Bausch & Lomb Inc. v. Utica Mutual Insurance

ELDRIDGE, Judge. We issued a writ of certiorari in this case, involving comprehensive general liability (CGL) policies, to consider the scope of an endorsement which was substituted in place of an exclusion for the insured’s own property. Utica Mutual, the insurer, sold standard form CGL policies annually to Bausch & Lomb from at least 1970 to 1986. The standard language in these policies provided as follows: “The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence .... ” The policies defined “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....” The policies defined “property damage” as “physical injury to or destruction of tangible property which occurs during the policy period----” The policies also contained specific exclusions from coverage, including a paragraph (k) which excluded coverage for property owned by, occupied by, rented to, used by, or in the care, custody, or control of the insured. 1 At issue in this case ⁵⁷¹ are the four policies from 1982 through 1985 which contained endorsement number 18, a separately negotiated rider, which eliminated exclusion (k) and substituted “own property” coverage with a limit of $50,000 per occurrence less a $10,000 per year deductible. 2 I. Bausch & Lomb, a manufacturer of health care and optical products, purchased the Diecraft manufacturing facility in Sparks, Maryland, in 1965.

The plant machined and plated parts used in telescopes and microscopes. From 1958 through 1975, the Diecraft plant carried on metal plating activities which created waste plating bath liquids, solvents, and waste waters that were disposed on-site into a waste disposal system composed of a series of settling tanks, an unlined earthen lagoon, a holding tank, three large dry wells, and a network of piping. The disposal techniques did not depart from accepted industrial practices of the time. 3 ⁵⁷² In November 1982, Bausch & Lomb first discovered that its property was contaminated with certain heavy metals. Bausch & Lomb reported these findings to the federal Environmental Protection Agency in February 1983.

In the fall of 1983, Bausch & Lomb hired an environmental engineering and consulting firm, Fred C. Hart Associates, to investigate the Diecraft property. In mid 1984, Hart discovered that the Diecraft property, in addition to being contaminated with heavy metals, was also contaminated with unacceptable levels of the hazardous chemical compound trichloroethylene (TCE). In November 1985, Hart reported its findings to Bausch & Lomb that the TCE contaminated the subsurface groundwater as well as a small stream that flowed to adjacent land then owned by the Knott Development Corporation. By late 1987, Hart determined that the source of the contamination was the on-site disposal system.

On June 19, 1987, the new owners of the Knott property, Highlands Park I Limited Partnership, threatened to sue Bausch & Lomb, alleging damage to the ground water and surface water on its property. On June 26, 1987, Bausch & Lomb informed Utica of Highland Park’s potential claim and requested reimbursement for $76,000 spent to date for testing at the Diecraft facility. This was Bausch & Lomb’s first indication to Utica that it expected the insurer to indemnify it for the pollution expenses related to the Diecraft facility. Utica denied coverage in a letter dated July 21, 1987.

The neighboring landowner’s threat to sue never materialized into an actual lawsuit. At all times, Bausch & Lomb cooperated with the State of Maryland' in performing necessary testing and clean-up of the Diecraft site. A state agency, the Maryland Waste Management Administration, placed the Diecraft facility on the master list of potentially hazardous sites in 1984. In 1986, Bausch & Lomb and the State had a meeting during which Bausch & Lomb indicated its willingness to cooperate with the State in cleaning up the pollution.

The State never brought formal administrative enforcement proceedings to order Bausch & Lomb to clean up the Diecraft property. In 1988, after the ⁵⁷³ present litigation had begun between Utica and Bausch & Lomb, Bausch & Lomb carried out a pollution treatment program devised by Hart and approved by the State. Bausch & Lomb spent approximately $530,000 in investigating and testing the site to determine the extent of the contamination and approximately $231,000 to remove the contaminated sludge that had accumulated in the dry wells on the property. On November 20, 1987, Utica brought this action against Bausch & Lomb in the Circuit Court for Baltimore County, seeking a declaratory judgment that it had no duty to defend or indemnify Bausch & Lomb for expenses incurred in connection with the contamination of the Diecraft facility.

