present and future damage to the environment and seeking both injunctive relief and response costs. Aerojet entered into a consent decree with both the EPA and the State of California whereby Aerojet agreed to clean up the site. Aerojet then sought to recoup its response costs under its comprehensive general liability insurance policy, which obligated the insurer "to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of injury to or loss, destruction or loss of use of property." Aerojet at 222 (emphasis in original). The insurer denied coverage on the grounds that CERCLA response costs were in the nature of an equitable or restitutionary remedy and, therefore, not covered as legal damages incurred in an action at law.
Applying established principles of insurance policy interpretation, the California court of appeal rejected the insurer's argument.
Under a Globe5 analysis, petitioners could reasonably expect that funds expended to correct third party property damage caused by pollution, and to mitigate the effects of that damage, are covered by their CGL policies. Their pollution has damaged the groundwater and river water of the state and federal governments; petitioners could reasonably believe that the governments' detriment would be recompensed by a payment of damages. (Cf. Civ. Code § 3281.) The fact that the damages do not take the form of a traditional damage award in an action at law is not determinative of the insureds' reasonable expectation of coverage.
Petitioners have become legally obligated to clean up their pollution by virtue of the polite but puissant compulsion of CERCLA. At least to the reasonable insured, this obligation is no less a legal sanction than that of a monetary judgment. Indeed, having purchased insurance to cover them for damages because of property damage, petitioners would be surprised indeed to learn that coverage depended on whether the proceeding employed to obtain recompense was defined as 'legal' or 'equitable.' An insured reading the coverage clause before us would reasonably conclude it provided coverage for any economic outlay compelled by law to rectify and mitigate property damage caused by the insured's pollution.
Aerojet at 227-228.
As the courts in both the Intel and Aerojet decisions emphasized, the key issue in determining whether environmental response costs are insured under a general liability policy is the terms of the insurance policy itself and the reasonable expectations of the insured as to meaning of those terms. The terms of the policies issued to TBG by Commercial Union in this case provide coverage for any expenses TBG becomes legally obligated to pay as damages for property damage. TBG could reasonably expect that response costs incurred as a result of liability imposed under CERCLA would fall into the area of coverage.
C. Nature of the Damage and the Remedy.
In reaching this decision, the Court specifically rejects Commercial Union's argument that coverage is precluded because the PCBs on the MGM Brake Site have not yet caused any "damage." The contamination of property with toxic materials causes immediate and tangible damage to the water and air supply of the state, which is the property of the public, Cal. Water Code § 102, and poses an immediate and continuing threat to the public welfare. As the court in Aerojet held, "unquestionably, the state and federal governments are third party property owners for purposes of insurance coverage. Pollution of the ground and river waters is damage to public property, as well as a direct injury to public welfare." Aerojet, supra, 211 Cal. App. 3d at 229 .
The Court also rejects Commercial Union's argument that coverage is precluded because liability arising under CERCLA is restitutionary or equitable in nature and, therefore, not recoverable as "damages" under traditional insurance law. CERCLA is a unique statute, which creates liabilities and remedies containing elements of both an equitable and a legal nature. For example, the federal government is empowered under the statute to compel private parties to remedy hazardous waste contamination. 42 U.S.C. § 9606. Such an action seeks injunctive relief and, therefore, may be considered "equitable" in nature. The government is also empowered, however, to perform the remedial work itself and seek compensation later. 42 U.S.C. § 9607(a)(4)(A). In these cases, the action is more "legal" in nature because the remedy sought is monetary compensation. The statute also authorizes one private party, who has been compelled to clean up a contaminated site, to sue another private party for the costs incurred in the cleanup. 42 U.S.C. § 9607(a)(4)(B). Actions of this nature, to which the government is not even a party, seek only monetary damages and are clearly "legal" in nature. Finally, sections 107(a)(4)(C) and (f) authorize the United States or any state to sue a responsible party under the statute for injury to or destruction of natural resources belonging to the federal government, a state, or an Indian tribe. Such an action seeks monetary compensation for property damage, just like any other action at law for damages.
The issue of whether CERCLA is primarily legal or equitable in nature, therefore, does not lend itself to a definitive answer. As the court pointed out in Aerojet, however, the nature of liability under CERCLA, whether it be equitable or legal, is essentially irrelevant to the critical measure of coverage under a CGL policy, that being the reasonable expectation of the insured.
Especially where, as here, the insured does not simply reimburse the government for its response costs, but incurs a direct out-of-pocket economic detriment for the response costs in the first instance, the question in not whether the action or the relief sought is equitable or legal, but whether the insured has a reasonable expectation that such costs are insured as 'damages because of injury to or loss, destruction or loss of use of property.'
Aerojet at 230 (emphasis added). This Court concludes that TBG did have a reasonable expectation that any liability arising out its activities on the MGM Brakes Site would be insured under the CGL policies issued by Commercial Union. Accordingly, the Court holds that the response costs incurred by TBG in cleaning up the Site are "damages" within the scope of Commercial Union's coverage.
II. "Trigger" Issue.
The second issue before the Court is whether, and under what theory, coverage under the insurance policies for the contamination of the MGM Site was triggered. The parties have suggested three different possibilities: an "exposure" theory, a "continuous trigger" theory, and a "manifestation" theory.
