee

’The letter from the EPA stated the following in pertinent part:

The United States Environmental Protection Agency

(U.S. EPA) is presently investigating the circumstances

surrounding the presence of hazardous substances in and

around the Edgerton Sand & Gravel Site in Rock

County...

Pursuant to the authority of Section 104(e) of the

Comprehensive Environmental Response, Compensation,

and Liability Act (CERCLA), 42 U.S.C. [sec.] 9604(e),

amended by the Superfund Amendments and

Reauthorization Act of 1986, Pub. L. 99-499 [SARA], |

and pursuant to Section 3007 of the Resource

Conservation and Recovery Act (RCRA), 42 U.S.C.

[sec.] 76927, you are hereby requested to respond to the

following Information Requests. Compliance with the

following Information Requests is mandatory....

Tee ty ea Pe

The information requests focused upon the City’s and ES&G’s

possession, custody or control relating to the operation/cleanup of the

landfill and to the storage and/or disposal of hazardous substances at the

site.

*This course of action by the EPA was pursuant to 42 U.S.C. sec.

9604(e). :

APPENDIX PAGE

109

In July, 1989, both the City and ES&G forwarded the

letters received from the EPA to their primary carrier, General

Casualty. Each separately requested defense coverage.

ES&G specifically requested that General Casualty pay any

costs which ES&G may have incurred regarding the site.

In February, 1990, the DNR sent certified letters to the

City and ES&G, giving each 30 days to propose a plan for

remediation of the site and any problems associated with it.’

In its letter, the DNR stated that the remediation plan must

comprehensively describe the actions required to determine the extent of

the contamination and to remediate it in accordance with state regulations.

The plan must also follow the guidelines established by the EPA.

Section 144.442, Stats., outlines actions to be taken regarding

environmental repair. Section 144.442(8) specifically articulates how the

Superfund act shall be implemented in the state:

(8) IMPLEMENTING THE FEDERAL SUPERFUND

ACT. (a) The department [of natural resources] may

advise, consult, assist and contract with other interested

persons to take action to implement the federal

comprehensive environmental response, compensation

and liability act of 1980, 42 USC 9601, et seq., in

cooperation with the federal environmental protection

agency. These actions include all of the actions under

subs. (4) to (6). The department may enter into

agreements with the federal environmental protection

agency.

(b) The department may expend moneys from

the appropriations under ss. 20.370(2)dv) and

20.866(2)(tg) as required under 42 USC 9601, et seq.

The department shall promulgate by rule criteria for the

expenditure of moneys from the appropriations under ss.

APPENDIX PAGE

110

20.370(2)(dv) and 20.866(2){tg), the moneys available

from other sources for the required sharing of costs, the

differences between public and private sites or facilities,

the potential for cost recovery from responsible parties

and any other appropriate factors.

municipality to pay a reasonable share of the amount

expended by the department for a project under par. (b).

The department shall base any share charged to a

municipality for a project under par. (b) on the

following factors:

a. The municipality’s responsibility for the site

or facility affected by the project.

b. The benefit that the municipality receives

from the project.

c. The municipality’s ability to pay for the

project.

5 The total amount charged to ll

municipalities who are charged for the project may not

exceed 50% of the amount expended by the department

under par. (b) for the project.

3. The department shall promulgate rules

establishing criteria for determining the responsibility,

for the purposes of this subsection, of a municipality for

a site or facility affected by the project under par. (b);

the benefit a municipality receives from a project under

par. (b); and the ability of a municipality to pay for a

project under par. (b).

4. All monies received under this paragraph

shall be credited to the environmental fund for

Oo PR Ta ete ie a als ile pea ae aly ee 0 de EO

APPENDIX PAGE

111

Failure to respond would result in the listing of the site on

CERCLA’s National Priorities List (NPL) or state action."

By April, 1990, ES&G notified Aetna, its excess insurer, of

the receipt of the EPA information request letter and the DNR

enforcement letter. Again, ES&G requested coverage of

defense costs as well as any liability resulting from EPA or

DNR claims. General Casualty denied coverage and a

defense for the City and ES&G. Aetna denied the same for

ES&G.

Both the City and ES&G, in a declaratory action

begun in December, 1990, sought to define the obligations of

General Casualty and Aetna under the insurance policies.

Specifically, both the City and ES&G claimed that General

Casualty and Aetna were obligated to defend and indemnify

them for any liability arising out of DNR or EPA claims,

actions, or suits involving the landfill. Additionally, ES&G

and the City stated a claim for bad faith against General

Casualty and Aetna for refusing to provide a defense. A

motion for summary judgment was filed by the City and

ES&G in March, 1991. In April, 1991, General Casualty

filed a cross-motion for summary judgment which stated that

(a) since no "suit seeking damages" had been filed, no duty to

defend was triggered; (b) the insured’s failure to give timely

notice of an occurrence or claim precluded coverage under the

policies; and (c) the bad faith claim ought to be dismissed.

Aetna filed a similar cross-motion for summary judgment.

environmental repair.

‘The work plan was prepared and then filed July 11, 1991, in the

DNR’s southern district headquarters.

APPENDIX PAGE

112

In May, 1991, the circuit court granted the City’s and

ES&G’s motion for summary judgment and denied the cross-

motions. However, the court did dismiss the bad faith

claim.'' In July, 1991, the circuit court entered an amended

judgment from which General Casualty and Aetna appealed.

The court of appeals affirmed that part of the

judgment which denied the insurers’ cross-motions for

summary judgment and reversed that part of the judgment

which granted ES&G’s and the City’s motion for summary

judgment. The court of appeals concluded that (a) the

insurers’ duty to defend was not triggered by the PRP letters

from the EPA in June, 1989, but was triggered by the receipt

of the letters from the DNR in February, 1990; (b) the DNR

letters unequivocally imposed upon the City and ES&G

responsibility to remediate and clean up the landfill or to bear

the cost of the remediation which necessitated a defense by

the insurers; and (c) remediation costs are damages within the

meaning of the term in the policies.

Summary judgment under sec. 802.08(2), Stats.,'”

"Both General Casualty and Aetna moved the circuit court, as an

alternative to their cross-motions for summary judgment, to order a

continuance so as to permit additional discovery. The circuit court

ultimately did not rule on the motions for a continuance, and the court of

appeals decision rendered moot each insurer’s claim that the circuit court

erroneously exercised its discretion by not addressing those motions.

"Section 802.08(2), Stats., provides:

802.08 Summary judgment....

APPENDIX PAGE

113

shall be rendered when no genuine issue as to any material

fact exists, and the moving party is entitled to a judgment as

a matter of law. Summary judgment should not be granted

"unless the moving party demonstrates a right to a judgment

with such clarity as to leave no room for controversy..."

Grams v. Boss, 97 Wis. 2d 332, 338, 294 N.W. 2d 473

(1980). A party seeking summary judgment must, therefore,

demonstrate to the court that a trial is unnecessary by

establishing a record which sufficiently illustrates that no

triable issues of material fact exist on any issue presented.

Heck & Paetow Claim Service, Inc. v. Heck, 93 Wis. 2d 349,

356, 286 N.W. 2d 831 (1980) (citing Hilkert v. Zimmer, 90

Wis. 2d 340, 342, 280 N.W. 2d 116 (1979)). If the movant’s

papers before the court do not clearly establish the absence of

such a material fact, the court shall deny the motion. Grams,

97 Wis. 2d at 339.

On appeal, this court must review the grant or denial

of a summary judgment motion by applying the standards set

forth in sec. 802.08, Stats., just as the circuit court is to apply

them. Voss v. City of Middleton, 162 Wis. 2d 737, 748, 470

N.W.2d 625 (1991) (citing Green Spring Farms v. Kersten,

136 Wis. 2d 304, 315, 401 N.W. 2d 816 (1987)).

(2) Motion.... The judgment sought shall be

rendered if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as

to any material fact and that the moving party is entitled

to a judgment as a matter of law. A summary

judgment, interlocutory in character, may be rendered on

the issue of liability alone although there is a genuine

issue as to the amount of damages.

APPENDIX PAGE

114

DUTY TO DEFEND

Every insurance agreement functions as a contract

between the insured and the insurer. Each party to the

contract owes certain duties and obligations to the other. The

issue in this case is not, as the dissent infers, "Who will pay

the costs of environmental cleanup?", but is one of

interpretation of the insurer’s contractual duties. The insurer

maintains two obligations, the duty to indemnify the insured

in the event of a loss and the duty to defend the insured

against suits which fall under the terms of the policy. See

Mitchell L. Lathrop, Jnsurance Coverage for Environmental

claims sec. 8.03[1][a] at 8-24 (1994). The duty to defend "is

predicated on allegations in a complaint which, if proved,

would give rise to recovery under the terms and conditions of

the insurance policy." Elliott v. Donahue, 169 Wis. 2d 310,

320-21, 485 N.W.2d 403 (1992) (emphasis added) (citing

Sola Basic Industries, Inc. v. U.S. Fidelity & Guaranty Co.,

90 Wis. 2d 641, 646, 280 N.W.2d 211 (1979)). As the court

of appeals stated in Nichols v. American Employers Ins. Co.,

140 Wis. 2d 743, 749, 412 N.W.2d 547 (Ct. App. 1987):

The duty to defend exists independent of the

duty to investigate. Indeed, a duty to defend

does not even arise until there has been a suit

initiated. See Solo Cup Co. v. Federal Ins.

Co., 619 F.2d 1178, 1183 (7th Cir. 1980) cert.

denied 449 U.S. 1033 (1980). As Sola Basic

points out, once the suit is initiated, the insurer

must make a determination of whether it is

obligated to defend the _ suit. The

determination is made based upon the

allegations in the third party’s complaints.

APPENDIX PAGE

115

The language of the policy issued by General Casualty

states that the company maintains the "right and duty to

defend any suit against the insured seeking damages...."

(Emphasis added.) Aetna’s excess insurance policy for ES&G

similarly states that the company will "defend any suit seeking

damages which are not payable on behalf of the insured under

the terms of the policies of Underlying Insurance...."

(Emphasis added.) Neither policy requires the insurance

companies to defend against a "claim" made against an

insured. The only duty imposed on the insurers is to defend

against suits seeking damages from the insureds.

Therefore, in order to determine whether the insurance

companies have a duty to defend in this case, we must decide

whether there is a suit seeking damages against the insureds.

WHAT CONSTITUTES A "SUIT"?

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. Though

comprehensive analyses of insurance policy language and

policy drafting records have been performed by courts across

the country, there 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

APPENDIX PAGE

116

remediation and cleanup costs.'’ Instead, courts have

"A majority of courts have not conclusively determined that a CGL

imposes a duty to defend following the receipt of a PRP letter. Rather,

courts have bene very divided on this issue when analyzing (a) the nature

and timing of the acts which give rise to a pollution-related problem; (b)

the role the CGL insured plays in those acts; and (c) the nature of the

relief sought against the CGL insured. See Barry R. Ostrager, Special

Insurance Coverage Issues Arising Out of Hazardous Waste/Environmental

Clean-Up Litigation, American Law Institute (1993). Further, one must

carefully distinguish among the issues raised in this type of environmental

litigation, in addition to the duty to defend: the role of the pollution

exclusion clause, the scope of CGL coverage for environmental claims,

and coverage under the personal injury endorsement. Again the split

among the courts is far more self-evident than a majority view.

For example, the following is a partial list of decisions which

have held that a duty to defend was invoked with the issuance of a PRP

letter: Village of Morrisville Water & Light Dept. v. USF&G, 775 F.

Supp. 718 (D. Vt. 1991) (the EPA clearly warned the insured of the

probability of imminent government action, enforceable by a court of law,

if it did not respond to the letter; the PRP letter is the equivalent to the

start of a lawsuit); Avondale Industries, Inc. v. Travelers Indem. Co., 697

F. Supp. 1314 (S.D. N.Y. 1988), aff'd 887 F.2d 1200 (2d Cir. 1989),

reh'g denied 894 F.2d 498 (2d Cir. 1990), cert. denied 496 U.S. 906

(1990) (an action may be taken which binds the insured before a suit is

filed; since damages may be determined before the parties arrive in court,

the administrative process is part of the litigious process which triggers the

obligation to defend); Fireman's Fund Ins. Companies v. Ex-Cell-O Corp.,

662 F. Supp. 71 (E.D. Mich. 1987) (the duty to defend is not restricted to

the traditional lawsuit for money damages, but extends to the actual or

threatened use of the legal process to coerce payment); Hazen Paper v.

