Virginia Properties, Inc. v. Home Insurance

United States Court of Appeals,

Eleventh Circuit.

No. 94-8452.

VIRGINIA PROPERTIES, INC., Plaintiff-Appellant,

v.

HOME INSURANCE COMPANY, et al., Defendants-Appellees.

Feb. 12, 1996.

Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:92-CV-779-JTC), Jack T. Camp, District
Judge.

Before TJOFLAT, Chief Judge, BARKETT, Circuit Judge, and CLARK,
Senior Circuit Judge.

TJOFLAT, Chief Judge:

Plaintiff Virginia Properties, Inc. ("VPI"), owner of a wood

treatment facility in Henrico County, Virginia, has incurred

substantial expenses pursuant to clean-up orders issued by the

Environmental Protection Agency (the "EPA," or the "Agency"). VPI

brought this diversity action against its insurers (seven insurance

companies, all of whom had issued comprehensive general liability

policies to VPI), seeking coverage of those expenses. The district

court granted summary judgment for the defendants on the basis of

a pollution exclusion clause included in the policies.1 VPI

appeals that grant of summary judgment. We affirm.2

1
Three of the defendant insurers were dismissed prior to the
entry of summary judgment. The court granted summary judgment in
favor of the remaining four, who are the appellees before us:
The Home Indemnity Company, The Hartford Insurance Company,
Chicago Insurance Company, and Fireman's Fund Insurance Company.
2
In 1994 this court affirmed, without opinion, a district
court's grant of summary judgment in a case virtually identical
to the present one. See Damar, Inc. v. United States Fire Ins.,
856 F.Supp. 679 (N.D.Ga.1993), aff'd, 21 F.3d 1126 (11th
 I.

This appeal presents the oft-litigated question of whether

clean-up costs incurred pursuant to EPA order fall within the scope

of a comprehensive general liability contract.

Between 1971 and 1986, virtually all insurance companies

issued identically worded comprehensive general liability ("CGL")

insurance contracts drafted by the National Bureau of Casualty

Underwriters and the Mutual Insurance Rating Bureau. See Broderick

Investment Co. v. Hartford Accident & Indemnity Co., 954 F.2d 601,

603 n. 1 (10th Cir.), cert. denied, 506 U.S. 865, 113 S.Ct. 189,

121 L.Ed.2d 133 (1992). The contracts always included a "pollution

exclusion clause" that typically eliminated coverage for damages

arising out of the discharge of pollutants into the air, water, or

land, except when the discharge was "sudden and accidental." See

7A John A. Appleman, Insurance Law & Practice §§ 4524-4525 (Berdal

ed. 1994).

Well after the standard form for CGL policies was drafted,

Congress enacted a statutory scheme that retroactively imposed

strict liability for pollution cleanup. See St. Paul Fire & Marine

Ins. Co. v. Warwick Dyeing Corp., 26 F.3d 1195, 1197 (1st

Cir.1994). Ordinarily, the ruling of a prior panel controls any
subsequent panel's disposition of the same question of law. See
Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981)
(en banc) ("[A] prior decision of the circuit (panel or en banc)
[cannot] be overruled by a panel but only by the court sitting en
banc."); United States v. Machado, 804 F.2d 1537, 1543 (11th
Cir.1986) ("Only a decision by this court sitting en banc or by
the United States Supreme Court can overrule a prior panel
decision."). However, the Damar panel affirmed without opinion,
pursuant to Rule 36-1, which expressly provides that such an
opinion will have "no precedential value." See 11th Cir.R. 36-1.
Cir.1994); Appleman, supra, § 4520. The major components of this

scheme are the Resource Conservation and Recovery Act of 1976 (the

"RCRA"), and the Comprehensive Environmental Response,

Compensation, and Liability Act of 1980 (the "CERCLA," also known

as the "Superfund Act"). See 42 U.S.C. § 6901 et seq. (RCRA); 42

U.S.C. § 9601 et seq. (CERCLA). Together these statutes provide a

comprehensive framework for the production, transportation,

storage, disposal, and clean-up of hazardous wastes. CERCLA is the

more significant of the two with respect to establishing cleanup

liability; it essentially permits the government "to order a

responsible party to clean up the polluted site, or to clean up a

site itself and obtain reimbursement from the responsible party."

Appleman, supra, § 4520. "It also makes the responsible party

liable for damages to the environment, and for costs such as

litigation expenses and attorneys fees." Id.

