Johnson Controls, Inc. v. Employers Insurance of Wausau

REVIEW of a decision of the Court of Appeals. Reversed and cause remanded.

¶1 DAVID T. PROSSER, J. In 1980 Congress adopted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), popularly known as "Superfund," to promote the cleanup of hazardous waste. The Act empowered the federal government, through the Environmental Protection Agency (EPA), to identify hazardous waste sites and pursue remedial activities. As part of the remedial process, the government was authorized to clean up properties and seek compensation from responsible parties or to require polluters and other responsible parties to perform the cleanup themselves. 42 U.S.C. §§ 9601-9675 (2000).[1]

¶2 CERCLA outlines a range of remedial procedures, beginning with requests to furnish information or documents, and ending with stringent enforcement actions to impose fines for noncompliance with orders or costs to recover the government's own expenditures. 42 U.S.C. §§ 9606, 9607.[2] For responsible parties, there is strict liability.

¶3 Nine years ago, this court considered its first case dealing with the insurance issues raised by CERCLA. In City of Edgerton v. General Casualty Co. of Wisconsin, 184 Wis. 2d 750, 517 N.W.2d 463 (1994), cert. denied, 514 U.S. 1017 (1995), we were asked to interpret key terms in the standard Comprehensive General Liability (CGL) policy in relation to CERCLA environmental damage claims.[3] A divided court decided that the issuance of letters by the EPA or the Wisconsin Department of Natural Resources (DNR), which either requested or directed an insured to participate in the environmental cleanup of contaminated property, did not constitute a "suit" sufficient to trigger the insurer's duty to defend. Id. at 771. We also held that cleanup and remediation costs under CERCLA did not constitute "sums that the insured may become legally obligated to pay as damages" within the indemnification provisions of CGL policies. Id. at 782.

¶4 Today the problems created by the Edgerton decision have become so obvious and so acute that they cannot be ignored. The court is convinced that we did not correctly analyze the term "damages" in the standard CGL policy in relation to environmental cleanup costs under CERCLA. We relied too heavily on a previous decision of this court involving very different facts and laws. We also created an unworkable interpretation of the insurer's duty to defend in the specialized context of CERCLA letters and orders. The process of restoring consistency and coherence to the law must begin by overruling the Edgerton decision.

¶5 We hold that an insured's costs of restoring and remediating damaged property, whether the costs are based on remediation efforts by a third party (including the government) or are incurred directly by the insured, are covered damages under applicable CGL policies, provided that other policy exclusions do not apply. We also conclude that receipt of a potentially responsible party (PRP) letter[4] from the EPA or an equivalent state agency, in the CERCLA context, marks the beginning of adversarial administrative legal proceedings that seek to impose liability upon an insured. A PRP letter significantly affects legal interests of the insured. Therefore, a reasonable insured would expect this letter to trigger its CGL insurer's duty to defend.

¶6 This case involves a CGL policy coverage dispute between Johnson Controls, Inc.,[5] the plaintiff-insured, and more than 30 of its general liability insurance carriers (the insurers). The case has a long history. It began almost three years before this court decided School District of Shorewood v. Wausau Insurance Cos., 170 Wis. 2d 347, 488 N.W.2d 82 (1992), and it has been buffeted ever since by a succession of contentious, inconsistent appellate decisions.

¶7 In November 1989 Johnson Controls brought suit in the Milwaukee County Circuit Court against its liability insurers seeking a declaratory judgment and coverage for various costs relating to the environmental cleanup of 21 property sites. These sites are located in 16 different states where Johnson Controls and/or Globe Union faced liability under CERCLA.[6] Most of the sites are lead smelting plants to which Johnson Controls and/or Globe Union delivered spent lead acid batteries and plant scrap for recycling. Some are contaminated landfills. Three of the 21 sites were owned and operated by Johnson Controls.[7] At 2 of the 21 sites, the coverage issues became moot because Johnson Controls ultimately incurred no costs or liability.

¶8 For 8 sites, Johnson Controls is seeking coverage for cleanup costs that it incurred in complying with a pre-suit demand from a federal agency, a state agency, or a non-government third-party to remediate the sites in accord with CERCLA.[8] These include the 3 sites that Johnson Controls owned.