U.S. Fidelity and Guar., 407 Mass. 689, 555 N.E.2d 576 (1990) (though

literally there is no suit, the litigation defense protection purchased by

Hazen would be compromised if USF&G did not defend in response to the

EPA letter); Minnesota Min. & Mfg. v. Travelers Indem., 457 N.W.2d 175

(Minn. 1990) (the issue of coverage does not depend merely on the form

of action taken against the insured; the proceeding commenced is equally

Pe ete a a Lag chain Gah Be ca

APPENDIX PAGE

117

developed definitions of what constitutes a "suit" when

environmental cleanup is required.

The CGL, which emerged onto the insurance industry

scene in the early 1940’s, provided broad, comprehensive

insurance and served as a replacement for specific risk

policies. See Paul V. Majkowski, Note, Triggering the

Liability Insurer’s Duty to Defend in Environmental

Proceedings: Does Potentially Responsible Party Notification

Constitute a "Suit"?, 67 St. John’s L. Rev. 383, 384 n. 3

as coercive as a civil judgment against the insured); and Cascade Pole Co.

v. Reliance Insurance Co., Nu. 88-2-2316-3 (Wash. Super. Ct. March 20,

1992) (a PRP letter is a suit because remediation and response costs may

be incurred and because they establish adversarial relationships).

The following decisions have held that a PRP letter does not

trigger the duty to defend under a CGL policy: Harter Corp. v. Home

Indem. Co., 713 F. Supp. 231 (W.D. Mich. 1989) (the court cannot

construe an EPA threat to hold the insured liable for cleanup costs as a

suit seeking damages without doing violence to the plain meaning of the

word "suit"); State of N.Y. v. Amro Realty Corp., 697 F. Supp. 99 (N.D.

N.Y. 1988) (there is no duty to defend until an actual complaint in an

environmental lawsuit is forwarded to the insurer); Detrex. Chem.

Industries v. Emp. Ins. of Wausau, 681 F. Supp. 438 (N.D. Ohio 1987),

modified on reh'g (applying Wisconsin law), reaff'd 746 F. Supp. 1310

(N.D. Ohio 1990) (applying Michigan law) (a claim for damages made

against the insured that might result in liability is not synonymous with a

suit and not enough to trigger the duty to defend); Patrons Oxford Mut.

Ins. Co. v. Marois, 573 A.2d 16 (Me. 1990) (no obligation to defend since

the attorney general had not sued for cleanup costs; an administrative

arena to compel cleanup was merely sought); and Technicon Electronics

v. American Home, 141 A.D. 2d 124 (N.Y. App. Div. 1988), aff'd on

other grounds 542 N.E. 2d 1048 (1989) (the PRP letter does not constitute

a suit).

APPENDIX PAGE

118

(1993).'* The duty to defend clause in most CGL policies

beginning in 1973 stated that "the company shall have the

right and duty to defend any suit against the insured seeking

damages on account of such [covered] bodily injury or

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

groundless, false or fraudulent....". See Donald E. Shrape &

Jean K. Shaffer, The Parameters of an Insurer's Duty to

Defend, 19 Forum 555, 556 (1984).'*° The specific language

in the comparable clause of the General Casualty policy at

issue in this case reads in pertinent part:

The company will pay on behalf of the insured

all sums which the insured shall become

'*As Mr. Majkowski notes in his article, insurance industry trade

organizations produced a standard CGL form following a series of drafts

from 1941 to 1973. Coverage as of 1966 was provided for any

“occurrence” as opposed to "accidents." "Occurrence" was defined as "’an

accident, including injurious exposure to condition, which results [in

injuries or damages] ... neither expected nor intended from the standpoint

of the insured..." (Emphasis added.) during the period of these

revisions, coverage was expanded and included pollution claims.

However, by 1986, the insurance industry drafted a more strict CGL form

in order to limit coverage of various pollution claims. /d Disputes under

the stricter CGL forms focus on the meaning of "damages" and absolute

pollution exclusion provisions.

'SThe interpretation of the CGL regarding potential coverage for PRP

notification letters has posed problems for courts across the country. The

PRP notification describes a form of liability not compatible with pre-1980

policy language. As a result of CERCLA, a new type of remedy has

come into being: combining monetary relief with site cleanup.

Additionally, fines may be assessed which were not historically

contemplated by a CGL insurer. See Barry R. Ostrager & Thomas R.

Newman, Handbook on Insurance Coverage Disputes sec. 8.03 (1991); see

also Whether Insurers Must Defend, 10 N. Ill. U.L. Rev. at 582.

APPENDIX PAGE

119

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

right and duty to defend any suit against the

insured seeking damages on account of such

bodily injury or property damage, even if any

of the 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

settlements.

(Emphasis added.)

When ES&G and the City responded to the EPA and

DNR letters, both were involved in an administrative

procedure pursuant to CERCLA. Therein lies the heart of the

dispute: does the duty to defend in a CERCLA proceeding

arise at this administrative level? The controversy is further

complicated by the fact that CERCLA was designed to have

an anti-litigation bias. 42 U.S.C. sec. 9622(a) states that

"[w]henever practicable ... [the EPA] shall act to facilitate

[settlement] agreements ... in order to expedite effective

remedial actions and minimize litigation." Therefore, notice

APPENDIX PAGE

120

letters have been used by the EPA as a primary method to

effect voluntary settlements with PRPs. However, if a PRP

chooses to ignore the notice letter, it may face liability for

recovery costs into the tens of millions of dollars resulting

from EPA-initiated cleanup.

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 specter 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. '°

We conclude that neither a PRP letter nor a

comparable notification letter by a state agency such as the

'*Requests to insurers for a defense are often made in conjunction with

a reimbursement request for the following: (a) the retention of

environmental consultants; (b) the formulation and implementation of

remedial work plans; and (c) investigation costs. See Aetna Cas. and Sur.

Co., Inc. v. Pintlar Corp. 948 F.2d 1507 (9th Cir. 1991); Ray Industries,

Inc. v. Liberty Mut. Ins. Co., 728 F. Supp. 1310 (E.D. Mich. 1989), rev'd

in part, reh’g denied 974 F.2d 754 (6th Cir. 1992); Avondale Industries,

Inc. v. Travelers Indem. Co., 697 F. Supp. 1314 (S.D. N.Y. 1988), aff'd

887 F.2d 1200 (2d Cir. 1989), reh'g denied 894 F.2d 498 (2d Cir. 1990),

cert. denied 496 U.S. 906 (1990) (receipt of a PRP letter could have

immediate adverse consequences for the insured, and the administrative

process is part of a "litigious process” that triggers the duty to defend);

Fireman's Fund Ins. Companies v. Ex-Cell-O Corp., 662 F. Supp. 71

(E.D. Mich. 1987) (coverage does not hinge on the form of the action

taken or the nature of the relief sought); and Minnesota Min. & Mfg. v.

Travelers Indem., 457 N.W.2d 175 (Minn. 1990).

APPENDIX PAGE

121

DNR triggers the insurer’s duty to defend. Though the court

of appeals was correct when it concluded that the PRP letters

to the City and ES&G did not trigger the insurers’ duty to

defend, it should have arrived at the same conclusion

regarding the DNR letters. Those letters stated in pertinent

part:

On November 6, 1989, the Department

forwarded to you the CERCLA 104(a)

responses it received as part of a potential

responsible party (PRP) search for the

Edgerton Sand and Gravel landfill site. These

responses were forwarded to you as part of a

joint effort to begin remediation of the known

environmental impacts from the site. To date

the Department has not received any progress

reports on your efforts to arrange for a PRP

clean up of the landfill. In our November 6,

1989, letter the Department stated that failure

of the PRP’s to reach agreement on a clean up

plan would force the Department to pursue

having the site included on the Superfund

National Priorities List (NPL).

The environmental problems associated with

this site dictate that remediation work begin

soon. Consequently, the Department will

allow you only another 30 days from the date

of this letter to propose a PRP implemented

remediation work plan....

The work plan must contain a detailed

discussion of the tasks to be performed and a

APPENDIX PAGE

122

timeline for the tasks to occur.... Also, a

legally enforceable contract between the

Department and the PRP’s must be signed

within 60 days after a PRP work plan is

submitted to the Department, to ensure that the

work is completed properly and on schedule.

The DNR then went on to state that if an acceptable work

plan was not submitted by the deadline date, it would pursue

the following action: (a) an attempt to have the landfill listed

on the NPL as quickly as possible and (b) legal action under

state authorities to have the site investigated and cleaned up.

The DNR also referred to statutory authority under secs.

144.43 to 144.79, Stats., by which the DNR could order the

City and ES&G to remediate damage caused by the landfill.'”

"In sec. 144.01, Stats., the following applicable terms are defined:

"environmental pollution," "hazardous substance," "solid waste," and -

"owner."

Subchapter IV of ch. 144 focuses upon solid and hazardous waste

management and cleanup. Specifically, sec. 144.431 gives the DNR the

following powers and duties regarding solid waste:

144.431 Solid waste; powers and duties. (1) The

department shall:

(a) | Promulgate rules implementing and

consistent with ss. 144.43 to 144.47.

(b) Encourage voluntary cooperation by

persons and affected groups to achieve the purposes of

ss. 144.43 to 144.47.

APPENDIX PAGE

123

handle solid waste disposal problems within their

respective jurisdictions and on a regional basis, and

provide technical and consultative assistance for that

purpose.

(d) Collect and disseminate information and

conduct educational and training programs relating to

the purposes of ss. 144.43 to 144.47.

(e) Organize a comprehensive and integrated

program to enhance the quality, management and

protection of the state’s land and water resources.

(f) Provide technical assistance for the closure

of a solid waste disposal facility that is a nonapproved

facility, as defined in s. 144.441(1){c).

(2) The department may:

(a) Hold hearings relating to any aspect of the

administration of ss. 144.43 to 144.47 and, in connection

therewith, compel the attendance of witnesses and the

production of evidence.

(b) Issue orders to effectuate the purposes of

ss. 143.43 to 144.47 and enforce the same by all

appropriate administrative and judicial proceedings.

administrative and operational services, including

laboratory facilities, by contract or otherwise.

(d) Advise, consult, contract and cooperate

with other agencies of the state, local governments,

industries, other states, interstate or interlocal agencies,

and the federal government, and with interested persons

ee ar ee

APPENDIX PAGE

124

Neither letter has the attributes of a "suit." See Detrex

Chem. Industries v. Emp. Ins. of Wausau, 681 F. Supp. 438,

446 (N.D. Ohio 1987) ("[A] claim for damages made against

[the insured] that might result in its legal liability is not

synonymous with a ’suit’ so as to trigger [the insurer’s] duty

to defend....") (Emphasis added.)'* This court has recently

or groups.

(e) Inspect solid waste facility construction

projects to determine compliance with ss. 144.43 to

144.47 and rules promulgated and licenses issued under

those sections.

Section 144.442, Stats., focuses upon environmental repair.

Specifically, sec. 144.442(4) provides the DNR with the authority to

conduct investigations of sites or facilities which pose an environmental

pollution hazard. It is under this section that the DNR identifies PRPs.

Section 144.442(5) authorizes the DNR to promulgate rules under which

remediation plans are established. Section 144.442(6) provides the DNR

with authority te take action for the purpose of environmental repair.

Finally, under sec. 144.442(8) the DNR may take action to implement

CERCLA by means of advising, consulting, assisting, and contracting with

other interested parties.

'*It should be noted that the Court in Detrex stated in dicta that the

duty to defend would be triggered by a cost recovery action, an action for

injunctive relief, or a state administrative proceeding in which a state

agency was performing traditional judicial activities, thereby acting in a

judicial capacity. Specifically, the court stated, "Until, pursuant to Section

9606, the EPA resorts to a court injunction or to a mandatory court order

to enforce a section 9606(a) administrative order, ... a suit’ would not be

brought against [the insured] that would trigger [the insurer’s] duty to

defend." Jd. None of the above actions occurred in the instant case.

Rather, correspondence from the EPA was confined to information

requests, at the early stages of the PRP compliance process. The DNR,

in correspondence dated February, 1990 and February, 1991, detailed what

APPENDIX PAGE

125

examined the attributes of a "suit" in State v. P.G. Miron

Const. Co., Inc., 181 Wis. 2d 1045, 512 N.W.2d 499 (1994),

wherein we defined "suit" as

"any proceeding by one person or persons

against another or others in a court of law in

which the plaintiff pursues, in such court, the

remedy which the law affords him for the

redress of an injury or the enforcement of a

right, whether at law or equity.’

