"Debris removal" may sound innocuous and straightforward enough but the numerous forms of insurance policies that include coverage for such claims have proven to be the subject of much litigation. Because the costs of "debris removal" can prove to be great, an understanding of such coverage and its scope is important to all parties. Accordingly, we have compiled an illustrative sampling of "debris removal" cases that help define the meaning of the term, explain how such clauses are interpreted, and highlight the role of exclusions and their exceptions.

We wish to thank Kim Kearney, Spike Brown, Tom Lynch, Bret Le Breton and Steven Belgrade for their excellent contributions in writing this paper.

Lexington Ins. Co. v. Ryder System,

234 S.E.2d 839 (Ga. App. 1977)

Facts: The insured brought a claim to recover for its loss when a large quantity of oil leaked out of the underground storage tanks at its place of business. The insured was reimbursed for this claim. The insured also brought a claim to recover the cost it incurred in removing the fuel that had escaped from the ground. However, the insurer refused to reimburse for this claim.

The insured based both claims on an all risk policy that purported to cover all personal property owned, leased or used by the insured, which included an endorsement covering "oil in pipe lines." The policy also contained a "debris removal" provision that made the insurer liable for the "cost of demolition and removal of debris formerly an insured part of the property and no longer suitable for the purpose for which it was intended" after a covered physical loss.

The primary debate between the insured and the insurer surrounded the meaning of the term "debris" in the policy and the type of "demolition" required for debris removal to be covered by the removal provision. The insurer argued that it was not liable for the removal cost because the escaped fuel did not constitute the type of debris intended by the policy clause, nor was the escaped fuel subject to "demolition."

Holding: The escaped oil, which contaminated the surrounding earth, was debris, and its removal was compensable, because oil in storage was insured under the all-risk policy.

Reasoning: The court rejected the insurer's proposition that the escaped oil was not "debris." It reached its conclusions by invoking the doctrine of construction that requires an insurance contract be construed strictly against the insurer and liberally in favor of the contention of the insured. With that doctrine in mind, the court reasoned that the term "debris" may mean merely waste material resulting from the destruction of some article. The court further concluded that the escaped oil was part of the insured property and that it was no longer suitable for its intended purpose within the meaning of the policy.

Similarly, the court defined the word "demolition" as "simply to do away with," based on the common dictionary definition of the word. Although the terms "demolition" and "removal" often connote separate actions, the court held that the policy language did not mandate that the insured show both a tearing down and a taking away in order to invoke the debris removal clause.

Comparison to other cases cited in this memorandum: This case gives the first definition for the term "debris," which is essential to interpreting any debris removal clause. In defining the term, the court appropriately construed the language strictly against the insurer, a widely held method of construction.

Morey v. All Alaskan Seafoods,

1992 AMC 1551 (W.D. Wash. 1990)

Facts: A crab-processing vessel was stranded during a storm. The vessel contained approximately 500,000 pounds of spoiled crab. The corporation that owns the island where the vessel was stranded as well as the state of Alaska brought an action against the vessel to remove the cargo debris. The vessel tendered a demand to its cargo underwriters, plaintiffs in this action, for the removal of the cargo debris shortly after the stranding. The cargo underwriters refused the request, contending that they were not responsible for the costs of removing the spoiled crab. The insurance contract provided in relevant part: "Underwriters to be liable for all expenses incurred in the removal of all debris of property covered hereunder remaining after any loss hereby insured against."

Holding: The underwriters were liable for removal of the spoiled crab as debris because the vessel stranding was a loss that the policy insured and the cargo remaining aboard the vessel was covered under that policy. Therefore, the requirements of the debris removal clause were met.

Reasoning: The court rejected the plaintiff's argument that the debris removal clause covered the cost of removing cargo debris only when performed in order to return the vessel to reusable condition, rather than to avoid legal liability to third parties for the damage that could be caused by the debris.

The plaintiffs cited Compass Ins. Co. v. Cravens, Dargan Co., 748 P.2d 724 (Wyo. 1988), infra, as support for their argument that such coverage would only be provided by liability insurance. The court was not persuaded that the purpose for which debris removal is undertaken determines the extent of the insurance coverage. The court distinguished the case at bar from Cravens, where oil spilled from a state highway maintenance yard and contaminated both state land and adjoining private land. The Cravens court was forced to determine how to apportion liability between the state's liability and property insurers. The Morey court reasoned that the situation at bar was substantially different from that in the Cravens case because, here, all the debris to be removed was aboard the vessel at the time of its grounding.

The fact that the vessel may have been liable to the owners of the property on which the vessel was grounded did not mean that the cargo aboard the vessel was no longer insured. The insurance policy unambiguously stated that the underwriters would be liable for the cost of removing any spoiled cargo remaining aboard the vessel after an insured loss. It was undisputed that this stranding was an insured loss. There was no language in the policy or evidence of intent to limit this coverage. Thus, any attempt to limit coverage based on arguments about liability to third parties were ignored.

Comparison to other cases cited in this memorandum: This court, like many other cases, relied on the tenet of policy construction that interprets insurance policies strictly against the insurer. In Morey, the court did not explicitly invoke this doctrine, but it was clearly an element present in its reasoning, as the court looked to the language of the policy and determined that there was nothing limiting the removal clause based on third-party liability. The court refused to deny coverage based on an alleged purpose for which the debris removal clause was enacted that was not stated in the contract.

