8.1.4 Claims for Equitable Relief

• Jurisdiction: Arizona

A multitude of courts have held that the term "damages," as used in the insurance context, refers to legal damages and does not include coverage where equitable monetary relief is sought.^[53] There is a split of authority on this issue.^[54] No Arizona case has specifically addressed whether injunctive or equitable relief is covered under an insurance policy as constituting damages. Instructive is the court of appeals decision in Downs v. Sulphur Springs Valley Electric Co-op, Inc.,^[55] where the court acknowledged that the most common meaning of "damages" is compensation for actual injury.

In the construction defect context, the "cost of repairing the defect" does not constitute property damage.^[56] Numerous cases from other jurisdictions confirm that such costs are simply part of the cost of repairing the construction defect and therefore do not constitute property damages.^[57]

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Notes:

[53]See, e.g., Continental Ins. Co. v. Northeastern Pharm., 842 F.2d 977 (8th Cir. 1988).

In Maryland Casualty v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987), cert. denied, 108 S. Ct. 703 (1988), the court refused to "extend the obligations of insurance carriers beyond the well-illumined area of tangible injury and into the murky and boundless realm of injury prevention." 822 F.2d at 1354. The court held that there was no coverage for reimbursement costs demanded by the United States in connection with the clean-up of a hazardous waste site in Missouri. The court reasoned that "'[d]amages,' as distinguished from claims for injunctive or restitutionary relief, includes 'only payments to third persons when those persons have a legal claim for damages . . .'" Id. at 1352, quoting Aetna Cas. & Sur. Co. v. F.H. Hanna, 224 F.2d 499, 503 (5th Cir. 1995). In Haines v. St. Paul Fire & Marine Insurance Co., 428 F. Supp. 435 (D. Md. 1977), the court held that the claim for restitution of profits made in violation of the federal securities laws was an action for "traditional equitable relief and cannot be considered damages within the policy coverage." Id. at 441. The court in Haines concluded that the restitutional character of the SEC's prosecution was equitable in nature, and that discouragement of illegal profits was not "damages" in the traditional sense.

In Aetna Casualty & Surety Co. v. F.H. Hanna, 224 F.2d 499 (5th Cir. 1955), the Hannas brought an action under a comprehensive personal liability policy against Aetna for costs and expenses they incurred in defending an...