¶9 For the remaining 11 sites, Johnson Controls was either sued or settled prior to suit for part of the costs of cleanup performed by another party. In some of these cases, the party seeking reimbursement for cleanup was a government agency. In the others, one or more private parties sought a contribution from Johnson Controls for contamination cleanup. Johnson Controls claims that in 6 of these 11 cases, its first awareness of any environmental problem was a lawsuit or demand from a government agency for money to pay costs for cleanup activities that had already been performed by other parties.[9]

¶10 Johnson Controls avers that in every instance it promptly notified its applicable CGL insurer or insurers of the CERCLA liability claims being made. In every instance the insurers refused to defend Johnson Controls or to indemnify it for any cleanup costs flowing from CERCLA or CERCLA-type claims. The insurers justified their refusal on grounds that the CGL policies did not cover the costs imposed under CERCLA.

¶11 The Johnson Controls CGL policies were issued at various times between the years of 1954 and 1985, and they are either primary, excess, or umbrella comprehensive general liability policies. These policies provide that:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily [or personal] injury or property damage to which the policy applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage . . . .[10]

¶12 Johnson Controls' complaint asserted that this language required its insurers to reimburse Johnson Controls for its costs in complying with its liabilities at the 21 sites, and it sought a declaratory judgment to that effect.

¶13 The complexity of the case led to an extended period of discovery. On May 20, 1992, before the case could go to trial, this court decided Shorewood, by a 4-3 vote, in a manner that would have helped Johnson Controls. See Sch. Dist. of Shorewood v. Wausau Ins. Cos., 168 Wis. 2d 390, 484 N.W.2d 314 (1992) (Shorewood I). Three months later, after a motion for reconsideration, the court withdrew its mandated opinion and a new 6-1 majority issued an opinion with a contrary analysis and an opposite result. Sch. Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 488 N.W.2d 82 (1992) (Shorewood).

¶14 In November 1992 the court of appeals issued a unanimous decision in City of Edgerton v. General Casualty Co. of Wisconsin, 172 Wis. 2d 518, 493 N.W.2d 768 (Ct. App. 1992). This decision distinguished the Shorewood case and was helpful by implication to Johnson Controls. Nineteen months later, as the present case was awaiting trial, this court reversed and issued its own Edgerton opinion. City of Edgerton v. Gen. Cas. Co. of. Wis., 184 Wis. 2d 750, 517 N.W.2d 463 (1994).[11]

¶15 In Edgerton, we concluded that standard CGL policies do not provide indemnification coverage for an insured who cleans up an environmentally contaminated site, regardless of whether or not the insured owns the property, when the remediation is done pursuant to a government directive or request under CERCLA. Id. at 782-86. This holding was based on a conclusion that environmental response costs under CERCLA[12] constitute equitable relief, not legal damages, under the policy, and, thus, the insurer had no duty to indemnify its insured for these expenditures. Id. at 782. The majority also held that neither a potentially responsible party (PRP) letter nor a comparable notification letter from a state agency constituted a "suit" triggering the insurers' duty to defend. Id. at 771, 775. The court concluded that the primary attribute of a suit——that the parties are involved in "actual court proceedings"——was not present where an insured merely receives notification of potential liability from the EPA or the DNR. Id. at 775.

¶16 Following the Edgerton decision, the insurers in this case moved for summary judgment, arguing that Edgerton established that no liability insurance coverage is provided for any insured who cleans up contaminated property pursuant to a government directive or request under CERCLA or similar state laws. On February 24, 1995, the Circuit Court for Milwaukee County, George A. Burns, Jr., Judge, granted summary judgment to the insurers and the case was dismissed as to all sites. Johnson Controls then appealed the various judgments and orders.[13]

¶17 Before the appeal was heard, this court decided another case bearing on legal issues at play in both Edgerton and the Johnson Controls appeal. In General Casualty Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 561 N.W.2d 718 (1997), the insured, a service station owner, sought liability insurance coverage for a claim brought against him by a waste oil recycler seeking recovery of environmental response costs associated with a contaminated recycling site. Id. at 171-172. The EPA had placed the recycling site on the National Priorities List[14] and the United States had brought suit against the recycler and other defendants, but not against the service station owner. Id. No government agency had ever notified the insured service station owner of potential liability under CERCLA or requested that he develop a remediation plan or incur remediation and response costs. Id. at 180. This court held that, so long as there was no request or directive by the government, the insured was covered under his CGL policy for compensatory, monetary relief sought by third parties for losses they incurred due to the insured's alleged past contamination of the property. Id. at 185.

¶18 After Hills was decided in April 1997, the court of appeals addressed Johnson Controls' appeal. In an unpublished decision dated October 13, 1998, the court of appeals attempted to apply the holdings of Edgerton and Hills in assessing whether response and remediation costs incurred by Johnson Controls qualified as "damages" under Johnson Controls' CGL policies. Johnson Controls, Inc. v. Employers Ins. of Wausau, Nos. 95-1796 & 95-2591, unpublished slip op. (Wis. Ct. App. Oct. 13, 1998) (Johnson Controls I). The court developed four categories to determine whether the various sites would or would not be covered.