Antilles Steam Ship Co., Ltd. v. Members of the Am. Hull Ins. Syndicate,

733 F.2d 195 (2d Cir. 1984)

Facts: An explosion aboard a ship caused extensive damage to it, rupturing several of its cargo tanks loaded with liquid chemicals. Some of the liquid cargo spilled and later solidified. The ship company brought an action to recover the removal costs of all chemicals and the repair costs from its insurer under its marine hull and machinery policy. The insurer agreed to pay for the actual damage to the ship and the cost of removal of the mixture and removal of the residue, but refused to pay for the cost of removing the bulk of the hardened mass from the cargo tanks.

Holding: The insurer was required to pay only for those expenses incurred in removal of the last residue of material clinging to the bulkhead of the tanks. The court determined that the bulk of the hardened mass in the tanks was cargo, not debris, and the expense of its removal was to be borne by the ship owner, not the insurer. The court concluded that the cargo debris in the cargo tank at the port of destination did not constitute damage to the vessel within the parties' intended meaning of the additional perils or negligence clause.

Reasoning: The plaintiff was unable to prove that there was a loss within the terms of the policy, because it could not show that the shipboard explosion required the insurance company to pay for the cost of removing cargo or cargo debris from the ship once it safely reached its harbor. The court stated that once a voyage is complete, hull underwriters are not concerned with the cost of cargo discharge, no matter what its form. The court further stated that ship owners may be protected against extra expense for cargo removal by purchasing insurance with protection or indemnity underwriters.

An important consideration in the court's decision on this question was that the plaintiff had the burden of showing that both the loss and the peril that caused it, fell within the meaning of the policy terms. The court found that the plaintiff could not meet its burden because the cargo debris in a cargo tank at the port of destination did not constitute "damage to the vessel" within the intended meaning of the clause.

Comparison to other cases cited in this memorandum: Factually, this case is unique because the "debris removal" sought to be covered was removed after successful completion of the voyage, rather than after a stranding or explosion. However, to determine coverage, the court in this case again looked at the "intent" of the insurance contract. The court found the language of the contract to be unambiguous. The court then looked to the historical and customary understanding of the scope of coverage to determine the intent of the parties. The court based its decision on 85 years of marine insurance law, which has held that once a voyage is completed, hull underwriters are not concerned with the cost of cargo discharge, no matter what its form.

St. Paul Fire & Marine Ins. Co. v. Protection Mutual Ins. Co.,

664 F. Supp. 328 (N.D. Ill. 1987)

Facts: The plaintiff insurance company issued an all-risk insurance policy to its insured. A second insurance company issued an insurance policy to the insured for boiler and machinery coverage. An accident occurred at the insured's plant, and as a result, the plaintiff paid the insured $2.1 million for loss in damage resulting from the accident, principally to pay the cost of removing polychlorinate biphenyl ("PCB") from the accident site. The plaintiff then required that the second insurance company reimburse it for $2.05 million in accordance with the terms of its boiler and machinery policy with the insured. The second insurance company argued that its debris removal clause did not provide independent coverage for the PCB cleanup. The relevant portion of the clause provided that "this policy also covers expenses of removal from the described premises of debris remaining after any loss hereby insured against . . . ."

The plaintiff also had a debris removal clause that provided:

For all coverages and property insured by Section IA1-11. This policy insures against all risks of physical loss of or damage to property including:

a. The expense of removal of materials and debris of property damage by an insured peril . . . .

Holding: The court found the plaintiff liable for the costs associated with the PCB cleanup because the cost was directly attributable to the fire. The court held that when there is a concurrence of two causes of loss, such as the arcing or short circuit insured by one insurance company and the fire insured by another, each insurer shall bear his proportion of the loss where the damages caused by each peril can be discriminated.

Reasoning: The foundational finding of the court was that both policies covered the cost of removing debris after covered losses, and both could have conceivably been applied to cover the incident. The court found that although the plaintiff's policy did not specifically cover electrical injury, it did cover fire damage that ensued from the electrical injury. The court determined that the defendant's policy covered all loss or damage to property directly caused by an electrical accident.

In deciding which of the possible insurers must pay, the court relied on Mammina v. Homeland Ins. Co. of America, 21 N.E.2d 726 (Ill. 1939), where a court held that when two causes, one insured by insurer A and the other by insurer B, join to cause a loss, each insurer must pay for the damage caused by its covered peril, if the damages can be discriminated. Thus, the plaintiff was liable because the costs could be attributed to the fire that it insured.

Comparison to other cases cited in this memorandum: This case is distinct from many of the others summarized in this memorandum because it does not dispute the coverage of debris removal costs, but, instead, addresses the question of how multiple insurers must divide removal costs in a mutual coverage situation.

Bell Power Systems, Inc. v. Hartford Fire Ins. Co.,

1995 WL 81432 (Conn. Super. 1995)

Facts: The plaintiffs commenced this lawsuit against its insurers, claiming coverage under various policies for property damage caused by oil leaking from an underground storage tank located on the plaintiff's real property. The tank, an oil and water separator, had been operating for approximately fifteen years when the plaintiff discovered that certain ports were not sealed allowing pollutants and contaminants to escape continuously into the ground during its entire operation. The plaintiff excavated and removed a portion of the contaminated soil. The plaintiff alleged that it had and would incur expenses in connection with the cleanup of the property and that the contamination rendered the property unsalable.

The plaintiff was insured under the policies of different defendants during the relevant period, but the all of the policies contained debris removal clauses that were similar in substance. The policies covered the expense of removing debris of covered property caused by or resulting from a covered cause of loss. However, the policies all excluded costs for extracting "pollutants" from land or waters and the removal or restoration of polluted land or water.

Holding: The plaintiff's motion for summary judgment against the insurers was denied.

