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TBG, INC. v. COMMERCIAL UNION INS. CO.

June 4, 1990

TBG, INC., Plaintiff,
v.
COMMERCIAL UNION INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: FERN M. SMITH

 This is a declaratory judgment action in which the plaintiff seeks to recover from its insurer environmental response costs incurred in the EPA-mandated cleanup of a site contaminated with hazardous wastes. The matter is currently before the Court on the parties' respective motions for partial summary adjudication as to the scope of the insurance coverage issued to the plaintiff by the defendant. For the reasons discussed herein, the Court holds that costs incurred in cleaning up a site contaminated with hazardous waste pursuant to liability imposed or acknowledged under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et. seq., ("CERCLA") are "damages" within the meaning of the comprehensive general liability policies at issue in this case, and that coverage under these policies was "triggered" at the time the site was exposed to hazardous materials.

 FACTUAL BACKGROUND

 The plaintiff, TBG, Inc. ("TBG"), and its predecessors, Indian Head, Inc. and MGM Brakes, Inc., owned and operated a brake manufacturing plant in Cloverdale, California from 1967 to 1984. From 1965 to 1972, TBG used hydraulic fluids containing polychlorinated biphenyls (PCBs) in its manufacturing operations. During this period, waste water containing PCBs was periodically discharged from the plant into an adjacent field. As a result, TBG's property and adjacent parcels of land were contaminated with PCBs, substances deemed hazardous pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601(14).

 The Environmental Protection Agency ("EPA") began investigating the site in the early 1980s. On September 8, 1983, the site, which consists of the land owned by TBG as well as four adjacent parcels owned by third parties, was placed on the National Priorities List (NPL) and designated the "MGM Brakes Superfund Site" (hereinafter "the MGM Brakes Site" or "the Site"). The EPA's Record of Decision on the MGM Brakes Superfund Site reported that soil on the Site is contaminated with PCBs to a depth of 29 feet. Groundwater and surface water running off the Site, were also found to be contaminated with PCBs. Air samples taken at the Site contained PCBs. In addition, volatile organic compounds (VOCs) were detected in groundwater on the Site. *fn1" In its Record of Decision, the EPA concluded that there had been releases of hazardous substances on the Site, and that the Site posed a continuing health threat to humans and animals.

 On November 14, 1989, the EPA filed a complaint against TBG in this Court under Sections 106 and 107 of CERCLA, 42 U.S.C. §§ 9606 and 9607, seeking "injunctive relief to abate an imminent and substantial endangerment to public health or welfare" and "recovery of response costs incurred or to be incurred by the United States" in connection with the EPA's investigation of the MGM Site. See, Complaint, United States of America v. TBG, Inc. and Indian Head Industries, Inc., Civil Action No. C-89-4047 JPV, at 2. Prior to the filing of the complaint, in July of 1989, TBG and EPA had negotiated a consent decree. That agreement was filed with the Court on November 22, 1989. Pursuant to its terms, TBG agreed to clean up the Site, at an estimated cost of $ 7 million, and to reimburse the EPA for approximately $ 900,000 in expenses incurred by the EPA in its investigation of the Site. TBG now seeks to recover those response costs from its insurer.

 During the years between 1966 and 1970, when much of the PCB contamination on the MGM Site occurred, TBG was insured by Commercial Union Insurance Company under five comprehensive general, umbrella, and excess liability insurance policies. In June of 1989, TBG tendered a claim to Commercial Union requesting coverage for costs incurred in the cleanup of the MGM Site. Commercial Union denied any duty to indemnify TBG for the cost of the cleanup. Shortly thereafter, on June 27, 1989, TBG filed this action seeking a declaration from this Court as to the parties rights and obligations under the insurance policies at issue.

 The matter is now before the Court for summary adjudication of three separate issues: (1) whether the response costs incurred by TBG in defending the EPA action, reimbursing the EPA for its investigation costs, and cleaning up the MGM Brakes Site are "damages" within the scope of the comprehensive general liability policies issued by Commercial Union during the relevant years; (2) whether, and under what theory, coverage under the insurance policies was triggered; and (3) whether TBG has the right to allocate its losses to particular policies and policy years, at its election.

 ANALYSIS

 I. "Damages" Issue.

 A comprehensive general liability ("CGL") policy typically provides coverage for any damages the insured becomes obligated to pay as a result of a legal action. The parties agree that the question presented in this case is whether, under California law, environmental response costs incurred as a result of action taken by the EPA under CERCIA constitute "damages" within the meaning of a CGL insurance policy.

 A. Policy Terms.

 The resolution of this question rests primarily on an interpretation of the terms of the insurance policies at issue, which is a legal determination. Congleton v. Nat'l Union Fire Ins. Co., 189 Cal. App. 3d 51, 59, 234 Cal. Rptr. 218 (1987), rev. denied, March 25, 1987. This determination must be made in reliance upon the rules of interpretation developed by California courts that govern the interpretation of insurance contracts. Intel Corp. v. Hartford Accident and Indemnity Co., 692 F. Supp. 1171, 1181 (N.D. Cal. 1988), appeal pending. Words used in an insurance policy are to be interpreted in their plain, ordinary and popular sense, according to the plain meaning which a lay person would ordinarily attach to them. General Ins. Co. of America v. City of Belvedere, 582 F. Supp. 88, 89 (N.D. Cal. 1984); Reserve Insurance Co. v. Pisciotta, 30 Cal. 3d 800, 807, 180 Cal. Rptr. 628, 640 P.2d 764 (1982). Any ambiguity in an insurance policy or uncertainty as to its scope is to be resolved against the insurer. Reserve, supra, 30 Cal. 3d at 807 ; see also, Admiralty Fund v. Peerless Ins. Co., 143 Cal. App. 3d 379, 385, 191 Cal. Rptr. 753 (1983). Whenever semantically permissible, the contract should be interpreted to achieve its object of providing indemnity for any loss to which the insurance relates. Reserve, supra, 30 Cal. 3d at 807 . The purpose of this canon of construction is to protect the insured's reasonable expectation of coverage in a situation in which the insurer controls the language of the policy. Id.; see also, Hanson v. Prudential Ins. Co. of America, 783 F.2d 762, 765 (9th Cir. 1985), citing Reserve. Its application differs depending upon the language to be interpreted. Coverage clauses are interpreted broadly so as to afford the greatest protection to the insured, while exclusion clauses are interpreted narrowly. Id.; see also, Silberg v. California Life Ins. Co., 11 Cal. 3d 452, 464-66, 113 Cal. Rptr. 711, 521 P.2d 1103 (1974). Thus, in order to protect the reasonable and normal expectations of the insured, restrictions or exclusions in the policy must be clear and unambiguous.

 Reserve at 809 (emphasis added).

 In this case, TBG was insured by Commercial Union under five different CGL policies during the relevant years-- two primary policies, two umbrella policies, and one excess policy. The primary policies required Commercial Union:

 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 destruction of property, including the loss of use thereof, caused by an [occurrence]. *fn2" (Emphasis added.) "Occurrence" is defined in the policy 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."

 The umbrella policies provided $ 5 million in coverage and obligated Commercial Union:

 To indemnify the insured for all sums which the insured shall be obligated to pay by reason of the liability imposed upon him by law or liability assumed by him under contract or agreement for damages, and expenses, all as ...


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