¶19 The first category consists of Edgerton-type sites. These involve situations where the insured is responsible for cleaning up the contamination at a site pursuant to a government directive under CERCLA, or a state counterpart, and the insured performs the cleanup. Citing Edgerton and Amcast Industrial Corp. v. Affiliated FM Insurance Co., 221 Wis. 2d 145, 584 N.W.2d 218 (Ct. App. 1998), the court said that the costs of this type of remediation are not "damages" and, therefore, no insurance coverage is required in connection with the remediation of these sites.

¶20 The second category consists of situations governed by Hills. An insured is responsible for at least part of the contamination of a site that it does not own. The insured is not contacted by the government in any manner regarding cleanup of the property. Instead, a government agency has directed others responsible for the contamination to remediate the site and they, in turn, file suit against the insured to recover the cleanup costs attributable to the insured. Pursuant to the Hills holding, CGL coverage is given to an insured for remediation at these sites. Id.

¶21 The court of appeals then devised two new categories that it said were the logical extensions of the Edgerton and Hills decisions. Johnson Control I, Nos. 95-1796 & 95-2591, unpublished slip op. at 7-10.

¶22 The third category consists of situations in which the insured is at least partially responsible for contaminating a site that it does not own. It is then directed by a governmental entity to remediate the site, but fails to do so. The insured in category three, like the insured in Regent Insurance Co. v. City of Manitowoc, 205 Wis. 2d 450, 463, 556 N.W.2d 405 (Ct. App. 1996), is sued by the government to recover money that the government spent to remediate the site.[15] According to the court of appeals' analysis, the recovery sought by the government remains equitable in nature and, therefore, no insurance coverage is obtained in the situations encompassed by category three. Johnson Control I, Nos. 95-1796 & 95-2591, unpublished slip op. at 11.

¶23 A fourth category consists of situations similar to category three, except that the insured is sued by the site's owner or by other third parties who are also responsible for the contamination, any of whom cleaned up the site at the government's direction. The government is not involved in the suit against the insured. As with categories one and three, the court of appeals concluded that there is no insurance coverage for sites in this category. Id.

¶24 The court of appeals indicated that categories three and four are subsumed under the rationale of Edgerton, since neither the government nor the third party in these cost recovery actions is seeking "legal damages" for injury to property caused by an insured. The rationale for non-recovery was later explained as follows:

Rather, the government and property owners forced by the government to clean up contamination allegedly caused by Johnson Controls are seeking what Edgerton noted was "equitable monetary relief," that is, recompense for monies spent in complying with the nation's environmental-protection laws——money that would have been spent by Johnson Controls if it had complied with the government's cleanup directives.

Johnson Controls v. Employers Ins. of Wausau, 2002 WI App 30, ¶9, 250 Wis. 2d 319, 640 N.W.2d 205 (Johnson Controls II), (citing Edgerton, 184 Wis. 2d at 784).

¶25 Having articulated the preceding categories, the court of appeals remanded the matter for the entry of a global judgment, instructing the circuit court to break down its decision into subparts reciting: "(1) the property involved; (2) the insurance company or companies and the relevant dates of their policies that relate to the property; and (3) the result required by this opinion." Johnson Controls I, Nos. 95-1796 & 95-2591, unpublished slip op. at 12.

¶26 On remand, the Milwaukee County Circuit Court, Michael P. Sullivan, Judge, determined that all 21 sites at issue fell into categories one, three, or four, meaning that the costs incurred by Johnson Controls at these sites were not "legal damages" entitled to insurance coverage under its CGL policies. Johnson Controls appealed once again. After concluding that the circuit court's findings of fact were not clearly erroneous, the court of appeals affirmed the circuit court's finding that no coverage was afforded to Johnson Controls. Johnson Controls II, 250 Wis. 2d 319, ¶26. Johnson Controls petitioned this court for review, which we granted.

¶27 The core of this matter is the continuing vitality of Edgerton. While Johnson Controls maintains that, even if Edgerton is upheld, the insurers must provide coverage in situations governed by categories three and four of the Johnson Controls I schema, it nonetheless launches an overt assault on Edgerton's holdings. Johnson Controls asks this court to overrule Edgerton because the decision was a misapplication of Wisconsin law, it created an arbitrary and unworkable system for resolving issues that arise in the context of insurance coverage for environmental damage, and the legal rationales for the decision have completely eroded. Conversely, the insurers beseech this court to uphold its precedent, adhere to the rationale of Edgerton, and, upon doing so, recognize that categories three and four must necessarily be denied coverage consonant with Edgerton.