Bausch & Lomb filed a counterclaim for damages for alleged breach of contract. In 1991 the circuit court issued a declaration and a money judgment in favor of Bausch & Lomb for clean-up costs in the amount of $231,262.53, attorneys’ fees of $534,500, and expenses in the amount of $44,306.47. The court also declared that Utica had a duty to defend any future actions “brought to compel removal of hazardous waste material, and to pay the cost of removing such material ... depending on whether potential for liability exists.... ” The court, however, held that Utica did not have a duty to defend or indemnify for “investigatory damages required by the State of Maryland” and for Bausch & Lomb’s other expenses in investigating and testing the polluted site. The circuit court rejected arguments by Utica that Bausch & Lomb’s clean-up costs were incurred voluntarily.

The court held that, although the State had not brought an enforcement action, it would have done so if necessary and would have required Bausch & Lomb’s compliance in cleaning up the site. Additionally, the court rejected Utica’s argument that the clean-up costs were not “damages” within the meaning of the policy. The court held that the term “damages” was ambiguous and therefore construed it broadly in favor of Bausch & Lomb. Finally, the circuit court declined to apply the “own property” exclusion, holding that the State’s regulatory power with respect to groundwater constituted a sufficient interest to trigger third party coverage. ⁵⁷⁴ Both sides appealed to the Court of Special Appeals which reversed and ordered the entry of a declaratory judgment in favor of Utica.

Utica Mutual v. Bausch & Lomb, 91 Md.App. 1 , 603 A.2d 1241 (1992). The intermediate appellate court held that Bausch & Lomb’s investigative and clean-up costs were not “damages” within the insurance policy’s coverage because CGL policies only indemnify “ ‘actual, tangible’ ” damages and not “ ‘essentially prophylactic measures’ ” unconnected with “ ‘any harm to specific third parties.’ ” 91 Md.App. at 15 , 603 A.2d at 1248 , quoting Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 , 1353 (4th Cir.1987), cert. denied, 484 U.S. 1008 , 108 S.Ct. 703 , 98 L.Ed.2d 654 (1988). The Court of Special Appeals further stated that the cost of Bausch & Lomb’s clean-up measures did not constitute liability damages within the meaning of a CGL policy because they were voluntary “preventive” costs. 91 Md.App. at 20 , 603 A.2d at 1250 .

The appellate court rejected Bausch & Lomb’s argument that the insurer should pay damages on the theory that the groundwaters underlying the Diecraft site allegedly belonged to the State, and that by contaminating those ground-waters, a third party’s property had been damaged. Finally, the Court of Special Appeals held that the circuit court erred in granting Bausch & Lomb judgment for expenses and attorneys’ fees. Both parties filed in this Court petitions for a writ of certiorari, and we granted both petitions. Bausch & Lomb v. Utica Mutual, 327 Md. 557 , 611 A.2d 115 (1992).

This Court disagreed with the Court of Special Appeals’ holding that Bausch & Lomb’s investigative and clean-up costs were voluntarily taken as merely preventive measures. Instead, we took the position that the “response costs, undertaken in the regulatory context, represented a sum the corporation was legally obligated to pay” because the “tacit threat of formal State intervention was” always present. Bausch & Lomb v. Utica Mutual, 330 Md. 758, 780 , 625 A.2d 1021, 1032 (1993) (Bausch & Lomb I). In addition, this Court held that “environmental response costs fall within” the policy definition of “damages.” 330 Md. at 782 , 625 A.2d at 1033 .

Nonetheless, we held that ⁵⁷⁵ Utica was not obligated to pay under the standard terms of the CGL policies because no third party property damage had occurred. We held that the State of Maryland’s regulatory interest in the ground water “does not constitute a property interest within the contemplation of the insurance policy,” 330 Md. at 788 , 625 A.2d at 1036 . This Court also upheld the Court of Special Appeals’ determination that Bausch & Lomb was not entitled to expenses and attorneys’ fees. Bausch & Lomb filed in this Court a motion for reconsideration which this Court denied.

