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The Top Ten Strategies for Insureds After Edgerton

Summer 1995

The recent decision in Edgerton v. General Casualty Company, 184 Wis. 2d 750 (1994), dealt a blow to insureds who desire coverage under comprehen-sive general liability policies for cleanup costs. Nonetheless, there are important strategies which are available to preserve coverage claims that should not be ignored by insureds after the Edgerton decision.

In Edgerton, the Wisconsin Supreme Court ruled that a DNR written demand issued to a potentially responsible party to clean up a contaminated site does not trigger a duty to defend for the insurer under the comprehensive general liability policy involved in that case. The Court also ruled that costs incurred in connection with an obligation to clean up soil and groundwater are not "damages" within the meaning of the indemnity obligation of the policy.

Of course, the Court’s decision in Edgerton dealt a serious blow to the efforts of insureds in Wisconsin to seek coverage for environmental claims. However, an insured involved in a cleanup claim nonetheless has a fair amount of maneuvering room after this decision in an attempt to preserve coverage claims for cleanup costs. This article describes the "Top Ten" strategies which insureds should consider in the wake of the Edgerton decision.

A Consent Decree by any other name is a lawsuit. In a Federal Superfund matter, potentially responsible parties ("PRPs") who enter a voluntary cleanup agreement with the United States must sign a consent decree which is normally accompanied by the filing of a summons and complaint by the United States. Thus, PRPs who enter into such consent decrees have the opportunity to argue that such proceedings constitute a "suit" for which the insured is owed a duty to defend under the comprehensive general liability policy even after Edgerton. This is especially the case where the complaint includes a government claim for reimbursement for past costs incurred by the government on a Superfund site.

If you have a choice of law be the first to file. After Edgerton, the insured should consider whether the circumstances of the underlying claim give rise to an argument that coverage questions should be decided by the law of another state if it is more favorable than Wisconsin. For example, if the insured is headquartered in Wisconsin, but the underlying liability claim arises as a result of solid waste disposal in another state, there may be an opportunity to argue that the coverage law in the state where disposal occurs should control the question of whether coverage exists on the underlying policy.

Under these circumstances, the insured should consider filing a coverage case in the state that has the more favorable coverage law.

Don’t be a good Samaritan and do be sued. After Edgerton, a PRP should consider not voluntarily undertaking a cleanup when requested by the governmental agency. Rather, the PRP should consider resisting any voluntary efforts, hope that the government incurs the cleanup costs and sues the PRP for reimbursement under available cost recovery provisions in state and federal law. Under this scenario, the PRP/insured could argue that the government claim for reimbursement of costs constitutes a claim for "damages" and the lawsuit seeking government reimbursement triggers the duty to defend under the analysis in Edgerton. However, the PRP should recognize that this strategy carries some risk, especially if the underlying statutory cleanup obligations could carry fines or penalties for a failure to voluntarily assume a cleanup responsibility. None-theless, this suggested strategy cannot be overlooked in the wake of Edgerton.

Give notice but don’t be too demanding. The timing of a demand for defense or indemnity should be carefully considered in the wake of Edgerton. A demand for a defense or indemnity frequently gives rise to the filing of a declaratory judgment action by the carrier and the insured is forced to incur legal fees in litigating the coverage question at a point in time that may not be in the best interest of the insured. At least until the insured decides where it desires to litigate the coverage issue if more than one state is available, it is recommended that the insured not lodge a demand for defense or indemnity on underlying claims but rather simply provide prompt notice of circumstances giving rise to the claim to the carrier.

If at first you don’t succeed for third party coverage, try, try, try first party coverage. Parties who face environmental liabilities for cleanup obligations should not overlook the opportunity to seek coverage under first party insurance policies as a funding source of pollution cleanup. In addition, parties facing the risk of cleanup obligations in Wisconsin should not overlook emerging insurance vehicles that may be available to provide coverage for such risks. These vehicles include pollution legal liability, hazardous waste transporters liability and environmental remediation policies.

After Edgerton, "EIRF’s Up." Last year, the Clinton Administration proposed an insured-funded trust that would offer settlements to potentially responsible parties who are insured and who would agree to drop litigation against their insurers. This reauthorization proposal under the federal Superfund law was entitled "Environmental Insurance Resolution Fund ("EIRF"). Although the EIRF proposal did not pass last year, there is a possibility that a similar trust-type fund could become part of the Superfund reauthori-zation legislation this year. Thus any attempt to resolve insurance disputes for cleanup costs must include a consideration of the need to ensure that coverage claims are not dismissed with prejudice in order to preserve the insured’s right for future participation in EIRF-type proposals which could be adopted at the federal level.

Don’t let past costs be bygones. In litigation involving contamination, the government frequently seek a recovery against the PRPs for the past costs that the government has incurred in responding to contamination. Under the analysis in Edgerton, it would appear that government’s claims for reimbursement for past costs would be more appro-priately "damages" and subject to an argument of coverage under the Edgerton analysis.

Good Humor will serve to keep insurers in bad humor. In U.S. Fire Insurance Co. v. Good Humor Corp., 173 Wis. 2d 804 (Ct. App. 1993), the Court of Appeals ruled that the comprehensive general liability carrier waived any right to assert policy defenses otherwise available under the terms and conditions of the policy by reason of the carrier’s breach of its duty to defend owed to the insured under the policy. When pre-sented with a lawsuit which the insured believes should arguably be covered even after the Edgerton Decision, the insured should argue that the carrier has a duty to defend its interests. If the insurance carrier fails to provide a defense and thereby breaches its duty, the insured should argue that the carrier waives any policy defenses that otherwise would be available on the indemnity portion of the coverage claim under the Good Humor decision.

Cleanup costs by any other name may be covered. Private, third-party claimants should consider framing their cleanup claims against PRPs in novel ways in order to distinguish their contamination claims from the non-coverage ruling of the Edgerton Decision. Obviously, it is important for these third party claimants to frame their claims in such a way to preserve any coverage that may be afforded an otherwise insolvent PRP under its applicable comprehensive general liability policies.

"Naturally," damages include the "Public Trust." The Court in Edgerton was careful to distinguish cleanup costs from natural resource damages. In particular, the Court decided that the former were not covered but that the latter were indeed encompassed within the meaning of the "damages" under the indemnity obligation of the liability policy. This distinction opens up a wide range of strategy options for insureds who are interested in preserving coverage obligations for contamination cases. For example, if contamination occurs to any natural resource covered by the "Public Trust Doctrine" in Wisconsin and the cleanup claim is framed in terms of a damage claim for compensation for the loss of use of these resources, there may be an argument that coverage exists under the liability policy even after Edgerton.

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