¶28 In determining whether Edgerton should survive, we engage in two levels of analysis. First, we must assess whether the conclusions of Edgerton were incorrect as a matter of law. If we determine that the opinion was fundamentally wrong, then we must grapple with Edgerton's standing as controlling legal precedent in Wisconsin. In other words, even if this court determines conclusively that Edgerton misapplied principles of Wisconsin insurance law and misconstrued the nature of the relief sought in CERCLA cost recovery actions, we still must decide whether these errors require the court to overrule its recent precedent and deviate from the doctrine of stare decisis.

III

¶29 Johnson Controls seeks coverage under its various CGL policies. With regard to the insurers' duty to indemnify, the policies provide: "The [insurer] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which the policy applies, caused by an occurrence." As for the insurers' duty to defend, the policies provide that the insurer "shall have the right and duty to defend any suit against the insured seeking damages on account of such . . . property damage." All policies at issue have language either identical or substantially similar to the preceding terms.

¶30 The interpretation of words or clauses in an insurance contract is a question of law that we review de novo. See Just v. Land Reclamation, Ltd., 155 Wis. 2d 737, 744, 456 N.W.2d 570 (1990). As we explained in Hills, the method by which Wisconsin courts determine whether an insurance contract requires coverage of a particular claim is familiar:

In general, the interpretation of an insurance contract is controlled by principles of contract construction. See, e.g., Kuhn v. Allstate Ins. Co., 193 Wis. 2d 50, 60, 532 N.W.2d 124 (1995); Maas [v. Ziegler], 172 Wis. 2d [70], 79, 492 N.W.2d 621 [(1992)]. The primary objective in interpreting a contract is to ascertain and carry out the intentions of the parties. See, e.g., Maas, 172 Wis. 2d at 79; Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). "Of primary importance is that the language of an insurance policy should be interpreted to mean what a reasonable person in the position of the insured would have understood the words to mean." Sprangers, 182 Wis. 2d at 536; accord, e.g., Kuhn, 193 Wis. 2d at 60; Kremers-Urban Co., 119 Wis. 2d at 735.

Hills, 209 Wis. 2d at 175. These principles guide our interpretation of the policy language at issue in this case.

A. Are CERCLA Response Costs Damages?

¶31 We first address whether CERCLA response costs are "sums which the insured shall become legally obligated to pay as damages." To answer this question, we must comprehend the nature of environmental response costs as understood by a reasonable insured faced with CERCLA liability.[16]

¶32 The insurers contend that, when the government seeks cleanup costs under the authority of CERCLA (or similar state regulation), the government is seeking relief in the form of (a) restitution through a cost-recovery action,[17] or (b) injunction through administrative order.[18] Because the insurers argue that both forms of relief are "equitable," that is, not "legal damages," coverage is excluded.

¶33 Johnson Controls takes the opposite position. It contends that response costs are "damages" from the perspective of an ordinary insured because the law imposes costs on the insured to remediate property that the insured previously damaged. These response costs should thus be covered.

¶34 When this issue was first addressed in Edgerton, a majority of the court concluded that CERCLA response costs do not constitute "damages" under standard CGL policies. Edgerton, 184 Wis. 2d at 782. The Edgerton majority looked primarily to School District of Shorewood, 170 Wis. 2d 347, for guidance in interpreting the "as damages" language in the insureds' CGL policies.

¶35 In Shorewood, two school districts sought liability insurance coverage under their CGL policies for their costs in defending an action for declaratory and injunctive relief and their costs in complying with the terms of a subsequent settlement to correct alleged practices of illegal segregation and racial discrimination in education. Id. at 356-62.[19] The court noted that:

The apparent goal of the plaintiffs in the underlying action was the desegregation of the Milwaukee area school system. The amended complaint sought only declaratory and injunctive relief whose purpose was "to eliminate the remaining vestiges of segregation in the school districts and schools in the Milwaukee metropolitan area." The amended complaint did not seek to presently compensate the victims of past discrimination. Therefore, no "damages" were sought in the underlying action.

Id. at 371.

¶36 The Shorewood court recognized that the types of costs being sought were largely to indemnify the school district for future public expenditures. To explain why such costs did not fall within our traditional concept of "damages," the court concluded that the term "damages," when used in CGL insurance policies, unambiguously means "legal damages"——that is, "legal compensation for past wrongs or injuries"——which are generally pecuniary in nature. Id. at 368. Then the court added: "The term 'damages' does not encompass the cost of complying with an injunctive decree." Id.

