Hardwick Recycling & Salvage, Inc. v Acadia Insurance Co.

Hardwick Recycling & Salvage, Inc. v. Acadia Insurance Co. (2003-317); 
177 Vt. 421; 869 A.2d 82

2004 VT 124

[Filed 17-Dec-2004]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2004 VT 124

                                No. 2003-317


  Hardwick Recycling & Salvage, Inc. 	         Supreme Court
  f/k/a Green Mountain Sanitation, Inc.,
  and Richard F. Towns
                                                 On Appeal from
       v.	                                 Chittenden Superior Court

  Acadia Insurance Company	April Term, 2004


  Matthew I. Katz, J.

  John L. Franco, Jr., Burlington, for Plaintiffs-Appellants.

  Thomas M. Higgins of Pierson Wadhams Quinn Yates & Coffrin, Burlington, for 
    Defendant-Appellee.


  PRESENT:  Dooley, Johnson, Skoglund and Reiber, JJ., and Gibson, J. (Ret.),
            Specially Assigned

        
       ¶  1.  JOHNSON, J.  Plaintiffs sued for coverage under the pollution
  coverage included in their comprehensive general liability insurance policy
  issued by defendant Acadia Insurance Company.  Plaintiffs appeal from the
  trial court's order denying their partial summary judgment motion seeking a
  declaration that Acadia owes them a defense against a pending environmental
  enforcement action brought by the State in 2000; the court entered judgment
  for Acadia instead.  Plaintiffs contend that the trial court erred in
  holding that the State's 1995 claims against them for environmental site
  investigation and remediation planning because of contamination on their
  property were not claims for "damages" covered by the policy, and thus did
  not trigger Acadia's duty to defend against the enforcement action.  We
  conclude that the trial court incorrectly interpreted the policy term
  "damages."  Therefore we reverse one ground upon which the trial court
  based its opinion, and we remand for additional proceedings necessary to
  resolve outstanding issues in the case. 

       ¶  2.  Plaintiffs Hardwick Recycling & Salvage, Inc., (Hardwick
  Recycling), Green Mountain Sanitation, Inc. (GMS), and Richard Towns are
  all named insureds under a liability insurance policy issued by Acadia. 
  The policy coverage commenced in September 1994 and was renewed annually
  through September 2001, although the parties limited the coverage over
  time.  During the years in question, Richard Towns was the president and
  principal owner of GMS. Hardwick Recycling is a subsidiary of GMS.  

       ¶  3.  The relevant portions of plaintiffs' policy provide that Acadia
  "will pay those sums that the insured becomes legally obligated to pay as
  damages because of 'bodily injury' or 'property damage' included within the
  'pollution liability hazard' to which this insurance applies."  The
  definition of "property damage" includes "[p]hysical injury to tangible
  property, including all resulting loss of use of that property." 
  "[P]ollution liability hazard" is defined as "property damage" resulting
  from "pollutants" at or from property owned by the insured.  "Pollutants"
  include "any solid, liquid, [or] gaseous . . . irritant . . . including . .
  . chemicals and waste.  Waste includes materials to be recycled. . . ."
  (Emphasis added.)

       ¶  4.  The pollution coverage under the policy was provided on a
  "claims made" basis.  Specifically, the policy provides:
   
    (1) The "bodily injury" or "property damage" is caused by an
    "occurrence" that takes place in the "coverage territory";
    (2)  The "bodily injury" or "property damage" occurs during the
    policy period; and
    (3) A claim for damages because of the "bodily injury" or
    "property damage" is first made against any insured, in accordance
    with paragraph c. below, during the policy period. 

          . . . .

    (c) A claim by a person or organization seeking damages will be
    deemed to have been made at the earlier of the following times :

    (1) When notice of such claim is received and recorded by any
    insured or by us, whichever comes first . . . .  (Emphasis added.) 

       ¶  5.  In 1995, the State, through the Secretary of the Agency of
  Natural Resources (ANR), initiated a series of enforcement actions in
  connection with plaintiffs' alleged pollution-related violations of
  environmental and waste management laws.  First, in March 1995, the State
  filed an "Application for Emergency Order" in the Vermont Environmental
  Court.  Among other things, the application alleged "[o]peration of the
  [Hardwick Recycling] transfer station is an immediate threat to the health,
  safety and welfare of the citizens of Vermont as a result of the discharge
  of solid waste leachate into the floodplain and waters of the Lamoille
  River."  The Environmental Court denied the State's application without
  prejudice because it concluded that the application alleged violations of
  plaintiffs' Act 250 permit, and the court was empowered to enforce only
  emergency orders involving unpermitted activity. 
   