Reasoning: The court rejected plaintiff's reliance on Lexington, 234 S.E.2d 839, supra, and Manduca Datsun, 676 P.2d 1274, infra, because the debris removal clauses of those policies differed from the policy at issue. In the case at hand, the clause clearly stated that coverage would not apply to costs incurred to extract pollutants or to remove, restore, or replace polluted land or water.

The court further held that the petroleum-based products that leaked were pollutants within the meaning of the exclusion clause. The court relied on Heyman Assoc. No. 1 v. Ins. Co. of Penn., 231 Conn. 756 (Conn. 1995), where the policy contained a similar exclusion clause and an identical definition of the term "pollutants." The Heyman court held that fuel oil was included in the definition of pollutants because the oil was clearly a liquid irritant or contaminant within the commonly accepted meanings of those words.

Comparison to other cases cited in this memorandum: This case again dealt with disputed debris removal coverage, but the policies involved contained special exclusions for pollutants. The insurers did make arguments against coverage because there was no direct physical loss or damage to covered property, an argument found in other cases. However, in this case, the court refused to reach that question based on its denial under the exclusion clause.

Also recurring was the reference to the canon that ambiguities in insurance policies are to be construed in a manner most favorable to the insured. However, the court found that the language of the exclusion clause was plain, and thus, no such construction was required.

Farmers Union Mut. Ins. Co. v. Oakland,

825 P.2d 554 (Mont. 1992)

Facts: The insurer sought a declaration that the fire and casualty policy with its insureds did not require the insurer to pay the additional costs related to the removal of fire-damaged materials containing asbestos during reconstruction of the insureds' fire-damaged property. The district court held that the insurance policy did not require the insurer to pay these additional costs, based on a "code exclusion" clause in the policy. The clause relieved the insurer of any obligation to pay additional removal costs due to regulations or codes related to the removal of certain materials.

Holding: The Montana Supreme Court reversed the district court decision, and held that the policy affirmatively extended coverage to debris removal. The court held that the asbestos in question was "debris" and the policy language attempting to limit coverage was inapplicable.

Reasoning: The Court rejected the insurer's argument that the exclusion clause relieved it of an obligation to pay the higher costs associated with removal and disposal of asbestos debris. The court reasoned that the asbestos regulations did not "cause" or "result" in the "loss or damage" to the insureds' property. Despite the existence of asbestos, it was the fire that caused the "loss or damage."

The court also rejected the insurer's interpretation of the clause, which would have operated to exclude coverage by virtue of the increased cost associated with an ordinance or law regulating repair. Instead, the court found that the clause as a whole referred to the types of new materials with which the damaged materials must be repaired or replaced, but was silent on the question of debris removal. The court stated that if the insurer intended to exclude debris removal costs related to code enforcement it could have done so.

Comparison to other cases cited in this memorandum: This case deals with another challenge to debris removal found in specific exclusions, which the court found to be ambiguous. Again, the court has put the burden of clear drafting of the debris removal clause on the insurer, stating that it could have excluded the portions it challenged, but it must have done so explicitly.

Manduca Datsun, Inc. v. Universal Underwriters Ins. Co.,

676 P.2d 1274 (Id. App. 1984)

Facts: The insured suffered a loss from substantial fire damage to a building where it operated an automobile dealership. The creditors of the insured brought an action against it and its fire insurer seeking payment of debts owed by the insured after the fire. The insured cross-claimed against the insurer for recovery in excess of amounts which the insurer tendered to satisfy the creditors' claims based on damages to the insured's property which were expected to occur during the debris removal.

The relevant issue in dispute was whether expected property damage to the asphalt around the building during debris removal should have been recoverable under the debris removal clause. The clause stated as follows:

Coverage under this coverage part includes expense incurred in the removal of debris of property covered occasioned by loss insured against in this coverage part, but this company shall not be liable . . . for more than the amount for which this company would be liable, exclusive of debris removal expenses, if all property covered at the location where the loss occurred were destroyed.

The district court found that the asphalt was not damaged in the fire and consequently, there could be no recovery under that part of the policy providing coverage for property destroyed by fire.

Holding: The Idaho Court of Appeals disagreed with the lower court's refusal to allow the plaintiff's recovery, and remanded the case.

Reasoning: Although the clause does not define the phrase "expense incurred in the removal of debris," the court found that it had a plain meaning. The court held that the policy was intended to cover the necessary cost of clearing the fire site of debris so reconstruction could begin. The court reasoned that the economic purpose of coverage would be partly or wholly defeated if it did not provide payment for damage necessarily caused by the debris removal process itself. Thus, damage to the asphalt around the building necessarily caused by the process of debris removal was covered by the policy.

Comparison to other cases cited in this memorandum: This case involved damages caused by the removal of debris, an extension of earlier policy challenges to debris removal clauses. The court found those damages to be covered based on the policy language. On the issue of interpretation, the court found the debris removal clause to be unambiguous. Thus, the court interpreted it in light of the meaning found on its face, because a court only needs to interpret "ambiguous" provisions strictly against an insurer.

Modern Constructors, Inc. v. Continental Casualty Co.,

38 F.3d 377 (8^th Cir. 1994)

Facts: An insurer brought a declaratory judgment action against its comprehensive general liability ("CGL") insurer seeking determination of coverage for the potential liability in a CERCLA action for costs associated with the cleanup of a contaminated waste site. The policies contained a pollution exclusion clause that barred coverage for any damage resulting from the discharge or release of contaminants or pollutants into or onto the land, water or air. The policies specifically provided, however, that the pollution exclusion clause did not apply if "such discharge, dispersal, release or escape is sudden and accidental."

