Petition for Writ of Certiorari — Edgerton Sand & Gravel, Inc. v. General Casualty Co.

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Suprém- Court, Ua

Pif£ED

418483 may 8 1995

OFFICE OF THE CLERK

In the

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

Edgerton Sand & Gravel, Inc.,

Plaintiff-Respondent-Petitioner,

General Casualty Company of Wisconsin

and Aetna Casualty and Surety Company,

Defendants-Appellants-Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Wisconsin

PETITION FOR A WRIT OF CERTIORARI

AND APPENDICES TO THE PETITION

Charles V. Sweeney David B. Goodwin

Of Counsel Counsel of Record

N315 Charley Bluff Rd. Joshua Koltun

Milton, WI 53563 Of Counsel

(608) 868-2710 Heller, Ehrman, White &

McAuliffe

Attorneys for Petitioner 333 Bush Street

Edgerton Sand & San Francisco, CA 94104

Gravel, Inc. (415) 772-6000

QUESTIONS PRESENTED

l. Is the Due Process Clause of the Fourteenth

Amendment violated when a state supreme court justice casts

the deciding vote in a case raising an important question of

state law, where the justice owns shares of stock in, and the

justice’s spouse is employed as a staff attorney by, an amicus

curiae that had represented to the state supreme court that it

is vitally interested in the outcome of the case?

2. Does the "voluntary, knowing, and intelligent"

test for waiver of fundamental constitutional rights in

criminal cases apply equally in the civil context?

PARTIES IN THE PROCEEDING

Pursuant to Rule 29.1, Petitioner discloses that this

petition is filed by Edgerton Sand & Gravel, Inc., a

Wisconsin corporation. Edgerton Sand & Gravel, Inc. was

a plaintiff in the complaint and a respondent before the

Supreme Court of Wisconsin. Related companies to

Edgerton Sand & Gravel, Inc. are Administrative Services,

Inc., a Wisconsin corporation, Edgerton Crushing, Inc., a

Wisconsin corporation, and Edgerton Readi-Mix Concrete

Co., a Wisconsin partnership.

The respondents are General Casualty Company of

Wisconsin and Aetna Casualty & Surety Company. The

respondents are insurance corporations that were named as

defendants in the complaint and were appellants before the

Supreme Court of Wisconsin.

City of Edgerton, Wisconsin was a plaintiff in the

complaint and was a respondent before the Supreme Court

of Wisconsin. Wisconsin Insurance Security Fund, Hanover

Insurance Company, Wausau Insurance Companies and

Local Government Property Insurance Fund were defendants

in the complaint.

GUBSTIONS PRESENTED ...... esc cccsess 1

PARTIES IN THE PROCEEDING ............ il

po Gt Res) ill

pe Ge see 8, rr ee vi

PETITION FOR WRIT OF CERTIORARI ....... l

TPE civ eeavaibeavesen«ve l

De Che Wat eV wewe cee hee eee es l

CONSTITUTIONAL PROVISION INVOLVED .... 2

STATEpGees OF THE CASE 2... ccc cee eee 2

THE ST. PAUL COMPANIES

REPRESENTED TO THE SUPREME

COURT OF WISCONSIN THAT THEY

WERE VITALLY INTERESTED IN THE

OUTCOME OF THE PROCEEDING

BELOW IN THE PRESENT CASE .. 2

II.

Il.

TABLE OF CONTENTS

(continued)

Page

SUPREME COURT OF WISCONSIN

JUSTICE GESKE DID NOT FULLY

DISCLOSE TO PETITIONER THAT SHE

HAD A SUBSTANTIAL FINANCIAL AND

PERSONAL INTEREST IN THE ST. PAUL

CRUE 6 ch ce whee eeen 5

REASONS FOR GRANTING THE PETITION .... 11

THIS COURT HAS NEVER

CONSIDERED WHETHER’ THE

DUE PROCESS CLAUSE

REQUIRES THE RECUSAL OF A

JUDGE WHEN THE JUDGE HAS A

SUBSTANTIAL PECUNIARY AND

PERSONAL INTEREST IN AN

AMICUS CURIAE THAT HAS

REPRESENTED TO THE COURT

SmAS TF &£3 ~¥ETALET

INTERESTED IN THE OUTCOME

i Wee SU ck oes bt ee ee 1]

TABLE OF CONTENTS

(continued)

II. THIS COURT HAS NEVER

CONSIDERED WHETHER THE

"VOLUNTARY, KNOWING, AND

INTELLIGENT" TEST FOR

WAIVER OF FUNDAMENTAL

CONSTITUTIONAL RIGHTS

APPLIES EQUALLY IN THE CIVIL

AS IN THE CRIMINAL CONTEXT... 17

CASES

Aetna Ins. Co. v. Kennedy,

Pe eT, ss re

Aetna Life Insurance Co. v. Lavoie,

SiS G.B.BS GRD occa as

American TV and Appliance of Madison,

Inc..,

151 Wis. 2d 175,

443 N.W.2d 662 (1989) ......

Barker v. Wingo,

GOT U.S. 44 (19TH) ow cece

Bernard v. Bernard,

31 F.3d 842 (9th Cir. 1994) ...

Blau v. City of Milwaukee,

232 Wis. 197,

285 N.W. 347,

286 N.W. 874,

oes of). eee

Bond v. Dentzer,

494 F.2d 302 (2d Cir. 1974) ...

eR RE rR eer orem TN anne an

vii

TABLE OF AUTHORITIES

(continued)

Page

Brady v. United States,

gt Me 8) Pe ee 17, 18

Brookhart v. Jones,

Pree ee res Se eee 18

Castaneda v. Pederson, and St. Paul

Fire & Marine Insurance Co.,

185 Wis. 2d 200,

3 BR mw & FT) a are 14

Commonwealth Coatings

Corp. v. Continental Casualty Co.,

ee ee os bn OS 8 he hee wes 12

D.H. Overmyer Co. v. Frick Co.,

Gee Ue BPP CUNTED bn ce sees wade 17, 19

Gonzalez v. County of Hidalgo, Texas,

489 F.2d 1043 (Sth Cir. 1973) .......... 18

Headwaters, Inc. v. Bureau of Land

Management,

665 F. Supp. 873 (D. Or. 1987) ......... 14

In re Honolulu Consolidated Oil Co.,

Bae ©, eed Gee PET ot ce ctw nices 16

Page

In re Murchison,

Dee ULB. 199 CTR eR cc ce te ees 12, 13, 15, 16

Jelinek v. St. Paul Fire & Casualty

Insurance Co.,

182 Wis. 2d 1,

PEs ee ce FOO RP 6 wee wee ee RS 14

Liljeberg v. Health Services Acquisition

Corp.,

ee as OT CO es been eee ia eeasn 16

Ohio Bell Tel. Co. v. Comm’n,

sk Re OF. ee cee 21

Patz v. St. Paul Fire & Marine

Insurance Co.,

15 F.3d G9 (7th Cir. 1994) .........2.. 15

Sambo’s Restaurants, Inc. v. City of

Ann Arbor,

663 F.2d 686 (6th Cir. 1981)........... 18

State v. Marhal,

172 Wis. 2d 491,

N.W.2d 758 (Wis. App. 1992) .......... 10

Tumey v. Ohio,

Ble Ua, SUOCIBST) wr eiwess ii, 1%, 13, 316

———— ~~" poe

Page

United States v. Nobel,

GOO Fad 231 G3 Cir. IFGZ) ww wc cee 20

Yakus v. United States,

Pee ee eee ee ee 20

STATUTES

ee es EE tA NACA SR eR ee 16

Se es eR. 9 6 00 AOR ORR ERS 2

— & By 2. : reer ere ers eee 14

_ oe ks err ere re 6, 20

Be © OVC ePeee Py Ty CCT E ere er 14

OTHER AUTHORITIES

Russ Banham, Superfund Reform Groups, 1 Lloyd’s

Environmental Risk International 3-4 (May 1993) .... 3

No.

In the

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

Edgerton Sand & Gravel, Inc.,

Plaintiff-Respondent-Petitioner,

General Casualty Company of Wisconsin

and Aetna Casualty and Surety Company,

Defendants-Appellants-Respondents.

On Petition for a Wnit of Certiorari to the

Supreme Court of Wisconsin

PETITION FOR A WRIT OF CERTIORARI

PETITION FOR WRIT OF CERTIORARI

Edgerton Sand & Gravel, Inc. hereby respectfully

requests the Court to issue a Writ of Certiorari to review the

decision of the Supreme Court of Wisconsin on the Motion

to Vacate Decision or Alternatively to Rehear Without

Participation of Challenged Justice, entered in this case on

February 23, 1995.

OPINIONS BELOW

The opinion of the Supreme Court of Wisconsin on

the Motion to Vacate Decision or Alternatively to Rehear

Without Participation of Challenged Justice, filed February

23, 1995, reproduced in the Appendix (hereafter "App.”) at

101, is reported at 190 Wis. 2d 510, 527 N.W.2d 305 (Wis.

1995). The opinion of the Supreme Court of Wisconsin on

the substantive question of insurance coverage law presented

below is reported at 184 Wis. 2d 750, 517 N.W.2d 463

(Wis. 1994), and is reprinted in the Appendix at App. 116.

The opinion of the Wisconsin Court of Appeals is reported

at 172 Wis. 2d 518, 493 N.W.2d 768 (Wis. App. 1992), and

is reprinted in the Appendix at App. 163. The unreported

decision of the Circuit Court for Rock County, Wisconsin,

dated May 10, 1991, is reprinted in the Appendix at App.

207.

JURISDICTION

The Supreme Court of Wisconsin issued its opinion

on the Motion to Vacate Decision or Alternatively to Rehear

Without Participation of Challenged Justice on February 23,

1995. The jurisdiction of this Court is invoked under 28

U.S.C. § 1257(a).

