Boeing Co. v. Aetna Casualty and Surety Co.: Cercla Response Costs Covered "as Damages" Under Comprehensive General Liability Insurance Policies

• Publication year: 1990

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 14, No. 2WINTER 1991

COMMENTS

Boeing Co. v. Aetna Casualty and Surety Co.: CERCLA Response Costs Covered "As Damages" Under Comprehensive General Liability Insurance Policies(fn1)

Kimberly A. Richter

I. Introduction

In 1983, the Environmental Protection Agency (EPA) determined that the groundwater and the aquifer at the Western Processing Facility(fn2) in Kent, Washington, contained hazardous waste contamination.(fn3) Pursuant to federal Superfund legislation,(fn4) the EPA performed an emergency cleanup of the contaminated site. Subsequently, the EPA identified the Boeing Company,(fn5) among others,(fn6) as both a generator and a transporter of the hazardous waste that contaminated and continues to contaminate the site. Boeing reimbursed the EPA for the clean-up costs that the agency incurred and then sought indemnification from Aetna and its other insurers.

When the insurers refused to indemnify the company, Boeing brought an action seeking indemnification for pollution-related expenses under the comprehensive general liability (CGL) policy.(fn7) The insurers defended the action by arguing that the reimbursement of clean-up costs paid to the EPA did not constitute damages within the meaning of the CGL policies;(fn8) therefore, according to the insurers, Boeing was not entitled to indemnification.

In the landmark decision of Boeing Co. v. Aetna Casualty and Surety Co., the Washington State Supreme Court determined that, under the terms of the CGL policies, the insurers must reimburse Boeing for the expenses that the company paid and will continue to pay to the EPA as a result of the agency's ongoing cleanup of Western Processing.(fn9) This decision marked the first time in which a state supreme court has found Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)(fn10) clean-up costs to be covered damages under CGL policies and, as such, sets an important precedent.(fn11) Moreover, the Boeing decision is a watershed for state supreme court decisions; other state supreme courts are adopting a similar analysis, rejecting the reasoning of related federal court decisions and deciding the issues based on state contract law.(fn12)

The Boeing decision represents a typical case in the midst of a recent explosion in environmental litigation. This explosion is largely attributable to increased public awareness of environmental hazards and the dangers posed by toxic waste pollution.(fn13) In 1980, Congress addressed the growing national concern over destruction of the environment and the danger to human health caused by abandoned and improperly managed toxic waste dumps by enacting CERCLA. CERCLA, popularly known as "Superfund," was enacted specifically to finance the cleanup of inactive hazardous waste sites and to provide recovery for injury to the environment.(fn14) Moreover, CERCLA entitles federal and state governments to recover costs incurred in the cleanup of hazardous waste sites from persons(fn15) responsible for the pollution.(fn16)

Polluters, faced with potential liability for the devastating costs(fn17) of hazardous waste cleanup, have sought indemnification under standard business insurance policies such as the comprehensive general liability policy. When a polluter files a claim for coverage under its CGL policy for reimbursement of clean-up costs paid to the EPA, the insurer may agree to indemnify the insured or it may deny coverage on one of several grounds.(fn18) Generally, the insurers' first line of defense in contesting coverage is that clean-up costs are not "damages" within the meaning of the CGL policy.(fn19) Specifically, insurers maintain that funds spent to clean up hazardous waste pollution or to comply with mandatory government cleanups constitute an equitable remedy. According to insurers, equitable remedies are not damages that insurers are obligated to pay on behalf of the insured, even though they are "sums which the insured . . . [is] legally obligated to pay as damages."(fn20) Thus, insurers argue, reimbursement for clean-up costs are not covered damages.(fn21)

Many courts have rejected the insurer's argument and have found CERCLA clean-up costs to be covered damages under the "as damages" clause of CGL policies.(fn22) However, many other courts have adopted the insurers' reasoning that monetary reimbursement of clean-up costs constitutes equitable relief, not legal damages, and thus, does not fall within the "as damages" clause of CGL policies.(fn23) This division among the courts, both state and federal, not only leads to increased litigation over the issue, but also leaves polluters and insurers uncertain about their future liability for potentially crippling clean-up costs.