The district court granted the insurer's motion for summary judgment, concluding that the pollution exclusion precluded coverage, but that the "sudden and accidental" exception to the exclusion did not apply because the release of pollutants took place gradually over a period of many years.

Holding: The Court of Appeals affirmed the district court decision that the pollution exclusion clause in the insurance policy barred coverage for the CERCLA claim.

Reasoning: The court based its decision on the Minnesota Supreme Court holding in another case, Board of Regents v. Royal Ins. Co., 517 N.W.2d 88 (Minn. 1994), which defined the word "sudden" as abrupt or the opposite of gradual. The court refused to construe "sudden" to mean merely "unexpected," without an element of time. The court reasoned that such a connotation would create a redundancy with the word "accidental." Based on this language argument, the court held that the "sudden and accidental" exception to the pollution exclusion did not apply to the gradual release of contaminants over a period of many years.

Comparison to other cases cited in this memorandum: This case involved interpretation of an exception to an exclusion, which is a slight twist on the usual clauses this memorandum has analyzed. However, the principles of statutory construction remained the same as the court based its decision on the language of the policy, looking to the standard and ordinary definition of the words used in the relevant clause.

Falcon Products, Inc. v. Ins. Co. of the State of Penn,

782 F.2d 779 (8^th Cir. 1986)

Facts: The plaintiff purchased scrap metal in the form of engine blocks from a scrap metal dealer. Subsequently, the shipments of scrap metal were found to have contained pellets of a radioactive metal. The engine blocks first came into contact with this radioactive metal on the scrap dealer's premises, before the plaintiff purchased the blocks.

The district court held that the blocks were not "property covered" by the policy because "loss or damage" to the scrap metal occurred before the plaintiff owned the engine blocks and while the blocks were not on the premises owned, leased or occupied by the insured. The lower court also denied coverage based upon the policy provisions excluding loss or damage caused by or resulting from "contamination" and "faulty materials."

Holding: The Court of Appeals upheld the district court interpretation of the insurance contract, and denied coverage based on lower court's reasoning and interpretation.

Comparison to other cases cited in this memorandum: This case construed coverage for contamination by analyzing when and where the contamination occurred. It is certainly not an unusual extension of insurance law to hold that the loss or damage must occur during the period that the property is on the premises owned, leased or occupied by the insured in order for it to constitute "property covered" under the policy. What made this case somewhat unique was the fact that it dealt with contamination by radioactive metal, a type of contamination that would not appear immediately. However, the court chose not to treat this type of contamination differently from other types of covered injury to property.

Weyerhaeuser Co. v. Aetna Casualty & Surety Co.,

874 P.2d 142 (Wash. 1994)

Facts: The insured filed a declaratory judgment action against its CGL insurers seeking a declaration of coverage with regard to the property damage at forty-two polluted sites in a number of states. The Superior Court granted summary judgment to the insurers and the insured appealed.

Holding: CGL insurance policies, which provide coverage for all sums that the insured is obligated to pay under liability imposed by law for property damage, may provide coverage when an insured engages in the cleanup of pollution damages in cooperation with an environmental agency.

Reasoning: The court held that CGL policies can reasonably be read to provide coverage for actions taken to clean up pollution damages required under environmental statutes, which impose strict liability for such cleanup. The court stated that the majority of other state appellate courts have agreed that cleanup costs incurred under environmental statutes constitute property damages for purposes of CGL policies. It further stated that environmental statutes are not laws of general applicability with which all companies must comply in the ordinary course of business, but are laws which impose strict liability on those that are liable because pollution has caused property damage.

The policy language providing coverage for "liabilities imposed by law" could reasonably have been read to encompass remedial actions taken at hazardous sites under environmental statutes that impose liability. The language did not specify whether this liability must be imposed by formal legal action or by a statute that imposes liability. In fact, there was nothing in the language that requires a claim or threat of legal action. Therefore, the court interpreted this language to mean that where there has been damage and the insured is liable under a statute, a reasonable reading would be that coverage is available.

Comparison to other cases cited in this memorandum: In making its decision, the court relied on Compass Ins. Co. v. Cravens, Dargan & Co., 748 P.2d 724 (Wyo. 1988), infra, which contained policy language essentially the same as in the present case, also addressing the "legal liability" question.

Vantage Development Corp., Inc. v. American Environmental Technologies Corp., 598 A.2d 948 (Sup. Ct. N.J. 1991)

Facts: The insured sought to recover under a CGL policy and fire policy for remediation expenses incurred to prevent the migration of oil to adjacent properties. The oil was purportedly deposited on the insured's property by a trespasser. The policy contained an "absolute pollution exclusion," which stated:

ATTENTION

IMPORTANT NOTICE

Re: Pollution Exclusion

This policy contains an absolute Pollution Exclusion. This means, under this policy, there is no coverage for any liability which any insured may have for damages arising out of pollution.

Clean up and defense costs arising out of pollution are also not covered under this policy.

The primary issue raised in this case addressed the scope and meaning of the "absolute pollution exclusion" in the policy.

Holding: The liability policy's absolute pollution exclusion was unambiguous and excluded coverage for remediation expenses incurred to prevent the oil migration. Furthermore, remediation expenses were not covered under the fire policy.