CONSTITUTIONAL PROVISION INVOLVED

The Due Process Clause of the Fourteenth

Amendment to the United States Constitution provides that

"[n]Jo State shall . . . deprive any person of life, liberty, or

property, without due process of law... .”

STATEMENT OF THE CASE'

I, THE ST. PAUL COMPANIES REPRESENTED

TO THE SUPREME COURT OF WISCONSIN

THAT THEY WERE VITALLY INTERESTED

IN THE OUTCOME OF THE PROCEEDING

BELOW IN THE PRESENT CASE

This case arises from a declaratory judgment action

that Edgerton Sand & Gravel, Inc. ("Petitioner") and one

, This Petition refers to the pertinent pleadings filed in the

proceeding below before the Supreme Court of Wisconsin as follows:

(a) Brief and Addendum of Amici Curiae Wisconsin Insurance Alliance

and Insurance Environmental Litigation Association in Support of

Petition for Review (filed Jan. 12, 1993) (“ILEA Br."); (b) Motion of

Wisconsin Insurance Alliance and Insurance Environmental Litigation

Association for Leave to File Brief as Amici Curiae in Support of

Petition for Review (filed Jan. 12, 1993) (“ILEA Mtn."); (c) Brief of

Edgerton Sand & Gravel, Inc. in Support of Motion to Vacate the

Court’s Decision in This Appeal or, in the Alternative, to Rehear the

Case Without the Participation of Justice Janine P. Geske (filed Nov.

28, 1994) (“Edgerton Br.”).

other party filed to obtain liability insurance coverage for the

costs of complying with government orders that required

Petitioner and other responsible parties to clean up

environmental contamination at a landfill in Edgerton,

Wisconsin. The trial court ruled that Petitioner’s insurers,

General Casualty Company of Wisconsin and Aetna Casualty

& Surety Company, covered those environmental

remediation costs. App. 207. The Wisconsin Court of

Appeals affirmed. App. 163.

The Supreme Court of Wisconsin granted review to

decide (a) whether the costs of complying with

environmental remediation orders are "damages" that could

be covered by standard form liability insurance policies, and

(b) whether administrative environmental remediation

proceedings are “suits” that could trigger the duty to defend

under standard form liability insurance policies. App. 118-

19,

Those issues are of enormous financial significance

to the insurance industry. A recent study estimated that

domestic insurers are likely to end up paying $214 billion to

fund environmental remediation costs in the United States.

See Russ Banham, Superfund Reform Groups, | Lloyd’s

Environmental Risk International 3-4 (May 1993) (citing to

a study by the Tillinghast consulting firm); see also ILEA

Br. 5 (the total environmental cleanup costs in the United

States, including costs not covered by insurance, have "been

reliably estimated to be at least $500 billion”). While the

precise percentage of that amount that would apply to

Wisconsin claims is uncertain, insurance industry amici

curiae in this case told the court below that it can cost tens

or even hundreds of millions of dollars to clean up a single

contaminated site. ILEA Br. 3. If environmental

remediation proceedings are not “suits” for "damages,"

standard form liability insurance policies would not cover

those costs. App. 121.

Because of the substantial liabilities at stake, the

Supreme Court of Wisconsin’s deliberations on these two

issues generated great interest in the insurance industry. The

Insurance Environmental Litigation Association ("IELA") --

"a trade association of national property and casualty

insurers formed, in part, to represent its members’ positions

in environmentally-related insurance coverage cases” (ILEA

Br. 1) -- was granted leave to file a brief amici curiae "on

behalf of” eighteen specified insurance companies urging

reversal of the Wisconsin Court of Appeals decision. ILEA

Mtn. 2 n.2.

Among the insurers on whose behalf IELA filed its

amicus brief were the St. Paul Companies ("St. Paul"). Jd.

ILEA told the Supreme Court of Wisconsin that the

"member companies on whose behalf this submission is

made” -- including St. Paul -- "have substantial, independent

interests in the questions presented” in this case. /d. at 3.

Indeed, IELA stated that the interest of each IELA

member in the outcome of this case was not just

“substantial,” but also was "vital[]":

The member companies of . . . IELA have

issued to a great many insureds, in Wisconsir

and elsewhere, insurance policies containing

provisions identical or similar to those at

issue here. Accordingly, they are vitally

interested in the judicial interpretation of

those provisions. . . . [Indeed, t]his is no

ordinary case, in view of the number of

important first-impression issues involved and

the potential financial impact of the Court’s

decision on environmental cleanups estimated

to cost hundreds of billions of dollars.

Id. at 3-4.

Il. SUPREME COURT OF WISCONSIN JUSTICE

GESKE DID NOT FULLY DISCLOSE TO

PETITIONER THAT SHE HAD A

SUBSTANTIAL FINANCIAL AND PERSONAL

INTEREST IN THE ST. PAUL COMPANIES

At the commencement of oral argument in this case

before the Supreme Court of Wisconsin on November 29,

1993, Justice Janine P. Geske made the following disclosure

in open court to the attorneys for Petitioner and the other

parties:

I... want to make a disclosure. Last night

when I was looking one more time at the

amicus briefs, I noted that Mr. Burell had

filed an amicus brief on behalf of the

Insurance Environmental Litigation

Association, and I looked at the appendix and

I noted that one of the companies listed in

that is St. Paul Companies. My husband is

employed by that company. I do not believe

that it presents any conflict and will not

influence me. If anybody has any objections

to me [sic] sitting on this case, I would

appreciate hearing from you in [sic] letter by

the end of the week. Thank you.

App. 105-06.

Although Wisconsin law requires a judge to make a

"full and complete disclosure on the record of the factors

creating" a potential conflict of interest, Wis. Stat.

§ 757.19(3), Justice Geske’s disclosure at the hearing in fact

was incomplete.

First, Justice Geske failed to disclose that her

husband, Michael J. Hogan, is more than a mere employee

of St. Paul. He is a staff attorney for St. Paul, practicing in

Milwaukee, who represents St. Paul in insurance coverage

litigation that determines whether St. Paul is liable for

defense and indemnification costs incurred by its insureds.

Edgerton Br. 4. Similar issues were involved in the present

case. App. 118-121, 128-162.

Second, Justice Geske did not disclose at the hearing

that she had an interest in excess of $50,000 in the St. Paul

savings plan, which consists of St. Paul stock and mutual

funds, as well as a financial interest in a St. Paul retirement

plan. To be sure, Justice Geske disclosed this information

in a Statement of Economic Interests that she filed with the

State of Wisconsin Ethics Board. App. 109-10 (referring to

Justice Geske’s December 14, 1993 disclosure); Edgerton

Br., Addendum B (copy of disclosure form).? However,

Justice Geske did not, at the time of the hearing (App. 105-

06), or thereafter, direct the attention of the parties in this

case to this filing.

Based on the information provided to it at the hearing

before the Supreme Court of Wisconsin, Petitioner did not

object within a week to Justice Geske’s participation in the

case. App. 106. Subsequent to the Supreme Court of

Wisconsin’s decision on the merits of the insurance coverage

questions, Petitioner learned of Justice Geske’s financial

interest in St. Paul and that Justice Geske’s husband was a

staff attorney for St. Paul.’

Ill. THE DECISIONS BELOW

On June 16, 1994, the Supreme Court of Wisconsin

issued its decision on the merits of the insurance coverage

questions in this case. Justice Geske wrote the opinion for

the four-to-three majority. All but one of the other highest

. The disclosure form has two categories for financial

information: “Value $50,000 or Less” and "Value More Than $50,000.”

Edgerton Br., Addendum B. Thus Justice Geske’s holdings may well

be far in excess of $50,000.

’ See App. 104-05, 108 (on September 2, 1994, while Petitioner’s

motion to the Wisconsin Supreme Court for reconsideration of its

decision on the merits was pending, three non-parties to this case

sought leave to file a motion for recusal of Justice Geske and

submitted evidence of her interest in the St. Paul Companies, but the

Wisconsin Supreme Court declined to grant those non-parties leave to

file their motion).

State courts to address these questions had ruled that an

environmental remediation proceeding is a "suit" that seeks

"damages" as those terms are used in standard form

comprehensive general liability insurance policies. The

Supreme Court of Wisconsin majority concluded, however,

that an administrative environmental remediation proceeding

is not a “suit” and that the costs incurred to remediate

environmental contamination are not "damages." App. 121.

The three dissenters argued that the decision of Wisconsin

Court of Appeals in favor of Petitioner should have been

affirmed. App. 155-62.

On October 25, 1995, the Supreme Court of

Wisconsin denied Petitioner’s motion for reconsideration.

App. 115. Petitioner and one other party filed a petition for

writ of certiorari before this Court to seek review of the

Supreme Court of Wisconsin’s June 16, 1994 decision on the

“suit” and "damages” issues; however, by order dated March

20, 1995, this Court declined to grant the petition.

In the meantime, on November 28, 1994, Petitioner

filed a motion to vacate the Supreme Court of Wisconsin’s

decision, or, in the alternative, for rehearing of the case

without the participation of Justice Geske ("Motion to

Vacate"). In the brief in support of the Motion to Vacate,

Petitioner argued, inter alia, that Justice Geske’s failure to

recuse herself and to disclose fully at the hearing her

financial interest in the outcome of the case violated the Due

Process Clause of the Fourteenth Amendment to the

Constitution of the United States. Edgerton Br. 12-14.

On February 23, 1995, the Supreme Court of

Wisconsin dismissed Petitioner’s Motion to Vacate.‘ The

court stated initially that Petitioner had waived its right to an

impartial decisionmaker because Petitioner did not request

Justice Geske to recuse herself during the week after the

November 29, 1993 hearing. App. 102, 108 110. The

court indicated that Petitioner had a duty to conduct an

investigation before the end of the week of the November

29, 1993 hearing to determine whether Justice Geske had

financial ties to St. Paul. App. 107. The court noted that

“at least since . . . December 14, 1993,” Justice Geske had

disclosed her holdings in St. Paul stocks and mutual funds

and that her husband was an attorney-employee of St. Paul.