Bausch & Lomb alternatively requested that this Court modify its decision “to reflect that Bausch & Lomb is entitled to coverage for damage to its ‘own’ property, pursuant to endorsement 18, in an amount up to $50,000 per occurrence.” In light of Bausch & Lomb’s request, this Court modified its initial judgment. 4 Our amended judgment directed that the case be remanded to the circuit court to determine “whether, upon the record in this case, endorsement No. 18 to paragraph (k) of the Utica policy provides coverage of $50,000 per occurrence for damages to Bausch & Lomb’s own property.” 330 Md. at 791 , 625 A.2d at 1037 . On remand, the circuit court issued a new declaratory judgment, declaring that Bausch & Lomb “is entitled to coverage under the 1982-1986 policies under Endorsement 18 in the amount of $160,000.00 ($50,000.00 per year per occurrence less $10,000.00 per year deductible).” The circuit court held that, under the language of endorsement 18, “exclusion (k) doesn’t apply” and the endorsement provided “first-party coverage.” The circuit court also rejected Utica’s contention that Bausch & Lomb should not be entitled to any coverage on the ground that no contaminants were placed in the soil after 1980. Based on evidence taken at the ten day trial of the case ⁵⁷⁶ in 1990, and specifically on testimony by a hydrogeologic expert, the court found, as a matter of fact, that the damage was continuous throughout the 1982-1985 period. The court stated that “the damage of contamination through what was in the soils, was occurring all during this period of time.” The next issue considered by the circuit court was whether Bausch & Lomb was required specifically to “prove what portion of the damage occurred in ’82,’88,’84, and ’85.” The court stated that, although property damage occurred during each of the applicable policy years, the technology to determine precisely the amount of property damage during each policy year was currently unavailable.

The court said that “some day the technology is going to be there that somebody is going to be able to do a plug in the ... property and they are going to be able to say that based upon the makeup of this property and the soil, that we can tell in 2006 that in 1994 X amount was deposited on the Bausch and Lomb site. We know that because we know the rainfall, we know how fast these materials travel; we now in 2006 know the water tables, and therefore it is a simple matter of quantitative analysis for us to tell drilling this far away from the site how much was deposited. “Now, I have no question in my mind but that that technology is not available today. Frankly, it probably won’t be available in 2006.2016 and 2026 are more like it.... “The Court of Appeals has to make a public policy decision in this case. They can only base it upon testimony.

If I’m correct and witnesses sit there and testify from the witness stand that they do not have that technology today, that it does not exist in the industry, that they cannot definitively state to me today in 1994 that there are any tests to show what the damage was and how much of this $231,000 was applicable, then the Court of Appeals has an alternate decision to make; number one, they have the right to say you can’t prove specifically your damages, so therefore we are not going to let you recover anything; or secondly, not being able to do that, all sums means all sums ⁵⁷⁷ on the trigger of damage to the property, and therefore you have to pay everything.” Although the court stated that the technology to prove damages with specificity was unavailable, it held that Bausch & Lomb was entitled to the full first party coverage under the 1982 to 1985 policies because some damage occurred during each covered policy period. Finally, the circuit court concluded that Bausch & Lomb was entitled to $561,000 in attorneys’ fees. This amount consisted of $376,000 for legal work before and during trial, $125,000 for work on the appeals, and $60,000 for work after the remand. Utica appealed to the Court of Special Appeals.

In an unreported opinion, the intermediate appellate court held that “Endorsement 18 does provide B & L with what amounts to ‘first party’ coverage.” The appellate court reasoned that there was no ambiguity in the policy language: “Endorsement 18 states that, up to a limit of $50,000 per occurrence, Exclusion (k) does not apply. Thus, by removing Exclusion (k) from the contract, Utica ‘will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ...’” (emphasis omitted). Although the policy language provided first party coverage, the Court of Special Appeals held that it was “premature for the circuit court to award the policy limits” because the “precise amount of damages that ‘occurred’ during each policy year at issue cannot be resolved on the record in this case.” The Court of Special Appeals also reversed in part the circuit court’s award of attorneys’ fees to Bausch & Lomb. The intermediate appellate court held that the trial court was entitled to award Bausch & Lomb only the $60,000 in attorneys’ fees which related exclusively to the proceedings after the remand.

