Coakley v. Maine Bonding & Casualty Co.

Brock, C.J.,

dissenting: The majority goes to great lengths to find insurance coverage for the response costs incurred by the EPA. Be*420cause I cannot agree with the majority’s characterization of CERCLA response costs, or with the majority’s forced interpretation of the term “damages” as it is used in the comprehensive general liability (CGL) policies, I must dissent.

A claim by the EPA to recover the costs it incurs in responding under CERCLA to a release of hazardous waste pollution is not a claim for damages. In the legal sense, it is a claim for equitable restitution. In a more common sense, it is a claim by the EPA seeking reimbursement for the money it spent on behalf of the responsible parties by taking the initiative in responding to a release of hazardous waste pollution, instead of waiting for the responsible parties to comply with EPA directives by taking action themselves. Regardless of how the response costs are viewed, they are not the kind of expenses for which the Coakleys are insured under their CGL policies.

The EPA is authorized under CERCLA to direct the cleanup and prevention of hazardous waste pollution in this country. See 42 U.S.C.A. § 9604(a)(1) (Supp. 1992). In the case of a release of hazardous waste pollution, the EPA may order the responsible parties to take specific remedial actions, see 42 U.S.C.A. §§ 9604(a)(1), 9606(a) (Supp. 1992), and may enforce these orders in federal district court. See 42 U.S.C.A. § 9606(a)-(b) (Supp. 1992). Because of the severity and immediacy of the hazardous waste pollution problem in the United States, and because of the inherent difficulty and substantial cost in remedying sites of hazardous waste pollution, CERCLA also authorizes the EPA to execute its own cleanup measures, to remedy and prevent releases of hazardous substances, and then to recover the costs of response from the parties deemed responsible under CERCLA for violating EPA pollution standards and creating the hazard. See 42 U.S.C.A. §§ 9604, 9607(a)(4)(A)-(B), 9621(a) (1983 & Supp. 1992).

Expenses incurred in response are the costs of complying with the directives of a regulatory agency. This cost of compliance remains the responsibility of the responsible parties regardless of whether the EPA orders the cleanup of the hazardous pollution, or whether the EPA, itself, responds to the pollution release. When the EPA decides to respond itself, it confers a benefit upon the responsible parties by performing a beneficial service and saving the parties the cost thereof. When the EPA seeks reimbursement of its response costs under subsection 9607(a)(4)(A) (Supp. 1992), it is seeking restitution for the unjust enrichment received by the responsible parties *421in the form of avoided expenditures. See Restatement (Second) of Restitution § 3, at 43 (Tentative Draft No. 1, 1983).

In no way can response costs be characterized as damages in the sense of a traditional tort recovery. Nor can CERCLA be interpreted as creating a new cause of action under which the federal government may sue hazardous waste polluters. CERCLA, itself, specifically distinguishes between the recovery of response costs and the recovery of traditional tort damages to compensate an injury to natural resources. Subsection 9607(a)(4) (Supp. 1992) of CERCLA provides that responsible parties will be liable for:

“(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan; [and]
(C) damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction, or loss.”

The term “natural resources” is defined as “land, fish, wildlife, biota, air, water, ground water, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States . . . any State or local government, any foreign government, [or] any Indian tribe.” 42 U.S.C.A. § 9601(16) (Supp. 1992).

The distinction between response costs and damages clearly indicates that CERCLA was not intended to create a comprehensive damages remedy for governments involved in hazardous waste pollution cleanup. The damages provision of section 9607 applies only in cases of actual injury to resources in which a government holds an actual interest. The fact that the EPA expends money conducting remedial measures to clean up pollution on privately owned property is not enough to give the United States grounds to recover damages. It may only seek reimbursement of its response costs.

The State of New Hampshire, by its own laws, does hold all of the groundwater in the State in trust for the benefit of its citizens. RSA 481:1. Presumably, the State could recover damages under subsection 9607(a)(4)(C) (Supp. 1992) for the actual injury to the groundwater held in trust caused by the release of pollution at the Coakley landfill. Such an action, however, would be distinct from the claim made by the EPA that is the focus of this present dispute. The plaintiffs’ liability in this case is for the reimbursement of response costs *422incurred by the EPA. To establish this liability the EPA did not have to hold an interest in any polluted natural resources, nor did it have to allege any injury. It had to show only that an unjust benefit was conferred upon the responsible parties when the EPA had to take affirmative steps to execute its own directives for the public welfare.