Miron, 118 Wis. 2d at 1053 (quoting Black’s Law Dictionary

1434 (6th ed. 1990)) (emphasis added in Miron) (the use of

arbitration under a contract between a private party and the

state does not violate the doctrine of sovereign immunity

because arbitration does not subject the state to suit). Thus,

the primary attribute of a "suit" is that parties to an action are

involved in actual court proceedings, initiated by the filing of

a complaint. Despite the dissent’s attempt to expand the word

"suit," definitions of suit or legal process all involve a court

action.'? The clearest example of this is the fact that the

action may be taken if a remediation work plan was not forthcoming from

the City and ES&G. Neither letter identified any /egal/ action which had

already been initiated.

'°For example, Black’s Law Dictionary defines "legal proceedings" as

follows:

Legal proceedings. Term includes all proceedings

authorized or sanctioned by law, and brought or

instituted in a court or legal tribunal, for the acquiring

of a right or the enforcement of a remedy.

APPENDIX PAGE

126

parties to the instant case were made part of a "suit" when a

declaratory action was begun to identify General Casualty’s

and Aetna’s obligations under the insurance policies.

Rather than initiating a suit, the letters from the EPA

and the DNR to General Casualty and Aetna were used to

gather information regarding hazardous substances at the site,

as well as to call for voluntary action by the City and ES&G

in the process of cleanup.” The court of appeals concluded

that additional correspondence in February, 1991, from the

DNR’s Bureau of Legal Services moved the proceedings

beyond the information-gathering stage. Specifically, the

court referred to the following language of the letter:

WDNR intends to pursue listing of this site on

the NPL unless potentially responsible parties

(PRPs) for the site enter into a contract with

WDNR to undertake investigation and clean-up

activities...

Black’s Law Dictionary 896 (6th ed. 1990).

"Process" has also been defined as "[t]he entire course of a

judicial proceeding.” The American Heritage Dictionary of the English

Language 1444 (3d ed. 1992).

20See Technicon Electronics v. American Home, 141 A.D.2d 124 (N.Y.

App. Div. 1988), aff'd on other grounds 542 N.E.2d 1048 (1989). The

court concluded that "[t]he EPA letter at issue merely informed Technicon

of its potentia! liability under CERCLA and that the EPA was interested

in discussing Technicon’s voluntary participation in remedial measures.

The letter was an invitation to voluntary action on Technicon’s part and

is not the equivalent of the commencement of a formal proceeding within

the meaning of the subject comprehensive general liability policies."

Technicon, 141 A.D.2d at 146.

APPENDIX PAGE

127

The purpose of this letter is to notify you that

unless a PRP group signs a contract with

WDNR for this site by May 31, 1991, WDNR

will request that this site be listed on the

NPL.... For NPL sites, U.S. EPA adheres to a

very strict timeframe for negotiation of

Administrative Consent Orders. These Consent

Orders generally require, among other things,

strict compliance with the NCP [National

Contingency Plan], reimbursement of agency

oversight costs ... liquidated damages for

noncompliance and the potential for treble

damages. If the negotiation of a Consent

Order is not successful, U.S. EPA may issue

an Order requiring the PRPs undertake specific

action or undertake the action and sue to

recover its costs from the PRPs. U.S. EPA

may seek forfeitures for non-compliance and

treble damages may also be available.

Indeed, this correspondence indicates that there was some

movement beyond the fact-gathering stage. However, there

was no movement into the realm of a suit. The

correspondence served to inform the PRPs of action which

may be pursued, or not, depending upon the response by the

City or ES&G. This letter cannot be considered the

equivalent of a service of process so as to initiate a suit.

However, the court of appeals adopted the reasoning

of Ryan v. Royal Ins. Co. of America, 916 F.2d 731 (lst Cir.

APPENDIX PAGE

128

1990),”' in which the court articulated a four-part test to

determine if a PRP letter was the "functional equivalent of a

suit": (a) the letter’s coerciveness; (b) the letter’s

adversariness; (c) the seriousness of effort with which the

government hounds an insured; and (d) the gravity of the

imminent consequences. /d. at 741. The court of appeals

then concluded that the EPA and the DNR had assumed an

adversarial approach toward the City and ES&G and that

devastating financial consequences would result from a failure

to enter into the requested contract. Therefore, there existed

a degree of compulsion which necessitated a defense.

We disagree with the conclusion of the court of

appeals. Though the tone of the correspondence may be

termed confrontational, neither the EPA’s PRP letters nor the

DNR letters by themselves impose liability. Also, if the City

or ES&G failed to respond to the letters, that failure alone

would not authorize the assessment of fines. Instead,

something more in the form of a court proceeding would be

required to "force or compel the insured to take action or

suffer serious consequences." See Professional Rental v.

Shelby Ins., 75 Ohio App. 365, 375, 599 N.E.2d 423, 430

(1991) (emphasis in original). For example, the EPA could

issue, and then seek to have enforced, an administrative order

2!In Ryan, the court noted that the owner of a contaminated site had

a somewhat desultory correspondence with the New York Department of

Environmental Conservation regarding the closure and cleanup of the

affected site. Ryan sued his insurer, Royal Insurance, for failure to defend

and indemnify under the policies. At issue was whether the

correspondence between Ryan and the Department of Conservation,

regarding contamination and cleanup, was the functional equivalent of a

suit sufficient to trigger the insured’s duty to defend.

APPENDIX PAGE

129

pursuant to 42 U.S.C. sec. 9606(a) or 9604(e)(5)(A);” it

could seek an injunctive order in federal district court under

42 U.S.C. sec. 9606(a);” or it could initiate a cost recovery

action under 42 U.S.C. sec. 9607.% Jd Indeed, the

February 8, 1991, letter from the DNR stated that if the City

and ES&G did not sign the proposed contract and the site was

listed on the NPL, primary responsibility for cleanup activities

would shift to the EPA. If that had occurred, then the EPA

administrative orders may come into play. Prior to that time,

Though the EPA encourages voluntary participation in the cleanup

and remediation efforts by means of PRP notification letters, it is

authorized under 42 U.S.C. sec. 9606(a) to issue administrative orders to

compel a PRP to clean up a site. The EPA may negotiate the

administrative order with the PRP; if successfully done, it becomes a

binding consent order. If the negotiations fail, the EPA may then

unilaterally develop the administrative order, which has the effect of

accelerating compliance, since a fine of $25,000 is imposed for each day

the PRP does not comply. 42 U.S.C. sec. 9606(b)(1)

*Under 42 U.S.C. sec. 9606(a), the EPA may seek an injunctive

order, through the Department of Justice, in order to compel a PRP to

comply with the cleanup plan.

**If a PRP decides not to respond to the PRP letter or does not

participate in cleanup operations, the federal government may, under

CERCLA, use Superfund money to clean up the site and then seek

reimbursement from any responsible party. See 42 U.S.C. secs. 9604(a)(1)

and 9607(a).

Again, the legislative bias in CERCLA is to seek voluntary

settlement and cleanup. However, the EPA may also force the

government to order a cleanup, or request the government to unilaterally

implement cleanup, followed by litigation wherein reimbursement is

sought. See Professional Rental, 75 Ohio App. at 373-74, 599 N.E.2d at

428-29.

APPENDIX PAGE

130

the DNR offered the City and ES&G options under which all

concerned parties might cooperate in order to clean up and

remediate the landfill.” None of the options offered by the

DNR rose to the level of a court proceeding.

If the EPA’s conduct in sending the PRP letter or the

DNR’s letter requesting site remediation is construed as

initiating a "suit seeking damages," the duty to defend would

be mandated under the terms of the policy. Such a result

would create a duty for the insurer for which it had not

**The court in Professional Rental noted the following regarding PRP

notifications:

The CERCLA notification process is clearly not

analogous to the traditional means of bargaining and

settlement. ’Settling’ with the EPA primarily involves

formulating an acceptable proposal for cleaning up the

pollution under the assumption of PRP liability.

Although the EPA designates recipients as ’potentially

responsible parties,’ it is not the equivalent of a

conventional demand letter or a simple accusation of

fault. First, PRP notifications are sent after the EPA has

established that there is sufficient evidence to make a

preliminary determination of potential liability under

section 107 of CERCLA.” Superfund Program, 53 F.R.

at 5301. Second, parties who are simply ‘identified’ as

responsible under Section 107(a) are strictly liable,

regardless of fault. The only defense (other than an act

of God or war) is the limited defense of ’due care’

provided in CERCLA Section 107(c)(3)....

Professional Rental, 75 Ohio App. at 374, 599 N.E.2d at 429.

APPENDIX PAGE

131

contracted.” This court has stated that a primary goal in

interpreting insurance policies is to ascertain and carry out the

true intentions of the parties. See Kremers-Urban Co. v.

American Employers Ins., 119 Wis. 2d 722, 735, 351 N.W.2d

156 (1984). As a result, the words of a policy are to be given

their plain and ordinary meaning. Jd. The meaning of the

terms of the policy is assessed by a reasonable person in the

position of the insured and that reasonable insured’s

expectations of coverage. Jd However, an insured’s

expectations may not be satisfied in contradiction to policy

*More importantly, it is an obligation for which an insurer may not

be prepared. Typically, insurers assess the extent of the risks insured

under policies issued. The risk of liability may then be spread among

groups of insureds and premiums assigned only after the extent of the risk

is determined. The original risk assessment becomes a nullity if the

language of the policy is redefined in order to expand coverage beyond

what was planned for the insurer in the contract of insurance. Policies of

insurance, premised upon a certain level of predictability and assessment

of risk at the time of contracting, lose their effect without the inclusion of

certain basic definitions. See Whether Insurers Must Defend, 10 Ill. U.L.

Rev. at 595; Kenneth S. Abraham, Distributing Risk: Insurance, Legal

Theory, and Public Policy 103 (1986); 2 Couch on Insurance 2d sec. 15:4

(2d ed. 1984); U.S. Fidelity and Guar. v. Star Fire Coals, Inc., 856 F.2d

31, 33 (6th Cir. 1988) (insurers need to rely on policy language in order

to efficiently manage risks) (citing United States Fire Ins. v. Kentucky

Truck Sales, 786 F.2d 736, 739 (6th Cir. 1986) ("[T]he court must give all

terms their plain meanings and not rewrite an insurance contract to

enlarge the risk.) (Emphasis added.)

As noted earlier, CGLs were formulated and revised between

1940 and 1973. Risk assessment in pre-1980 CGLs did not incorporate

liability under CERCLA. Therefore, potential liability was not spread

among polluting insured. Whether Insurers Must Defend, 10 N. Ill. U.L.

Rev. at 596; Hapke, Federal Circuit Court Decisions Contaminate

Superfund Policy, 19 Envtl. L. Rep. 10393 (1989).

APPENDIX PAGE

132

language which clearly identifies the scope of the insured’s

coverage. Thus, "[w]here the parties have contracted to limit

recovery to a specific quantifiable type of remedy, a court

should not alter the insurance contract to include other types

of remedies not contracted for by the parties and that may not

be presently quantifiable." Shorewood School Dist., 170 Wis.

2d at 369.

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

from a federal or state agency advising an insured of liability

as a "suit." To the contrary, the word "suit" is easily

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. Therefore,

[t]o determine whether a duty to defend exists,

the complaint claiming damages must be

compared to the insurance policy and a

determination made as to whether, if the

allegations are proved, the insurer would be

required to pay the resulting judgment. The

insurer need only look at the allegations within

the four corners of the complaint to make such

a determination.

Id. at 364-65.

APPENDIX PAGE

133

Construing either the EPA’s PRP letter or the DNR

letters as the "functional equivalent of a suit" would be

contrary to present Wisconsin insurance law since (a) the

insurer would have to look beyond the four corners of the

complaint in order to assess whether a potentially covered

claim exists, and (b) the insurer would be put in the position

of anticipating a coverage expectation for which it did not

contract or receive payment. In this case, no complaint has

been filed which would initiate a suit and invoke the insurers’

duty to defend.”” Therefore, no matter how coercive the

language of the DNR letter was considered to be, it was used

within the realm of an administrative proceeding. It did not

have the effect of initiating a suit.

CERCLA SUPERFUND RESPONSE COSTS DO

NOT CONSTITUTE DAMAGES

Standard CGL policy language requires a duty to

defend a suit seeking damages, which, if proved, would give

rise to recovery under the terms and conditions of the policy.