       ¶  6.  In May 1995, the State, through an Environmental Enforcement
  Officer, requested and received an Access Order from the Caledonia District
  Court.  In its application supported by five affidavits attesting to
  environmental contamination, the State alleged that "reasonable grounds
  exist to suspect violations of Vermont Environmental Laws, and Vermont
  Solid Waste Management Regulations."  The court granted the State's
  request, and ordered that plaintiffs provide "full access" to the State for
  investigation of the alleged pollution on the premises.  

       ¶  7.  As an apparent follow-up to investigations conducted pursuant
  to the May access order, the State, through the Hazardous Materials
  Management Division of ANR, issued a "Request for investigative activities
  at Green Mountain Sanitation, Hardwick (VT DEC Site #95-1792)," to
  plaintiffs' consultant, which was copied to plaintiffs' counsel and Richard
  Towns among others.  The letter stated that DEC personnel had discovered
  "(1) . . . surficial [sic] oil discharge; (2) a leaking drum which
  contained volatile organic compounds; (3) elevated levels of total
  petroleum hydrocarbons in the swale which discharges into the Lamoille
  River and; (4) buried solid waste material throughout the property."  The
  State concluded that additional work was necessary to determine if further
  "investigation, monitoring and /or remediation" was warranted and thus
  requested plaintiffs to undertake substantial on-site work.  Inexplicably,
  the State took no further enforcement action until October 2000.   

       ¶  8.  In October 2000, the State, through the Attorney General,
  initiated a civil suit against plaintiffs in Washington Superior Court.  In
  its complaint, the State alleged that, between 1992 and 1995, plaintiffs
  illegally buried solid waste on the Hardwick Recycling premises in
  violation of Vermont Solid Waste Management Rule 6-302(c), 10 V.S.A. §
  6605(a), and Act 250.  The State thus requested that the court find
  plaintiffs in violation of these laws, and:

    (4)  order the defendants to extract and properly dispose of any
    wastes illegally stored at or disposed of at the [Hardwick
    Recycling facility];

    (5) order the defendants to remediate the site to mitigate any
    hazard to human health or the environment; [and] 

    (6) order the defendants to pay civil penalties, costs, and
    reimbursement for the costs of enforcement, including legal fees,
    in accordance with 10 V.S.A. § 8221.


       ¶  9.  Shortly after the State filed its complaint, plaintiffs
  notified Acadia of the suit in a letter from plaintiffs' attorney.  The
  letter stated that the allegations in the State's complaint "were first
  brought to the attention of [plaintiffs] in May of 1995" and that "[f]or
  reasons unknown to us the State has elected to now prosecute this claim
  some 5 ½ years later."  Plaintiffs did not attach any of the 1995 documents
  to the claim letter, or otherwise explain the details of the 1995 claims,
  including the Environmental Court order issued in March 1995.

       ¶  10.  Even though plaintiffs sought coverage for a defense and, if
  needed, indemnification for costs associated with the State's 2000 suit,
  their letter identified policy CPA 001066-10, the policy that was in effect
  from 1994 to 1995, as the applicable source of coverage.  Plaintiffs'
  pollution liability coverage from Acadia was eliminated in 1997; however,
  the 1994-1995 policy provides that "[a]ll claims for injury or damage
  arising out of a discharge, release or escape of pollutants . . . shall be
  deemed to have been made at the time the first of those claims is made
  against any insured."  

       ¶  11.  In a reply letter sent by Acadia's Director of P&C Claims,
  Acadia informed plaintiffs' counsel that there was no coverage for the
  State's environmental claim because "[a]ll [t]he Acadia policies were
  written with applicable pollution exclusions" and "[i]n addition, there is
  no coverage for the allegations of illegal acts."  Defendant's reply letter
  also stated that, because of a "Consent to Rate Application,"  "[c]overage
  for pollution was eliminated from the Acadia policies."   
   
