New View on Old Travails: Revisiting City of EdgertonSpring 1996
Several recent decisions by Wisconsin Appellate Courts breathe new life into the efforts of policyholders to recover for cleanup costs under comprehensive general liability ("CGL") insurance policies; particularly in instances involving liability for off-site disposal of waste.
As previously reported in Godfrey & Kahn’s Environmental Law Alert, policyholder’s insurance recovery efforts were brought to an abrupt halt in mid-1994 with the Wisconsin Supreme Court’s decision in City of Edgerton v. General Casualty Co. In Edgerton, policyholders sought recovery under standard CGL policies for cleanup costs incurred in compliance with EPA directives issued under the Federal Superfund Law. The Wisconsin Supreme Court ruled that cleanup costs such as these were not "damages" within the meaning of standard CGL policies and, therefore, coverage was not available. The decision sent shockwaves through the regulated community as businesses and industries began to grapple with the prospect of paying for cleanups with virtually no hope for recovery under standard CGL policies.
The recent Appellate Court decisions, however, suggest that the winds may have shifted and may now be blowing in favor of policyholders. In particular, on March 12, 1996, the Wisconsin Court of Appeals ruled in favor of a policyholder in a case involving off-site disposal liability. In General Casualty Co. v. Hills, the policyholder, a gasoline station operator, utilized the services of the Arrowhead Refining Company for the collection, transport and recycling of its used oil. Arrowhead’s facility eventually became contaminated and the EPA directed Arrowhead to conduct investigative and remedial actions at its site. Arrowhead, in turn, sued Hills (and hundreds of other generators who had sent used oil to Arrowhead’s site) for past and future response costs.
Hills insurer, General Casualty, brought a declaratory judgment action requesting a determination that it had no duty to defend or indemnify Hills in connection with Arrowhead’s claim. General Casualty argued that, pursuant to Edgerton, coverage was not available since Arrowhead’s suit for past and future cleanup costs was not a suit for "damages" as that term is used in standard CGL policies. General Casualty prevailed on its arguments at the trial court level and Hills appealed.
On appeal, the Wisconsin Appellate Court ruled that General Casualty was obligated to defend and indemnify Hills. The Court distinguished Edgerton on the ground that Edgerton involved a claim for coverage for contamination the policyholders had wrought upon property which they owned or leased; whereas, Hills was seeking coverage for contamination of property wholly owned and controlled by a third party. The Court concluded that Hills was covered under his standard CGL policy for cleanup costs he was required to pay in connection with the Arrowhead site even though the underlying cleanup was conducted in response to a governmental directive.
Decisions which are similarly favorable to policyholders were also issued by Wisconsin Appellate Courts in the cases of Wisconsin Public Service Corp. v. Heritage Mutual Insurance Co. and Production Stamping Corp. v. Maryland Casualty Co. In Production Stamping, the Court concluded that a policyholder was entitled to a defense and indemnification in a claim brought by an adjoining landowner alleging contamination of his property as a result of the policyholder’s operations. In Wisconsin Public Service, the Court affirmed an injured landowner’s right to proceed directly against his contractor’s insurance carrier (under Wisconsin’s direct action statute) for recovery of cleanup costs necessitated by the contractor’s negligence.
These decisions collectively, and Hills particularly, will likely change the way potentially responsible parties respond to allegations of liability for cleanups. Companies involved in cleanup actions for either on-site or off-site waste disposal practices, should carefully evaluate the potential for insurance recovery which has recently been revived in the wake of these decisions.