CERCLA has imposed tremendous clean-up costs on polluters, who

have, quite naturally, turned to their insurers for coverage of

those costs under their CGL policies. Not surprisingly, insurers

have consistently contested these attempts. See Appleman, supra,

§ 4520. In recent years, CGL policies—and pollution exclusion

clauses in particular—have engendered considerable litigation

between insurance companies and policyholders.3
The construction of insurance contracts is a question of state

law. There have been countless cases in state courts and federal

3
See Appleman, supra, § 4520 n. 1 ("[I]n 1991 an estimated
2,000 coverage cases were pending, and it is estimated that the
insurance industry will ultimately pay from $30-$300 billion in
legal fees in defending coverage actions.").
court, and, to date, no obvious "majority" or "minority" views have

emerged. In some cases, the battle has been waged over whether

clean-up costs are actually covered by the terms of a CGL policy.

That is, the typical policy provides that the insurer will pay, on

behalf of the insured, all "sums" the insured becomes "legally

obligated to pay as damages." Courts have divided over whether

clean-up costs imposed by the EPA are, indeed, such "sums."

Compare Atlantic Wood Indus. Inc. v. Lumberman's Underwriting

Alliance, 196 Ga.App. 503, 396 S.E.2d 541 (1990), cert. denied, 498

U.S. 1085, 111 S.Ct. 958, 112 L.Ed.2d 1046 (1991) (EPA-mandated

pollution clean-up costs constitute "damages" within the coverage

of a CGL policy) (Georgia law) with A. Johnson & Co. v. Aetna

Casualty & Sur. Co., 933 F.2d 66 (1st Cir.1991) (administrative and

clean-up costs are equitable in nature and do not constitute

"damages" with meaning of CGL policy) (Maine law). In many cases,

litigants have disputed the breadth of the "sudden and accidental

discharge" exception to the pollution exclusion. Courts have

divided nearly evenly on the meaning of "sudden." Nearly half have

found the word ambiguous and, construing the ambiguity against the

drafter, have interpreted the word to mean "unexpected" rather than

"temporally abrupt." Compare Waste Management v. Peerless Ins.

Co., 315 N.C. 688, 340 S.E.2d 374 (1986) ("sudden" means

"instantaneously or precipitously") (North Carolina law) with

Broderick Inv. Co. v. Hartford, 954 F.2d 601 (10th Cir.1992)

("sudden and accidental" means "unexpected and unintended")

(Colorado law). In still other cases, including this one, the

battle has been waged over other provisions of the CGL policy.
 II.

The property at the center of this dispute is a wood treatment

facility in Virginia. The facility, owned by the VPI, operated

from 1957 until 1990.4 Over this thirty-year period, VPI worked

with a variety of chemicals, including chromium zinc arsenate

(CZA), pentachlorophenol (PCP), chromium copper arsenate (CCA),

creosote, and xylene. Most of the chemicals used have now been

designated as "hazardous substances" by the EPA, pursuant to the

RCRA, see 42 U.S.C. § 6921, and are subject to regulation pursuant

to CERCLA and RCRA.

VPI used an unlined twenty-five foot by twenty-five foot pit

in the ground for run-off from the wood treatment process. (A

lining might have prevented chemicals from seeping into the soil

and groundwater.) Treated wood was also allowed to drip onto the

soil. No precautions were taken to prevent rainwater from

contacting this soil and then flowing off the premises. Chemical

agents eventually caused severe soil and groundwater contamination

on the premises. Contaminated water also drained into a nearby

stream off the premises.

In 1980, VPI filed a Hazardous Waste Permit Application with

the EPA, and in 1982, it filed a Notice of Hazardous Waste Activity

with the Agency. As a result of subsequent investigations, in 1987

the EPA proposed listing the Henrico County facility on the

"National Priorities List" of hazardous waste sites. (Placing a

4
The original owner, the Virginia Wood Preserving
Corporation, subsequently merged with another corporation and
formed Rentokil, Inc., which eventually changed its name to
Virginia Properties, Inc.
site on this list entitles the EPA to order parties responsible to

take remedial measures. See 42 U.S.C. § 9605.) In December of

1987, VPI and the EPA executed a consent order in which they agreed

to develop ways of addressing the clean-up problem. The site was

then placed on the National Priorities List in 1989. VPI and the

EPA entered into another consent order in March 1992, this time for

repair and containment of the environmental damage. In June 1993,

the EPA made a formal demand for reimbursement of costs incurred

for its response activities.