Elliott, 169 Wis. 2d at 320-21. The insurer has to defend suits

against the insured requesting recovery for sums that the

27See also Reliance Ins. v. Royal Motorcar Corp., 534 So. 2d 922, 923

(Fla. Dist. Ct. App. 1988) (an insurer’s duty to defend is determined solely

by the complaint’s allegations); American Alliance Ins. v. Frito-Lay, 788

S.W.2d 152, 153-54 (Tex. Ct. App. 1990) (there must be an examination

of the allegations in the complaint to determine if a duty to defend exists);

Viking Ins. Co. of Wisconsin v. Hill, 57 Wash. App. 341, 787 P.2d 1385

(1990) (the duty to defend is determined by a review of the allegations on

the face of the pleading which gave rise to the covered action); and Grieb

v. Citizens Casualty Co., 33 Wis. 2d 552, 557, 148 N.W.2d 103 (1967)

(whether a third-party suit comes within a defense-coverage clause

depends upon the allegations in the complaint).

APPENDIX PAGE

134

insured may become legally obligated to pay as damages.

The as damages qualifier appears in the policies at issue in

the bodily injury, property damage, and personal injury

coverages. However, contrary to the conclusion of the court

of appeals, the CGL policies in this case do not provide

coverage for Superfund response costs, since such costs do

APPENDIX PAGE

135

not constitute damages. Additionally, the parties did not

contract for such coverage.

*®42 U.S.C. sec. 9607(a) states in pertinent part:

(4) [A] person who accepts or accepted any

hazardous substances for transport to disposal or

treatment facilities, incineration vessels or sites selected

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

threatened release which causes the incurrence of

response costs, of a hazardous substance, shall be liable

for--

(A) all costs of removal or remedial

action incurred by the United States

Government or a State or an Indian

tribe not inconsistent with the national

contingency plan; ... [and]

of, or loss of natural resources,

including the reasonable costs of

assessing such injury, destruction, or

loss resulting from such a release....

It should be noted that the National Contingency Plan is developed under

CERCLA by the EPA. The plan establishes procedures for the cleanup of

hazardous waste sites.

When dealing with the issue of damages, courts have disagreed

as to whether a CGL policy’s reference to "damages" includes cleanup

costs, such as at issue in this case. Courts which interpret "damages" more

broadly conclude that coverage includes claims brought under either sec.

9607(aX(4\(A) or (C). See Kristin A. Kolesar, Note, Jnsurance Coverage

for CERCLA Claims Under Comprehensive General Liability Policies:

Cleaning Up Hazardous Waste in the Legal Environment, 68 Notre Dame

L. Rev. 549, 553-54 (1993) [hereinafter Jnsurance Coverage for CERCLA

Claims}.

APPENDIX PAGE

136

In Shorewood School Dist., this court stated that

[djamages’ as used in ... insurance policies unambiguously

means legal damages. It is legal compensation for past

wrongs or injuries and is generally pecuniary in nature. The

term ‘damages’ does not encompass the cost of complying

with an injunctive decree." Shorewood School Dist., 170 Wis.

2d at 368. Further, this court stated that the

">?

limited construction of the term ’damages’ is

consistent with the basic grant of coverage in

the insurance policies. The insurers agree to

pay ‘all sums which the insured shall become

legally obligated to pay as damages.’ The

insurers did not agree to pay ’all sums which

the insured shall be come legally obligated to

pay.’ The addition of ’as damages’ serves as

a qualifier, a limit to coverage.

Id. at 369-70 (emphasis in original). Consistent with

conclusions of other courts, this court has concluded that if

the term "damages" is given a broader or more expansive

interpretation, the phrase "as damages" would be rendered

mere surplusage, since any expenses prior or incidental to

litigation would be covered by the policies. /d. See also

Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1352 (4th

Cir. 1987), cert. denied 484 U.S. 1008 (1988) ("[i]f the term

*damages’ is given the broad, boundless connotations sought

by the [insured], then the term ’damages’ in the contract ...

would become mere surplusage, because any obligation to pay

would be covered...."); Continental Ins. v. Northeastern

Pharmaceutical, 842 F.2d 977 (8th Cir. 988), cert. denied sub

nom. Missouri v. Continental Insurance Cos., 488 U.S. 821

(1988) (Northeastern’s CGL policies did not provide coverage

APPENDIX PAGE

137

for reimbursement of response costs under CERCLA; the

phrase "as damages” is not ambiguous, since the plain

meaning of the term as used in the insurance context refers to

legal damages and not equitable monetary relief).

Response costs assigned either under CERCLA or secs.

144.442(8) and (9), Stats., are, by 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). See Insurance Coverage for CERCLA Claims,

68 Notre Dame L. Rev. at 561. Indeed, the federal

government has stated that

{n]atural resource damage assessments are not

identical to response or remedial actions

addressed by the larger statutory scheme of

CERCLA.... Assessments are not intended to

replace response actions, which have as their

primary purpose the protection of human

health, but to supplement them, by providing

a process for determining proper compensation

to the public for injury to natural resources.

51 Fed. Reg. 27,674 (1986); Insurance Coverage for CERCLA

Claims, 68 Notre Dame L. Rev. at 561 n. 76. Therefore, as

an equitable form of relief, response costs were not designed

to compensate for past wrongs; rather, they were intended to

deter any future contamination by means of injunctive action,

while providing for remediation and cleanup of the affected

site. This type of relief is distinct from that which is

substitutionary--monetary compensation provided to make up

A $a a

peeve

erage ri-e

APPENDIX PAGE

138

for a claimed loss. Shorewood School Dist., 170 Wis. 2d at

369. Although the dissent takes the position that the insurers

should be responsible for the response costs, the insurers

never assumed a contractual responsibility to pay to remove

hazardous materials and to prevent future harm.

Finally, CERCLA expressly permits PRPs to insure

against the type of costs imposed under this legislation. 42

U.S.C. sec. 9607(e)(1) states:

No indemnification, hold harmless, or similar

agreement or conveyance shall be effective to

transfer from the owner or operator of any

vessel or facility or from any person who may

be liable for a release or threat of release under

this section, to any other person the liability

imposed under this section. Nothing in this

subsection shall bar any agreement to insure,

hold harmless, or indemnify a party to such

agreement for any iiability under this section.

However, the CGL at issue in this case did not by its terms

provide for such coverage. We examine only the terms of the

policies for which the parties initially contracted.

In conclusion, we hold that General Casualty and

Aetna do not have a duty to defend against the actions of the

EPA and the DNR, requesting environmental cleanup, because

no suit seeking damages has been filed against the insureds.

Accordingly, we affirm in part and reverse in part the

decision of the court of appeals and remand to the circuit

court with directions to deny the motion for summary

APPENDIX PAGE

139

judgment of the City and ES&G and to enter summary

judgment on behalf of General Casualty and Aetna.

By the Court. --The decision of the court of appeals is

affirmed in part and reversed in part, and the cause is

remanded to the circuit court with directions.

SHIRLEY S. ABRAHAMSON, J. (dissenting).

CERCLA environmental clean-up cases involve "one of the

largest and most costly areas of civil litigation." 7A

Appleman, Insurance Law and Practice, sec. 4520, p. 126

(1993 Supp.). The court’s decision determines who will pay

the costs of environmental clean-up in Wisconsin--the

insureds or the insurance companies. Courts across the

country have divided on the complex legal questions behind

this very practical problem.

I conclude, as did the circuit court, a unanimous panel

of the court of appeals, and the majority of state and federal

courts which have decided similar cases! that the insureds are

'As I previously stated, the courts are divided. I rely on secondary

material for surveys of the federal and state court decisions to determine

the majority rule. According to these sources, a slim majority of the

courts have held that the policy imposes a duty to defend following receipt

of a PRP letter; a larger majority apparently concludes that response costs

are damages under the policy. For surveys of the cases, see, e.g., Kenneth

H. Mack, /nsurance Coverage of Environmental Claims, Practicing Law

Institute (April-May 1993) at 4 (Westlaw citation: 459 PLU/Lit 261, PLI

Order No. H4-5152; Database JLR); Barry R. Ostrager, Special Insurance

Coverage Issues Arising out of Hazardous Waste/Environmental Clean- Up

Litigation, American Law Institute (June 21, 1993) at 25-35, 40-48

(Westlaw citation: C855 ALI-ABA 1005; Database JLR); Mary Kay

Vyskocil, Environmental Coverage Litigation: An Overview of Trends and

APPENDIX PAGE

140

covered by the insurance policies. The very well written

court of appeals decision, City of Edgerton v. General Cas.

Co., 172 Wis. 2d 518, 493 N.W.2d 768 (Ct. App. 1992),

carefully reviews the numerous cases and authorities. It does

not need to be amplified by this dissent. I write briefly to

explain where, in my opinion, the reasoning of the majority

opinion falters.

The majority opinion holds that the insurance

company’s duty to defend a "suit" arises only on the

commencement of an action in a court of law. I conclude

that the majority’s interpretation of the word "suit" as used in

the policy is erroneous and that the duty to defend may be

prompted by administrative action. Because the majority

concludes that "suit" is limited to a court action, I need not

address, as did the court of appeals, which step in the

administrative process triggers the duty to defend.

First, the majority’s interpretation contravenes the

general rules applicable to contract interpretation that the

objective of interpreting the policy is to ascertain and carry

out the intention of the parties. Words in a policy must be

given their plain and ordinary meaning; they must be

interpreted to mean what a reasonable person in the position

— of the insured would have understood them to mean.

Developments Practicing Law Institute (January-February 1993) at 6-11,

18-24 (Westlaw citation: 454 PLI/Lit 443, PLI Order No. H4-5148;

Database JLR).

APPENDIX PAGE

141

The majority opinion states in a conclusory fashion

that "suit" denotes court proceedings. While one dictionary

definition of "suit" is an action in court, the dictionary also

gives the word the broader meaning: "the attempt to gain an

end by legal process: prosecution of right before any

tribunal: litigation." Webster’s Third New International

Dictionary (1986) 2286.” Thus suit, according to a dictionary

or real life, is not limited to proceedings in court.

While courts frequently duel with dictionary

definitions, many of which are circular, the real point is that

the dictionaries show multiple meanings for the word "suit"

and that a reasonable understanding of the word "suit" is not

limited to an action filed in court.

From the point of view of a reasonable policy holder,

official letters from a federal or state agency advising an

insured of liability, with increasing penalties if the insured

does not respond, appear to be an adversary’s attempt to gain

an end by a legal process. Such administrative proceedings

may force the insured to hire technical experts and lawyers to

"When I examine the dictionary definitions of “process” and

“litigation,” they too have multiple meanings. "Process" is defined as "the

course of the procedure in a judicial action or in a suit in litigation: legal

action.” Webster’s Third New International Dictionary (1986) 1808.

"Litigation" is defined as "the practice of taking legal action” and also as

"a controversy involving adverse parties before an executive governmental -

agency having quasi-judicial powers and employing quasi-judicial

procedures.” Webster’s Third New International Dictionary (1986) 1322.

While a court would not ordinarily examine a law dictionary, as the

majority does, to determine what an objectively reasonable policyholder

would have understood the policy to mean, the legal definition of "suit"

is similar to Webster’s.

APPENDIX PAGE

142

protect its interests and may terminate in an action in court.

Thus to the insured an administrative action is as coercive a

legal process as an action filed in a court of law.

While the word "suit" may have several meanings,

semantics make little difference to an objectively reasonable

insured in the face of the myriad types of liability that might

result from administrative proceedings. The only meaning of

the word "suit" in the insurance policy which comports with

an insured’s objectively reasonable expectations is that it

signifies either a court action or an attempt to gain an end by

a legal process.

Second, the majority’s narrow interpretation of the

word "suit" to mean an action commenced in court is neither

reasonable nor wise because it fosters litigation. The policy

behind CERCLA is to encourage prompt and voluntary clean-

up of toxic waste. The antipollution statutes offer the insured

incentives to cooperate with the government rather than

awaiting a court proceeding. If, as the majority opinion

holds, the administrative action does not activate the duty to

defend, the insured may refuse to cooperate with the

government in order to force the government to file a formal

complaint. An interpretation of the policy that encourages an

insured not to cooperate with governmental agencies and

fosters litigation in lieu of alternative dispute resolution is, on

its face, unreasonable.

Third, an examination of the statutory proceedings

demonstrates that administrative enforcement is part of

litigation. The government has discretion about the type of

action to use to combat pollution. By choosing a more

expensive option the government can adversely affect the

APPENDIX PAGE

143

insured’s rights. Because damages might be determined

before the parties ever get to court, the need for representation

is thus perhaps greatest at the administrative level and the

administrative process is obviously part of the litigation

process which triggers the obligation to defend. Avondale

Industries, Inc. v. Travelers Indem. Co., 697 F. Supp. 1314,

1320-22 (S.D. N.Y. 1888), aff'd, 887 F.2d 1200 (2d Cir.

