Boeing Co. v. Aetna Casualty and Surety Company: CERCLA Response Costs as Damages Under CGL Policies

Boeing Co. v. Aetna Casualty and Surety Company: CERCLA Response Costs as Damages Under CGL Policies

Introduction

In the landmark case of Boeing Company v. Aetna Casualty and Surety Company, et al. (113 Wn. 2d 869), the Supreme Court of Washington addressed a pivotal question regarding the interpretation of Comprehensive General Liability (CGL) insurance policies in the context of environmental law. The case arose when companies obligated to fund the removal of hazardous substances under a CERCLA consent decree sought indemnification from their insurers. The central issue was whether these cleanup costs qualified as "damages" under the existing CGL policies.

Summary of the Judgment

The Supreme Court of Washington, in an en banc decision dated January 4, 1990, affirmed that response costs incurred to remediate actual releases of hazardous substances indeed constitute "damages" within the meaning of the CGL policies issued by insurers. This ruling mandated that insurers are liable to indemnify their insureds for such environmental cleanup costs, aligning insurance coverage with the obligations imposed by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).

Analysis

Precedents Cited

The Court extensively reviewed both state and federal precedents to determine the meaning of "damages" in insurance policies. Key cases included:

  • Transcontinental Ins. Co. v. Washington Pub. Utils. Dists.' Util. Sys., 111 Wn.2d 452 (1988)
  • Intel Corp. v. Hartford Accident Indem. Co., 692 F. Supp. 1171 (N.D. Cal. 1988)
  • Aerojet-General Corp. v. San Mateo Cy. Superior Court, 257 Cal.Rptr. 621 (1989)
  • United States Fid. Guar. Co. v. Thomas Solvent Co., 683 F. Supp. 1139 (W.D. Mich. 1988)
  • Compliance with CERCLA in Insurance Policies

The majority viewed these cases as supporting the interpretation that "damages" encompass cleanup costs under CERCLA, contrasting the dissent's reliance on cases distinguishing compensatory and restitutionary remedies.

Legal Reasoning

The Court employed traditional insurance policy interpretation principles, emphasizing the plain, ordinary meaning of "damages" as understood by the average person. It examined the policy language in context, noting the absence of explicit exclusions regarding "damages." The majority concluded that since "damages" were not narrowly defined and were situated within general coverage provisions, they should be construed broadly to include CERCLA response costs. The Court dismissed insurers' attempts to adopt a technical legal definition of "damages," reinforcing that policy interpretation favors the insured when ambiguity exists.

Impact

This decision has significant implications for both insurers and insured parties. By classifying CERCLA response costs as "damages," insurers are now mandated to cover these expenses under their existing CGL policies. This aligns insurance coverage with environmental regulatory obligations, ensuring that companies responsible for hazardous waste cleanup can seek indemnification. However, it also places a considerable burden on insurers, potentially leading to higher premiums or exclusions in future policies to mitigate such risks.

Complex Concepts Simplified

CERCLA and Response Costs

CERCLA, commonly known as Superfund, is a federal law designed to clean up sites contaminated with hazardous substances. "Response costs" refer to the expenses incurred to remediate or contain the contamination, such as removing toxic waste or treating polluted water.

Compensatory vs. Restitutionary Damages

Compensatory Damages are intended to compensate the injured party for losses suffered, restoring them to the position they were in before the harm occurred. In this case, cleanup costs under CERCLA are viewed as compensatory because they aim to restore the environment.

Restitutionary Damages focus on preventing unjust enrichment by requiring the wrongdoer to return benefits or profits gained at the expense of another. The dissent argued that CERCLA response costs are restitutionary, not compensatory, thus not qualifying as "damages."

Common General Liability (CGL) Policies

CGL policies provide broad coverage for various liabilities incurred by businesses, including bodily injury and property damage caused by an occurrence. The key question was whether environmental cleanup costs fall under the "damages" clause within these policies.

Conclusion

The Supreme Court of Washington's decision in Boeing Company v. Aetna Casualty and Surety Company establishes a crucial precedent by affirming that CERCLA response costs are considered "damages" under CGL policies. This interpretation ensures that companies facing environmental liabilities can rely on their insurance coverage for cleanup expenses, aligning insurance practices with environmental protection goals. However, it also raises challenges for insurers in managing and underwriting such risks, potentially influencing future insurance policy structures and premiums.

Key Takeaways

  • CERCLA response costs are legally recognized as "damages" under Washington's CGL insurance policies.
  • The decision emphasizes the plain, ordinary meaning of policy terms in favor of the insured.
  • Insurers may need to reevaluate policy language and risk assessment regarding environmental liabilities.
  • This ruling aligns insurance coverage with federal environmental obligations, promoting responsible remediation efforts.