The Court of Special Appeals reasoned that Bausch & Lomb was not entitled to the other attorneys’ fees which the circuit court had awarded because the Court of Appeals previously had decided that Bausch & Lomb was not ⁵⁷⁸ entitled to recover those fees. The Court of Special Appeals stated that “the Court of Appeals would have mentioned counsel fees [in its remand order] if the Court contemplated that, on remand, the circuit court should revisit the issue of the insured’s entitlement to reimbursement for any counsel fees incurred as of July 12,1993.” Because this Court had not given such instructions in Bausch & Lomb I, the intermediate appellate court decided that “the law of the case doctrine prohibited a subsequent apportionment of counsel fees incurred in Round One.” The Court of Special Appeals held that Bausch & Lomb was entitled to the attorneys’ fees incurred after the remand because endorsement 18 did provide limited coverage under the CGL policies, and “it was Utica who requested a judicial declaration that ‘Utica Mutual ... is under no obligation to pay any of Bausch & Lomb’s expenses in connection with the ... remediation efforts at the Diecraft site.’ ” Both parties again filed petitions for a writ of certiorari which this Court granted. Bausch & Lomb v. Utica Mutual, 346 Md. 28 , 694 A.2d 951 (1997). In their certiorari petitions, the parties asked this Court to consider whether: (1) endorsement 18 provides first party coverage; (2) whether the precise amount of property damage must be proven for each applicable policy year in order to obtain coverage; and (3) whether Bausch & Lomb is entitled to an attorneys’ fees award.

II

The first question is whether first party coverage results from the elimination of exclusion (k) and the substitution of endorsement 18 in the 1982 through 1985 CGL policies. A. Utica takes issue with the Court of Special Appeals’ ruling that “Endorsement 18 provides coverage beyond that of the standard CGL policy of up to $50,000 per occurrence during the policy period.” Utica contends that this is error because the “deletion of an exclusion cannot expand the scope of ⁵⁷⁹ coverage provided by the basic insuring agreement.” (Utica’s brief at 18). The insurer argues that this Court ruled, in Bausch & Lomb I, that Bausch & Bomb’s clean-up costs were outside the scope of CGL coverage based solely on the terms of the insuring agreement without relying on exclusion (k). Utica interprets this Court’s previous acknowledgment that exclusion (k) had been deleted in some Utica policies to mean that the “Court’s ruling regarding the scope of coverage provided by the standard terms of the CGL insuring agreement was necessarily independent of either the presence or absence of the exclusion ‘k’ provision.” {Id. at 16, n. 10, 603 A.2d 1241 ).

Based on this interpretation of our prior opinion, Utica maintains as follows: “Exclusion ‘k,’ of course, is itself a limitation on scope of coverage otherwise provided by the standard language of the CGL insuring agreement. Thus, at best, ... Endorsement 18 simply restores coverage that was excluded by exclusion ‘k.’ It does not create coverage that cannot be found in the basic CGL insuring agreement.” {Id. at 16-17, 603 A.2d 1241 ). Finally, Utica argues that Bausch & Lomb is not entitled to coverage because exclusion (k) has a “fundamental ‘third party’ nature” which cannot be altered by modification or deletion.

(Utica’s reply brief at 5). Utica contends that exclusion (k) is “designed to address a wide variety of situations in which a third party may also have a true ‘property interest’ in property which is otherwise held or controlled by the insured.” {Id. at 4-5, 603 A.2d 1241 ). Therefore, Utica asserts that when the exclusion is modified or deleted, coverage is only restored for certain third party damage claims for property in which that third party holds a property interest. Bausch & Lomb argues that the CGL agreement provides coverage for both third party property damage and damage to property owned by Bausch & Lomb.

Bausch & Lomb contends that “the mere existence” of exclusion (k) demonstrates that the standard form CGL policies provide coverage for liability for damage to one’s own property. Otherwise, Bausch & Lomb reasons, “there would be no need for this exclusion” if ⁵⁸⁰ the basic insuring agreement did not originally cover damage to one’s own property. (Bausch & Lomb’s reply brief at 10). Bausch & Lomb disagrees with Utica’s contention that this Court’s previous ruling was independent of exclusion (k).