App. 109. The court also referred to Petitioner’s delay in

filing the Motion to Vacate until November 1994, after the

court had ruled on the motion for reconsideration, and to

Petitioner’s failure to join in a proposed motion for vacation

or rehearing without the participation of Justice Geske that

three non-parties unsuccessfully sought leave to file with the

court in September 1994, while the motion for

reconsideration was pending. App. 103-04, 108.

But the court concluded that it would entertain the

Motion to Vacate. The court explained that, although the

In its decision, the court did not distinguish between

Petitioner’s right to an impartial decisionmaker under the Wisconsin

recusal statute and Petitioner’s right to an impartial decisionmaker

under the Due Process Clause of the Fourteenth Amendment of the

Constitution of the United States. Because the federal question was

expressly raised in the Motion to Vacate, the Supreme Court of

Wisconsin necessarily determined the federal question.

ordinary rule under Wisconsin law is that the court would

not exercise jurisdiction after remittitur of a judgment, that

rule is inapplicable in cases where a judge is disqualified

from participating in a decision. App. 103 (citing American

TV and Appliance of Madison, Inc., 151 Wis. 2d 175, 181,

443 N.W.2d 662, 664 (1989)). Under Wisconsin law,

where a judge is disqualified from participating in a case, the

court’s decision is void, and may be expunged by the court

"at any time,” notwithstanding “statutory requirements for

reopening, appealing from, or modifying orders or

judgments." Jd.; accord State v. Marhal, 172 Wis. 2d 491,

493 N.W.2d 758 (Wis. App. 1992), review denied, _ Wis.

2d __, 497 N.W.2d 131 (1993) (although defendant "waived

his direct challenge to the impartiality of the sentencing trial

judge by not seeking her recusal . . . the sentencing must

nevertheless be vacated if the trial judge should have recused

herself sua sponte”) (emphasis added).

The court then decided to exercise its jurisdiction and

reached the merits of the challenge to the appearance of

Justice Geske’s impartiality. App. 102-03, 104, 108-09,

111. The court ruled that Justice Geske had properly

. Although the court stated at one point that "we could, and do,

base [our determination of the motion] on the fact that there has been

one reconsideration of the court’s decision and we will not entertain a

request for a second,” App. 108 (citing Blau v. City of Milwaukee, 232

Wis. 197, 208, 285 N.W. 347, 286 N.W. 874, 287 N.W. 594 (1939)), the

remainder of the court’s order states that the court chose not to

exercise the option to refuse to entertain a second motion for

reconsideration, and considered Petitioner’s claim “on the merits.”

App. 112; see also App. 105, 108-09, 111. Moreover, Petitioner sought,

in the alternative, to vacate the decision. Under Wisconsin law such a

participated in the decision, because (a) St. Paul was an

amicus, not a party, and (b) Justice Geske had made a

subjective determination that she would be impartial in the

case. App. 109-11.

I. THIS COURT HAS NEVER CONSIDERED

WHETHER THE DUE PROCESS CLAUSE

REQUIRES THE RECUSAL OF A JUDGE

WHEN THE JUDGE HAS A SUBSTANTIAL

PECUNIARY AND PERSONAL INTEREST IN

AN AMICUS CURIAE THAT HAS

REPRESENTED TO THE COURT THAT IT IS

VITALLY INTERESTED IN THE OUTCOME

OF THE CASE

Almost seventy years ago, this Court held that "it

certainly violates the Fourteenth Amendment . . . to subject

[a person’s] . . . liberty or property to the judgment of a

court the judge of which has a direct, personal, substantial

pecuniary interest in reaching a conclusion against him in his

case." Tumey v. Ohio, 273 U.S. 510, 523 (1927); see also

id. at 512 (ruling unconstitutional an Ohio law under which

a mayor, sitting as a court of justice, received a fee if the

motion could be made at any time when the asserted ground was the

disqualification of a Justice. See App. 111. Thus, the discussion in the

decision below of the waiver of the right to file a motion to reconsider

does not apply to Petitioner’s Motion to Vacate. The court below

therefore did not rely upon an independent and adequate state law

ground for its decision.

defendant was convicted, but not if the defendant was

acquitted); In re Murchison, 349 U.S. 133, 136 (1955) (the

"situation [in which recusal is mandatory] is one ‘which

would offer a possible temptation to the average . . . judge

to . . . lead him not to hold the balance nice, clear and

true.’") (citation omitted).

A later decision amplifying the Tuwmey standard,

Commonwealth Coatings Corp. v. Continental Casualty Co. ,

393 U.S. 145 (1968), is particularly apt. In that case, an

arbitrator had occasionally acted in the past as a paid

consultant to one of the parties to the arbitration, and had

received $12,000 in fees from the party over several years.

Id. at 146. This Court held that the arbitrator’s interest

required disqualification, noting that, were the arbitrator a

judge, disqualification would be constitutionally mandated.

Id. at 148.

This Court has also held that a judge may have a

"direct, personal, substantial, [and] pecuniary” interest in the

outcome of a lawsuit, such that the judge’s participation in

a proceeding violates the Due Process Clause, even though

the judge has no interest in any of the parties to the lawsuit.

See Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813, 824-25

(1986). In the proceeding underlying Lavoie, the Alabama

Supreme Court had recognized, by a five-to-four vote, a new

type of insurance "bad faith” claim. Justice Embry, the

author of the Alabama Supreme Court’s majority opinion (id.

at 818), had filed a separate lawsuit in the Alabama state

courts in which he alleged a similar "bad faith" claim. After

the Alabama Supreme Court issued its opinion, Justice

Embry settled his bad faith case for $30,000. /d. at 818-19.

;

Aetna Life Insurance -- the losing party before the Alabama

Supreme Court -- argued that its Due Process rights were

violated because Justice Embry cast the deciding vote in the

Alabama Supreme Court decision.

This Court agreed, vacated the Alabama Supreme

Court decision, and remanded the case for further

proceedings in which Justice Embry would not participate.

Id. at 828. In concluding that Aetna’s due process rights

were violated, this Court examined several “factors [that]

might constitute such an interest in the outcome of th[e] case

that would bear on recusal.” Jd. at 822. In particular, the

Court noted that: (a) Justice Embry had a financial interest

in the outcome of the case because he had a similar claim

pending in an Alabama v*ate court; (b) the Alabama Supreme

Court’s decision »~~l4 be binding on all Alabama state

courts; (c) the law ox .e “bad faith” issue was unsettled in

Alabama; and (d) "[w]hen Justice Embry cast the deciding

vote, he did not merely apply well-established law and in

fact quite possibly made new law... ."_ Id.

Although the precise contours of the "direct,

personal, substantial, [and] pecuniary” test have never been

defined with precision, see Murchison, 349 U.S. at 136, the

line of authority from Twmey to Lavoie squarely places Judge

Geske’s interest in this case in the impermissible zone.

There is no question that the Due Process Clause

would have required Justice Geske to recuse herself from

participating in the case below if St. Paul had been a party.

Justice Geske had a direct and substantial interest in St.

Paul, through her ownership of more than $50,000 in St.

Paul stock and other securities in the St. Paul savings plan,

her interest in the St. Paul retirement plan, and her

husband’s employment by St. Paul as an insurance coverage

attorney.‘ Indeed, Justice Geske recused herself in the two

cases during her tenure on the Supreme Court of Wisconsin

in which St. Paul was a party. Castaneda v. Pederson, and

St. Paul Fire & Marine Insurance Co., 185 Wis. 2d 200,

518 N.W.2d 246 (1994), and Jelinek v. St. Paul Fire &

Casualty Insurance Co., 182 Wis. 2d 1, 512 N.W.2d 764

(1994). Thus she implicitly acknowledged a significant

financial or personal stake in cases in which St. Paul is a

party.’

The due process concerns that require recusal if the

judge has a substantial financial or personal interest in a

party apply equally to an amicus curiae such as St. Paul --

at least under the circumstances at issue here, where the

amicus curiae represented that it is "vitally interested” in the

outcome of the case, and brought to the attention of the court

the significant financial impact the court’s ruling was likely

. Wisconsin is a “community property’ state. Wis. Stat. §§

766.31 et seq. Thus, that Justice Geske’s husband -- rather than Justice

Geske herself -- is a St. Paul employee does not matter for present

purposes: a portion of the Geske/Hogan family income is derived

froma St. Paul. See generally Headwaters, Inc. v. Bureau of Land

Management, 665 F. Supp. 873, 874 (D. Or. 1987) (recusal is

appropriate where the judge’s spouse was a shareholder in a company

that would obtain a financial benefit from the outcome of the case).

. Apart from the requirements of due process, Wisconsin law

requires recusal where the judge “has a significant financial or personal

interest in the matter.” Wis. Stat. § 757.19(2).

to have on it. Here, St. Paul represented to the Supreme

Court of Wisconsin that its interest was “substantial” and

"independent" of the other insurers joining the IELA brief

(ILEA Mtn. 3),* and pointed to the “potential financial

impact” of the Supreme Court of Wisconsin’s decision on

claims for insurance coverage for “environmental cleanups

estimated to cost hundreds of billions of dollars.” Jd. at 4.

That is precisely the situation that "would offer a possible

temptation to the average . . . judge to. . . lead him not to

hold the balance nice, clear and true." Jn re Murchison, 349

U.S. at 136.