Because the EPA's claim to recover response costs seeks an equitable remedy of restitution, it is not covered as damages under the Coakleys' CGL policies. This court in Desrochers v. Casualty Co., 99 N.H. 129, 106 A.2d 196 (1954), established that equitable forms of relief are not covered as damages in CGL policies. A number of courts have cited Desrochers for the proposition that equitable actions for injunctive and restitutionary relief are not damages. See, e.g., Continental Ins. v. Northeastern Pharmaceutical, 842 F.2d 977, 986 (8th Cir.), cert. denied, 488 U.S. 821 (1988); Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1352 (4th Cir. 1987), cert. denied, 484 U.S. 1008 (1988); Intel Corp. v. Hartford Acc. and Indem. Co., 692 F. Supp. 1171, 1188 n.24 (N.D. Cal. 1988); Ladd Constr. v. Insurance Co. of N. America, 73 Ill. App. 3d 43, 46-47, 391 N.E.2d 568, 571-72 (1979); Lido Co. of New England v. Fireman's Fund, 574 A.2d 299, 300-01 (Me. 1990). Citing Desrochers, the Eighth Circuit, sitting en banc, stated that "[b]lack letter insurance law holds that claims for equitable relief are not claims for `damages' under liability insurance contracts." Northeastern Pharmaceutical, 842 F.2d at 986 (quotations omitted); see also Cincinnati Ins. Co. v. Milliken and Co., 857 F.2d 979, 980-81 (4th Cir. 1988) (no coverage for costs of restitutionary relief); Aetna Casualty and Surety Company v. Hanna, 224 F.2d 499, 503 (5th Cir. 1955) (no coverage for costs of injunction); Haines v. St. Paul Fire & Marine Ins. Co., 428 F. Supp. 435, 441 (D. Md. 1977) (no coverage for costs of injunctive and restitutionary relief); Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16, 18-19 (Me. 1990) (no coverage for costs of complying with government order to clean up pollution).

To support its position in favor of coverage, the majority misreads Desrochers and unnecessarily complicates an already complex issue. The majority uses Desrochers for something Desrochers was never designed to do. Desrochers clearly states what the term “damages” in a CGL policy does not include, namely equitable forms of relief. The majority, however, tries to use Desrochers to define what “damages” are, and in the process leaves a thirty-eight-year-old precedent in shambles.

After holding that the cost of compliance with a mandatory injunction is not a sum recoverable “as damages” under a liability insur*423ance policy, Desrochers, 99 N.H. at 131, 106 A.2d at 198, the court in Desrochers went on to address and find fault with the lower court’s reasons for finding insurance coverage. The supreme court rejected the lower court’s rationale that the injunction should be treated as a substitute for damages occurring in the future on the technical grounds that the policy in question would no longer be in effect to cover any instances of future damages. Id. at 133, 106 A.2d at 199. The majority, today, bases its holding on this substitution argument without even mentioning that it directly contradicts the holding in Desrochers that “[t]he cost of compliance with [a] mandatory injunction is not reasonably to be regarded as a sum payable ‘as damages.’” Id. at 131, 106 A.2d at 198.

The majority tries to justify its position by twisting the reasoning in Desrochers. In distinguishing an injunction from traditional tort damages, the court in Desrochers listed several, nonexclusive traits of a damages remedy:

“Damages are recompense for injuries sustained. They are remedial rather than preventive, and in the usual sense are pecuniary in nature. The expense of restoring the plaintiff’s property to its former state will not remedy the injury previously done, nor will it be paid to the injured parties.”

Id. at 131-32,106 A.2d at 198 (citations omitted). The majority today relies upon this incomplete list of traits and tries to say that response costs must be damages because in some form or another they possess these traits. This approach, though, creates several strained lines of reasoning.

First, the majority creates a distinction between remedial and preventive costs and determines that only remedial expenses are covered as damages. See supra p. 412. The creation of this distinction is likely to be the most important aspect of today’s decision because it creates an unworkable and illusory distinction that will fuel the fires of future litigation. In this case, it is unclear exactly which response costs incurred by the EPA are remedial and which are preventive. Removing contaminants from the groundwater under the land neighboring the Coakley landfill is certainly remedial, but it is also preventive to the extent that it prevents the contamination from spreading from the groundwater to the ground, plants, animals, and nearby families. Similarly, it is unclear whether decontaminating the groundwater directly under the Coakley landfill is essentially remedial in that it remedies the damage to the groundwater held in trust by the State, or essentially preventive in that it stops the spread of *424pollution through the groundwater to neighboring properties, preventing any number of private tort suits.