Implications for Future Cases

Moving forward, this judgment may guide other jurisdictions in interpreting similar insurance clauses. It underscores the necessity for insurers to clearly define policy terms and consider the evolving nature of liabilities, especially those arising from environmental laws. Additionally, businesses must be aware of how their insurance policies interpret "damages" to ensure adequate coverage for potential environmental cleanup costs.

Case Details

Year: 1990
Court: The Supreme Court of Washington. En Banc.

Judge(s)

DORE, J. CALLOW, C.J. (dissenting)

Attorney(S)

Charles C. Gordon, William A. Gould, and Nicholas P. Gellert (of Perkins Coie); Robert N. Sayler, James R. Murray, and Eric C. Bosset (of Covington Burling); Paul R. Carlson, for plaintiff Boeing. Sylvester, Ruud, Petrie Cruzen, by John T. Petrie and Robert W. Bryan, for plaintiff Northwest Steel. Don M. Gulliford and Robert R. Cole ( Philip H. Gitlen, Jonathan P. Nye, and Whiteman, Osterman Hanna, of counsel), for plaintiff RSR. Stevan D. Phillips and Stoel, Rives, Boley, Jones Grey ( George Berger, Judith S. Roth, and Philips, Nizer, Benjamin, Krim Ballon, of counsel), for plaintiff John Fluke Manufacturing. Jeffrey W. Leppo, Ruth L. Piekarska, and Bogle Gates, for plaintiff Davis Walker Corp. Williams, Kastner Gibbs, Jerry B. Edmonds, Patrick M. O'Loughlin, Roy A. Umlauf, Frankie A. Crain, and Colleen M. Cook; Carney, Stephenson, Badley, Smith, Mueller Spellman and Sylvia Luppert; Carr, Goodson, Lee Foret, Margaret Warner, and Michael Hooks; Thorsrud, Cane Paulich, Mark Thorsrud, and Patrick M. Paulich; Merrick, Hofstedt Lindsey, Sidney R. Snyder, Jr., and Ronald Dinning; Wilson, Smith, Cochran Dickerson, Dennis Smith, and David M. Jacobi; Hallmark, Keating Abbott, William Fitzharris, Jr., and Pamela Lang; Dunlap Soderland and David Soderland; Sedgwick, Detert, Moran Arnold and Mark C. Raskoff, for defendants insurers. Bassett Morrison, by W. George Bassett, Philip R. Croessmann, and Margaret A. Morgan, for defendant Granite State Insurance. Betts, Patterson Mines, by Jeffrey C. Grant and Margaret E. Wetherald, for defendant Highlands Insurance. Lane Powell Moss Miller, by Robert L. Israel, David M. Schoeggl, and Douglas J. Ende, for defendants London Underwriters, et al. Rivkin, Radler, Dunne Bayh, by Richard S. Feldman, Jeffrey Silberfeld, and Steven Brock; Bradbury, Bliss Riordan, by John H. Bradbury and Carl E. Forsberg, for defendant Hartford. David M. Brenner, Peter J. Kalis, Thomas M. Reiter, and James R. Segerdahl on behalf of CIBA-Geigy Energy Corp., Dow Chemical Co., IBM, and NI Industries; Carol A. Wardell on behalf of PUD 1 of Chelan County; Kenneth O. Eikenberry, Attorney General, Jerry Ackerman and Lee Rees, Assistants, George E. Greer, Linda R. Larson, Molly B. Burke, and Mark S. Parris on behalf of the State, Pierce County, Port of Tacoma, Port of Seattle, Land Recovery, Inc., and Leichner Brothers Land Reclamation; Norm Maleng, Prosecuting Attorney for King County, and James L. Brewer, Senior Deputy, on behalf of King County, Clark County, and Washington Association of Prosecuting Attorneys; Douglas N. Jewett, Seattle City Attorney, Terrence J. Cullen, Assistant; William J. Barker, Tacoma City Attorney, G. Stephen Karavitis, Assistant, and Robert F. Hauth on behalf of Washington State Association of Municipal Attorneys, amici curiae for plaintiffs. William R. Hickman on behalf of Safeco Insurance Co.; Thomas S. James, Jr., P. Cameron DeVore, Donald S. Kunze, Thomas W. Brunner, James M. Johnstone, and Frederick S. Ansell on behalf of Insurance Environmental Litigation Association, amici curiae for defendants.

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