Lavoie indicates that Due Process concerns extend

beyond the situation where the judge has an interest in a

party. Under the same factors that this Court applied in

Lavoie, 475 U.S. at 812, Justice Geske’s participation denied

Petitioner due process. Justice Geske (a) had an interest in

the outcome of the case because she had a financial and

personal interest in an amicus curiae that had an

"independent," “substantial” and “vital[{]" “interest” in the

A computer search revealed that St. Paul has been a party to

more than 100 reported decisions involving insurance coverage for the

types of environmental remediation claims that are affected by the

Wisconsin Supreme Court’s decision in this appeal, including the recent

decision in Patz v. St. Paul Fire & Marine Insurance Co., 15 F.3d 699

(7th Cir. 1994) (applying Wisconsin law). Most pertinently, St. Paul

issued liability insurance policies to several parties that are potentially

responsible for the cleanup of the Edgerton landfill. After the

Wisconsin Supreme Court decision was issued, St. Paul denied

insurance coverage for at least two potentially responsible parties at the

site, and will probably not be liable for the costs incurred by those

parties at the site. Edgerton Br., Addenda D-F.

outcome of this case; (b) the Supreme Court of Wisconsin’s

decision would be binding on all Wisconsin state courts; (c)

the law on the issues presented below was unsettled in

Wisconsin (ILEA Mtn. 3); and (d) when Justice Geske cast

the deciding vote, she "did not merely apply well-established

law and in fact quite possibly made new law... ." 475

U.S. at 822; see App. 118.

With the large number of amici curiae briefs that are

filed every year, the issue raised in this Petition will arise in

other cases. But no case of which Petitioner is aware has

squarely addressed whether due process precludes a judge

from casting the deciding vote in a case where the judge has

a financial or personal interest in an anicus curiae that will

benefit directly from the outcome of the case.° Because of

the huge financial impact of the decision below on insurance

policyholders in Wisconsin, and the serious due process

concerns that arise from Justice Geske’s participation in that

decision, Petitioner respectfully requests the Court to grant

its petition in this case.

: Cf. Berard v. Bernard, 31 F.3d 842, 844-45 (9th Cir. 1994) (a

judge married to United States Trustee concludes that he should recuse

himself in any case in which the United States Trustee appears as an

amicus, citing to the views of the Committee on Codes of Conduct); see

also In re Honolulu Consolidated Oil Co., 243 F. 348 (9th Cir. 1917) (a

judge should recuse himself under the federal recusal statute where the

judge is a stockholder in a corporation with a pending lawsuit that will

be affected by the case pending before him). The policy goal of the

federal recusal statute, 28 U.S.C. § 455, -- the avoidance of the

appearance of judicial impropriety -- is of “constitutional dimensions.”

Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 865 & n.12

(1988) (citing Lavoie, Tumey, and Murchison).

Il. THIS COURT HAS NEVER CONSIDERED

WHETHER THE "VOLUNTARY, KNOWING,

AND INTELLIGENT" TEST FOR WAIVER OF

FUNDAMENTAL CONSTITUTIONAL RIGHTS

APPLIES EQUALLY IN THE CIVIL AS IN THE

CRIMINAL CONTEXT

This Court has stated, in the criminal context, that

"[w]aivers of constitutional rights not only must be voluntary

but must be knowing, intelligent acts done with sufficient

awareness of the relevant circumstances and likely

consequences.” Brady v. United States, 397 U.S. 742, 748

(1970) (internal citations omitted). In D.H. Overmyer Co.

v. Frick Co., 405 U.S. 174 (1971), a civil case, this Court

assumed, without deciding, that the Brady standard applies

to the contractual waiver of due process rights in the civil

context. Jd. at 185.

Overmyer involved the exercise of a provision of

Ohio law whereby one party may consent in advance to a

default judgment without notice or hearing. In a decision

narrowly confined to the facts of the case, id. at 178, 188,

the Court determined that the petitioner had voluntarily,

knowingly, and intelligently waived its constitutional right to

notice and a hearing. Id. at 187.

This case presents this Court with an opportunity to

decide the question not reached in Overmyer -- whether the

"voluntary, knowing, and intelligent” standard applies in to

the waiver of a fundamental due process right in the civil

context. Unlike Overmyer, this case presents a situation in

which a “voluntary, knowing, and intelligent” waiver did not

occur. At least two federal Courts of Appeal have

determined a purported waiver of fundamental constitutional

rights in civil cases to be invalid where it was not voluntary,

knowing, and intelligent.’ At least implicitly, the decision

of the Supreme Court of Wisconsin in this case is to the

contrary.

The reasoning of Brady and its predecessors should

be just as compelling in the civil as in the criminal context.

To deny parties their fundamental constitutional rights on the

basis of anything less than a voluntary, knowing, and

intelligent waiver would invite erosion of due process rights

through a variety of technical defaults. Particularly in the

present case, where the due process right at issue is designed

to uphold the public’s confidence in the judiciary, to adopt

a lower standard for waiver would only tend to diminish the

judiciary, and indeed the legal system, in the eyes of the

public.

Determining whether a particular alleged waiver was

indeed voluntary, knowing, and intelligent may depend in

part on the particular circumstances of the case. Brookhart

10 See Gonzalez v. County of Hidalgo, Texas, 489 F.2d 1043, 1048-50

(Sth Cir. 1973); Sambo’s Restaurants, Inc. v. City of Ann Arbor, 663

F.2d 686, 693 (6th Cir. 1981) (Opinion of Celebrezze, J.) (waiver

invalid because not knowing); id. at 695-696 (Opinion of Merritt, J.)

(waiver was invalid because not voluntary); cf. Bond v. Dentzer, 494

F.2d 302, 312-14 (2d Cir. 1974), cert. denied, 419 U.S. 837 (Kaufman,

J., dissenting) (the device of wage assignment denies debtor the due

process right to have the question of default adjudicated, and an

adhesion contract clause did not constitute a constitutionally valid

waiver of that right).

v. Jones, 384 U.S. 1, 4 (1966). There is a presumption

against such a waiver. Jd. Whether the waiving party was

an uncounselled criminal defendant or a sophisticated,

counselled corporation is of course a relevant factor to be

considered. See, e.g., Overmyer, 405 U.S. at 186.

Ultimately, when a court determines that a constitutional

right has been waived, it is deciding a question of federal

constitutional law. Brookhart, 384 U.S. at 4 & n.4.

In the proceeding below, Petition did not voluntarily,

knowingly, and intelligently waive its constitutional right to

an unbiased decisionmaker.

Justice Geske gave Petitioner a week within which to

request her to recuse herself from hearing this case. But she

did not give Petitioner sufficient information to make an

informed waiver of Petitioner’s due process rights. Justice

Geske merely told Petitioner that her husband, Michael

Hogan, worked for St. Paul. For all Petitioner knew, Mr.

Hogan could have worked in St. Paul’s employee relations

department or as a bookkeeper or a life insurance agent.

Nothing in Justice Geske’s statement suggested that Mr.

Hogan was an attorney who represented St. Paul in insurance

coverage matters. Nor did Justice Geske suggest or even

hint at the hearing that she had an interest in excess of

$50,000 in the St. Paul savings plan, which included

holdings of St. Paul stock, as well as a holding in the St.

Paul pension plan.

To the extent that the Supreme Court of Wisconsin

held that Petitioner had an affirmative obligation to conduct

an independent investigation of government records to

for eee

determine whether Justice Geske had a personal or financial

interest that would warrant a request for disqualification,

App. 107, 111, the court was in error. That holding

substitutes a "due diligence” requirement for the "voluntary,

knowing, and intelligent” standard set forth in decades of

this Court’s decisions.

Waiver of a litigant’s right to a fair and impartial

judge should not be determined on the ground that a litigant

might have performed a Dun & Bradstreet search, or scoured

the public records, in order to determine whether a judge

should be disqualified from sitting on a case. Rather, a

party should be deemed to have waived its fundamental

constitutional rights only if the judge had fully disclosed, on

the record and at the time of the purported waiver, the

disqualifying circumstances." No such disclosure was

made below.”

. Indeed, by statute in Wisconsin, Wis. Stat. § 757.19(3),

disqualification of a judge may be waived only “by agreement of all

parties and the judge after full and complete disclosure on the record

of the factors creating such disqualification.” See also United States v.

Nobel, 696 F.2d 231, 237 & n.11 (3d Cir. 1982), cert. denied, 462 US.

1118 (1983) (under the federal Code of Judicial Conduct, full disclosure

must be made “at a time early enough to form the basis of a timely

motion at or before trial and under circumstances which avoid any

subtle coercion”). ©

Of course, a state may set reasonabie procedural requirements

for the assertion of a constitutional right, and the failure of a party to

comply with those requirements may constitute a waiver of that right.

Yakus v. United States, 321 U.S. 414, 444 (1944). But here, the

Supreme Court of Wisconsin determined that a litigant may assert such

rights at any time, even after a case is decided and the matter is

Furthermore, while litigants may be entitled to waive

fundamental constitutional rights that affect them personally,

when the assertion of those rights affects society as a whole,

waiver may be inappropriate. Most pertinently, the decision

below affects the interests of thousands of insurance

policyholders in Wisconsin that were not represented in the

courtroom.'? Obviously, those persons and businesses were

not asked to waive Justice Geske’s conflict of interest. It is

inconsistent with the fair and impartial administration of

justice for a judge with a substantial financial or personal

interest in the outcome of the case that affects the public

generally to cast the deciding vote in that case. Rather, in

those circumstances, the right to an impartial decisionmaker

should be mandatory, not waivable.

This Court should grant the petition for writ of

certiorari to decide (a) whether a party may waive its due

process rights to require disqualification of a judge with a

personal or financial interest in the outcome of a case that

affects both the party and other persons or entities not parties

to the case, and (b) if so, whether such a waiver must be

"voluntary, knowing, and intelligent.”

remanded to the lower courts. App. 103; see also Barker v. Wingo, 407

U.S. 514, 527 (1972) (“Courts should ‘indulge every reasonable

presumption against waiver, .. . and they should ‘not presume

acquiescence in the loss of fundamental rights.) (citing Aetna Ins. Co.

v. Kennedy, #1 U.S. 389, 393 (1937), and Ohio Bell Tel. Co. v.

Comm’n, 301 U.S. 292, 307 (1937)).

” More than 100 Wisconsin businesses and government entities

joined in briefs amicus curiae in support of Petitioner’s motion for

reconsideration of the Supreme Court of Wisconsin’s decision.