Perhaps the greatest problem with the majority’s treatment of the preventive/remedial distinction is that it creates an irreconcilable contradiction within the opinion. The majority holds that some costs, such as the cost of constructing a containment cap over the site, cannot be damages because they are preventive. This, however, contradicts the substitution argument, gleaned from Desrochers, on which the majority’s opinion is based. See supra p. 412.'If the EPA’s order to clean up the groundwater is just a substitute for an action for future damages, how can the EPA’s order to construct a containment cap be treated any differently? Similar to cleaning up the groundwater, constructing the containment cap will prevent future damages and, under the majority’s reasoning, should be treated as a substitute for an action for those future damages. This contradiction exhibits how the majority has misread Desrochers.

The majority also reinterprets the court’s statements in Desrochers that damages “in the usual sense are pecuniary in nature,” Desrochers, 99 N.H. at 131, 106 A.2d at 198, and are “paid to the injured parties.” Id. at 132, 106 A.2d at 198. In so doing, the majority uses faulty logic to find a distinction between the direct and indirect payment of costs. Instead of taking the logical steps to work through to its conclusion, the majority starts with its own conclusion and works backwards. Because response costs are damages if they are incurred by the EPA, the majority contends, then it is incongruous for response costs not to be covered if the Coakleys incur them in complying with an EPA injunction. See supra pp. 413-14. The majority states that “[i]t should make no difference in terms of insurance coverage whether the engineering firms hired to clean up the polluted groundwater receive their money [directly] from the Coakleys or [indirectly] from the federal or State government. Direct payment is in a ‘real sense equivalent’ to indirect payment, because either way, the damage to the groundwater is repaired.” Supra p. 414 (citation omitted).

Under the majority’s rationale, response costs are recoverable as damages because they are “pecuniary in nature” as long as some engineering firm is ultimately paid to clean up the groundwater. If this reasoning is carried to its conclusion, the Coakleys’ response costs would be covered even if the Coakleys acted on their own, under no EPA injunction, and before the pollution was detected by the government. Such a result is untenable, but it is mandated by the majority’s reasoning which disregards what the court in Desrochers *425meant by the terms “pecuniary in nature” and “paid to the injured parties.”

All remedies are “pecuniary in nature” at some level. A party will usually incur costs in complying with an injunction; a party must disgorge funds constituting unjust enrichment in an action for restitution; and a tortfeasor will pay money to compensate a party’s injuries in a damages action. The fact that damages are pecuniary in nature only means that the value of an injury is calculated in monetary terms, and money is used to compensate a party for its injury. See D. Dobbs, Handbook on the Law of Remedies 135-36 (1973). In contrast to equitable forms of relief, a damages action will not correct the injury itself, nor will any identifiable unjust benefit be returned to the injured party. See id. at 135. Rather, the injured party receives a cash award equivalent to the injury sustained. Id. The fact that damages are paid to an injured party means only that damages are designed to compensate the injured party’s interests. See id. at 135-36. How the injured party uses the money award is irrelevant.

The proper logical progression, which the majority should have followed, is as follows. If the Coakleys acted on their own to clean up the hazardous waste pollution they caused, prior to any order by the government, then the costs of their response would not be damages. The money spent would not be compensating any injury and would not be paid to any injured party. They would simply be costs incurred by the Coakleys in the course of conducting their business, costs which are certainly not covered by a CGL policy. If the Coakleys clean up the pollution pursuant to an EPA injunction, the reasoning is the same. The cost of remedying the pollution is still the Coakleys’ responsibility, and the fact that the EPA has stepped in on behalf of the public health and welfare does not mean that any party has been injured, nor does it transform the costs of response into some form of compensation for an injury. The response costs are still just a cost of doing business which the Coakleys must bear. Finally, if the EPA steps in, conducts the cleanup, and sues for the reimbursement of its response costs, the money recovered is still not damages. The EPA is not suing for any injuries sustained by the natural resources of the United States; the money paid is not compensation for natural resource damage; and the money paid is not the value of any damages, but rather is the value of the unjust benefit conferred upon the Coakleys by the EPA when the EPA assumed the Coakleys’ responsibilities and cleaned up the pollution, saving the Coakleys the cost thereof.