1989), reh’g denied, 894 F.2d 498 (2d Cir. 1990), cert.

denied, 496 U.S. 906 (1990). See also, e.g., Lindas v. Cady,

183 Wis. 2d 547, __, 515 N.W.2d 458 (1994), concluding

that unreviewed agency determinations may have preclusive

effect in court.

Fourth, according to the majority, because our cases

state that a court looks to the complaint to determine whether

a potentially covered claim exists, the word "suit" must refer

to a lawsuit. Majority opinion at . These cases,

however, do not have anything to do with the case at bar. In

all of them, an action in court was in fact filed. These cases

can not be used to say that there is no duty to defend unless

an action in court is commenced.

Finally, it seems to me that the majority’s

interpretation of the word "suit" in the context of an insurer’s

duty to defend is antiquated. In our modern legal world many

forms of liability are determined outside the courtroom. This

court has by rule enabled trial courts to resolve disputes

without clogging the dockets of our trial and appellate court.

By creating administrative mechanisms to encourage prompt,

voluntary, and efficient environmental clean-up, the state and

federal legislatures have attempted to resolve a major societal

problem without resorting to the courts. By clinging to an

ames rerenie rorercer Severe

APPENDIX PAGE

144

outmoded definition of the term "suit," the majority defeats

this legislative policy.

For the reasons set forth, I agree with the numerous

cases that hold that when the government assumes an

adversarial posture and makes clear that governmental force

will be used with probable and imminent financial

consequences, a suit is in progress and the insured might

reasonably expect the insurance company to defend.

II.

Although the majority opinion concludes that the

insurance company has no obligation at this stage of the

administrative proceedings, it nevertheless goes on to hold

that response costs do not constitute damages under the

policy. I address this damage issue because it is the only

damage issue the majority discusses. Again, I conclude, as

did the circuit court, a unanimous panel of the court of

appeals, and the majority of courts that have considered the

issue, that response costs are damages under the policy. The

majority opinion’s interpretation of the word "damages" in the

policy relies heavily on School District of Shorewood v.

Wausau Ins. Co., 170 Wis. 2d 347, 488 N.W.2d 82 (1992),

and is unpersuasive.

First, the majority opinion applies the Shorewood

discussion of damages to this CERCLA case in a summary

fashion, ignoring the language in the Shorewood decision by

which the court expressly declined to analogize that case to

CERCLA cases defining the word "damages." The

Shorewood court stated: "The issue of whether clean-up costs

constitute "damages’ under the terms of an insurance contract

APPENDIX PAGE

145

has 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." Shorewood, 170

Wis. 2d at 374.

Second, were the majority opinion to follow the

Shorewood rationale to its logical conclusion, it would have

to hold that the response costs in this case were damages

within the meaning of the policy. The Shorewood court’s

dissection of the word "damages" in a comprehensive general

liability policy rests on the analysis of "damages" by Professor

Dobbs, whom the court characterized as "a noted authority on

remedies." Shorewood, 170 Wis. 2d at 368. The Shorewood

court quoted extensively from Professor Dobbs’ 1973

Handbook on the Law of Remedies. Shorewood, 170 Wis. 2d

368-69.

In his more recent 1993 revision of his book, Professor

Dobbs concludes that response costs under CERCLA cases are

"analogous to repair costs and ... common law consequential

damages.... Response costs are very high, but in spite of the

terminology, they closely resemble familiar common law

types of damages." Handbook on the Law of Remedies 727

(1993). Thus adherence to Shorewood and its reliance on

Professor Dobbs lead to the conclusion that response costs are

damages under the standard form policy involved in this case.

For the reasons set forth herein and in the decision of

the court of appeals, I dissent.

APPENDIX PAGE

146

I am authorized to state that Chief Justice NATHAN

S. HEFFERNAN and Justice WILLIAM A. BABLITCH join

in this dissent.

APPENDIX PAGE

147

No. 91-1408

STATE OF WISCONSIN COURT OF APPEALS

DISTRICT IV

CITY OF EDGERTON,

AND EDGERTON SAND & GRAVEL, INC.,

Plaintiffs-Respondents,

GENERAL CASUALTY COMPANY OF WISCONSIN,

Defendant-Appellant,

WISCONSIN INSURANCE SECURITY FUND,

Defendant,

AETNA CASUALTY AND SURETY COMPANY,

Defendant-Co-Appellant,

HANOVER INSURANCE COMPANIES,

WAUSAU INSURANCE COMPIES,

AND LOCAL GOVERNMENT PROPERTY

INSURANCE FUND,

Defendants.

APPENDIX PAGE

148

COURT OF APPEALS DECISION DATED AND

RELEASED November 25, 1992

APPEAL from a judgment of the circuit court for

Rock County; JOHN H. LUSSOW, Judge. Affirmed in part;

reversed in part and cause remanded.

Before Sundby, Cane and LaRocque, JJ.

SUNDBY, J. Edgerton Sand & Gravel, Inc. (ES&G)

owns a landfill site in Rock county which it closed December

30, 1984. During 1984 and 1985 it capped the landfill. The

city of Edgerton leased the site for a municipal landfill from

approximately 1968 to 1984. In 1984 volatile organic

compounds (VOCs) were detected in the groundwater under

and in the vicinity of the site.

By certified letter dated June 22, 1989, the United

States Environmental Protection Agency (EPA), pursuant to

section 104(e) of the Comprehensive Environmental

Response, Compensation, and Liability Act (CERCLA)' [42

U.S.C. § 9604(3)], informed ES&G and the city that it was

investigating the circumstances surrounding the presence of

hazardous substances in and around the ES&G site. EPA

requested that ES&G, the city, and other potentially

responsible parties (PRPs) respond to the Wisconsin

Department of Natural Resources (DNR) with detailed

information as to the disposal of hazardous substances at the

'Codified, as amended, at 42 U.S.C. §§ 9601-9675 (1988), commonly

referred to as Superfund.

APPENDIX PAGE

149

site from 1950 to 1984.” On July 7, 1989, the city forwarded

EPA’s letter to its insurer, General Casualty Company of

Wisconsin, and advised: "[w]e are insisting that you accept

tender of coverage immediately and ... request that you retain

independent expert counsel for the City of Edgerton to

represent the City in this matter."

General Casualty also insured ES&G against liability

for property damage and personal injury arising out of its

ownership and use of the landfill.? On July 20, 1989, ES&G

7EPA’s letter stated:

The United States Environmental Protection

Agency (U.S. EPA) is presently investigating the

circumstances surrounding the presence of hazardous

substances in and around the Edgerton Sand & Gravel

Site in Rock County....

Pursuant to the authority of Section 104(e) of the

Comprehensive Environmental Response, Compensation,

and Liability Act (CERCLA), 42 U.S.C. [sec.] 9604(e),

amended by the Superfund Amendments and

Reauthorization Act of 1986, Pub. L. 99-499 [SARA],

and pursuant to Section 3007 of the Resource

Conservation and Recovery Act (RCRA), 42 U.S.C.

[sec.] 76927, you are hereby requested to respond to the

following Information Requests. Compliance with the

following Information Requests is mandatory...

>General Casualty provided primary general liability coverage of the

landfill to ES&G for the policy periods January 1, 1984, to January |,

1985 and January |, 1985, to January |, 1986. It provided primary

general liability coverage to the city for the policy year beginning April

1, 1982, and each year thereafter to April 1, 1986. However, ES&G and

APPENDIX PAGE

150

forwarded EPA’s letter to General Casualty and requested that

it provide ES&G with defense coverage and pay any costs

ES&G "may have regarding this site."

By certified letter dated February 27, 1990, DNR gave

the PRPs thirty days to propose a PRP-implemented

remediation work plan to clean up the site and remediate the

environmental problems associated with the site, or face

listing of the site on CERCLA’s National Priorities List

(NPL), or state action.* On April 23, 1990, ES&G notified

its excess liability insurer, Aetna Casualty and Surety

Company, that ES&G had received EPA’s Information

Request letter and DNR’s enforcement letter of February 27,

1990. ES&G requested that Aetna accept coverage of defense

costs and any liability ES&G might incur as a result of EPA’s

and DNR’s potential claims. General Casualty and Aetna

denied coverage and refused to provide ES&G and the city

with a defense.

the city agree that General Casualty’s policies commencing after 1984 do

not provide coverage. Iowa National Mutual Insurance Company provided

ES&G with primary comprehensive general liability coverage from

January 1, 1973, to January 1, 1984, and the city with primary

comprehensive general liability coverage from April 1, 1977 through April

1, 1981. However, Iowa National is insolvent. Aetna provided ES&G

with excess indemnity (umbrella) coverage from April 9, 1974, to April

9, 1977. It did not cover the city at any time.

*A work plan was not prepared until July 1991. FOTH AND VAN

DYKE, WORK PLAN FOR LANDFILL CLOSURE AND GROUNDWATER

REMEDIAL INVESTIGATION/FEASIBILITY STUDY (July 11, 1991), filed with

DNR, Southern District Headquarters.

APPENDIX PAGE

151

ES&G and the city began this action December 20,

1990, seeking a declaration that General Casualty and Aetna

were obligated under their policies to defend them against,

and indemnify them for, any liability arising out of EPA’s

and DNR’s claims, actions or suits involving the landfill.

ES&G and the city also stated a claim against General

Casualty and Aetna for bad faith in refusing to provide them

with a defense.

ES&G and the city filed a motion for summary

judgment on March 26, 1991. On April 26, 1991, General

Casualty filed a cross-motion for summary judgment claiming

that no "suit seeking damages" had been filed which triggered

its duty to defend. It further contended that the insureds’

failure to give it timely notice of an "occurrence" or claim, as

required by its policies, relieved it of any obligation to

provide its insureds with coverage under its policies. It also

requested that the trial court dismiss the insureds’ bad faith

claim. On April 29, 1991, Aetna filed a substantively

identical cross-motion for summary judgment. In the

alternative, General Casualty and Aetna each moved the trial

court for a continuance to permit it to conduct additional

discovery.

On May 10, 1991, the court granted ES&G’s and the

city’s motion for summary judgment and denied General

Casualty’s and Aetna’s cross-motions, except on the insureds’

bad faith claims, which it dismissed. The court did not rule

on General Casualty’s and Aetna’s motions for a

continuance.°

*Our decision moots General Casualty’s and Aetna’s claim that the

trial abused its discretion when it failed to address their motions.

Bats

APPENDIX PAGE

152

On July 18, 1991, the circuit court entered an amended

judgment. General Casualty and Aetna appealed. ES&G and

the city do not appeal from that part of the judgment which

dismissed their bad faith claim. We affirm that part of the

judgment which denied General Casualty’s and Aetna’s cross-

motions for summary judgment and reverse that part of the

judgment which granted ES&G’s and the city’s motion for

summary judgment. We also reverse the judgment in favor

of the city against Aetna because Aetna does not insure the

city.

THE ISSUES

When confronted with cross-motions for summary

judgment, the reviewing court must rule on each party’s

motion on an individual basis. Each motion must be denied

if material factual issues exist as to the motion. 10A C.

WRIGHT & A. MILLER, FEDERAL PRACTICE AND PROCEDURE

§ 2720 (2d ed. 1983). In most respects, Wisconsin’s

summary judgment statute, sec. 802.08, Stats., is substantially

the same as Rule 56, Fed. R. Civ. P., which governs summary

judgment procedure in the federal district courts. We

conclude that this construction of the federal rule is consistent

with Wisconsin summary judgment methodology. We, like

the federal appellate courts, review the trial court’s decision

by applying, just as the trial court applied, the standards and

methods set forth in the summary judgment rule. Wright v.

Hasley, 86 Wis. 2d 572, 579, 273 N.W.2d 319, 322-23

(1979).

We identify the following issues presented by the

parties’ motions and cross-motions:

APPENDIX PAGE

153

(1) Did issuance of the June 22, 1989 PRP letters

by EPA to ES&G and the city under section 104(e) of

CERCLA trigger the duty of General Casualty and Aetna to

defend their insureds against the Superfund initiative? We

conclude that the insurers’ duty to defend was not triggered

by the PRP letters of June 22, 1989, but arose when DNR’s

letter of February 27, 1990, unequivocally imposed upon

ES&G and the city the responsibility to remediate and clean

up the landfill or bear the expense thereof.’

(2) Are clean-up and remediation costs, which

ES&G and the city incur in response to the Superfund

initiative, sums which they are obligated to pay "as damages,"

within the meaning of that term as used in the insurers’

policies? We conclude that they are.