CONCLUSION

For all of the foregoing reasons, the petition for writ

of certiorari should be granted.

Respectfully submitted,

David B. Goodwin

Counsel of Record

Joshua Koltun

Heller, Ehrman, White &

McAuliffe

333 Bush Street

San Francisco, CA 94104

(415) 772-6000

Charles V. Sweeney

Of Counsel

N315 Charley Bluff Road

Milton, WI 53563

(608) 868-2710

Attorneys for Petitioner

Edgerton Sand & Gravel, Inc.

No.

In the

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

Edgerton Sand & Gravel, Inc.,

Plaintiff-Respondent-Petitioner,

Vv.

General Casualty Company of Wisconsin

and Aetna Casualty and Surety Company,

Defendants-Appellants-Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Wisconsin

APPENDICES TO THE

PETITION FOR A WRIT OF CERTIORARI

INDEX TO APPENDIX

100

Page

WISCONSIN SUPREME COURT

Decision dated

February 23, 1995 101

WISCONSIN SUPREME COURT

Decision on Motion for

Reconsideration dated

October 25, 1994 115

WISCONSIN SUPREME COURT

Opinion Filed June 16, 1994 116

WISCONSIN COURT OF APPEALS,

DISTRICT IV

Decision Dated November 25, 1992 163

CIRCUIT COURT FOR ROCK COUNTY,

WISCONSIN

Decision by Judge John H. Lussow

dated May 10, 1991 206

APPENDIX PAGE

101

STATE OF WISCONSIN _ : IN SUPREME COURT

No. 91-1408

City of Edgerton and

Edgerton Sand & Gravel, Inc.,

Plaintiffs-Respondents,

General Casualty Company

of Wisconsin,

Defendant-Appellant-Petitioner,

Wisconsin Insurance Security Fund,

Defendant,

Aetna Casualty and Surety Company,

Defendant-Co-Appellant-Petitioner,

Hanover Insurance Companies,

Wausau Insurance Companies and

Local Government Property Insurance Fund,

Defendants.

APPENDIX PAGE

102

ON MOTION TO VACATE DECISION OR

ALTERNATIVELY TO REHEAR WITHOUT

PARTICIPATION OF CHALLENGED JUSTICE.

Motion dismissed.

Decided Feb. 23, 1995.

HEFFERNAN, CHIEF JUSTICE. We dismiss the

motion of Edgerton Sand & Gravel, Inc. (ES&G) to v=cate

this court’s decision of June 16, 1994, 184 Wis.2d 750, 517

N.W.2d 463 or, alternatively, for a rehearing in the matter.

To the extent the motion seeks a second reconsideration, this

court does not reconsider denials of reconsiderations. In

addition, the motion must be dismissed because we conclude

that the movant, ES&G, on multiple occasions, waived

whatever objections it might have had to the participation of

one of the justices in the court’s decision.

Nevertheless, because the movant has questioned the

integrity of a justice of this court and hence the integrity of

a decision of the court, we address the movant’s claim and

conclude that the motion of ES&G is meritless.' The court

does not ordinarily exercise any jurisdiction after the

remittitur of the judgment, opinion and the record to the

' It should be noted that on the date the instant motion was filed,

the movant submitted a copy of a consent to the substitution of ES &

G’s president, who is a member of the Wisconsin bar, for the attorneys

who had appeared on its behalf in the review and on the motion for

reconsideration. That consent was directed to the circuit court in which

the underlying action originated. The instant motion was filed by ES

& G’s substituted counsel.

igkitsie 2c... de

;

APPENDIX PAGE

103

circuit court. Ott v. Boring, 131 Wis. 472, 110 N.W. 824

(1907). However, this court has held that the Ott rule is

inapplicable when it is asserted, as here, that the court’s

decision is void because a justice should not have participated

in the case. State v. American TV & Appliance, 151 Wis.2d

175, 181, 443 N.W.2d 662 (1989). It behooves the court in

the defense of its own legitimacy and of its integrity to

consider such claims.

The movant, ES&G, was a plaintiff in the action

seeking a declaration that it was afforded insurance coverage

for the defense of administrative proceedings it considered to

be the equivalent of a suit at law. By decision of June 16,

1994, a divided court (four-three) held against the plaintiffs,

the author of this opinion on the motion for vacatur or

rehearing being one of the minority.

On July 5, 1994, ES&G moved for reconsideration,

contending that the court had misapprehended controlling

law. The motion was based on the assertion that the court’s

decision was contrary to the intent of the United States

Congress as determined by a recent decision of the United

States Supreme Court, Key Tronic Corp. v. The United

States, --- U.S. ----, 114 §.Ct. 1960, 128 L.Ed.2d 797

(1994). ES&G also claimed that this court erred when it

concluded that, under the terms of its insurance policy, the

administrative proceedings involving ES&G were not

reasonably to be construed as synonymous with a "suit."

Those legal assertions and a request to supplement the

record were the sole bases for ES&G’s reconsideration

motion, notwithstanding that Kenosha Auto Transport (KAT)

and two others, who had sought amicus status in the

APPENDIX PAGE

104

reconsideration, requested permission to file a motion and

brief asking that the decision be vacated or that Justice Janine

P. Geske be disqualified from the reconsideration. Although i

KAT’s proposed motion and brief had been served on all

parties, including ES&G, neither ES&G nor any other party

joined in KAT’s challenge or asserted Justice Geske’s

disqualification as ground for reconsideration or vacatur.

KAT’s motion to file an amicus brief was denied and its

request to move for Justice Geske’s disqualification was

dismissed on September 15, 1994. ES&G’s motion for

reconsideration was denied on October 25, 1994, and the

record was remitted to the circuit court on November 17,

1994, |

On November 29, 1994, one year after oral argument,

more than two months after KAT’s request was denied and

almost a month and one-half after ES&G’s reconsideration

motion was denied, ES&G filed the present motion, asserting

that Justice Geske was disqualified under sec. 757.19(2) and

(3), Stats.,? from participating in the original decision and

? 757.19 D'squalification of judge.

(2) Any judge shall disqualify himself or herself from any civil

or criminal action or proceeding when onc of the following situations

occurs:

(a) When a judge is related to any party or counsel thereto or

their spouses within the 3rd degree of kinship.

(b) When a judge is a party or a material witness, except that

a judge need not disqualify himself or herself if the judge determines

that any pleading purporting to make him or her a party is false, sham

or frivolous.

the same action or proceeding.

Kae so ie.

APPENDIX PAGE

105

asking for the vacation of the decision of June 16, 1994, or,

in the alternative, for rehearing without the participation of

Justice Geske. It is clear that ES&G previously waived any

objection it might have had to Justice Geske’s participation.

We dismiss the motion for this reason, but we point out that,

even if the disqualification issue had been raised timely on

reconsideration, it would have been determined to be without

merit.

We set forth the significant facts. The case was

argued to the court on Monday, November 29, 1993. At the

outset of the argument, shortly after counsel for one of the

petitioners on review commenced his presentation, Justice

Geske stated:

"I ... want to make a disclosure. Last

night when I was looking one more time at the

amicus briefs, I noted that Mr. Burrell had

filed an amicus brief on behalf of the

Insurance Environmental Litigation

(d) When a judge prepared as counsel any legal instrument or

paper whose validity or construction is at issue.

action or proceeding while judge of an inferior court.

(f) When a judge has a significant financial or personal interest

in the outcome of the matter. Such interest does not occur solely by

the judge being a member of a political or taxing body that is a party.

(g) When a judge determines that, for any reason, he or she

cannot, or it appears he or she cannot, act in an impartial manner.

(3) Any disqualification that may occur under sub. (2) may be

waived by agreement of all parties and the judge after full and complete

disclosure on the record of the factors creating such disqualification.

APPENDIX PAGE

106

Association, and I looked at the appendix and

I noted that one of the companies listed in that

is St. Paul Companies. My husband is

employed by that company. I do not believe

that presents any conflict and will not

influence me. If anybody has any objections

to me sitting on this case, I would appreciate

hearing from you in letter by the end of the

week.”

Justice Geske’s declaration in open court disclosed

that her husband was an employee of a company that, while

not a party to the litigation, was a member of an association

that had submitted a nonparty amicus brief. No objection

was raised by any of the parties at oral argument nor was any

objection raised “by the end of the week.” No objection to

Justice Geske’s participation whatsoever was raised until

KAT, a nonparty, raised the question in the proposed amicus

brief it tendered to the court on September 2, 1994.

The disqualification statute provides that any

disqualification "may be waived by agreement of all parties

and the judge after full and complete disclosure on the record

of factors creating the disqualification.” Section 757.19(3),

Stats. It is significant to note that ES&G does not argue that

the disclosure made by Justice Geske and the setting of a

time limit to object or to waive objection to her participation

was not a proper procedural framework for the waiver of

disqualification. Rather, counsel for ES&G argues that the

disclosure was not sufficient--that it did not constitute a “full

and complete disclosure."

—

v§

“

APPENDIX PAGE

107

Wisconsin law, sec. 19.43, Stats., and the rules of

this court, SCR 60.18, require members of the judiciary to

file each year with the Ethics Board a statement of economic

interests, including their assets and liabilities. As matters of

public record, those statements are available for inspection by

any interested person. A judge in a particular case who is

aware of facts that may be relevant to the issue of his or her

disqualification must disclose those facts to the parties for

purposes of waiver under sec. 757.19(3), Stats. This is a

duty imposed on a judge by law. A party concerned about

those facts should then, at a minimum, examine the judge’s

financial disclosure on record because information in those

records may prompt further inquiry.

We conclude that under the circumstances of this case

the disclosure made by Justice Geske was sufficient--that all

the facts necessary for counsel to determine whether to assert

or waive any disqualification were either disclosed or were

readily obtainable of record prior to the "weekend deadline”

suggested by Justice Geske. Following that disclosure, if

ES&G had been concerned, it could have examined the

financial disclosures Justice Geske had filed with the Ethics

Board and if those disclosures did not satisfy ES&G in

respect to Justice Geske’s financial ties to St. Paul

Companies, it could have asked for more information from

her or could have advised her “by the end of the week” that

it objected to her participation.