The appellee insurance companies had issued a variety of

comprehensive general liability policies to VPI.5 VPI initiated

this action in 1992, seeking to require its insurers to provide a

defense to the proceedings before the EPA (which had culminated in

the consent orders described above) and to pay the costs of

clean-up. The insurance companies contested coverage on numerous

grounds, among them that plaintiff failed to provide timely notice,

that CERCLA-mandated remedial response costs are not "damages"

within the meaning of a comprehensive general liability policy, and

that coverage was precluded by a pollution exclusion clause. The

district court granted summary judgment for all four defendants

solely on the strength of the pollution exclusion clause.6

5
Hartford issued primary liability policies for 1977-78,
1978-79, 1979-80, and 1980-81; Home Indemnity issued primary
liability policies for 1981-82 and 1982-83; Chicago issued
excess coverage policies for 1983-84 and 1984-85; and Fireman's
Fund issued excess coverage policies for 1982-83, 1983-84, 1984-
85, and 1985-86.
6
Appellee Hartford contended that South Carolina and
Virginia law applied to the policies it had issued; the
remaining defendants agreed with the plaintiff that Georgia law
applied to the policies they had issued. The district court
 III.

Each policy contained a standard pollution exclusion clause,7
pursuant to which insurance would not apply:

[t]o bodily injury or property damage arising out of the
discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or
gases, waste materials or other irritants, contaminants or
pollutants into or upon land, the atmosphere or any water
course or body of water, but this exclusion does not apply if
such discharge, dispersal, release or escape is sudden and
accidental.

(Emphasis added.) The evidence was overwhelming that VPI

intentionally discharged hazardous chemicals onto and into the

soil, over a long period of time, as a byproduct of its ordinary
8
operations. Indeed, VPI does not dispute this. VPI concedes that

there is no coverage under the CGL policies in this case, unless

the "discharge, dispersal, release or escape" was "sudden and

accidental." VPI characterizes the dispute as "whether the

qualifying language means that the exclusion will not apply only if

the discharge was unintended or that the exclusion will also not

apply if the damage from the discharge was unintended." That is,

VPI argues that it intended the discharge but not the damage from

the discharge, and that the pollution exclusion clause does not

granted summary judgment for all four defendants without deciding
the choice of law question. For the purposes of this appeal,
Hartford acknowledges that Georgia law is applicable.
7
The primary liability insurance policies contained the
clause. Excess coverage policies were "follow form" policies,
meaning that any exclusions in the primary policy would be read
into the excess coverage policies.
8
VPI argues on appeal that a few purely accidental spills
occurred during this thirty-year period. However, it concedes
that there would be no way to distinguish the damage caused by
these few accidental spills from the overwhelming damage caused
by the facility's long-term and routine practices.
apply in such a situation.

The Georgia Supreme Court has definitively construed the

"sudden and accidental" portion of the pollution exclusion clause

to mean "unexpected and unintended." See Claussen v. Aetna

Casualty & Sur. Co., 259 Ga. 333, 380 S.E.2d 686, 688 (1989).9 The

remainder of the clause is quite clear. The policies issued by

Home Indemnity, Hartford, Chicago, and Fireman's Fund thus do not

extend to property damage arising out of the discharge of toxic

chemicals, unless the discharge was unexpected and unintended. As

the Georgia Supreme Court has noted, "the pollution exclusion

clause therefore has the effect of eliminating coverage for damage

resulting from the intentional discharge of pollutants." 380

S.E.2d at 688-89. If the terms of an insurance contract are plain

and unambiguous, the contract must be enforced as written (provided

it does not contravene the law). Ryan v. State Farm Mut. Auto.

Ins. Co., 261 Ga. 869, 413 S.E.2d 705 (1992). Accordingly,

pursuant to the plain language of its comprehensive general

liability insurance policies, plaintiff is precluded from

recovering defense and indemnification costs from any of the

defendant insurance companies.

The judgment of the district court is AFFIRMED.

9
In Claussen, the insured had discharged pollutants over an
extended period of time. The Georgia Supreme Court ruled that
the word "sudden" in a pollution exclusion clause is capable of
two meanings—either (1) temporally abrupt, or (2) unexpected.
Construing the ambiguity against the drafter (the insurance
company), the court held that "sudden and accidental" means
"unexpected and unintended" and that, accordingly, the exception
to the clause was triggered. Claussen, 259 Ga. 333, 380 S.E.2d
686 (1989). VPI would have us misread Claussen as standing for
the proposition that the entire pollution exclusion clause is
ambiguous.