Westport Ins. Corp. v. Appleton Papers Inc

787 N.W.2d 894

2010 WI App 86

WESTPORT INSURANCE CORPORATION, Plaintiff-Appellant,Granite State Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, Columbia Casualty Company, Continental Insurance Company, in its own right and as successor in interest to certain policies issued by Harbor Insurance Company, and as successor by merger to Fidelity & Casualty Company of New York and Federal Insurance Company, Plaintiffs,v.APPLETON PAPERS INC., Defendant-Respondent.^†

No. 2009AP286.

Court of Appeals of Wisconsin.

Submitted on Briefs Jan. 5, 2010.

Opinion Filed June 8, 2010.

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On behalf of the plaintiff-appellant, the cause was submitted on the briefs of John C. Heugel of Green Bay and Kevin J. Kuhn of Vedder Price, P.C. of Chicago, IL.

On behalf of the plaintiffs, the cause was submitted on the joint briefs of Michael J. Cohen and Thomas M. Hruz of Meissner Tierney Fisher & Nichols, S.C. of Milwaukee, Duffy Dillon and Kim M. Olson of Brennan, Steil & Basting, S.C. of Janesville and Jan M. Michaels, Scott M. Salerno of Michaels & May, P.C. of Chicago, IL, Anne Berleman Kearney of Appellate Consulting Group of Milwaukee, Margaret J. Orbon and Mark D. Paulson of Clausen Miller P.C. of Chicago, IL and John C. Heugel of Green Bay and Kevin J. Kuhn of Vedder Price, P.C. of Chicago, IL.

On behalf of the defendant-respondent, the cause was submitted on the briefs of Ronald R. Ragatz, Dennis P. Birke, Megan A. Senatori and Bradley C. Fulton of DeWitt Ross & Stevens, S.C. of Madison and Randy Parr of Dickstein Shapiro LLP of New York, N.Y. and Michael T. Sharkey, Andrew M. Weiner and Paul L. Spackman of Dickstein Shapiro LLP of Washington, DC.

An amicus curiae brief was filed by Robert C. Burrell of Borgelt, Powell, Peterson & Frauen, S.C. of Milwaukee, Laura A. Foggan and Parker J. Lavin of Wiley Rein LLP of Washington, DC for the Complex Insurance Claims Litigation Association and the Wisconsin Insurance Alliance.

Before CURLEY, P.J., FINE and KESSLER, JJ.

KESSLER, J.

¶ 1 Westport Insurance Corporation is one of numerous insurance companies that issued commercial general liability excess insurance policies to Appleton Papers, Inc. (API), from June 30, 1978, through December 31, 1985. Westport and several insurers listed above (collectively, “ Insurers”) jointly appealed from a judgment declaring that: (1) their policies provide coverage for API's liability for costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) arising out of contamination from polychlorinated biphenyls (PCBs) in the Lower Fox River and Green Bay; ¹ and (2) “[n]o defenses exist under the insurance policies at issue that operate to bar or limit coverage for API's liability” for those costs.² The Insurers also appealed from the trial court's order allocating indemnity responsibility among the various excess policies.³

¶ 2 Westport separately appealed from the denial of its motion for judgment notwithstanding the verdict or, in the alternative, for a new trial. This appeal is based on Westport's policy language concerning maintenance of underlying umbrella policies and exhaustion of underlying policies.

¶ 3 While both appeals were pending, all remaining Insurers except Westport settled their disputes with API. Westport, however, adopted all arguments made by the Insurers in their joint brief, and it separately argued the two issues unique to the terms of its policy in its own brief. We therefore resolve both the issues raised by the Insurers jointly and Westport's separate issues. For ease of reference, despite the settlement, we continue to refer to those arguments addressed in the Insurers' joint brief as the Insurers' arguments, and we refer to those arguments addressed in Westport's own brief as Westport's arguments.

¶ 4 We affirm on all issues. Further, the stay of the trial court proceedings concerning API's petition for payments pursuant to the insurance policies is lifted upon remittitur.

BACKGROUND

I. Legal background: applicable federal law.⁴

¶ 5 In 1980, the federal government adopted CERCLA, also known as “Superfund” legislation, to promote the cleanup of hazardous waste. See 42 U.S.C. § 9601 et seq. Pursuant to CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the President of the United States has “broad power to command government agencies and private parties to clean up hazardous waste sites.” Key Tronic Corp. v. United States, 511 U.S. 809, 814, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994). Key Tronic explained:

Sections 104 and 106 [of CERCLA] provide the framework for federal abatement and enforcement actions that the President, the [Environmental Protection Agency] as his delegated agent, or the Attorney General initiates. 42 U.S.C. §§ 9604, 9606. These actions typically require private parties to incur substantial costs in removing hazardous wastes and responding to hazardous conditions. Section 107 sets forth the scope of the liabilities that may be imposed on private parties and the defenses that they may assert. 42 U.S.C. § 9607.