       ¶  12.       In response to Acadia's denial of coverage, plaintiffs
  sued Acadia in December 2001 seeking a declaratory judgment that it has a
  duty to defend plaintiffs in the suit brought against them by the State in
  2000, and that it owes plaintiffs their incurred defense costs to date. 
  Acadia answered interposing eighteen affirmative defenses.  Plaintiffs then
  moved for partial summary judgment on all but defendant's pollution
  exclusion defense because the above-quoted denial of coverage letter did
  not reserve Acadia's right to later deny coverage on other grounds.  Judge
  Teachout granted plaintiffs' motion.  

       ¶  13.  Plaintiffs next moved for partial summary judgment that
  defendant owed and owes plaintiffs a defense in the underlying lawsuit
  brought by the State in 2000.  Plaintiffs argued that the 1994-1995 policy
  provided coverage for the 2000 suit because it was based on "claims" that
  the State first made in 1995, even though their policy in effect in 2000
  did not include pollution coverage.  The trial court, Judge Katz presiding,
  agreed with defendant that the claims brought by the State in 1995 did not
  constitute claims for "damages," and thus did not trigger coverage during
  that policy term.  Though its conclusion on "damages" should have ended the
  entire case in defendant's favor, the court ruled that additional discovery
  could take place on defendant's late notice defense because it was a fact
  question.  Plaintiffs argued that the  trial court's order on the first
  partial summary judgment had ruled the defense of late notice out of the
  case.  Judge Katz apparently disagreed, but made only an oblique reference
  to the court's earlier order.  Judge Katz entered final judgment for
  defendant, and plaintiffs appealed.  

       ¶  14.  When reviewing the trial court's grant of summary judgment, we
  apply the same standard as the trial court.  We will affirm summary
  judgment if there are no genuine issues of material fact and the moving
  party is entitled to judgment as a matter of law.  White v. Quechee Lakes
  Landowners' Ass'n, 170 Vt. 25, 28, 742 A.2d 734, 736 (1999); V.R.C.P.
  56(c).  We conduct a plenary, nondeferential review of the questions of law
  raised by the motion.  
   
       ¶  15.  Plaintiffs appeal the order denying their partial summary
  judgment motion to the extent that it rejected their argument that Acadia
  had a duty to defend plaintiffs against the State's environmental
  enforcement action filed in 2000.  An insurer's duty to defend is broader
  than its duty to indemnify.  City of Burlington v. Nat'l Union Fire Ins.
  Co., 163 Vt. 124, 127, 655 A.2d 719, 721 (1994).  A claim against the
  insured triggers the insurer's duty to defend whenever it appears that the
  policy might cover that type of claim.  Garneau v. Curtis & Bedell, Inc.,
  158 Vt. 363, 366, 610 A.2d 132, 134 (1992).  The duty to defend is not
  triggered, however, when the circumstances indicate that, as a matter of
  law, there would be no duty to indemnify.  Id.  We determine whether the
  insurer has a duty to defend by comparing the allegations in the underlying
  claim to the policy's coverage terms.  City of Burlington, 163 Vt. at 127,
  655 A.2d  at 721.

       ¶  16.  Our review of the record leads us to conclude that the State's
  claims against plaintiffs in 1995 were claims for "damages" because of
  "property damage" caused by plaintiffs' polluting activities.  The State
  took actions against plaintiffs that could have legally obligated them to
  pay sums of money to remedy their alleged violations of law, and thus those
  actions were claims for "damages" for purposes of triggering the insurer's
  duty to defend.  Accordingly, we reverse the trial court's grant of summary
  judgment for Acadia on the issue of whether the claims made against
  plaintiffs in 1995 were claims for "damages."   Nonetheless, for the
  reasons we discuss below, we remand the case for additional proceedings.