Bausch & Lomb argues that our prior opinion took exclusion (k) into consideration but “expressly carved out the Utica policies containing Endorsement 18 from its ruling.... ” {Id. at 11, n. 11, 603 A.2d 1241 ). B. At the outset, it is important to reiterate what this Court did, in fact, decide in Bausch & Lomb I about exclusion (k) and endorsement 18. When this Court decided this case in 1993, the principal issues presented were whether environmental clean-up costs constituted covered “damages” within the meaning of the policies and whether the State’s regulatory interest was sufficient to justify coverage for third party property damage. Both the circuit court and the Court of Special Appeals had reached conclusions concerning these issues which were independent of exclusion (k), and neither court considered the effect of endorsement 18.

Although this Court’s opinion mentioned the existence of exclusion (k) and endorsement 18, 5 our holdings were not based upon those provisions of the policy. In fact, that is why this Court’s amended judgment instructed the circuit court to decide whether “endorsement No. 18 to paragraph (k) of the Utica ⁵⁸¹ policy provides coverage of $50,000 per occurrence for damages to Bausch & Lomb’s own property.” 330 Md. at 788 , 625 A.2d at 1037 . In Bausch & Lomb I, we held that “in the absence of third party property damage, Utica was not obliged by the standard terms of the CGL contract to pay B & L’s abatement expenses incurred at the State’s behest.” 330 Md. at 788 , 625 A.2d at 1036 . We did not, however, reach the issue of whether the elimination of exclusion (k) and the substitution of endorsement 18 afforded Bausch & Lomb first party coverage under the CGL policies.

That is the issue which is now before this Court. When determining coverage under an insurance policy, “the primary principle of construction is to apply the terms of the insurance contract itself.” Bausch & Lomb I, 330 Md. at 779 , 625 A.2d at 1031 . See also Chantel Associates v. Mt. Vernon, 338 Md. 131, 142 , 656 A.2d 779, 784 (1995); Harford County v. Harford Mut.

Ins., 327 Md. 418, 434 , 610 A.2d 286, 294 (1992); Mitchell v. Maryland Casualty, Co., 324 Md. 44, 56 , 595 A.2d 469, 475 (1991). In doing so, we ascertain the parties’ intentions from the policy as a whole. Bausch & Lomb I, 330 Md. at 779 , 625 A.2d at 1031 . In construing the terms of the insurance contract, unless “there is an indication that the parties intended to use words in the policy in a technical sense, we accord the words their usual, ordinary, and accepted meaning.” Bausch & Lomb I, 330 Md. at 779 , 625 A.2d at 1031 .

See also Chantel Associates v. Mt. Vernon, supra, 338 Md. at 142 , 656 A.2d at 784 ; Mitchell v. Maryland Casualty, supra, 324 Md. at 56 , 595 A.2d at 475 . The language in the 1982 through 1985 CGL policies demonstrates an intent that certain claims be covered for damages to Bausch & Lomb’s own property. Endorsement No. 18 states that exclusion (k) “does not apply” and adds further provisions to explain the scope of the new “own property” coverage.

The endorsement limits the new coverage by stating that the coverage does not extend to any landlord of premises leased to Bausch & Lomb. It states that the limit of liability is $50,000 and that the limit “applies separately to the insurance under ⁵⁸² this endorsement and is in lieu of any other limit of liability stated in the policy.” Endorsement 18 is a complete substitute, for the previous exclusion (k) which excluded insurance coverage for property owned, occupied, rented, used by, or in the care, custody or control of the insured. As further evidence of the parties’ intent to create a limited coverage for damages to Bausch & Lomb’s own property, endorsement 18 states that it was separately negotiated and agreed upon “in consideration of the additional premium charged.” The plain meaning of endorsement 18’s language is to provide coverage for damage to Bausch & Lomb’s own property. Nothing in the language of endorsement 18 supports Utica’s theory that the endorsement only covers property of the insured in which a third party holds a property interest.

In support of its contention that the policies do not afford coverage for Bausch & Lomb’s own property, Utica quotes this Court’s previous statement in Bausch & Lomb I, 330 Md. at 783 , 625 A.2d at 1033 , that a “hallmark of the comprehensive general liability policy is that it insures against injury done to a third party’s property, in contradistinction to an ‘all-risks’ policy also covering losses sustained by the policyholder.” Although a CGL policy is primarily for the purpose of insuring against third party liability, it is not at all unusual for a liability policy also to provide some first party coverage. For example, automobile liability insurance policies typically provide coverage for third party