If ES&G’s counsel examined the public record, it

apparently did not deem the information in it sufficient to

pursue the disqualification issue. Now, however, ES&G’s

substituted counsel asserts that Justice Geske’s

disqualification was required on the basis of inferences it

APPENDIX PAGE

108

makes from that information. Clearly, ES&G waived any

possible disqualification by not acting by the "end of the

week” and for one year following oral argument.

Even after the court’s decision on June 16, 1994--after

learning that Justice Geske was the scrivener for the

court--ES&G’s counsel did not raise the question of Justice

Geske’s qualification to sit but asserted in its reconsideration

motion only that the court had failed to follow what counsel

considered controlling law. Despite the fact that ES&G had

been served with a copy of KAT’s proposed amicus motion

and brief raising the disqualification issue, it did not join in

KAT’s motion or express to the court in its motion for

reconsideration on the merits any position in respect to

disqualification.

Hence, we conclude that on at least two discrete

occasions ES&G’s counsel failed to make any objection to

Justice Geske’s participation. These successive waivers in

themselves bar ES&G from asserting its motion for vacatur

at this time, months after it could have informed itself of the

facts on which its motion is based and made any concern

known to the court. The motion must be dismissed.

We could well rest our determination of the motion

solely upon the absence of ES&G’s timely assertion of its

purported rights or we could, and do, base it also on the fact

that there has been one reconsideration of the court’s

decision and we will not entertain a request for a second.

Blau v. City of Milwaukee, 232 Wis. 197, 208, 285 N.W.

347, 286 N.W. 874, 287 N.W. 594 (1939). Nonetheless,

when there is an attack upon the impartiality of the court or

of one of its justices, we should determine whether such

APPENDIX PAGE

109

attack is meritorious or meretricious. We conclude that the

instant assault upon this court by ES&G is the latter.

First, it must be noted that all of ES&G’s arguments

for disqualification hinge upon its persistent and unfounded

assertion that St. Paul Companies is in essence a party to the

action. It is not. The Insurance Environmental Litigation

Association, of which St. Paul Companies is a member, filed

a non-party amicus brief. St. Paul is not a party and

Attorney Hogan is not its counsel in this case.

Second, ES&G overlooks the fact that the lacunae in

information that it now asserts made Justice Geske’s in-court

disclosure defective was a matter of record at least since

Justice Geske filed her Statement of Economic Interests with

the Ethics Board, pursuant to sec. 19.43, Stats., on

December 14, 1993.’ That document, a public record, sets

forth that Justice Geske’s husband, Michael Hogan, was an

attorney-employee for St. Paul Fire & Marine Company and

that she and her immediate family owned a “savings plus

program for St. Paul Fire & Marine--St. Paul stocks and

mutual funds" of a combined value of more than $50,000.

Further, contrary to ES&G’s assertion that Justice Geske did

not disclose that she and her husband had a financial interest

in St. Paul’s employee pension plan, her financial disclosure

recites that one of the family assets is a retirement plan with

St. Paul Fire & Marine. (Addendum to Statement of

> ES & G appended a copy of that statement to its brief in support

of the instant motion.

APPENDIX PAGE

110

Economic Interest filed on December 14, 1993.)* Had there

been any real concern over the Geske-Hogan holdings in St.

Paul Insurance Company following the in-court disclosure,

ES&G had every opportunity to assert it. It did not.

It is also alleged that Justice Geske did not disclose

that St. Paul had a significant interest in the litigation. Once

Justice Geske announced that Attorney Hogan was employed

by St. Paul, the parties, including ES&G, were in a position

to ascertain whether St. Paul’s interest was significant. Yet,

when the employment relationship of Justice Geske’s husband

with St. Paul was disclosed, ES&G did not raise St. Paul’s

interest or of the Geske-Hogan interest as potentially

requiring disqualification and did not do so thereafter when

it moved for reconsideration. Only after the initial adverse

decision on the merits and after having been rebuffed on the

merits of its motion for reconsideration did ES&G, by its

substituted counsel, raise the issue of the extent of St. Paul’s

interest in the underlying litigation.

ES&G dismisses as irrelevant to a determination of

disqualification on the basis of financial interest the one

* It should be noted that counsel for ES & G repeatedly refers to

the precedent of federal court decisions as being dispositive in this

court. Under federal statutes, any financial interest, no matter how

insignificant, or factually irrelevant, may be a basis for disqualification.

28 U.S.CA. sec. 455(b)(4) and (d)(4). That is not the law of the State

of Wisconsin, which requires disqualification only if there is a

“significant financial or personal interest.” It is not asserted that the

interest of the Justice or her family is significant. The complaint of ES

& G is that it lacks the information needed to assert that the interest

is significant.

APPENDIX PAGE

111

factor relevant here to the issue of disqualification--Justice

Geske’s statement, "I do not believe [my husband’s

employment with St. Paul Companies] presents any conflict

and will not influence me.” While not relevant in respect to

sec. 757.19(2)(f), Stats., that statement is far from irrelevant.

Because, on the facts of record, none of the grounds for

mandatory disqualification has any objective factual basis, the

only basis for Justice Geske’s disqualification would be that

set forth in sec. 757.19(2)(g), Stats., "[w]Jhen a judge

determines that, for any reason, he or she cannot, or it

appears he or she cannot, act in an impartial manner."

(Emphasis supplied.)

As pointed out in American TV, supra, 151 Wis.2d

at 182, 443 N.W.2d 662 the determination under sec.

757.19(2)(g), Stats., unlike the other subdivisions of the

Statute, is a subjective one. That, however, does not prevent

the parties from bringing to the judge’s attention facts that

may bear on that determination. Here, Justice Geske

announced to the world that the fact that her husband worked

for the St. Paul Companies would not influence her decision.

It was appropriate for her to so state and it invited counsel to

challenge the statement on the basis of objective facts.

Counsel did not do so within the time specified by Justice

Geske--"the end of the week"--and ES&G did not do so when

it moved for reconsideration eight months later. ES&G did

not raise the disqualification issue until one year later.

The assertion that Justice Geske failed to make a

disclosure of facts that counsel could have fully explored in

the public record can only be explained by ES&G’s continued

effort to ignore facts that were apparent and available to

anyone who thought them to be of concern. While

APPENDIX PAGE

112

reasonable persons may disagree on the merits of the original

decision, as did the author of this opinion, no reasonable

person can argue on the basis of objective facts or on the

basis of the subjective test under sec. 757.19(2)(g), Stats.,

that Justice Geske acted in other than an impartial and just

manner.

We point out that a complaint was made to the

Judicial Commission alleging that Justice Geske’s

participation in this case constituted a violation of the Code

of Judicial Ethics. That complaint was dismissed upon the

Judicial Commission’s determination that there was no

probable cause to believe that any violation whatsoever

occurred.* While the Judicial Commission’s letter appended

hereto is evidence that Justice Geske has been completely

exonerated by the tribunal authorized to investigate and

charge judges for ethical violations, we do not rely on that

determination.

Our review of the record establishes that the claims

made in the motion for vacatur and for disqualification in the

event of further proceedings are meritless and untimely

Further, ES&G’s untimely arguments have had the effect of

delaying the final decision in the case and have disrupted the

orderly procedures of this court.

Motion dismissed with costs.

GESKE, J., did not participate.

> See appended letter of Judicial Commission dated January 17,

1995.

APPENDIX PAGE

113

APPENDIX

State of Wisconsin

JUDICIAL COMMISSION

James C. Alexander

Executive Director Phone: 608-266-7637

Suite 606, Tenney Building

110 East Main Street

Madison, Wisconsin 53703-3328

January 17, 1995

CONFIDENTIAL

Honorable Janine P. Geske Justice, Wisconsin

Supreme Court 231 East, Capitol Madison, Wisconsin

Dear Justice Geske:

On December 16, 1994, the Judicial Commission

considered the allegation of misconduct filed against you for

your participation in the case City of Edgerton et al. v.

General Casualty Company of Wisconsin et al., Case No. 91-

1408.

As I stated in my letter of December 20, 1994, the

Commission’s review of the investigation resulted in its

determination that probable cause did not exist that a

violation of the Code of Judicial Ethics had occurred. The

matter has accordingly been closed.

APPENDIX PAGE

114

It is my understanding that you are waiving your right

to confidentiality under s 757.93, Wisconsin Statutes, only

for the specific purpose of filing this letter in the court file of

the case involved, with copies to the attorneys of record.

Again, thank you for your cooperation with the

Commission in the investigation of this matter.

Very truly yours, /s/ James C. Alexander

James C. Alexander

Attorney at Law

2 Saderatllakn "lai TO cls aOR Cah ta

APPENDIX PAGE

115

STATE OF WISCONSIN _ : IN SUPREME COURT

DISTRICT 4

EDGERTON, CITY v. GENERAL CASUALTY CO.,

#91-1408

IT IS ORDERED THAT THE MOTION FOR

RECONSIDERATION IS DENIED WITH COSTS.

C.J. HEFFERNAN, J. ABRAHAMSON AND J.

BABLITCH DISSENT.

IT IS FURTHER ORDERED THAT THE MOTION

TO STRIKE PORTIONS OF MEMO IN SUPPORT C!

MOTION FOR RECONSIDERATION AND THE MOTIO'N

TO FILE MEMO IN SUPPORT OF MOTION FOR

RECONSIDERATION ARE DISMISSED.

Dated: October 25, 1994.