¶37 This last sentence was critical. Citing Black's Law Dictionary, Professor Dan Dobbs' Handbook on the Law of Remedies (1973), Pure Milk Products Cooperative v. National Farmers Organization (Pure Milk II), 90 Wis. 2d 781, 280 N.W.2d 691 (1979), and Milliken v. Bradley (Milliken II), 433 U.S. 267 (1977), the court hammered the distinction between compensation for past wrongs and injunctive relief that looks to the future.

An injunction looks to the future conduct of the parties and is preventive in nature. Damages, on the other hand, are remedial in nature, not preventive. The remedy of injunction is only available if the plaintiff can establish that a continuing or anticipated injurious act is not adequately compensable in damages.

Shorewood, 170 Wis. 2d at 370 (citing Pure Milk II, 90 Wis. 2d at 800).

¶38 In retrospect, the rationale for the Shorewood decision was too broadly stated, and we reject its overly restrictive definition of damages.

¶39 Succeeding courts should have noticed that the Shorewood court's key sentence——"The term 'damages' does not encompass the cost of complying with an injunctive decree"——was inconsistent with the language of authorities quoted in the opinion.

¶40 For instance, Shorewood cited Dobbs, Handbook on the Law of Remedies, for the proposition that judicial remedies fall into four major categories: damage remedies, restitutionary remedies, coercive remedies (such as injunctions that are backed by the court's contempt power), and declaratory remedies. Shorewood, 170 Wis. 2d at 368 (citing Dobbs, supra, § 1.1 at 1 (1973)). The court then summarized the law: "This classification scheme is based on the nature and purpose of the relief awarded. . . . A classification based on the form of the action, as either equitable or legal, is irrelevant." Id. at 369 (emphasis added). The substance of Dobbs' 1973 treatise is that if the purpose of a remedy is to compensate a party for some loss, the purpose of the remedy overshadows the form of the action.

¶41 We note that Justice Abrahamson cited the same Dobbs treatise and the exact same page in the original Shorewood opinion, writing that "Although the main purpose of 'damages' at law is generally viewed as compensatory, the damages remedy is not wholly compensatory. At the same time, mandatory injunctive relief may also be 'compensatory' in nature." Shorewood I, 168 Wis. 2d at 416 (citing Dobbs, Handbook on the Law of Remedies § 1.1, at 1 (1973)).

¶42 Shorewood also quoted from Pure Milk II: "[A]n injunction is designed to prevent injury, not to compensate for past wrongs, and [ ] an injunction may issue merely upon proof of a sufficient threat of future irreparable injury." Shorewood, 170 Wis. 2d at 370 (quoting Pure Milk II, 90 Wis. 2d at 802) (emphasis added). But Pure Milk II also explained that:

The injunction is a preventive order looking to the future conduct of the parties. To obtain an injunction, a plaintiff must show a sufficient probability that future conduct of the defendant will violate a right of and will injure the plaintiff. To invoke the remedy of injunction the plaintiff must moreover establish that the injury is irreparable, i.e. not adequately compensable in damages.

Pure Milk II, 90 Wis. 2d at 800 (citations omitted) (emphasis added).

¶43 A careful reading of these authorities suggests that if an equitable action is providing compensation for past wrongs——if it is "remedial in nature"——it cannot be lumped indiscriminately with a typical injunction, because it is serving a different purpose from a typical injunction.

¶44 The Edgerton opinion was too quick to embrace the strict dichotomy between legal damages and equitable actions set out in Shorewood. The Edgerton court's five-page discussion of damages relied heavily on Shorewood's key sentence that "The term 'damages' does not encompass the cost of complying with an injunctive decree," and it constructed its analysis to conform to that faulty principle. Edgerton, 184 Wis. 2d at 783 (quoting Shorewood, 170 Wis. 2d at 368).

¶45 Edgerton made a second mistake. It misapplied Shorewood's holding regarding the scope of the "as damages" limitation in CGL policies because it did not appreciate the nature of liability for environmental cleanup costs under CERCLA or how that liability would be understood by a reasonable insured. The Edgerton majority summarily concluded that response costs under CERCLA were equitable relief similar to the school districts' settlement in Shorewood, Edgerton, 184 Wis. 2d at 785,[20] and, as such, were not designed to compensate aggrieved parties for past wrongs and did not fall within the policy coverage. Id. The majority reasoned that response costs were designed to deter future contamination by means of an injunctive action, "while providing for remediation and cleanup of the affected site[s]." Id. (emphasis added).