                           I.  Waiver of Defenses
   
       ¶  17.  As an initial matter, in their brief and at oral argument,
  plaintiffs argue that by specifically asserting two grounds for denying
  coverage and failing to reserve the right to later raise additional
  grounds, Acadia's letter limited it to the grounds for denial contained in
  the letter.  This waiver argument, brought under Cummings v. Connecticut
  General Life Insurance Co., 102 Vt. 351, 148 A. 484 (1930), and its
  progeny, persuaded the first superior court judge who presided over this
  case to grant plaintiffs partial summary judgment excluding all but one of
  the eighteen "affirmative defenses" Acadia pled in its answer.  One of the
  excluded defenses was that "[p]laintiffs' claims are barred to the extent
  that they do not involve 'damages,' 'property damage,' 'bodily injury' or
  'personal injury' as those terms are used in the Policies."  This is,
  however, the very ground upon which another superior court judge
  subsequently granted summary judgment for Acadia.  Plaintiffs argue,
  therefore, that the trial court erred not only in its interpretation of the
  policy term "damages," but also in reaching the previously foreclosed issue
  at all.  While we reverse on the merits of the "damages" argument, we
  affirm the court's decision to address this and another excluded defense,
  notwithstanding its earlier order striking these "affirmative defenses."
   
       ¶  18.  In their first motion, plaintiffs prevailed by arguing for
  the application of the Cummings rule that when an insurer elects to specify
  reasons for denying coverage it thereafter waives all other available
  grounds for denying coverage unless it expressly reserves the right to
  later raise other grounds.  Id. at 360, 148 A.  at 486 (1930).  Before this
  rule can be applied, however, the insured must show that a claim of payment
  "necessarily preceded the refusal."  Hamlin v. Mut. Life Ins. Co., 145 Vt.
  264, 269, 487 A.2d 159, 162 (1984).  In addition, a prelitigation denial of
  coverage is not an effective waiver of defenses to aspects of the claim
  that were not known to the insurer until after the litigation had
  commenced.  Segalla v. U.S. Fire Ins. Co., 135 Vt. 185, 189-90, 373 A.2d 535, 538 (1977).  Because a waiver involves the relinquishment of a known
  right, an insurer "cannot be held to have waived a defense to a claim of
  which it was ignorant at the time of sending the [denial] letter." Id.
  at190, 373 A.2d  at 538.  On the "damages" defense as well as the late
  notice defense that the superior court's second ruling leaves partially
  unresolved, we will not find a waiver based on the denial of coverage
  letter when it is clear that the manner in which plaintiffs tendered their
  claim obscured the availability of these and other defenses.

       ¶  19.  The defenses that Acadia reasserted in opposing plaintiffs'
  second motion for partial summary judgment all pertained to the 1995
  "claims" that plaintiffs argue triggered coverage under the 1994-1995
  policy.  Because plaintiffs' policy is a "claims-made" policy, under its
  terms, plaintiffs must first establish that the State made a covered claim
  against them during the relevant coverage period.  Acadia concedes that the
  coverage period ran from September 1, 1994 to September 1, 1997.  Though
  the 2000 claim was not made within this period, plaintiffs argue that the
  policy's Pollution Endorsement, A.1.c.-referred to by plaintiffs as the
  "retroactivity clause" - brings the 2000 claim within the coverage period
  because of its relation to the claim made in 1995.  The retroactivity
  clause states that 

    All claims for injury or damage arising out of a discharge,
    release or escape of pollutants, including all injury or damage
    arising out of all subsequent exposure of persons and property to
    such pollutants, shall be deemed to have been made at the time the
    first of those claims is made against any insured. 

  (Emphasis added.)  The policy also states that a claim for damages because
  of property damage is "deemed to have been made at the earlier of the
  following times: (1) When notice of such claim is received and recorded by
  any insured or by us, whichever comes first."  These clauses require the
  court to focus its inquiry on the 1995 enforcement actions because
  plaintiffs claim that both the 2000 suit and the 1995 actions are claims
  for property damage arising out of the same "discharge, release, or escape
  of pollutants," and that plaintiffs first received notice of these claims
  in 1995.  Plaintiffs cannot, therefore, take advantage of the relation back
  accomplished by the "retroactivity clause" unless plaintiffs can first show
  that the 1995 actions might possibly fall within the policy's terms of
  coverage, specifically that any one of the 1995 enforcement actions could
  be considered a claim for "damages" because of " 'property damage' included
  within the 'pollution liability hazard.' " We accept plaintiffs'
  interpretation of the retroactivity clause as reasonable for purposes of
  deciding the ultimate issue of coverage for the 2000 claim.  But for
  purposes of assessing a waiver of defenses, we cannot agree with
  plaintiffs' contention that their October 20, 2000 notice of claim letter
  adequately disclosed the extent to which their 2000 claim depended on the
  1995 actions.    

