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Aerojet-General Corp. v. Superior Ct

211 Cal. App. 3d 219, 257 Cal. Rptr. 621 (1989). Previously published at 209 Cal. App. 3d 973 , 211 Cal. App. 3d 216. Opinion on denial of rehearing, 209 Cal. App. 3d 238, 258 Cal. Rptr. 684.


Since the 1950s, the insureds operated a research and development facility where they developed rocket engines, rocket components, and related products for America’s aerospace and defense programs. In 1979, government regulatory agencies discovered that toxic chemicals had entered the soil and groundwater and had leached into groundwater of neighboring properties and the American River. The government brought suit against the insureds.


The insureds sought to recoup their response costs. Their insurers contended that the damages covered by their policies only referred to legal damages, not any form of equitable relief.


The trial court granted summary judgment in favor of the insurers, finding that no portion of environmental cleanup imposed on Aerojet-General and Cordova Chemical Co. constituted damages.


On appeal, the court found that the term “damages” was susceptible to two reasonable interpretations of its ordinary meaning. One could mean damages at law or equitable monetary relief designed to correct damage to property. From the standpoint of the insured, damages could well include any sum expended under sanction of law, including both money damages and sums paid out to an insured party.


The court also rejected the insurers’ argument that the government was not alleging property damage. The state’s ownership of water rights was based on its right to use. The state and federal governments, therefore, were held to be third-party property owners for the purposes of insurance coverage. “Pollution of the ground and river waters is damage to public property, as well as direct injury to public welfare.”


Finally, the court dealt with the insurers’ argument that Comprehensive Environmental Response Compensation and Liability Act (CERCLA) cleanup costs were restitutionary. Although, in its typical sense, restitution is the return of something wrongfully received, response costs, whether incurred directly by the polluter or paid to reimburse the government for its efforts, did not fit easily into this definition.


The court specifically rejected the insurers’ reliance on the Eighth Circuit decision, Continental Ins. v. Northeastern Pharm., 842 F.2d 977 (8th Cir. 1988), applying the law of Missouri and the Fourth Circuit decision, Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987), applying the law of Maryland, as based on rules of interpretation or construction adverse to California law.


The California Court of Appeal reversed the trial court’s grant of summary judgment to the insurers.


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Powerine I and II made the distinction between an administrative proceeding versus a court-ordered cleanup. Powerine I held that there was no duty to defend an administrative proceeding brought to enforce an agreed consent order. The court reasoned that the insurer’s duty to indemnify is limited to “money ordered by a court” and does not extend to environmental cleanup costs ordered by an administrative agency pursuant to an environmental statute. Powerine II, however, did retreat from that position based on language in the excess insurers’ policies that was broader and held to cover costs that the insured must expend in complying with an administrative agency’s pollution cleanup and abatement orders.


Expert Analysis

by Jill B. Berkeley

The issue of “what are damages” is illustrated in those cases in which the court must determine whether the payment of response costs in a Comprehensive Environmental Response Compensation and Liability Act (CERCLA) environmental cleanup action meets the policy’s definition of “damages” because of property damage. The question was answered by the California court in its 1990 supreme court decision, AIU Ins. Co. v. Superior Ct., 51 Cal. 3d 807, 274 Cal. Rptr. 820, 799 P.2d 1253 (1990), which followed the 1989 decision, Aerojet General Corp. v. Superior Ct., 211 Cal. App. 3d 219, 257 Cal. Rptr. 621 (1989). Although this decision hardly settled the matter in other jurisdictions, it has come to be known as the definitive answer, making clear the distinction between restitution (i.e., the return of something wrongfully received), and response costs, whether incurred directly by the polluter or paid to reimburse the government.


Insurers argue that remediation costs pursuant to government actions seek injunctive or other equitable relief and therefore are not “money damages.” Policyholders counter that the term “damages,” under its common, ordinary meaning, covers such costs because they are required to expend money for third-party damage.

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