Comparison to other cases cited in this memorandum: The Vantage Development case is significant because it addressed a pollution exclusion clause, an increasingly common exclusion. The court also extensively addressed the interpretation of policy language and held that in dealing with clauses of exclusion, strict interpretation is required, because they have an extreme effect on the insured. Thus, any exclusion clause must be read to determine the understanding that would be assigned to it by the general public. However, that understanding must be objectively reasonable, based on the policy, not on abstract concepts of what should or might be the subject of coverage. In cases involving this type of exclusion, the insurer will bear the burden of demonstrating that coverage does not exist.

Vantage Development is also one of the only cases that addressed the public policy implications of insurance policy interpretations. In making its decision, the court was cognizant of the fact that it was not at liberty to judicially create or impose contractual obligations simply because those obligations might be viewed as socially desirable.

Hi-G, Inc. v. St. Paul Fire & Marine Ins. Co.,

391 F.2d 924 (1^st Cir. 1968)

Facts: The insured brought an action against the insurer to recover under a manufacturer's output insurance policy. The insurer denied the claim based on a clause in the policy excluding coverage for damage caused by certain types of accidents. The district court found that the goods became "contaminated" within the meaning of the exclusion clause, when oil vapor was introduced into the goods from an outside source as a result of temporary power failure and ruined their usefulness. This finding rendered the damage outside the policy.

Holding: The Court of Appeals affirmed the District Court's decision that the goods had been "contaminated" by the oil within the meaning of the exclusion clause and were not covered by the policy.

Reasoning: The court stated that based upon the exclusion clause (which excluded coverage of all losses due to dampness, dryness of atmosphere, change of temperature, shrinkage, loss of weight, rust and contamination), the entry of the oil contaminated the goods, thereby excluding coverage. The court rejected the plaintiff's argument that contamination required the introduction of a foreign substance "effecting a deleterious change" in the product itself. Instead, the court relied on the common use of the term "contaminate," which indicates that a product becomes contaminated when the foreign substance merely injures its usefulness. The product does not have to change its original physical characteristics to be contaminated. Therefore, the court concluded that whether the contaminant entered into a chemical reaction with the spoiled goods was insignificant.

Comparison to other cases cited in this memorandum: Again, the court used language interpretation to settle the application of an exclusion clause. The court determined that if both meanings of a word are commonly understood and equally familiar, both must apply unless there is some reason for selecting only one. Although the interpretation served to bar recovery by the insured in this case, the court did rely on Vantage Development, which held that the interpretation and expectation of coverage must be objectively reasonable. Here, the court did not believe the insureds understanding of the excluded terms to be reasonable.

Daniels v. The Aetna Life & Casualty Co.,

1983 WL 13684 (S.D. Ind. 1983)

Facts: Plaintiffs purchased an insurance policy to cover, among other things, fire damage to structures, inventory, contents and debris removal. A fire destroyed plaintiffs' warehouse, its contents, and inventory. As a result of the fire, components of the air conditioner stored on the premise emitted PCBs. One of the counts in the complaint was that the defendant-insurer refused to pay for the removal of the PCB-contaminated fire debris as required by the policy. The debris removal portion of the policy stated as follows: "[t]his policy covers expense incurred in the removal of the debris of the property covered, which may be occasioned by the loss of any of the perils insured against in this policy."

The exclusion policy stated, "[t]his policy does not insure under this form against loss caused by: 1. Enforcement of any ordinance or law regulating the use, construction, repair, or demolition of property, including debris removal expense."

Holding: The exclusion did not apply and the defendant must bear the costs of the disposal of the PCB-contaminated debris.

Reasoning: The court was unable to find direct precedent, but stated that most courts have rejected arguments that the additional costs were caused by enforcement of a statute or ordinance rather than by the fire. By the use of analogy, the court concluded that the extra costs associated with PCB disposal were not brought about only through the action of state officials and statutes. The fire, an insured peril, brought about the need for debris removal, including the need for PCB disposal. Therefore, the exclusion does not apply and the defendant must bear the cost of disposal of the debris.

Comparison to other cases cited in this memorandum: Daniels represents a case in which the effects of new environmental removal requirements are addressed by insurance exclusion clauses. This case is similar to Farmers Union Mut. Ins. Co. v. Oakland, 825 P.2d 554 (Mont. 1992), supra, where the court also declined to enforce a "code exclusion clause" for additional costs incurred during the removal of asbestos debris.

Healy Tibbitts Constr. Co. v. Foremost Ins. Co.,

482 F. Supp. 830 (N.D. Ca. D.C. 1979)

Facts: The insured brought suit seeking a judgment declaring that the insurer, under a protection and indemnity policy of marine insurance, was obliged to defend the insured in a pending case brought against it by the United States to recover the costs of an oil spill cleanup. The language of the policy broadly protected the plaintiff against loss based on damage to "any . . . property whatsoever." The insurer alleged that the pollution exclusion clause eliminated its liability for any losses resulting from the spilling of the oil.

The district court rejected plaintiff's argument that the principles relating to the perils are applicable because the policy does not insure against the peril of sinking; rather, the policy insures against liability for loss based on damage to certain property that may result from perils such as sinking. Plaintiff also sought indemnity for the cost of the oil cleanup under the wreck removal clause. Plaintiff claimed that the oil spill was part of the "wreck," within the meaning of the policy. The district court rejected this argument.

Holding: The policy's pollution exclusion clause eliminated the insurer's liability for any losses resulting from the oil spill. The policy insured against "liability" for loss based on damage to certain property that may result from a peril such as sinking, as opposed to insuring against the "peril" of sinking. Therefore, the principles relating to perils were inapplicable and provided no basis for imposing liability on the insurer.