To reduce litigation and settle the question of liability on this issue, courts should quash insurers' attempts to avoid liability for pollution-related clean-up expenses insofar as their defenses are based on the "as damages" clause of CGL policies. The artificial distinction promulgated by insurers between equitable relief and legal damages has caused needless litigation and delayed cleanup of hazardous waste pollution. The purposes of CERCLA, specifically, deterrence of continued pollution of the environment, will be better served, and the amount of needless litigation reduced, if the interpretation of the "as damages" clause is settled.(fn24)

This Comment will examine the CERCLA provisions that empower the government to clean up dangerous hazardous waste sites and to seek reimbursement of clean-up costs from polluters. It will then outline the standard provisions of CGL policies, which require insurers to indemnify insureds for all costs incurred "as damages" under the terms of the policy. Next, the Comment will set forth the two primary methods of interpretation employed by courts to determine whether CERCLA response costs are covered damages under CGL policies. The Comment will then set forth Washington law which provided the foundation for the Washington Supreme Court's decision in Boeing and will analyze the Boeing decision. Finally, this Comment concludes that public policy strongly favors coverage of clean-up costs "as damages."

II. The Clean-up Mechanism: CERCLA

Congress enacted CERCLA to facilitate the cleanup of the nation's abandoned or inactive hazardous waste sites.(fn25) Unfortunately, to date this purpose has not been effectuated. Rather, the clean up of hazardous waste sites has been slow: between 1980 and 1984, only ten of 538 sites on the National Priorities List(fn26) were actually cleaned up.(fn27) This delay is due, in part, to insufficient Congressional appropriations funding Superfund.(fn28) Congress provided Superfund with $8.5 billion to finance the cleanup of hazardous waste sites;(fn29) however, the enormous cost to clean up the abandoned and inactive sites greatly exceeds Superfund appropriations.

In 1988, 1177 sites appeared on the EPA's National Priorities List.(fn30) With an estimated average clean-up cost of $30 million per site, the total cost of cleaning up these sites is currently expected to reach approximately $35 billion.(fn31) Moreover, if 27,000 tentative sites are added to the National Priorities List in the future, the cost may escalate another $810 billion.(fn32) Clearly, Superfund alone cannot finance the cleanup of all potential National Priorities List sites. Indeed, because of this shortage of funds, the EPA increasingly has begun to enforce private party cleanups or has performed the cleanups and subsequently sought reimbursement from identified polluters.(fn33) Mandatory cleanups have led, in turn, to collateral litigation as more and more polluters seek indemnification from their insurers to cover reimbursement of clean-up costs.

Mandatory cleanups help relieve the financial burden on Superfund. If the government proves that a potentially responsible party exercised some control(fn34) over a hazardous substance that threatens the public health or the environment, the party will be held strictly liable for clean-up costs.(fn35) Under the strict liability standard, the government need only identify a potentially responsible party as a contributor to a hazardous waste site to impose liability on that contributor for the cleanup of any site.(fn36) Thus, the government need not show that a generator was aware that its waste contributed to a polluted site before holding the generator liable for the clean-up of that site.(fn37) Moreover, all potentially responsible parties(fn38) are jointly and severally liable for clean-up costs incurred by the government or any other person.(fn39) Because of CERCLA's provision for joint and several liability, the government can hold one party strictly liable for all clean-up costs, irrespective of the proportion of waste attributed to that party.(fn40) A potentially responsible party may be released from liability only if it can establish that the release was caused solely by an act of God, an act of war, or an act or omission by a third party;(fn41) thus, to be relieved of liability, the responsible party essentially must prove that it did not cause the release.

CERCLA provides a number of different means by which the federal government or a private party may seek to impose liability on responsible parties. The EPA may seek a mandatory injunction to compel responsible parties to clean up a...