¶46 The distinction between legal and equitable remedies relied upon in Shorewood has very limited applicability to CERCLA. Because CERCLA serves dual purposes and provides multiple avenues for achieving these purposes, the operation of the statute and its legal obligations will be confused if one attempts to fit the nature of the liability imposed into a strict equitable/legal damages dichotomy. See John A. Mathias, Jr., et al. Insurance Coverage Disputes § 9.02[1], at 9-18 (1996 & Supp. 2003).

¶47 CERCLA attempts to promptly remediate polluted sites to bring land back to its original uncontaminated condition. However, CERCLA also imposes liability.[21] The costs of accomplishing remediation efforts are expressly expected to be borne by the parties responsible for the polluted condition of the land.[22] The only reason Johnson Controls had to expend money for the sites named in its complaint, either to clean up the properties directly or to reimburse others who had remediated the properties, was because its liability under CERCLA had been established, based on its contribution, in some form, to the pollution of the properties.

¶48 Under this system, the nature of relief in CERCLA response cost actions is not confined to future injuries; it includes "legal recompense for injuries sustained." See Shorewood, 170 Wis. 2d at 372.[23] Thus, there is both a prospective and remedial element to an insured's response cost liability. Because CERCLA proceedings seek the costs of repairing damaged property, rather than the cost of conforming one's future conduct, the nature of relief is, at least in part, compensatory. See Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507, 511 (Wash. 1990). The harm for which CERCLA liability attaches is based on past wrongs and injuries to property, Shorewood, 170 Wis. 2d at 368, and may be characterized as consequential damages flowing from the direct damage caused to the environment. See Minn. Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 182 (Minn. 1990).

¶49 The availability of cost recovery actions under Section 107 of CERCLA shows that a responsible party's liability under CERCLA is adequately compensable as damages. In fact, a government injunction to an insured to remediate contaminated property is an alternative to a monetary damages action for injury to the property.[24] Under CERCLA, injunctive relief may be available even though legal or restitutive remedies are adequate. See AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1277 (Cal. 1990). This option is one of several factors that distinguish CERCLA remedies from the traditional injunctions described in Shorewood.

¶50 CERCLA does not regulate prospective conduct in the traditional sense that governments regulate commercial behavior. See New York v. Shore Realty Corp., 759 F.2d 1032, 1041 (2d Cir. 1985) ("CERCLA is not a regulatory standard-setting statute such as the Clean Air Act."). Rather, it seeks to impose strict liability on corporations and other entities for damages to property done in the past. None of the costs at issue in this case appear to have been incurred by Johnson Controls to improve the cleanliness of ongoing processing or to comply with government regulations requiring business practices conforming to some standard.[25] Therefore, an injunction in this context is materially distinguishable from a traditional injunction, such as the one at issue in Shorewood.

¶51 It is true that the protection of human health and welfare is a future benefit from remediating damaged property. However, shifting the focus from remediating past damages to preventing future injury from contamination does not change the remedial nature of CERCLA response costs for completed past actions.

¶52 The Edgerton opinion points to 42 U.S.C. § 9607(a), paragraphs (A) and (C), to justify its conclusion that response costs are not damages, asserting that response costs "are, by definition, considered to be equitable relief and reflect a congressional intent to differentiate between cleanup or response costs under 42 U.S.C. sec. 9607(a)(4)(A) and damages for injury, destruction, or the loss of natural resources under 42 U.S.C. sec. 9607(a)(4)(C)." Edgerton, 184 Wis. 2d at 784. This conclusion was then, and is now, disputed by other courts.[26]

¶53 In § 9607(a), CERCLA outlines four kinds of liability, one of which speaks of "damages." However, while the four kinds of liability are not congruent, that does not mean they do not overlap, nor does it mean that a reasonable insured would expect coverage for one government response to environmental damage but not for another. In any event, Edgerton implies that any government involvement with the insured precludes coverage, whether the coverage is sought as damages under (A) or (C) of § 9607(a)(4).

¶54 In Shorewood, the court acknowledged that the school districts had cited many cases "which have held that environmental cleanup costs under [CERCLA] constitute 'damages' under the terms of insurance policies." Shorewood, 170 Wis. 2d at 372-73. It went on to say that courts around the country "do not uniformly agree that clean-up costs under CERCLA constitute 'damages' under the terms of insurance policies." Id. at 373. Then, significantly, the court said:

The issue of whether clean-up costs constitute "damages" under the terms of an insurance contract has never been addressed by a Wisconsin court. Such an important issue should not be decided in a cursory fashion by this court. Therefore, we decline to adopt or apply the analogy posited by the school districts.