Reasoning: The plaintiff argued for coverage under two insurance law principles: (1) an insured is entitled to coverage if a peril which was insured against causes the action of an expected peril, which in turn causes the loss, and (2) where two perils cause a loss, one being insured against and the other excepted, the insured is entitled to coverage. However, the court rejected the application of either of these principles because the policy did not insure against the peril of sinking, but insured against liability for loss based on such damages. The plaintiff's argument that those general principles should be applied to a policy which does not insure against specific perils would be extreme and would allow an insured to recover whenever there was an oil spill.

Comparison to other cases cited in this memorandum: This case addresses "but for" causation, sketching out its limitations and boundaries.

Youell v. Exxon Corp.,

48 F.3d 105 (2^d Cir. 1995), overruling recognized by, 74 F.3d 373 (2^d Cir. 1996).

Facts: Exxon Corporation, the plaintiff, had sued its insurers in a Texas state court, seeking reimbursement for losses and liability arising from the grounding of its oil tanker. The underwriters filed their own separate federal suit against Exxon seeking a declaration that they were not liable on the insurance policies.

The district court relied on the abstention doctrine of Colorado River Water Conservation District v. United States, 96 S.Ct. 1236 (1976), to hold that abstention was appropriate because a parallel action was already proceeding in Texas state court. The court determined that states have a strong interest in insurance regulation and that the case was controlled predominantly by state law.

Exxon incurred many liabilities from the oil spill, including federal and state civil claims for clean up costs and other damages. The underwriters denied coverage, claiming that the disaster was caused by Exxon's own misconduct, based on the exclusion policy dealing with "the unforeseen result of an intentional act."

Holding: The Colorado River abstention was improper.

Reasoning: Since the lawsuit here concerned a marine insurance policy, it fell within the embrace of federal admiralty law. Marine insurance policies are governed by state insurance regulations, unless the federal courts have fashioned an admiralty rule on point, or unless a need for such a federal rule exists. The insurer claimed that all risk policies in marine insurance contracts only cover losses caused by fortuitous events. They argued that the fortuity rule is an admiralty rule and exempts a marine insurer from covering losses caused by the insured's recklessness. The court stated that the "fortuity rule" excludes from coverage losses that arise from inherent defects, wear and tear, or for the insured's willful misconduct. However, losses that arise from acts of nature, or the insured's negligence, are covered.

Comparison to other cases cited in this memorandum: It is less clear how the fortuity rule regards losses covered by the insured's own recklessness. This was a case of first impression. The court held that a federal court should decide this novel issue and that the district court abused its discretion by abstaining.

Compass Ins. Co. v. Cravens, Dargan & Co.

748 P.2d 724 (Wyo. 1988)

Facts: After a state's property insurer paid the state for the cost of cleaning up oil on property adjacent to the state maintenance facility, the state's property insurer brought an action against the state's comprehensive liability insurer for full reimbursement. The district court awarded complete reimbursement. The State of Wyoming had an effective comprehensive liability insurance policy issued by Compass Insurance Company ("Compass") and an effective property insurance policy issued by Cravens, Dargan and Company ("Cravens"). Cravens ultimately paid the claim and Compass refused to reimburse Cravens for the payment.

The primary coverage in the comprehensive liability policy issued by Compass provided in relevant part: "the company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage . . . caused by an occurrence . . . ." The policy defines "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured[.]"

Holding: The property insurer was entitled to reimbursement from the liability insurer to the extent of the cost of cleaning up the property. The spill constituted "an occurrence" within the meaning of the liability policy. Furthermore, the spill caused "property damage" to the adjacent property.

Reasoning: The court disagreed with Compass' assertion that the incident was not an occurrence. Compass claimed that Cravens is liable because its policy has a debris removal clause. The debris removal clause stated, "this policy also covers, within the sum insured, expenses incurred and the removal of debris of the property covered hereunder which may be destroyed or damaged by a peril insured against." The court agreed with Cravens' assertion that the discharged oil caused injury to the property and that the amount expended for cleanup costs was the proper measure of damages. The court further disagreed with Compass' assertion that cleanup costs are "debris removal" costs and not "damages" to property.

Comparison to other cases cited in this memorandum: This case is discussed in Morey as an example of determining how to apportion liability between two insurers. However, the case is more significant for its definition of the term "occurrence" for determining the applicability of a debris removal clause.

Poliskie Line Oceaniczne v. Hooker Chemical Corp.,

499 F. Supp. 94 (S.D.N.Y. 1980)

Facts: Defendant arranged to ship 58 drums of sulphur dioxide "house to house" for the plaintiff. Plaintiff gave the defendant an empty container, which was in good condition, in which to ship the drums. Plaintiff placed the drums in the container but failed to put the proper spacing or protection between the drums. The vessel sailed to its destination through rough weather, and on the third day of the trip, the container began to emit a sulphurous odor. Several of the drums were damaged, had leaked and were thrown overboard. Still further leakage continued until the container was wet and its walls were covered with sulphur powder due to heavy reactions in the drums. The containers were disposed by dumping, and the crew on board the vessel was taken for medical treatment. Plaintiff sought damages for the incident.

Holding: Defendant negligently stowed drums of sulphur dioxide in a container shipped on plaintiff's vessel in violation of the code of federal regulations, which requires the material to be properly packaged and stored with protective dunnage or bracing.

The court found that the negligent shipping was the proximate cause of the damages rather than any damage caused by the rough weather. The court stated that the rough weather could have been a contributing factor in the accident, but held that weather was not the proximate cause of the damages.

Reasoning: The court held the defendant liable to the plaintiff for damages because the plaintiff gave defendant a dock receipt that constituted a warranty that the drums were stored properly and in accordance with all regulations. Defendant's failure to meet the code regulations for storage constituted a breach of that warranty, making it liable for damage to the tanks.