Marilyn L. Graves

Clerk of Supreme Court

APPENDIX PAGE

116

STATE OF WISCONSIN _ : IN SUPREME COURT

No. 91-1408

City of Edgerton and

Edgerton Sand & Gravel, Inc.,

Plaintiffs-Respondents,

General Casualty Company

of Wisconsin,

Defendant-Appellant-Petitioner,

Wisconsin Insurance Security Fund,

Defendant,

Aetna Casualty and Surety Company,

Defendant-Co-Appellant-Petitioner,

Hanover Insurance Companies,

Wausau Insurance Companies and

Locai Government Property Insurance Fund,

Defendants.

APPENDIX PAGE

117

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.

Apr. 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.

‘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

Gencral 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

118

The circ. it 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?

be nee thn ev hace etl imsetcrtie ale we § Wiles

a Ny ae a Oa IO ta Ol et MA Ol Peat wee

APPENDIX PAGE

119

(2) Do cleanup and remediation costs under

CERCLA’ and equivalent state statutes’ constitute

“damages” within the context of a comprehensive liability

insurance policy?

"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

120

(3) Do the personal injury provisions of an

insurance policy provide coverage for environmental cleanup

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

*42 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,

14 Re odtay

APPENDIX PAGE

121

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

potentialiy 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 City.

Comment, Whether Insurers Must Defend PRP Notifications: An

Expensive Issue Complicated by Conflicting Court Decisions, 10 N. Ill.

U.L. Rev. 579, 581 n.8 (1990) [hereinafter Whether Insurers Must

Defend].

APPENDIX PAGE

122

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

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

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

of ES&G). From the carly 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.

9 Pie toa

APPENDIX PAGE

123

closed, groundwater contamination remained, and the DNR

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

contaminated sites for priority cleanup.

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

"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...

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.

APPENDIX PAGE

124

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.

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.'* Failure to respond would result in the listing of the site

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

9604(e).

“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

APPENDIX PAGE

125

a i Acne

SUR A a HEA) a atta ARC lil DU GRE PS ne

Caer)

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 moncys from the appropriations

under ss. 20.370(2)(dv) and 20.866(2)(tg), the moneys

available from other sources for the required sharing

of costs, the differences between public and private

sites or facilities, the potential for cost recovery from

responsible parties and any other appropriate factors.

municipality to pay a reasonable share of the amount

expended by the department for a project under par.

(b). The department shall base any share charged to

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

following factors:

a. The municipality's responsibility for the

site or facility affected by the project.

b. The benefit that the municipality receives

from the project.

c. The municipality's ability to pay for the

project.

APPENDIX PAGE

126

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

2. The total amount charged to all

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

environmental repair.

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

DNR’s southern district headquarters.

OM a LO A PC OEE ATEN Ble 95 A ait RELA ab tien ata RE 0 Nec nt ti ToD a ANI Nae! Rey i C8 Blache tape

Pee, te mane

APPENDIX PAGE

127

them for any liabiiity 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.

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

‘*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 cach insurer’s claim that the circuit

court erroneously exercised its discretion by not addressing those

motions.

APPENDIX PAGE

128

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. ,'’

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

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

802.08 Summary judgment....

(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.

PE Dt EHD LB OR IAG SHE NT SoD Aalst Pte

APPENDIX PAGE

129

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)).

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, Insurance 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

APPENDIX PAGE

130

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.

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.

J eid he I Oi A POSS AAS Sate eet ts ame ee MTR Rh lll Cale

ernie:

alae PORE ee ee ep EN ‘

fii lh hl it i a bs

APPENDIX PAGE

131

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

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.

APPENDIX PAGE

132

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); Firernan’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 as coercive as a civil judgment against

the insured); and Cascade Pole Co. v. Reliance Insurance Co., No. 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.

APPENDIX PAGE

133

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

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

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

modified on reh’g (applying Wisconsin law), reaffd 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).

'"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. I/d.

Disputes under the stricter CGL forms focus on the meaning of

APPENDIX PAGE

134

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

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

“damages” and absolute pollution exclusion provisions.

*The 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 tbe 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.

ne)

Patino Mas

PI Ri Oth es NEI es a

APPENDIX PAGE

135

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 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.

APPENDIX PAGE

136

Some courts have concluded that PRP letters have a

unique nature within the context of aCERCLA 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

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

"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); Firernan’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

137

regarding the DNR letters. Those letters stated in pertinent

part:

On November 6, 1989, the Department

. forwarded to you the CERCLA 104(a)

e 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).

45 a thi ¥

LR EN RR aah ASAE ot Sa et

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

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

legally enforceable contract between the

Department and the PRP’s must be signed

APPENDIX PAGE

138

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.

handle solid waste disposal problems within their

respective jurisdictions and on a regional basis, and

ns 6 pe aati is ECR

APPENDIX PAGE

139

provide technical and consultative assistance for that

purpose.

(d) Collect and disseminate information and

conduct educational and training programs relating to

the purposes of ss. 144.43 to 144.47.

(e) Organize a comprehensive and integrated

program to enhance the quality, management and

protection of the state’s land and water resources.

(f) Provide technical assistance for the

closure of a solid waste disposal facility that is a

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

(2) The department may:

(a) Hold hearings relating to any aspect of

the administration of ss. 144.43 to 144.47 and, in

connection therewith, compel the attendance of

witnesses and the production of evidence.

(b) Issue orders to effectuate the purposes of

ss. 143.43 to 144.47 and enforce the same by all

appropriate administrative and judicial proceedings.

administrative and operational services, including

laboratory facilities, by contract or otherwise.

(d) Advise, consult, contract and cooperate

with other agencies of the state, local governments,

industries, other states, interstate or interlocal

agencies, and the federal government, and with

interested persons or groups.

APPENDIX PAGE

140

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 mighr result in its legal

liability is not synonymous with a ‘suit’ so as to trigger [the

insurer’s] duty to defend....") (Emphasis added.)” This

(ec) 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 to 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.

>t 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 action may be taken if a remediation

APPENDIX PAGE

141

court has recently 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

work plan was not forthcoming from the City and ES&G. Neither

letter identified any /ega/ 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

142

fact that the 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 0. 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

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).

See Technicon Electronics v. American Home, 141 A.D.2d 124

(N.Y. App. Div. 1988), affd on other grounds 542 N.E.2d 1048 (1989).

The court concluded that “[t]he EPA letter at issue merely informed

Technicon of its potential 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

143

WDNR to undertake investigation and clean-

up activities...

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.

APPENDIX PAGE

vas

However, the court of appeals adopted the reasoning

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

1990),7° 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. Jd. at 741. The court of appeals

then concluded that the EPA and the DNR had assumed an

adversarial approach wward 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

*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

145

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

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

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.% Id. 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

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 Departmeni 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

146

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, 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

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

147

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

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

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

*'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

148

reasonable person in the position of the insured and that

reasonable insured’s expectations of coverage. Id. However,

an insured’s expectations may not be satisfied in contradiction

to policy 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

APPENDIX PAGE

149

the four corners of the complaint to make such

a determination.

Id. at 364-65.

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.

*See 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

150

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 220-21. The insurer has to defend

suits against the insured requesting recovery for sums that the

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

151

not constitute damages. Additionally, the parties did not

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]

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(a)(4)(A) or (C). See Kristin A. Kolesar, Note,

Insurance 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

Insurance Coverage for CERCLA Claims}.

APPENDIX PAGE

152

contract for such coverage.

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 swms 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. Jd. 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

APPENDIX PAGE

153

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

821 (1988) (Northeastern’s CGL policies did not provide

coverage 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

[nJatural 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

esata Wi Statin iain: cere: eS Te

Se ee ee ee

APPENDIX PAGE

154

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 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 liability 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,

APPENDIX PAGE

155

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

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

'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, Jnsurance Coverage of

Environmental Claims, Practicing Law Institute (April-May 1993) at 4

(Westlaw citation: 459 PLI/Lit 261, PLI Order No. H4-5152; Database

cdl

Fee RB oe AOSTA AS BI os a i, 0 Obes

3 Sebati Sate P ‘

De Ata EIA TaN iAP mee ale.

APPENDIX PAGE

156

are covered by the insurance policies. The very well written

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

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

carefully reviews the numerous cases and authorities. It does

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

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

opinion falters.

The majority opinion holds that the insurance

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

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

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

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

prompted by administrative action. Because the majority

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

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

administrative process triggers the duty to defend.

First, the majority’s interpretation contravenes the

general rules applicable to contract interpretation that the

objective of interpreting the policy is to ascertain and carry

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

given their plain and ordinary meaning; they must be

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 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

157

interpreted to mean what a reasonable person in the position

of the insured would have understood them to mean.

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 mght before any

tribunal: litigation." Webster’s Third New International

Dictionary (1986) 2286.2? 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

*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 tw #vean, the

legal definition of “suit” is similar to Webster’s.

APPENDIX PAGE

158

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 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

APPENDIX PAGE

159

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

insured’s mghts. 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), affd, 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

APPENDIX PAGE

160

federal legislatures have attempted to resolve a major societal

problem without resorting to the courts. By clinging to an

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 hola

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

APPENDIX PAGE

161

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

costs constitute "damages’ under the terms of an insurance

contract has never been addressed by a Wisconsin court.

Such an important issue should not be decided in a cursory

fashion by this court. Therefore, we decline to adopt or

apply the analogy posited by the school districts."

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 closeiy

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

162

I am authorized to state that Chief Justice NATHAN

S. HEFFERNAN and Justice WILLIAM A. BABLITCH join

in this dissent.

APPENDIX PAGE

163

No. 91-1408

STATE OF WISCONSIN COURT OF APPEALS

DISTRICT IV

CITY OF EDGERTON,

AND EDGERTON SAND & GRAVEL, INC.,

Plaintiffs-Respondents,

GENERAL CASUALTY COMPANY OF WISCONSIN,

Defendant-Appellant,

WISCONSIN INSURANCE SECURITY FUND,

Defendant,

AETNA CASUALTY AND SURETY COMPANY,

Defendant-Co-Appellant,

HANOVER INSURANCE COMPANIES,

WAUSAU INSURANCE COMPIES,

AND LOCAL GOVERNMENT PROPERTY

INSURANCE FUND,

Defendants.