Id. at 374 (emphasis added). Unfortunately, the Edgerton court treated CERCLA response costs as though the issue had been decided in Shorewood, when it had not.

¶55 There is a third deficiency in the Edgerton opinion. Shorewood quoted extensively from Professor Dan Dobbs, a "noted authority on remedies." Shorewood, 170 Wis. 2d at 368-69. The quotations were taken from the 1973 edition of Dobbs' Handbook on the Law of Remedies. In the 1993 revision of his treatise, Professor Dobbs directly addresses the issue of response costs in environmental damages actions and concludes:

Response costs recoverable [under CERCLA] are analogous to repair costs and consequential damages that a private landowner-plaintiff might recover in similar situations. . . . Such items [of response costs] are closely analogous to common law consequential damages. . . . Response costs are very high, but in spite of the terminology, they closely resemble familiar common law types of damages.

Dan B. Dobbs, Law of Remedies § 5.2(5), at 727 (1993).

¶56 Professor Dobbs then made clear that there is no fundamental distinction between response costs (sought under 42 U.S.C. § 9607(a)(4)(A)-(B)) and natural resource damages (sought under § 9607(a)(4)(C)) as to their classification as "damages."

The normal terminology of the law would probably treat the recovery for natural resource damages and also the recovery of response costs as damages. Both compensate for loss incurred. It often happens, however, compensation and restitution turn out to yield the same dollar amount. That might be the case with response costs. . . .

. . . [I]t is important to characterize a liability as restitutionary only if restitution differs in amount from damages or if there is no substantive basis for recovery as damages. Under [CERCLA], there is a substantive basis for recovery of "response costs," which are not otherwise characterized by the statute. The amount to be recovered does not differ according to the characterization as restitution or damages. Attempts to characterize the recovery of response costs as either restitution or damages do not seem helpful. Usually the attempt is made only to determine whether an insurance policy covers liability for release of hazardous substance. It is doubtful that the term "damages" in an insurance policy carries with it any such inchoate set of distinctions and the question whether response costs are covered by the policy probably cannot turn on proposed definitions of those costs as restitution without distorting the remedial concepts involved.

Id. at 729-30 (footnote omitted) (emphasis added). The explanation offered by Professor Dobbs severely weakens Edgerton's basis for construing the "as damages" language as exempting CERCLA response costs based on their remedial nature. The dissent in Edgerton quoted from the 1993 treatise. Edgerton, 184 Wis. 2d at 792-93 (Abrahamson, J., dissenting). The majority opinion never rebutted the dissent's use of Dobbs or acknowledged that one of the main props of the Shorewood opinion had been removed.

¶57 There is a fourth problem with Edgerton, as was revealed in Hills. The court stated in Hills that, "It has long been the law of this state that the cost of repairing and restoring damaged property and water to its original condition is a proper measure of compensatory damages." Hills, 209 Wis. 2d at 181 (emphasis added). The court cited a number of cases and authorities to support this proposition.[27] The Edgerton opinion simply did not address this body of law.

¶58 This brings us to Hills. In Hills, we concluded that, when a third party sues an insured for reimbursement of the third party's response costs under CERCLA and the insured then seeks liability insurance coverage, the insured is seeking coverage for legal damages to compensate the third party for past wrongs. Id. at 181.

¶59 Hills made a valiant attempt to coexist with Shorewood and Edgerton. It explained why principles of Wisconsin law on remedies afforded coverage to Hills. The court said that the third party seeking contribution from the insured was not seeking a remedy based on the insured's failure to take corrective action or failure to aid in the prospective remediation of the property. Rather, "the fundamental remedy Arrowhead [third party] seeks from Hills [insured] is compensatory damages for the past injuries he allegedly inflicted on the Arrowhead site." Id. at 182 (emphasis added). In truth, this language simply relabeled the contribution to response costs as compensatory damages for past injuries.

¶60 Although Hills purported to sustain the rule of Edgerton, it effectively obliterated its intellectual foundation. To find coverage under the same CGL policies that were at issue in Edgerton, Hills concluded that the nature of the relief sought in the cost recovery action was not merely equitable relief.[28] Furthermore, Hills, unlike Edgerton, faithfully applied long-standing principles of Wisconsin insurance contract law and factored into its calculus the reasonable expectations of an insured. It recognized that "The CGL policy was designed to protect an insured against liability for negligent acts resulting in damage to third parties." Id. at 183-84 (quoting Arnold P. Anderson, Wisconsin Insurance Law § 5.14, at 136 (3d ed. 1990 & Supp. 1997)).[29]

¶61 The basic differences between the Edgerton facts and the Hills facts are as follows: (1) Edgerton owned the contaminated property, Hills did not; (2) Edgerton cleaned up the damaged property, Hills was asked to contribute to government cleanup costs; (3) Edgerton was contacted directly by government, Hills was not; (4) Hills was brought into a formal lawsuit, Edgerton was not. The principal distinction between the Hills category of cases and the court of appeals' fourth category is that there was contact between the government and the insured before the insured was sued by a third party.