Key Tronic, 511 U.S. at 814, 114 S.Ct. 1960. Acting pursuant to CERCLA, the Environmental Protection Agency (“EPA”) can require immediate cleanup and remediation of sites containing hazardous substance contamination, without the possibility of delay caused by litigation with the government about who is ultimately responsible for all or part of the contamination.

¶ 6 Pursuant to 42 U.S.C. § 9607(a), a number of persons and entities may be “potentially responsible parties” (PRPs) liable for cleanup and remediation at a given site. As relevant to these proceedings, PRPs can include: (1) present owners and operators of the site; and (2) past owners and operators of the site. See id. Per 42 U.S.C. § 9622(a), the government is authorized, but is not required, to negotiate with identified PRPs to agree to a remediation plan and its method of implementation. If the government decides to negotiate, it must identify and notify all PRPs and must provide them with information about the hazardous substances at the site. See § 9622(e)(1).

¶ 7 The EPA may compel PRPs to act by issuing an administrative order requiring PRPs to take specified action to abate what it determines may be “an imminent and substantial endangerment” caused by the actual or threatened release of a hazardous substance. See 42 U.S.C. § 9606(a). These orders are referred to by the parties and in this decision as “Section 106 Orders.” ⁵ Congress established substantial penalties for failing to comply with Section 106 Orders, stating: “Any person who, without sufficient cause ... fails or refuses to comply with, any order of the President under subsection (a) of this section may ... be fined not more than $25,000 for each day in which ... such failure to comply continues.” Sec. 9606(b)(1). PRPs who fail to comply with a Section 106 Order face the additional statutory consequences of being “liable to the United States for punitive damages” if they fail “without sufficient cause to properly provide removal or remedial action upon order of the President.” See 42 U.S.C. § 9607(c)(3). The punitive damages may be “at least equal to, and not more than three times, the amount of any costs incurred by the [Superf]und as a result of such failure to take proper action.” Id.

¶ 8 PRPs who believe they are not legally responsible, but nonetheless perform the remediation required by the Section 106 Order, may seek reimbursement from the Superfund for “the reasonable costs of such action, plus interest.” 42 U.S.C. § 9606(b)(2)(A). This reimbursement is only available to PRPs who can establish “by a preponderance of the evidence that [they are] not liable for response costs under section 9607(a)” and that the remediation costs the PRPs incurred were reasonable. Sec. 9606(b)(2)(C). Even PRPs who are legally responsible for remediation can seek reimbursement from the Superfund for any portion of the remediation order that is “found to be arbitrary and capricious or otherwise not in accordance with law.” See § 9606(b)(2)(D).

¶ 9 Federal courts are the only courts with subject matter jurisdiction under CERCLA see 42 U.S.C. § 9613(b), and there is no right of judicial review of the EPA's selection and implementation of the particular response method until after the response has been completed and the EPA sues to recover costs under 42 U.S.C. § 9606. See United States v. Outboard Marine Corp., 789 F.2d 497, 505-06 (7th Cir.1986).

II. Factual background.

¶ 10 According to the Section 106 Order issued by the EPA,⁶ “[b]etween at least 1954 and 1971,” the National Cash Register Company (hereafter “NCR,” the name by which it is now known) sold carbonless copy paper, which was manufactured by the Appleton Coated Paper Company using an emulsion that contained PCBs.⁷ Those PCBs were “released from paper production mills either directly to the Fox River, or indirectly, after passing through publicly-owned wastewater treatment plants.” Ultimately the PCBs found their way into sediment in the Lower Fox River and Green Bay.

¶ 11 In 1970, NCR acquired the Appleton Coated Paper Company, which eventually became part of the Appleton Papers Division of NCR. In 1978, API purchased the “assets, properties and business” of NCR's Appleton Paper Division. ⁸ The 1978 “Agreement of Purchase and Sale of Assets” (hereafter, “1978 Sale Agreement”) stated in relevant part:

Purchaser [API ⁹] agrees that it shall assume, pay,

perform, defend and discharge ... all of the following:

....

... [A]ll of Seller's [NCR's] liabilities ... whether arising from transactions, events or conditions occurring prior to or after the Closing Date, with respect to compliance of the Property ... or operations of [the facilities] with all applicable ... governmental environmental and pollution control laws.[ ¹⁰]

The 1978 Sale Agreement indicated...