(3) Do the personal injury liability coverage

provisions of General Casualty’s and Aetna’s policies provide

coverage for ES&G’s and the cit’’s liability for groundwate1

contamination? We conclude that "personal injury," as

defined in General Casualty’s and Aetna’s policies, includes

injury to the groundwater.

*In this opinion, "Superfund initiative" refers to the administrative

proceedings begun by EPA’s section 104(e) CERCLA letter and includes

DNR’s environmental repair efforts under secs. 144.442 and 144.442(8),

Stats. Under sec. 144.442(8), DNR may advise, consult, assist and

contract with any interested person to implement the federal Superfund

Act. It may also contract directly with EPA.

7When we refer to clean up or remediation of the landfill or the site,

we include the environmental problems associated with the site which may

have been, or are, encountered off-site.

APPENDIX PAGE

154

(4) Do General Casualty’s policies exclude

coverage because ES&G and the city expected or intended

that contaminants would leach into the groundwater from the

landfill? We conclude that General Casualty’s basic policy’s

"expected" or "intended" exclusions do not apply to personal

injury liability coverage under Coverage P, applicable to

ES&G, or to the Broad Form Extended Liability Coverage

Endorsement, applicable to the city. Because coverage of

groundwater contamination is provided under the personal

injury liability coverage provisions, we need not consider

whether coverage for property damage liability is excluded by

provisions of General Casualty’s basic policy.

(5) Was coverage under the insurers’ policies

triggered during a policy period? Because the question of the

appropriate trigger of coverage for personal injury liability has

not been briefed and the need to answer that question may be

obviated by the evidence at trial, we do not reach this issue.

(6) Is the cost of cleaning up and remediating the

landfill site itself excluded from coverage under the policies’

owned-property exclusion? We conclude that where, as here,

the purpose of remedial work on the insured’s property is to

repair or prevent environmental damage, the cost of such

work is not excluded by the owned-property exclusion.

(7) Is any party entitled to summary judgment on

the question of whether General Casualty and Aetna were

prejudiced by the insureds’ untimely notice of an "occurrence"

or claim? We conclude that there is a genuine issue of

material fact as to whether General Casualty and Aetna were

APPENDIX PAGE

155

prejudiced by ES&G’s and the city’s untimely notices, which

precludes the grant of summary judgment to any party.

(8) Has the policy limit of Iowa National’s

underlying policy been exhausted by payments by ES&G so

that Aetna’s duty to defend has been triggered? Did ES&G

and the city attempt to insure a known loss when they

contracted with General Casualty? We conclude that these are

issues for trial.

SUPERFUND INITIATIVE AS "SUIT"

General Casualty’s policies® provide: "[T]he company

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

insured seeking damages on account of ... bodily injury or

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

groundless, false or fraudulent....". (Emphasis added.)

Coverage P for Personal Injury Liability, contained in

ES&G’s policy and General Casualty’s Broad Form Extended

Liability Coverage Endorsement for personal injury liability

applicable to the city, contain substantively identical language.

*General Casualty’s policies are standard-form comprehensive general

liability (CGL) insurance policies developed for the insurance industry by

the Insurance Services Office and its predecessor agencies. Fora general

discussion of the development of CGL policies, see 7A JOHN A.

APPLEMAN, INSURANCE LAW AND PRACTICE, § 4491 (1979 & Supp.

1991); see alsc MITCHELL L. LATHROP, INSURANCE COVERAGE FOR

ENVIRONMENTAL CLAIMS ch. 3, General Liability Insurance: (1992)

(hereinafter ENVIRONMENTAL CLAIMS INSURANCE). Aetna’s excess

liability policy differs in some material respects from the standard-form

CGL.

APPENDIX PAGE

156

Aetna’s policy provides: "The company shall defend any suit

seeking damages which are not payable on behalf of the

insured ... because of exhaustion of an underlying aggregate

limit of liability by payment of claims....". (Emphasis added.)

General Casualty and Aetna argue that the Superfund

process did not commence a "suit" against their insureds

because the term "suit" "[i]n plain language refers to court

proceedings."® The traditional view is that a mere claim

against the insured is insufficient to trigger the duty to defend.

Thomas A. Gordon and Roger Westendorf, Liability Coverage

for Toxic Tort, Hazardous Waste Disposal and Other

Pollution Exposures, 25 IDAHO L. REV. 567, 609 (1988-89).

The authors state:

Until a "suit" was filed, the courts were

reluctant to recognize an obligation by the

insurer to defend. More recent decisions,

however, have broadened the word "suit" to

include any adjudicatory proceeding before an

administrative or quasi-judicial forum. Courts

considering the issue of whether a notice letter

to PRPs from a federal or state regulatory

agency pursuant to environmental statutes

*The Insurance Services Office’s Occurrence-Commercial General

Liability policy, effective January 1, 1986, which replaced the standard-

form CGL policy, defines "suit" to "mean{] a civil proceeding in which

damages ... to which this insurance applies are alleged....". DONALD S.

MALECKI AND ARTHUR L. FLITNER, THE NEW CLAIMS-MADE AND

OCCURRENCE FORMS, COMMERCIAL GENERAL LIABILITY 11-12 (2nd ed.

1986).

APPENDIX PAGE

157

triggers the existence of a duty to defend have

reached opposite conclusions.

Id. at 609-10 (citations omitted; emphasis added).

Those courts which have held that a duty to defend is

not triggered by federal or state administrative environmental

initiatives have applied to the word "suit" a "plain language"

rule. Representative of the decisions of those courts is Arco

Indus. Corp. v. Travelers Ins. Co., 730 F. Supp. 59 (W.D.

Mich. 1989). There, the court said:

In this case, the insurance contract

limits the duty to defend to those instances

where the insured is the subject of a "suit."

While the contracts do not define the term

"suit," that term has a well-accepted ordinary

meaning. In plain language, the term refers to

court proceedings.

Id. at 66."°

The "plain-language" courts frequently cite a

dictionary definition of "suit": "an action or process in a

'°The federal court for the Eastern District of Michigan predicted that

the Michigan Supreme Court would arrive at a contrary conclusion.

Higgins Indus., Inc. v. Fireman's Fund Ins. Co., 730 F. Supp. 774, 776-77

(E.D. Mich. 1989). However, the Sixth Circuit Court of Appeals

predicted that the Michigan Supreme Court would conclude that a PRP

letter does not trigger an insurer’s duty to defend. Ray I/ndus., Inc. v.

Liberty Mut. Ins. Co., 974 F.2d 754, 762-64 (6th Cir. 1992). The court

held that "suit" had a plain and unambiguous meaning that excluded the

PRP letter in that case.

APPENDIX PAGE

158

court for the recovery of a right or claim." A. Y. McDonald

Indus. v. Insurance Co. of N. Am., 475 N.W.2d 607, 627

(Iowa 1991) (citing WEBSTER’S THIRD NEW INTERNATIONAL

DICTIONARY 2286 (P. Gove ed. 1961)). Other courts,

however, have pointed out that "suit" has a second, broader

meaning: "the attempt to gain an end by a legal process." /d.

McDonald lists decisions which have given "suit" a broad

definition, and other decisions which have adopted a narrow

definition. Jd. at 627-28 nn. 9-10. Those courts which have

interpreted "suit" broadly have considered that proceedings

under both federal and state antipollution laws may be lengthy

and complex, and government policy is to accomplish cleanup

quickly and without judicial intervention if possible.

Annotation, Liability Insurance Coverage for Violations of

Antipollution Laws, 87 A.L.R. 4th 444, §2(b) (1991 Supp.

1992).

We disagree with those courts which have found that

the word "suit," contained in the standard-form CGL policy,

unambiguously requires the initiation of court proceedings

before the duty to defend is triggered. We also disagree with

those courts which hold that the mere receipt of a PRP letter

from EPA or a state environmental protection agency causes

the duty to defend to arise. We conclude that the duty to

defend arises when a federal or state environmental agency

identifies a PRP which it unequivocally requires to pay the

cost of, or participate in paying the cost of, landfill

remediation and clean up. We adopt the reasoning of the

court in Ryan v. Royal Ins. Co. of Am., 916 F.2d 731 (ist Cir.

1990).

In Ryan, the owner of a site contaminated by

hazardous chemicals had what the court termed "somewhat

APPENDIX PAGE

159

desultory correspondence" with the New York Department of

Environmental conservation regarding closure and cleanup of

the site. It sued its insurer, Rural Insurance, for Rural’s

failure to defend and indemnify it according to the tenor of a

series of insurance policies. The court said that the issue was

whether the New York Court of Appeals would treat this

correspondence as the functional equivalent of a "suit"

sufficient to trigger the duty to defend under the policies.

The court concluded that it would not. It concluded that an

insurer’s duty to defend would be determined according to the

following principles:

To sum up, the origins and purpose of

the duty to defend seem best accommodated

neither by a restrictive suit-cum-judgment rule

nor by an expansive "any contact with a

government agency is enough" rule, but by

focusing instead on the data most relevant to

the probability of actual toxic waste liability:

coerciveness, adversariness, the seriousness of

the effort with which the government hounds

an insured, and the gravity of imminent

consequences. Since the law holds PRPs to so

strict a liability standard, the degree of

compulsion the government wields in pursuing

an insured seems an apt proxy for measuring

factual expectancy according to the actual

probability and immediacy of toxic waste

liability.

APPENDIX PAGE

160

Id. at 741."

General Casualty and Aetna argue that EPA exerted no

compulsion by its PRP letter of June 22, 1989,'? and that

DNR’s letters were merely invitations to voluntary action.

We agree that EPA’s Information Request letter of June 22,

1989, did not trigger a duty to defend. Such requests under

section 104(e) of CERCLA are, as its title states, "Information

Gathering.” However, EPA and DNR proceeded beyond the

"information gathering" stage. On November 6, 1989, DNR

forwarded to ES&G the responses the department received to

the section 104(e) letter "as an opportunity for you and the

other potentially [responsible] parties to reach an agreement

between yourselves on remediating the environmental

problems at the landfill."

On February 27, 1990, DNR notified ES&G by

certified letter that, "[A] legally enforceable contract between

the Department and the PRP’s must be signed within 60 days

after a PRP workplan is submitted to the Department, to

ensure that the work is completed properly and on schedule."

Immediately thereafter, on March 9, 1990, ES&G invited the

city "and others" to a meeting to discuss: (1) insurance

'! Ryan was followed in Colonial Tanning Corp. v. Home Indem. Co.,

780 F. Supp. 906 (N.D.N.Y. 1991).

'2General Casualty also claims that there is nothing in the record to

show that the city received EPA’s letter. General Casualty is wrong.

Mary Harding, an attorney representing the city, incorporated in her

affidavit the city attorney’s letter of July 7, 1989, to General Casualty

specifically referring to and enclosing a copy of EPA’s June 22 letter.

APPENDIX PAGE

161

coverage at the site, (2) formation of a joint defense group,

and (3) formulating a response to DNR’s demands.

On February 8, 1991, DNR’s Bureau of Legal Services

notified ES&G that "unless a PRP group signs a contract with

WDNR for this site by May 31, 1991, WDNR will request

that this site be listed on the NPL." The bureau warned that

if that occurred, EPA would attempt to negotiate

Administrative Consent Orders with the PRPs. If

unsuccessful, EPA could issue an order requiring the PRPs to

undertake clean up and remediation, or undertake the action

itself and sue the PRPs to recover its costs, or EPA could

seek forfeitures and treble damages from the PRPs for

noncompliance.”

DNR’s letter informed ES&G that its experience had

been "that work done under contract with WDNR goes much

quicker, is less complex and less costly than work done on

NPL sites." DNR emphasized that a contract with it was the

"only mechanism acceptable to WDNR" to prevent listing the

site on the NPL.'* On September 12, 1991, ES&G, the city,

"The response actions which EPA may take under Superfund

include: removal of hazardous substances and remediation, 42 U.S.C. §

9604(a); any other measure consistent with the national contingency plan

EPA considers necessary to protect the public health or welfare of the

environment, 42 U.S.C. § 9605; abatement, 42 U.S.C. § 9606(a); and

recovery of costs and damages, 42 U.S.C. § 9607.