¶62 This distinction is arbitrary. If we were to honor this distinction, coverage for CERCLA response cost liability would turn on the fortuity of whether the insured had ever been contacted in some manner by the government regarding the remediation of a site for which the insured was a potentially responsible party.


Case No.:		01-1193

Complete Title:
		Johnson Controls, Inc. Plaintiff-Appellant-Petitioner, v. Employers Insurance of Wausau, a mutual company (f/n/a Employers Mutual Liability Insurance Company of Wisconsin), Affiliated FM Insurance Company, AIU Insurance Company, Allstate Insurance Company (as successor to Northbrook Excess and Surplus Insurance Company), American Employers' Insurance Company, American Home Assurance Company, American Motorists Insurance Company, Central National Insurance Company of Omaha, Employers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, First State Insurance Company, Granite State Insurance Company, Highlands Insurance Company, Landmark Insurance Company, London Market (certain underwriters at Lloyd's London and London Market Insurance Companies), National Union Fire Insurance Company of Pittsburgh, PA, Northbrook Excess and Surplus Insurance Company (as predecessor to Allstate Insurance Company), Puritan Insurance Company (f/n/a Manhattan Fire and Marine Insurance Company), Stonewall Insurance Company, Transamerica Premier Insurance Company, Travelers Indemnity Company, United National Insurance Company, Zurich Insurance Company, International Insurance Company, and Westchester Fire Insurance Company, Defendants-Respondents, Allianz Underwriters Insurance Company, American Centennial Insurance Company, American Insurance Company, Associated International Insurance Company, California Union Insurance Company, Continental Insurance Company, Fireman's Fund Insurance Company, Harbor Insurance Company, North Star Reinsurance Corporation, and Republic Insurance Company, Defendants.

		REVIEW OF A DECISION OF THE COURT OF APPEALS 2002 WI App 30 Reported at: 250 Wis. 2d 319, 640 N.W.2d 205 (Ct. App. 2001-Published)

Opinion Filed:		July 11, 2003
Submitted on Briefs:
Oral Argument:		October 8, 2002

Source of Appeal:
	Court:	Circuit
	County:	Milwaukee
	Judge:	Michael P. Sullivan

Justices:
	Concurred:	CROOKS, J., concurs (opinion filed).
	Dissented:	WILCOX, J., dissents (opinion filed). BRADLEY, J., joins dissent.
	Not Participating:

Attorneys:

(L.C. No.	89 CV 16174)
STATE OF WISCONSIN :		IN SUPREME COURT

Johnson Controls, Inc. Plaintiff-Appellant-Petitioner, v. Employers Insurance of Wausau, a mutual company (f/n/a Employers Mutual Liability Insurance Company of Wisconsin), Affiliated FM Insurance Company, AIU Insurance Company, Allstate Insurance Company (as successor to Northbrook Excess and Surplus Insurance Company), American Employers' Insurance Company, American Home Assurance Company, American Motorists Insurance Company, Central National Insurance Company of Omaha, Employers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, First State Insurance Company, Granite State Insurance Company, Highlands Insurance Company, Landmark Insurance Company, London Market (certain underwriters at Lloyd's London and London Market Insurance Companies), National Union Fire Insurance Company of Pittsburgh, PA, Northbrook Excess and Surplus Insurance Company (as predecessor to Allstate Insurance Company), Puritan Insurance Company (f/n/a Manhattan Fire and Marine Insurance Company), Stonewall Insurance Company, Transamerica Premier Insurance Company, Travelers Indemnity Company, United National Insurance Company, Zurich Insurance Company, International Insurance Company, and Westchester Fire Insurance Company, Defendants-Respondents, Allianz Underwriters Insurance Company, American Centennial Insurance Company, American Insurance Company, Associated International Insurance Company, California Union Insurance Company, Continental Insurance Company, Fireman's Fund Insurance Company, Harbor Insurance Company, North Star Reinsurance Corporation, and Republic Insurance Company, Defendants.			FILED JUL 11, 2003 Cornelia G. Clark Clerk of Supreme Court