Defendant attempted to impute the plaintiff's failure to inspect the containers to escape liability, but the court rejected that argument. The court reasoned that the defendant stated that the drums were properly stored, which eliminated any notice attributed to the defendant that the tanks were not packaged in accordance with the regulations. Further, the court cited a recognized practice not to open sealed containers as to which a shipper has certified compliance with the code of federal regulations.

English Cargo Debris Removal Case law

English case law does not appear to interpret, or even mention, a cargo debris removal clause. While there are a few cases that discuss removal of marine cargo debris in the context of hull policies, there are none that deal with an express debris removal clause. The only other English cases dealing with debris removal clauses refer to such clauses in the context of fire and construction situations.

1. Marine Cargo Cases

The leading English case that addresses the issue of removing spoiled cargo from a ship's hull is Field Steamship Co. v. Burr, 1 Q.B. 579 (C.A. 1899). In that case, the Court of Appeal interpreted a shipowner's hull and machinery policy to exclude the expense necessary to clean up a cargo of cottonseed inside the hull that had become "putrid" when it mixed with seawater after a collision left a hole in the ship's hull. Ruling for the underwriters, the Court of Appeal held that the cost of cleaning up the "putrid" cargo arose from "damage to the shipowner in his business as carrier," not from damage to the hull. Id. at 589 (Collins, L.J.)

Field v. Burr is not specifically a debris removal clause case. The Court of Appeal interpreted a policy insuring the shipowner against damage to the ship's hull resulting from perils "of the seas . . . and all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said ship, & c., or any part thereof." 1 A.B. at 579. The policy contained no "debris removal" provision. The judges considered the type of insurance crucial to its decision. See Id. at 583 (of primary importance is "the subject-matter of the insurance ought to be kept steadily in view") (Chitty, L.J.). The hull and machinery policy insured the shipowners only against damage to the ship, which the underwriters had already paid. No grant of debris removal coverage was ever at issue.

The Second Circuit's decision in Antilles S.S. Co. v. Members of American Hull Ins. Syndicate, 733 F.2d 195 (2d Cir. 1984), relied on Field v. Burr when it interpreted a similar coverage grant in a hull policy and held that cleanup of "cargo debris" from the hull of a ship was not covered under the policy. The court concluded, "that cargo debris in a cargo tank at the port of destination does not constitute 'damage to the vessel' within the parties' intended meaning of the 'Inchmaree' Clause." Id. at 202. See also Barge J. Whitney, 1968 AMC 995 (1968) (arbitrator's decision to follow Field v. Burr in interpreting a hull policy).

In his treatise on marine insurance, Buglass discusses Field v. Burr, Antilles, and Barge J. Whitney. He formulates the general rule that (1) if cargo solidifies and becomes adhered to the structure, or (2) if the cargo debris has entered parts of the ship where it would normally not be present, then the loss will be considered "damages" under a hull policy and thus part of the reasonable cost of repair to the ship. He states that in all other circumstances the cost of removing cargo from the ship is not considered to be part of the ship's repairs. Leslie J. Buglass, Marine Insurance and General Average in the United States 172-75 (3d ed. 1991).

However, Buglass indicates that "[s]uch extra expenses may be recoverable from freight underwriters or Protection and Indemnity underwriters, depending on the circumstances in each case." Id. at 174. Presumably, Buglass here is referring to clauses in various types of policies that, by their terms, cover debris removal.

2. Debris Removal in Other Contexts

There are several English cases that do mention debris removal clauses in insurance policies in different contexts. These cases fall into two groups. Many involve construction/contractor liability policies. See Scottish Special Hous. Ass'n v. Wimpey Constr. UK Ltd., (1986) 2 All E.R. 957 (H.L. 1986); Hitchens v. Prudential Assurance Co., (1991) 2 Lloyd's Rep. 590 (C.A. 1991); Kier Constr. Ltd. v. Royal Ins. (UK) ltd., 30 Con. L.R. 45 (Q.B. 1992); Surrey Heath Borough Council v. Lovell Constr. Ltd., 15 Con. L.R. 68 (Q.B. 1988), 42 Build. L.R. 25 (Q.B. 1988): see also Insurance Co. v. Grand Union Ins. Co., (1990) 1 Lloyd's Rep. 208 (Hong Kong C.A. 1989). Others involve fire policies. See Leppart v. Excess Ins. Co., (1979) All E.R. 668 (C.A. 1979); Newbould v. Excess Ins. Co., unreported (Q.B. 1985) (available in Lexis database); Pleasurama Ltd. v. Sun Alliance, (1979) 1 Lloyd's Rep. 389 (A.B. 1978); C.R. Taylor (Wholesale) Ltd. v. Hepworths Ltd., (1977) 2 All E.R. 784 (A.B. 1976); Mersey Docks and Harbour Co. v. Merseyside Devel. Corp. (1987) R. & V.R. 97 (Lands Trib. 1987). None of these cases actually analyze the scope of coverage afforded by a debris removal clause.

Manufacturers Mutual Insurance Company v. Assuranceforeningen Gard,

Southern District of New York, Order of Reference to a Special Master 84 Civ. 8427 (MJL)

In the case of the Dredge Pennsylvania, the vessel grounded and subsequently sank on July 31, 1978 while under tow of the Tug Grace Moran. Liability for the grounding was found to be 65% on the part of the tug and 35% for the dredge. A contract for salvage and alternatively wreck removal was engaged in by American Dredging Co. and Donjon Marine that contained a reversion clause in the event the salvage operation was unsuccessful. A letter was issued to Donjon confirming a reversion, after the Dredge was declared to be a constructive total loss. The Army Corps of Engineers ordered the dredge be removed.