Fora description of the purpose and implementation of the National

Priorities List, see 57 Fed. Reg. 47,190 (Oct. 14, 1992), to be codified at

40 C.F.R. Part 300. As of October 14, 1992, final and proposed NPL

sites totalled 1,236, including forty in Wisconsin. /d. at 47,201. To date,

EPA has completed approximately 33,000 Preliminary Assessments and

APPENDIX PAGE

162

and other PRPs entered into a contract with DNR pursuant to

sec. 144.442, Stats. and CERCLA to investigate the site

conditions and remediate the landfill.'°

The PRPs’ election to participate in the Superfund

process was voluntary only in the sense that they could have

elected not to contract with DNR. However, the

acknowledged consequences of that election were NPL listing

followed by EPA clean up and assessment of the costs to the

PRPs, possible fines, and probable DNR action if the site

could not be cleaned up quickly enough under the Superfund

Program.'® DNR’s letter of February 27, 1990, stated:

"Quick resolution of the problems associated with the site is

the Department’s main objective" The PRPs’ choice was

Hobson’s.

We adopt the following statement of the Ryan court:

approximately 16,000 Site Inspections. /d. at 47,183. Lathrop states that

"[s]uggestions have been made that there may be as many as 450,000

potential NPL sites throughout the country." ENVIRONMENTAL CLAIMS

INSURANCE § 1.03[2] at !-14 n. 12.

'SThe contract was pending when the amended judgment was entered

July 18, 1991. We take judicial notice of the executed contract and

appended work plan which is found in the files of the Environmental

Response and Repair Section of the Solid Waste and Hazardous Waste

Management Division of DNR (Southern District Headquarters), Edgerton

Sand & Gravel Landfill, Contract SF-91-02. See sec. 902.01(3), Stats.;

George R. Currie, Appellate Courts Use of Facts Outside of the Record by

Resort to Judicial Notice and Independent Investigation, 1960 Wis. L.

REV. 38, 43-45 (1960).

‘DNR may initiate exvironmental repair directly under sec. 114.442,

Stats.

APPENDIX PAGE

163

If government assumes an adversarial posture,

making sufficiently clear that the force of the

State will be brought promptly to bear in a

way that threatens the insured with probable

and imminent financial consequences, then the

functional equivalent of a suit may be in

progress and the insured might reasonably

expect the insurer to defend.

Ryan, 916 F.2d at 741.

In this case, EPA and DNR assumed an adversarial

posture toward ES&G and the city, making very clear that

failure of ES&G and the city to contract with DNR to

remediate and clean up the landfill would inevitably lead to

devastating financial consequences for them.'? ES&G and

the city could reasonably expect that their insurers would

defend them against the government’s coercive actions. The

degree of compulsion wielded by EPA and DNR against

ES&G and the city is an "apt proxy" for measuring ES&G’s

and the city’s expectation of liability.'"* We mark the degree

'7"What is obvious is that no matter which enforcement vehicle an

environmental regulatory agency elects to use to achieve remediation of

a contaminated site, those adjudicated to have been responsible for the

creation of the contamination will sooner or later be asked to pay.”

ENVIRONMENTAL CLAIMS INSURANCE § 3.03(2) at 3-17.

'’General Casualty argues that the city may have been treated

differently from other PRPs, citing the Interim Municipal Settlement

Policy, 54 Fed. R. 51, 071-72 (1989). The record does not support

General Casualty’s claim. Throughout, the degree of compulsion wielded

by EPA and DNR against the city has been the same as that wielded

against the other PRPs.

APPENDIX PAGE

164

of compulsion which triggered the insurers’ duty to defend as

being reached upon receipt of DNR’s certified letter of

February 27, 1990.'

II.

SUPERFUND RESPONSE COSTS AS DAMAGES

The duty of an insurer to defend a "suit" is not

triggered, however, unless the suit seeks "damages."

"{A]bsent the possibility that money damages might be

awarded, the insurer would have no duty to defend." School

Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347,

366, 488 N.W.2d 82, 88 (1992). While the duty to defend is

broader than the duty to indemnify, the insurer has no duty to

defend an insured in a "suit" in which the insurer has no

economic interest. Jd. at 364, 488 N.W.2d at 87-88 (citing

7C JOHN A. APPLEMAN, INSURANCE LAW AND PRACTICE §

4683 (1979 & Supp. 1992)). Thus, we must consider whether

General Casualty and Aetna have an economic interest in the

Superfund initiative. They argue that they do not have such

an interest because their policies limit coverage to "sums

which the insured shall become legally obligated to pay as

damages. (Emphasis added.) General Casualty and Aetna

contend that Superfund remediation and clean-up costs are not

"damages" because those costs are incurred in response to

claims for injunctive or restitutionary relief.

'*However, Aetna’s duty to defend is not triggered until the policy

limit of the underlying insurance is exhausted. On the record available to

us, we cannot determine whether or when that occurred. That

determination shall be made on remand.

APPENDIX PAGE

165

In School Dist. of Shorewood, the court said that a

classification based on the form of the action, as either

equitable or legal, is irrelevant. "Where the parties have

contracted to limit recovery to a specific quantifiable type of

remedy [e.g., damages], a court should not alter the insurance

contract to include other types of remedies not contracted

for...." Id. at 369, 488 N.W.2d at 89. The plaintiffs sought

declaratory and injunctive relief to remedy inequality of

educational opportunity by requiring the defendants to correct

racially discriminatory practices. School Dist. of Shorewood

simply stands for the proposition that "[t]he term ’damages’

does not encompass the cost of complying with an injunctive

decree." Jd. at 368, 488 N.W.2d at 82. The court said: "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." Jd. at 370, 488 N.W.2d

at 90. The School Dist. of Shorewood court said that:

"Damages" as used in these insurance

policies unambiguously means legal damages.

It is legal compensation for past wrongs or

injuries and is generally pecuniary in nature.

[he term "damages" does not encompass the

cost of complying with an injunctive decree.

Id. at 368, 488 N.W.2d at 89.

The court said that "in the insurance context, the term

damages’ has an accepted technical meaning in law." /d.

20 See Cincinnati Ins. Co. v. Milliken and Co., 857 F.2d 979 (4th Cir.

1988); Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir.

1987), cert. denied, 484 U.S. 1008 (1988); Mraz v. Canadian Universal

APPENDIX PAGE

166

at 368 n.6, 488 N.W.2d at 89 n.6. Therefore, we may not

rely on those cases from other jurisdictions which have

concluded that the term "damages" in the standard-form CGL

policy is ambiguous. However, we conclude that Superfund

response costs fall readily within the compass of "legal

damages."”!

The Superfund initiative to which ES&G and the city

are subject does not look solely to the future conduct of

ES&G and the city; it looks to conduct which has already

caused injury and will continue to cause injury unless the

Ins. Co., 804 F.2d 1325 (4th Cir. 1986); A. Johnson & Co. v. Aetna

Casualty & Sur. Co., 741 F. Supp. 298 (D. Mass. 1990), aff'd, 933 F.2d

66 (1st Cir. 1991); Verlan, Ltd. v. John L. Armitage and Co., 695 F. Supp.

950 (N.D. Ill. 1988); Travelers Ins. Co. v. Ross Elec. of Washington, Inc.,

685 F. Supp. 742 (W.D. Wash. 1988); Patrons Oxford Mut. Ins. Co. v.

Marois, 573 A.2d 16 (Me. 1990). See also decisions collected in

Minnesota Mining & Mfg. v. Travelers Indem., 457 N.W.2d 175, 180 n.

5 (Minn. 1990).

"| School Dist. of Shorewood does not require a contrary conclusion.

The school districts cited to the court many CERCLA cases holding that

Superfund clean-up costs constitute "damages" under the terms of

insurance policies. The court noted the disagreement among courts as to

whether clean-up costs under Superfund constitute "damages." The court

said:

The issue of whether clean-up costs constitute

"damages" under the terms of an insurance contract has

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.

170 Wis. 2d at 374, 488 N.W.2d at 91.

APPENDIX PAGE

167

cause of the injury is eliminated. To the extent that the

Superfund initiative will remediate an ongoing injury to the

environment, it is preventive. However, the "damages" which

ES&G and the city must pay are not confined to future

injuries but include "legal recompense for injuries sustained."

School Dist. of Shorewood, 170 Wis. 2d at 372, 488 N.W.2d

at 91.

In this respect, the following statement of the court in

Upjohn Co. v. Aetna Casualty and Sur. Co., 768 F. Supp.

1186, 1199-1200 (W.D. Mich. 1990),” expresses a common

sense approach, which we adopt:

[O]nce property damage is found as a result of

environmental contamination, clean-up 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 him to pay sums of money

because his acts or omissions affected

adversely third parties. While such claims

might be characterized as seeking "equitable

2 Upjohn quoted from United States Fidelity & Guar. Co. v. Thomas

Solvent Co., 683 F. Supp. 1139, 1168 (W.D. Mich. 1988), vacated and

dismissed, 132 F.R.D. 660 (W.D. Mich 1990), aff'd, 955 F.2d 1085 (6th

Cir. 1992) (Upon petition for realignment of the parties, the court

concluded it no longer had jurisdiction based on diversity).

APPENDIX PAGE

168

relief," the clean-up costs are essentially

compensatory damages for injury to common

property and for 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.” [Citations

omitted. ]

The legal-equitable distinction to which the Upjohn

court refers has been rejected by a majority of the courts

which have considered whether site remediation and clean-up

costs incurred in response to coercive government action are

amounts paid by the insured as "damages" under a standard-

form CGL insurance policy. See numerous decisions

collected in Minnesota Mining & Mfg. v. Travelers Indem.

Co., 457 N.W.2d 175, 180-81, n.6 (Minn. 1990); see also

Village of Morrisville Water & Light Dept. v. United States

Fidelity & Guar. Co., 775 F. Supp. 718, 726 n. 10 (D. Vt.

1991). In Village of Morrisville, the court concluded that the

"clear majority of courts" have held that CERCLA clean-up

cost§ are "damages" under CGL insurance policies.“ 775

?31n Part III we conclude that migration of VOCs from a landfill into

the groundwater is an invasion of the right of private occupancy, a

"personal injury" under General Casualty’s and Aetna’s policies. The

statement of the Upjohn court as to property damage applies with like

force to personal injury.

241 athrop states that ’[s]ince 1990, most courts that have considered

the question have held that the costs of cleaning up environmental damage,

costs connected with CERCLA or state statutes, are covered by the CGL

APPENDIX PAGE

169

F. Supp. 718, 725-26. See also Wagner v. Milwaukee Mut.

Ins. Co., 145 Wis. 2d 609, 613 n.3, 427 N.W.2d 854, 856 n.3

(Ct. App. 1988), overruled on other grounds, Just v. Land

Reclamation, Ltd., 155 Wis. 2d 737, 759, 456 N.W.2d 570,

578 (1990).

In Minnesota Mining & Mfg., the federal district court

asked whether, under Minnesota law, the costs of complying

with directives issued by state and federal environmental

agencies to clean up groundwater contamination caused by

pollution were covered under the insureds’ CGL insurance

policies. 457 N.W.2d 175, 176-77. The Minnesota Supreme

Court concluded that such costs were covered.

The court noted that liability for groundwater

contamination had been recognized in Minnesota for many

years. Jd. at 183. Thus, the insured and the insurers were

aware of the potential liability for groundwater contamination

at the time they entered into the insurance contracts in

question. The court said that the advent of environmental

protection statutes "[has] merely changed the form of the

liability for ground water pollution, not the nature of that

liability." Jd.

insuring agreement which pays ’all sums which the insured shall become

legally obligated to pay as damages.’" Environmental Claims Insurance

§ 3.03[4] at 3-26 n.50 (citing numerous decisions). Lathrop lists the

following states as rejecting the "as damages" defense or which would

follow the trend of the majority: California, Colorado, Delaware, Idaho,

Illinois, lowa, Massachusetts, Michigan, Minnesota, Missouri, New Jersey,

North Carolina, Vermont, Washington, and Wyoming. The "as damages"

defense continues to be viable in Maine, Maryland, New Hampshire and

New York. /d.

APPENDIX PAGE

170

Likewise, Wisconsin has recognized for many years

that one who causes groundwater contamination may be liable

therefor. Anstee v. Monroe Light & Fuel Co., 171 Wis. 291,

177 N.W. 26 (1920) (utility plant liable for contamination of

adjoining landowner’s soil and well). When the parties to this

action contracted for comprehensive general liability

insurance, it was within their reasonable expectation that

coverage would extend to damages caused by groundwater

contamination.”> We agree with the Minnesota court that

environmental protection statutes have not changed the nature

of such liability but only the form. We conclude that the

insurer may not escape liability for a risk it has insured

simply because it is the government rather than a private party

which demands that the person responsible _ repair

environmental damage.