APPENDIX PAGE

164

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 US.C. §§ 9601-9675 (1988),

commonly referred to as Superfund.

APPENDIX PAGE

165

site from 1950 to 1984.27 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,

2EPA’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....

3General Casualty provided primary general liability coverage of

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

1, 1985 and January 1, 1985, to January 1, 1986. It provided primary

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

APPENDIX PAGE

166

ES&G 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,

i990. 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.

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

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

167

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.

APPENDIX PAGE

168

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

169

(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 city’s liability for groundwater

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

170

(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 prejudiced by ES&G’s and the city’s untimely

APPENDIX PAGE

171

notices, which precludes the grant of summary judgment to

any party.

(8) Has the policy limit of Iowa National’s

underlying policy been exhausted by payments by ES&G so

that Aetna’s duty to defend has been triggered? Did ES&G

and the city attempt to insure a known loss when they

contracted with General Casualty? We conclude that these

are issues for trial.

SUPERFUND INITIATIVE AS "SUIT"

General Casualty’s policies’ provide: "(T]he

company shall have the right and duty to defend any suit

against the insured seeking damages on account of ... bodily

injury or property damage, even if any of the allegations of

the suit are groundless, false or fraudulent....". (Emphasis

added.) Coverage P for Personal Injury Liability, contained

in ES&G’s policy and General Casualty’s Broad Form

Extended Liability Coverage Endorsement for personal injury

liability applicable to the city, contain substantively identical

‘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.

For a general discussion of the development of CGL policies, see 7A

JOHN A. APPLEMAN, INSURANCE LAW AND PRACTICE, § 4491 (1979 &

Supp. 1991); see also 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

172

language. 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. )

Genera] Casualty and Aetna argue that the Superfund

process did not commence a "suit" against their insureds

because the term "suit" "[iJn plain language refers to court

proceedings."? The traditional view is that a mere claim

against the insured is insufficient to trigger the duty to

defend. Thomas A. Gordon and Roger Westendorf, Liability

Coverage for Toxic Tort, Hazardous Waste Disposal and

Other Pollution Exposures, 25 IDAHO L. REV. 567, 609

(1988-89). The authors state:

Until a “suit” was filed, the courts were

reluctant to recognize an obligation by the

insurer to defend. More recent decisions,

however, have broadened the word "suit" to

include any adjudicatory proceeding before an

administrative or quasi-judicial forum. Courts

considering the issue of whether a notice letter

to PRPs from a federal or state regulatory

agency pursuant to environmental statutes

*The Insurance Services Office’s Occurrence-Commercial General

Liability policy, effective January 1, 1986, which replaced the standard-

form CGL policy, defines “suit” to "mean[] a civil proceeding in which

damages ... to which this insurance applies are alleged....". DONALD S.

MALECKI AND ARTHUR L. FLITNER, THE NEW CLAIMS-MADE AND

OCCURRENCE FORMS, COMMERCIAL GENERAL LIABILITY 11-12 (2nd

ed. 1986).

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173

triggers the existence of a duty to defend have

reached opposite conclusions.

Id, at 609-10 (citations omitted; emphasis added).

Those courts which have held that a duty to defend is

not triggered by federal or state administrative environmental

initiatives have applied to the word "suit" a “plain language”

rule. Representative of the decisions of those courts is Arco

Indus. Corp. v. Travelers Ins. Co., 730 F. Supp. 59 (W.D.

Mich. 1989). There, the court said:

In this case, the insurance contract

limits the duty to defend to those instances

where the insured is the subject of a “suit.”

While the contracts do not define the term

“suit,” that term has a well-accepted ordinary

meaning. In piain language, the term refers to

court proceedings.

Id. at 66.'°

The "“plain-language” courts frequently cite a

dictionary definition of "suit": "an action or process in a

'°The federal court for the Eastern District of Michigan predicted

that the Michigan Supreme Court would arrive at a contrary conclusion.

Higgins Indus., Inc. v. Fireman’s Fund Ins. Co., 730 F. Supp. 774, 776-77

(E.D. Mich. 1989). However, the Sixth Circuit Court of Appeals

predicted that the Michigan Supreme Court would conclude that a PRP

letter does not trigger an insurer’s duty to defend. Ray Indus., Inc. v.

Liberty Mut. Ins. Co., 974 F.2d 754, 762-64 (6th Cir. 1992). The court

held that “suit” had a plain and unambiguous meaning that excluded the

PRP letter in that case.

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174

court for the recovery of a right or claim." A.Y. McDonald

Indus. v. Insurance Co. of N. Am., 475 N.W.2d 607, 627

(lowa 1991) (citing WEBSTER’S THIRD NEW INTERNATIONAL

DICTIONARY 2286 (P. Gove ed. 1961)). Other courts,

however, have pointed out that "suit" has a second, broader

meaning: “the attempt to gain an end by a legal process."

Id. McDonald l\ists decisions which have given "suit" a

broad definition, and other decisions which have adopted a

narrow definition. Jd. at 627-28 nn. 9-10. Those courts

which have interpreted "suit" broadly have considered that

proceedings under both federal and state antipollution laws

may be lengthy and complex, and government policy is to

accomplish cleanup quickly and without judicial intervention

if possible. Annotation, Liability Insurance Coverage for

Violations of Antipollution Laws, 87 A.L.R. 4th 444, §2(b)

(1991 Supp. 1992).

We disagree with those courts which have found that

the word “suit,” contained in the standard-form CGL policy,

unambiguously requires the initiation of court proceedings

before the duty to defend is triggered. We also disagree with

those courts which hold that the mere receipt of a PRP letter

from EPA or a state environmental protection agency causes

the duty to defend to arise. We conclude that the duty to

defend arises when a federal or state environmental agency

identifies a PRP which it unequivocally requires to pay the

cost of, or participate in paying the cost of, landfill

remediation and clean up. We adopt the reasoning of the

court in Ryan v. Royal Ins. Co. of Am., 916 F.2d 731 (ist

Cir. 1990).

In Ryan, the owner of a site contaminated by

hazardous chemicals had what the court termed "somewhat

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175

desultory correspondence” with the New York Department of

Environmental conservation regarding closure and cleanup of

the site. It sued its insurer, Rural Insurance, for Rural’s

failure to defend and indemnify it according to the tenor of

a series of insurance policies. The court said that the issue

was whether the New York Court of Appeals would treat this

correspondence as the functional equivalent of a “suit”

sufficient to trigger the duty to defend under the policies.

The court concluded that it would not. It concluded that an

insurer’s duty to defend would be determined according to

the following principles:

To sum up, the origins and purpose of

the duty to defend seem best accommodated

neither by a restrictive suit-cum-judgment rule

nor by an expansive "any contact with a

government agency is enough" rule, but by

focusing instead on the data most relevant to

the probability of actual toxic waste liability:

coerciveness, adversariness, the seriousness of

the effort with which the government hounds

an insured, and the gravity of imminent

consequences. Since the law holds PRPs to so

strict a liability standard, the degree of

compulsion the government wields in pursuing

an insured seems an apt proxy for measuring

APPENDIX PAGE

176

factual expectancy according to the actual

probability and immediacy of toxic waste

liability.

Id. at 741."

General Casualty and Aetna argue that EPA exerted

no compulsion by its PRP letter of June 22, 1989,'? and that

DNR’s letters were merely invitations to voluntary action.

We agree that EPA’s Information Request letter of June 22,

1989, did not trigger a duty to defend. Such requests under

section 104(e) of CERCLA are, as its title states,

"Information Gathering." However, EPA and DNR

proceeded beyond the "information gathering" stage. On

November 6, 1989, DNR forwarded to ES&G the responses

the department received to the section 104(e) letter "as an

opportunity for you and the other potentially [responsible]

parties to reach an agreement between yourselves on

remediating the environmental problems at the landfill."

On February 27, 1990, DNR notified ES&G by

certified letter that, "[A] legally enforceable contract between

the Department and the PRP’s must be signed within 60 days

after a PRP workplan is submitted to the Department, to

"Ryan was followed in Colonial Tanning Corp. v. Home Indem.

Co., 780 F. Supp. 906 (N.D.N.Y. 1991).

'2General Casualty also claims that there is nothing in the record

to show that the city received EPA’s letter. General Casualty is wrong.

Mary Harding, an attorney representing the city, incorporated in her

affidavit the city attorney's letter of July 7, 1989, to General Casualty

specifically referring to and enclosing a copy of EPA’s June 22 letter.

APPENDIX PAGE

177

ensure that the work is completed properly and on schedule."

Immediately thereafter, on March 9, 1990, ES&G invited the

city "and others” to a meeting to discuss: (1) insurance

coverage at the site, (2) formation of a joint defense group,

and (3) formulating a response to DNR’s demands.

On February 8, 1991, DNR’s Bureau of Legal

Services notified ES&G that "unless a PRP group signs a

contract with WDNR for this site by May 31, 1991, WDNR

will request that this site be listed on the NPL.” The bureau

warned that if that occurred, EPA would attempt to negotiate

Administrative Consent Orders with the PRPs. If

unsuccessful, EPA could issue an order requiring the PRPs

to undertake clean up and remediation, or undertake the

action itself and sue the PRPs to recover its costs, or EPA

could seek forfeitures and treble damages from the PRPs for

noncompliance.”

DNR’s letter informed ES&G that its experience had

been "that work done under contract with WDNR goes much

quicker, is less complex and less costly than work done on

NPL sites.” DNR emphasized that a contract with it was the

"only mechanism acceptable to WDNR" to prevent listing the

The response actions which EPA may take under Superfund

include: removal of hazardous substances and remediation, 42 U.S.C.

§ 9604(a); any other measure consistent with the national contingency

plan EPA considers necessary to protect the public health or welfare of

the environment, 42 U.S.C. § 9605; abatement, 42 U.S.C. § 9606(a

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