Under an "exposure" theory of coverage, a liability policy is triggered whenever there is exposure to an injury- or damage-causing agent during the policy period. See, e.g., Hancock Laboratories, Inc. v. Admiral Ins., 777 F.2d 520, 524-525 (9th Cir. 1985); Clemco Indus. v. Commercial Union Ins. Co., 665 F. Supp. 816, 827-828 (N.D. Cal. 1987), aff'd 848 F.2d 1242 (9th Cir. 1988); Beckman Instruments, Inc. v. International Insurance Co., Civ. Action No. 85-8382 MRP, slip op. (C.D. Cal. January 27, 1988). Under a "continuous trigger" theory of coverage, all insurance policies in effect from the date of initial exposure to a damage-causing agent, through any period of progressive or continuous damage, up to the time the damage is discovered, are triggered. In California Union Ins. Co. v. Landmark Ins. Co., 145 Cal. App. 3d 462, 476, 193 Cal. Rptr. 461 (1983), for example, the property damage had been caused by the leaking of a swimming pool over a period of two years. The court held that because the damage had been continuous and progressive, both the insurance policy in effect when the leaking began, and the policy in effect when it became apparent, were triggered. Finally, under a "manifestation" theory of coverage, which Commercial Union urges this Court to adopt, coverage is triggered at the time the damage to the property becomes apparent. See, e.g., Remmer v. Glens Falls Indemnity Co., 140 Cal. App. 2d 84, 295 P.2d 19 (1956); Home Insurance Co. v. Landmark Insurance Co., 205 Cal. App. 3d 1388, 253 Cal. Rptr. 277 (1988).
A review the cases that have addressed the trigger issue under California law leads this Court to the conclusion that there is no single theory of trigger universally applicable in CGL policies for property damage. Rather, courts determine the appropriate theory of trigger based on an examination of the terms of the policy and the nature of the damage. The five insurance policies under which TBG seeks coverage for its cleanup costs on the MGM Brakes Site are discussed and quoted above in the discussion of damages. Generally, the policies require Commercial Union to pay on behalf of TBG "all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by an occurrence." An occurrence is generally defined by the policies as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Emphasis added). The policies are what is known as "occurrence" policies, rather than "claims made" policies. In other words, coverage is provided for occurrences that cause damage during the policy period, rather than for claims made during the policy period. There is no requirement under the terms of the policies that liability for the property damage arise during the policy period. The critical issue then, in deciding whether coverage under the policies was triggered, is determining whether there was an occurrence that caused property damage during the policy period.
In answering this question, the Court holds that the most appropriate theory for determining whether coverage was triggered in this case is the "exposure" theory. The event that caused the property damage, giving rise to TBG's liability under CERCLA, was the release of materials containing PCBs onto the site. Each time such a release occurred, the property was immediately damaged. Thus, coverage under the policies issued by Commercial Union was triggered each and every time materials containing PCBs were released onto the MGM Brakes Site.
The continuous trigger theory of coverage would be inappropriate in this case because it would require coverage from every insurer of the property from the time the contamination occurred in the late 1960s until the time it was discovered in the early 1980s, despite the fact that, after 1972, there were no new occurrences causing property damage. The Court also rejects the manifestation theory of trigger as inconsistent with the terms of the policies. The policies provide coverage for property damage that occurs during the policy period, not for property damage that is discovered during the policy period.
In its motion for partial summary adjudication of this issue, TBG has also asked this Court to rule, as a matter of law, that specific policies issued by Commercial Union during the relevant years have been triggered. The Court declines to do so at this time. While the appropriate theory of trigger may be determined as a matter of law, a determination of whether the policies have, in fact, been triggered requires resolution of a number of factual issues. Although the EPA compiled an extensive record on the MGM Brakes Site, Commercial Union has not yet had an opportunity to conduct its own discovery for purposes of this litigation. Accordingly, the Court finds that a determination of which, if any, of Commercial Union's policies issued to TBG have been triggered is premature.
III. Allocation Issue.
In its third motion for partial summary adjudication, TBG has asked this Court to determine whether it may, at its election, assign its costs incurred in the cleanup of the MGM Brakes Site to particular policies and policy years. For the reasons stated at the hearing on this matter, the Court finds that such a determination requires a factual basis and, therefore, is premature at this stage of the proceedings. Accordingly, this motion is denied without prejudice.
For the reasons discussed above, the Court hereby makes the following orders:
1. TBG's motion for partial summary adjudication as to the "damages" issue is GRANTED as follows: The Court holds that the environmental response costs incurred by TBG in the investigation and remediation of the hazardous waste contamination on the MGM Brakes Site constitute "damages" within the meaning of the comprehensive general liability policies issued by Commercial Union.
2. TBG's motion for partial summary adjudication as to the "trigger" issue is GRANTED as follows: The Court holds that the appropriate theory for determining whether coverage was triggered in this case is the "exposure" theory. The Court declines, however, to rule that specific policies have been triggered.
3. TBG's motion for partial summary adjudication as to its right to allocate its expenses to particular policies and policy years is DENIED WITHOUT PREJUDICE.
DATED: June 4, 1990
FERN M. SMITH
United States District Judge