*426To hold otherwise, as the majority does, creates an unintended anomoly. It must be agreed that the Coakleys would not be covered for their costs of response if they acted on their own, prior to any government involvement, to clean up the pollution they caused. The majority’s decision today, though, finds coverage for response costs as damages as long as the Coakleys wait long enough for the EPA to enter the picture to issue an order, obtain an injunction, or conduct the cleanup itself. Such an approach by the majority makes insurance coverage contingent on the mere fortuity of government involvement in the cleanup process and will discourage polluters and responsible parties from taking any initiative to remedy the pollution they have caused. Indeed, under the majority’s reasoning, companies and industries will have no incentive to adhere to government safety standards or environmental regulations. If a company neglects its duties and forces a government agency to demand compliance, instead of complying with these directives and absorbing the cost as a cost of doing business, then all of these business expenses would now be covered by insurance. For example, if a government agency ordered all apartment complexes to be equipped with smoke detectors, the owners of such complexes would have to install detectors and bear the cost. If one owner refused to install the detectors, forcing the agency to order compliance or install them itself, the costs would now presumably be covered by a CGL policy by virtue of the government agency’s involvement.

Finally, in dissent, I must object to the majority’s unwarranted resort to dictionary definitions in order to find the term “damages” to include response costs. We have declared that this court will not find a clause to be ambiguous just so that we may resolve the contrived ambiguity against an insurer. Laconia Rod & Gun Club v. Hartford Acc. & Indemn. Co., 123 N.H. 179, 182-83, 459 A.2d 249, 251 (1983). Specifically, I object to the majority’s use of dictionary definitions for two reasons. First, a dictionary by its very design has several varied definitions for a single word. It is not appropriate for the court to search the dictionary for the one definition that will result in coverage in a particular case.

Second, the majority’s actual use of the dictionary definitions in its opinion is misleading. The majority concludes that response costs fit the definition of damages stating them to be “compensation or satisfaction imposed by law for a legal injury.” Supra p. 415. The full text of this part of the definition is stated earlier in the majority’s opinion and reads: “compensation or satisfaction imposed by law for a wrong or injury caused by a violation of a legal right.” WEBSTER’S THIRD *427New International Dictionary 571 (unabridged ed. 1961) (emphasis added). The majority fails to address the fact that response costs do not fit this definition unless they are to compensate an injury “caused by a violation of a legal right.” In this case, the EPA has suffered no violation of a legal right. It has no right not to incur response costs. Indeed it has an affirmative duty to remedy hazardous waste pollution. The pollution caused by the Coakleys may have violated the rights of private parties not to have their land polluted, or even the rights of the State of New Hampshire not to have its groundwater contaminated. But the recovery of response costs by the EPA is in no way compensation for these injuries.

The majority undoubtedly will object to this dissent on the ground that the denial of coverage relies upon the imposition of a technical legal term, distinguishing an action in equity from an action for damages, upon the plain meaning of the insurance policy. Such an objection is misplaced for two reasons. First, even the majority recognizes that a term in an insurance policy cannot be considered ambiguous if it has already been defined by judicial decision. Supra pp. 409-10; see 13 J. Appleman & J. Appleman, Insurance Law and Practice § 7404, at 339 (1976). Desrochers clearly holds that equitable forms of relief are not recoverable as damages under the terms of a general liability policy. Desrochers, 99 N.H. at 131-32, 106 A.2d at 198. With this precedent in place in New Hampshire, the term “damages” cannot be deemed ambiguous, nor can any insurance carrier have been expected to modify the wording of its policy in search of a clearer statement of coverage.

Second, even without relying on a judicial decision to define damages, the average insured would understand that response costs would not be covered as damages under the terms of a CGL policy. I agree with the majority that an insured may not know the technical legal distinctions between actions in law and actions in equity, but this is not what the average insured must understand to know that response costs are not covered. The insured must know only that the CGL policy covers only those costs “which the insured shall become legally obligated to pay as damages.” Any insured knows that general liability insurance does not cover all costs which a company might incur in the course of doing business. It does not cover operating costs, penal sanctions, or the cost of complying with the directives of a regulatory agency. No reasonable insured could believe that insurance coverage could be created by failing to comply with an agency’s directives or failing to heed its orders.

*428Because I would hold that response costs cannot be considered damages under the CGL policies, I would also hold that Maine Bonding and St. Paul have no duty to defend the C oakleys against the actions of the EPA and NHDES. For the reasons set forth above, I respectfully dissent.

Thayer, J., joins in the dissent.