The hull policy, written in the American market, covered salvage charges, but excluded wreck removal compulsory by law. The P& I Underwriter, the Gard, admitted its policy covered wreck removal, but argued that since, "the wreck was raised intact and inspected, Gard claims the procedure was actually a salvage." 84 Civ. 8427 (MJL), slip op. at 39 (S.D.N.Y. Dec. 9, 1988). The hull and P& I underwriters each advanced 50% of the cost of disposing of the Dredge Pennsylvania and then submitted the issue of whether the charges were indeed wreck removal or salvage to the court. The court appointed a special master, a committee of three distinguished experts who concluded " it is the unanimous opinion of members of this investigative committee, that the case of the dredge Pennsylvania can in no way be classed as salvage. IT WAS WRECK REMOVAL." (June 17, 1986). This decision was affirmed on December 29, 1988, by Judge Mary Johnson Lowe, D.J., in a summary judgment motion filed by plaintiffs.

CASES

Hi-G, Inc. v. St. Paul Fire & Marine Ins. Co., 391 F.2d 924 (1^st Cir. 1968)

Lexington Ins. Co. v. Ryder System, 234 S.E.2d 839 (Ga. App. 1977)

Healy Tibbitts Constr. Co. v. Foremost Ins. Co., 482 F. Supp. 830 (N.D. Ca. D.C. 1979)

Poliskie Line Oceaniczne v. Hooker Chemical Corp., 499 F. Supp. 94 (S.D.N.Y. 1980)

Daniels v. The Aetna Life & Casualty Co., 1983 WL 13684 (S.D. Ind. 1983)

Antilles Steam Ship Co., Ltd. v. Members of the Am. Hull Ins. Syndicate, 733 F.2d 195 (2d Cir. 1984)

Manduca Datsun, Inc. v. Universal Underwriters Ins. Co., 676 P.2d 1274 (Id. App. 1984)

Falcon Products, Inc. v. Ins. Co. of the State of Penn, 782 F.2d 799 (8^th Cir. 1986) (affirming per curium opinion below, 615 F. Supp. 37)

St. Paul Fire & Marine Ins. Co. v. Protection Mutual Ins. Co., 664 F. Supp. 328 (N.D. Ill. 1987)

Compass Ins. Co. v. Cravens, Dargan & Co., 748 P.2d 724 (Wyo. 1988)

Vantage Development Corp., Inc. v. American Environmental Technologies Corp., 598 A.2d 948 (Sup. Ct. N.J. 1991)

Farmers Union Mut. Ins. Co. v. Oakland, 825 P.2d 554 (Mont. 1992)

Morey v. All Alaskan Seafoods, 1992 AMC 1551 (W.D. Wash. 1990)

Weyerhaeuser Co. v. Aetna Casualty & Surety Co., 874 P.2d 142 (Wash. 1994)

Modern Constructors, Inc. v. Continental Casualty Co., 38 F.3d 377 (8^th Cir. 1994)

Youell v. Exxon Corp., 48 F.3d 105 (2d Cir. 1995)

Bell Power Systems, Inc. v. Hartford Fire Ins. Co., 1995 WL 81432 (Conn. Super. 1995)

Banana Services, Inc., No. 94-2214, 11^th Cir., 11/3/95

Barge Whitney Arbitration Proceedings: Oliver J. Olson & Co., et al. v. Underwriters of Policy No. Ojolson, 1964 B-H, Respondent, Arbitration at San Francisco., March 14, 1968. 1968 AMC 995-1007

BIBLIOGRAPHY

1. Debris Removal Coverage: The New Frontier? by Stephen A. Cozen. Environmental Claims Journal/Volume.3, No.1 /Autumn 1990

2. Fairplay 13^th October 1994 "Underwriters Fear Debris Removal Interpretation."

3. "Debris Removal Provisions and Pollution Losses" by James L. Knoll Bullivant, Houser, Bailey Pendergrass & Hoffman Portland, Oregon

4. Property Insurance Coverage for Environmental Losses: A Primer for Policyholders by Stephen M. Goldman, Environmental Claims Journal/Vol. 7, No.1/Autumn 1994

5. The Pollution Exclusion: The Industry's Inconsistent Regulatory Judicial Representations by John A. McDonald and Eugene R. Andersen. For the Defense May 1995.

6. Is the Piper Paid Gradually or Suddenly?: Selected Issues in "as damages" and the Exclusion Clause, by Robert A. Shults Winter 1994 Vol. 24, No. 3 State Bar of Texas, Environmental Law Journal.

7. "The Final Frontier: First Party Environmental Claims by Paul E.B. Glad & Michael A. Barnes, Insurance Litigation Reporter January 1990 pages 3-12

8. Pollution Liabilities Exxon Style: Marine Pollution Liabilities & Insurance Considerations by Charles M. Davis For Presentation to the Society of Chartered Property & Casualty Underwriters Pacific Northwest Chapters November 6, 1989

9. The ISO Pollutants Form Changes: Property Insurers Response to Pollution Contamination, and Hazardous Waste Claims, Pollution & Contamination Annotations. Copyright 1992 Property Loss Research Bureau

10. The Insurance Institute of London "Pollution Effects on First Party Policies" by Miss B.P. Billauer MA BSc(Hons)ld, an address delivered to the Institute on 2/3/92

Respectfully submitted,

Jean E. Knudsen, Chair