Law, Equity and the Comprehensive General Liability Policy: The Scope of Coverage for CERCLA Cleanup Costs
By Laurence T. Vetter
INTRODUCTION
Decades of improper disposal of toxic industrial waste have left thousands of contaminated sites throughout the country. Faced with the unenviable task of cleaning up these sites, Congress enacted the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Pursuant to CERCLA, the Environmental Protection Agency (EPA) administrates the cleanup of existing hazardous waste sites. The EPA may accomplish the cleanup in two ways: it can order responsible parties to clean up a contaminated site, or it can clean up the site on its own and sue the responsible parties to recover the cleanup costs.
Frequently, CERCLA litigation aims to resolve who should ultimately pay the bill for environmental cleanup actions. The most likely candidate—the potentially responsible party or PRP—is the party directly responsible for the waste. Many PRPs are corporations which carry comprehensive general liability (CGL) insurance. When a PRP with CGL insurance discovers that the government seeks to hold it responsible for cleaning up a polluted site, it often looks to its CGL carrier for legal representation and indemnification. The carrier, in turn, usually denies that it has any duty to defend or indemnify its insured, and the dispute is then resolved through a motion for summary or declaratory judgment on the issue of liability.
The arguments made by PRPs and their CGL carriers in these actions often pivot on competing interpretations of certain provisions in standard-form CGL insurance contracts. In particular, litigants have long disputed the meaning of the term “damages” as it appears in the general provision of the standard CGL policy. A typical policy provides that the carrier must “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property....”
This Note focuses on one aspect of the inquiry into what “damages” means in the CGL context. Specifically, it addresses the issue of whether the term should apply only to what are traditionally called “legal damages” or whether it should also encompass equitable forms of relief. Insurers argue that the term “damages” in CGL policies limits the scope of coverage to legal damages and thus provides no recovery for cleanup costs resulting from government actions under CERCLA because of their equitable nature. Conversely, insureds/PRPs maintain that the court should define the term broadly to include equitable forms of relief such as injunctive cleanup orders under CERCLA.
This conflict ultimately must be resolved through application of the contract law of the relevant state. This Note will examine the historical development of the modern CGL policy and will briefly discuss various rules of judicial construction which relate to the scope of the term “damages.” Next, it will evaluate the validity of arguments advanced on both sides of the issue. This Note concludes that courts should broadly construe CGL policies to cover forms of relief that are historically equitable in nature. Finally, this Note suggests a sequence of steps which courts may wish to adopt in approaching similar disputes over liability.
Decades of improper disposal of toxic industrial waste have left thousands of contaminated sites throughout the country. Faced with the unenviable task of cleaning up these sites, Congress enacted the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Pursuant to CERCLA, the Environmental Protection Agency (EPA) administrates the cleanup of existing hazardous waste sites. The EPA may accomplish the cleanup in two ways: it can order responsible parties to clean up a contaminated site, or it can clean up the site on its own and sue the responsible parties to recover the cleanup costs.
Frequently, CERCLA litigation aims to resolve who should ultimately pay the bill for environmental cleanup actions. The most likely candidate—the potentially responsible party or PRP—is the party directly responsible for the waste. Many PRPs are corporations which carry comprehensive general liability (CGL) insurance. When a PRP with CGL insurance discovers that the government seeks to hold it responsible for cleaning up a polluted site, it often looks to its CGL carrier for legal representation and indemnification. The carrier, in turn, usually denies that it has any duty to defend or indemnify its insured, and the dispute is then resolved through a motion for summary or declaratory judgment on the issue of liability.
The arguments made by PRPs and their CGL carriers in these actions often pivot on competing interpretations of certain provisions in standard-form CGL insurance contracts. In particular, litigants have long disputed the meaning of the term “damages” as it appears in the general provision of the standard CGL policy. A typical policy provides that the carrier must “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property....”
This Note focuses on one aspect of the inquiry into what “damages” means in the CGL context. Specifically, it addresses the issue of whether the term should apply only to what are traditionally called “legal damages” or whether it should also encompass equitable forms of relief. Insurers argue that the term “damages” in CGL policies limits the scope of coverage to legal damages and thus provides no recovery for cleanup costs resulting from government actions under CERCLA because of their equitable nature. Conversely, insureds/PRPs maintain that the court should define the term broadly to include equitable forms of relief such as injunctive cleanup orders under CERCLA.
This conflict ultimately must be resolved through application of the contract law of the relevant state. This Note will examine the historical development of the modern CGL policy and will briefly discuss various rules of judicial construction which relate to the scope of the term “damages.” Next, it will evaluate the validity of arguments advanced on both sides of the issue. This Note concludes that courts should broadly construe CGL policies to cover forms of relief that are historically equitable in nature. Finally, this Note suggests a sequence of steps which courts may wish to adopt in approaching similar disputes over liability.