Indemnity for sums the insured becomes obligated to

pay for causing injury to the groundwater is within the

reasonable expectation of an insured operating or using a solid

waste landfill. The ultimate test in construing an insurance

contract is not what the insurer intended the words of the

contract to mean, but what a reasonable person in the position

of an insured would have understood the words to mean.

Herwig v. Enerson & Eggen, 98 Wis. 2d 38, 40, 295 N.W.2d

*>When General Casualty wrote its policies, several environmental

laws were in place imposing potential liability on operators and users of

sites at which toxic wastes had been disposed. The federal Resource

Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901-6991, was

enacted in 1976. CERCLA became effective December 11, 1980. the

Wisconsin Hazardous Waste Management Act and its hazardous substance

spills legislation were enacted by ch. 377, Laws of 1977. The

environmental repair legislation was enacted by sec. 63, 1983 Wis. Act

410. ;

APPENDIX PAGE

171

201, 203 (Ct. App. 1980), aff'd, 101 Wis. 2d 170, 303 N.W.

2d- 669 (1981) ("The test of coverage is what a reasonable

person in the position of the insured would have believed to

be covered...."). ES&G and the city could reasonably have

understood that the term "damages" in the policies before us

included injury to the groundwater caused by their operation

and use of the landfill.

We adopt the reasoning of those courts which have

held that costs incurred to prevent future pollution damage of

a kind which has already occurred constitute "damages"

within the meaning of the standard-form CGL policy. In Jntel

Corp. v. Hartford Accident & Indem. Co., 692 F. Supp. 1171,

1190 (N.D. Cal. 1988), aff'd in part; rev’d in part on other

grounds, 952 F.2d 1551 (9th Cir. 1991), the court pointed out

that when the parties negotiated the insurance contract, neither

party anticipated claims for investigation and clean-up costs

under CERCLA.” However, what the parties did

contemplate was that if Intel became legally obligated to pay

damages to a third party because of property damage inflicted

by Intel, the insurance carrier would indemnify Intel. The

court concluded that as a PRP, Intel was legally obligated to

pay all costs associated with cleanup of the subject property.

The court therefore held that Superfund response costs

constituted "damages" within the reasonable and normal

6The Sixth Circuit Court of Appeals suggests that CERCLA’s PRP

approach may represent "a unique legal creation, with no true parallel in

any other area of administrative law." Ray Indus. v. Liberty Mut. Ins. Co.,

974 F.2d 754, 764 (6th Cir. 1992). We agree with the Ray court that that

fact does not justify deviating from the plain language of an insurance

contract. But that fact also does not justify construing an insurance

contract strictly to frustrate the normal expectations of the insured.

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APPENDIX PAGE

172

expectations of the parties. /d. at 1189-90. Other decisions

reaching the same conclusion are collected in the Annotation,

Liability Insurance Coverage for Violations of Anti-Pollution

Laws, 87 A.L.R. 4th 444, §5 at 483-85 (1991 & Supp.

1992).

We further conclude that faced with the consequences

of inaction, ES&G and the city had a duty to the insurers to

mitigate their damages by contracting with DNR to clean up

and remediate the landfill. ES&G and the city could have

refused to contract with DNR or otherwise respond to the

Superfund initiative. Inevitably, the clean-up and remediation

work would have been done by EPA or DNR or settling

responsible parties, who would have sued ES&G and the city

for their share of the costs.

DNR stated that its experience had been that if the

necessary work is done by EPA, the cost will be significantly

higher than if the work is done under a DNR contract.

Insureds have a duty to mitigate damages for the insurers’

benefit, either under cooperation clauses such as those

contained in the insurers’ policies, or under common-law

doctrine.?” 18 Couch on Insurance § 74:645 (2d ed. 1983 &

Supp. 1992) ("[I]t is the duty of the insured to do all that he

reasonably can to minimize the loss, and a failure to take

reasonable care to avoid an increase of the loss may defeat a

recovery."). See Howard v. State Farm Mut. Auto. Liab. Ins.

Co., 70 Wis. 2d 985, 993, 236 N.W.2d 643, 647 (1975)

("{T]he general rule does require the damaged party to use

reasonable efforts to mitigate the damages."). See also

?7 General Casualty and Aetna allege as affirmative defenses to this

action that ES&G and the city may have failed to mitigate their damages.

APPENDIX PAGE

173

Metalmasters of Minneapolis, Inc. v. Liberty Mut. Ins. Co.,

461 N.W. 2d 496, 501 (Minn. App. 1990) ("Mitigation is a

duty the insured performs for the insurer’s benefit. Mitigation

cost is recoverable so long as it is reasonable and less than the

damages would have been without it.").

For the foregoing reasons, we conclude that the term

"damages," as used in the policies before us, includes the

costs incurred by ES&G and the city in responding to the

Superfund initiative.

Ill.

PERSONAL INJURY LIABILITY COVERAGE

The insurers’ policies promise to pay on behalf of the

insureds all sums which they become legally obligated to pay

as damages because of "personal injury."** "Personal injury"

is defined to include "wrongful entry or eviction or other

invasion of the right of private occupancy." General Casualty

and Aetna argue that each of these torts "requires an

unprivileged taking of real property from a person claiming

a possessory interest." We disagree.

In Fortier v. Flambeau Plastics Co., 164 Wis. 2d 639,

676, 476 N.W.2d 593, 608 (Ct. App. 1991) (citing Comment,

Liability of Landowner for Pollution of Percolating Waters,

39 MAaArRQ. L. REv. 119, 130 (1955)), we held that

"[c]hemicals seeping or percolating through groundwater can

*8General Casualty provides coverage to ES&G for personal injury

liability through a Coverage P addition to the CGL policy and to the city

through a Broad Form Extended Liability Coverage Endorsement.

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174

constitute an invasion" of another’s interest in the private use

and enjoyment of land. We concluded that under section

822(b) of the RESTATEMENT (SECOND) OF TORTS, "a

negligent invasion may be the basis of liability under a private

nuisance theory." /d. We also held that the intrusion of

VOCs into well water may constitute an actionable negligent

trespass. [d. at 677, 476 N.W.2d at 608 (citing RESTATEMENT

(SECOND) OF TORTS § 165 (1965)). None of these "offenses"

require dispossession of the land owner.

There is little decisional authority as to whether

pollution of another’s property "invades" the landowner’s

right of private occupancy, within the meaning of that term as

used in general liability insurance policies. In Titan Holdings

Syndicate, Inc. v. City of Keene, 898 F.2d 265, 273 (1st Cir.

1990), the court held that allegations that noxious odors, noise

and light emanating from the city’s sewage plant unreasonably

interfered with the plaintiffs’ use of their homestead stated a

claim for coverage for liability arising from an "other invasion

of the right of private occupancy." In Pipefitters Welfare

Educational Fund v. Westchester Fire Ins. Co. and

International Ins. Co., No. 91-3285, 1992 U.S. App. Lexis

23790 (7th Cir. 1992) (GENFED library, Current file), the

court held that negligent conduct which polluted another’s

property and led to a seal order and imposition of an

environmental reclamation lien arguably constituted an "other

invasion of the right to private occupancy." In Pipefitters the

court rejected the insurers’ claim that there could be no

coverage unless the insured intended to dispossess the

landowner of his or her right of occupancy.

In each of these cases, the right invaded was clearly

the right of private occupancy. The insurers argue that

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175

groundwater is public property and therefore contamination of

the groundwater cannot constitute invasion of the right of

private occupancy. We recognize that sec. 144.01(19), Stats.,

defines "waters of the state" to include groundwater. The

state has not, however, denied landowners their historic rights

of access to and use of the groundwater for agricultural and

domestic uses. At one time in the history of our country, the

right of a landowner to use underground water for private

purposes was so jealously protected that pollution of a

neighbor’s groundwater by the landowner’s use of percolating

waters beneath the surface of the landowner’s land was

regarded as damnum absque injuria, that is, a loss without an

injury. Comment, 39 MARQ. L. REV. at 120-24.

The right of a landowner to obtain groundwater for

agricultural and domestic uses is recognized and protected in

Wisconsin by statute. Landowners may obtain a supply of

groundwater by boring or drilling a private well. See, e.g.,

sec. 144.027(1)(c)-(h), Stats. The legislature has provided

compensation, subject to an income limitation, to the owner

of a contaminated private well to treat or replace the water

source. Section 144.027(7), Stats.

We conclude that access to, and use of, an undefiled

underground water supply is a right of private occupancy.

The invasion of that right is a personal injury, liability for

which is covered by General Casualty’s and Aetna’s policies.

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176

IV.

DAMAGE "NEITHER EXPECTED NOR INTENDED"

General Casualty argues that its policies do not

provide coverage to ES&G and the city because they

"expected" or "intended" to discharge contaminants from the

landfill into the groundwater. General Casualty identifies two

policy provisions which, it argues, exclude coverage where

the insured expects or intends the act which causes damage:

the "occurrence" definition and the pollution exclusion clause.

However, by their terms, these provisions apply to bodily

injury and property damage liability coverage and not to

personal injury liability coverage.” General Casualty

argues, however, that the pollution exclusion clause and "other

terms" of its basic policy "carry over" and apply to personal

injury liability coverage under Coverage P and the Extended

Liability Coverage Endorsement. General Casualty points out

that while Coverage P is not part of ES&G’s basic policy, it

is attached to the policy "to complete said policy." Also, the

endorsement to the city’s policy "forms a part of the policy"

and "modifies such insurance."

General Casualty’s "carry over" argument would be

more persuasive if Coverage P and the endorsement did not

contain their own definitions and exclusions. Personal injury

liability coverage is not triggered by an occurrence, but by an

"offense [which] is committed during the policy period."

Coverage P and the endorsement do not include a pollution

"Bodily injury" as used in the policies refers to a physical injury.

"Personal injury" includes torts against personal rights, which may or may

not include physical injury.

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177

exclusion. Moreover, application of an "expected or

intended" exclusion to personal injury liability coverage would

have the nonsensical result of making coverage illusory.

Plainly, personal injury liability coverage is extended in

Coverage P and the endorsement to intentional acts: false

arrest, malicious prosecution, defamation, wrongful entry or

eviction or other invasion of private occupancy rights. It

would be an unreasonable construction of the policies to

conclude that a coverage clause is wholly nullified by an

exclusion clause. Insurance contracts should be given a

reasonable interpretation and not one which leads to an absurd

result. Olguin v. Allstate Ins. Co., 71 Wis. 2d 160, 165, 237

N.W.2d 694, 697 (1976).

We conclude, therefore, that because coverage for

liability for groundwater contamination is extended to ES&G

in Coverage P and to the city in the Extended Liability

Coverage Endorsement through personal injury liability

coverage, we need not consider whether coverage for that

liability under the property damage clause would be excluded

if ES&G and the city expected or intended to discharge

contaminants into the groundwater.

TRIGGER OF COVERAGE

We decline to decide whether the trial court correctly

concluded that "[t]here is a continuous trigger of coverage for

the policies of insurance issued by Aetna and -General

Casualty." First, the parties have not briefed the question

whether the continuous trigger of coverage theory applies

where the claim is for liability for personal injury. Second,

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178

the evidence at trial may obviate the need io decide this

difficult question of law.

General Casualty disagrees with the continuous trigger

approach adopted by the trial court, but claims that the record

is insufficient to permit any intelligent discussion of the issue.

Aetna argues that coverage under its policy is triggered only

by an "injury-in-fact." The injury -in-fact theory holds that the

policy in force at the time the claimant suffers actual injury

is the policy which must respond. ENVIRONMENTAL CLAIMS

INSURANCE § 6.04[4] at 6-16. Aetna argues there was no

actual injury in this case until VOCs reached the groundwater.

It contends that there is a genuine issue of fact as to whether

that occurred during its policy period.

ES&G and the city support the trial court’s conclusion

by citing Wisconsin Elec. Power Co. v. California Union Ins.,

142 Wis. 2d 673, 419 N.W.2d 255 (Ct. App. 1987)

(WEPCO). In WEPCO we held that there was a continuous

period of exposure from the time a defective power supply

was installed at a dairy farm until the emission of stray

voltage was corrected. We said that a_ reasonable

interpretation of the definition of "occurrence" was that "as

long as there is harmful exposure to dangerous conditions, the

occurrence is continuing." Jd. at 681, 419 N.W.2d at 258.

ES&G and the city contend that VOC contamination of the

groundwater was a continuous process which began when the

first solvents containing VOCs were disposed of in the landfill

and continued as more and more solvents were disposed of

and migrated through the sand, soil and rock. Because

Aetna’s policy was in effect during this c

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