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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 514 U.S. 1017

## Text

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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

es

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) ................

iV

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.

2

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).

3
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;

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

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

4

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

5

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

6

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,

7

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).

8

(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.

9
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:

10

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

11

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

12

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.

13

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

\4

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).

15

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.

16

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

17

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.

18

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,
V.

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.

(c) 1. The department may require a
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

(c) Encourage local units of government to
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.

(c) Secure necessary scientific, technical,
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]

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

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.

i

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,
v.
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.

I.
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 cl

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1173%3A1. Public record. Not legal advice.