       ¶  20.  Plaintiffs' "notice of claim" letter does mention that the
  allegations in the 2000 complaint against them "were first brought to the
  attention of [plaintiffs] in May of 1995."  The letter, authored by
  plaintiffs' current counsel, further states that 

    I served as their attorney regarding [the State's claims.]  I had
    argued to the State at that time that the claims were not legally
    supportable, arguments that had until now dissuaded the State from
    going forward.  For reasons unknown to us the State has elected to
    now prosecute this claim some 5 ½ years later.

  The letter makes no reference to the "retroactivity clause."  Moreover, it
  includes very few specifics on what relief the State sought in 1995 and
  says nothing about whether the State initiated any formal proceedings,
  legal or administrative, against plaintiffs in 1995.  Plaintiffs did attach
  a copy of the 2000 complaint, but omitted the 1995 documents even though
  their theory of coverage for the 2000 claim depended on a determination
  that the State had made covered claims in 1995.  In fact, according to
  Acadia's surreply to plaintiffs' second motion for partial summary
  judgment, the first time plaintiffs tendered the 1995 "claims" to Acadia
  was in connection with plaintiffs' second motion.
   
       ¶  21.  Our own review of the trial court file confirms this. 
  Plaintiffs' complaint makes no reference whatsoever to the retroactivity
  clause and the way in which the 1995 enforcement actions relate to the 2000
  claim.  In fact, the complaint does not even mention the 1995 enforcement
  actions.  Plaintiffs' first motion for partial summary judgment also fails
  to reference to the 1995 actions, although plaintiffs did attach a copy of
  the notice of claim letter as an exhibit to the motion.  When Judge
  Teachout ruled on the first motion for partial summary judgment, neither
  she nor Acadia was aware of the role that the 1995 actions played in
  plaintiffs' case.  Because the denial of coverage letter preceded
  plaintiffs' disclosure of the relevant details of the 1995 enforcement
  action and their connection to plaintiffs' claim for coverage in 2000, it
  cannot waive defenses that Acadia had no way of knowing were necessary and
  available.  Segalla, 135 Vt. at 189, 373 A.2d  at 538.    When viewed in
  this light, Judge Teachout's ruling cannot be construed as excluding
  defenses that Acadia may have against the 1995 claims upon which coverage
  for the 2000 claim depends.  Accordingly, Judge Katz did not err by
  subsequently considering the "damages" and late notice defenses as they
  pertained to the 1995 claims.

                              II.  Damages
   
       ¶  22.  We now decide whether any of the 1995 enforcement actions
  were claims for "damages" under the policy.  The pollution endorsement
  corresponding to plaintiffs' commercial general liability coverage applies
  only to "those sums that [plaintiffs] become[] legally obligated to pay as
  damages because of 'bodily injury' or 'property damage.' " The policy
  defines the term "property damage," but leaves the term "damages"
  undefined.  The trial court settled on a technical definition of "damages"
  adopted from cases that categorically excluded government-ordered costs of
  responding to and remediating pollution, e.g., City of Edgerton v. General
  Casualty Co., 517 N.W.2d 463 (Wis. 1994), and General Casualty Co. of
  Wisconsin v. Hills, 561 N.W.2d 718 (Wis. 1997).  The trial court,
  therefore, held that the State's March 1995 enforcement action was not a
  claim for "damages."  A large majority of courts have rejected the rigid
  interpretation of "damages" upon which the trial court based its
  conclusion.  See Johnson Controls, Inc. v. Employers Ins. of Wausau, 2003
  WI 108, ¶¶ 4, 100 n.41, 665 N.W.2d 257 (overruling Edgerton, and
  collecting cases that have held contrary to it).  We too reject this
  approach, choosing instead to interpret the term "damages" by considering
  the reasonable expectations of the insured party under the circumstances. 
  See id. ¶ 31 (determining whether the policy term "damages" encompasses
  response costs incurred as a result of liability under federal
  environmental law requires court to "comprehend the nature of environmental
  response costs as understood by a reasonable insured faced with CERCLA
  liability").  When an insured becomes legally obligated to pay money
  because the insured has caused an injury to the environment by its wrongful
  violation of environmental law, the sums the insured must pay as a result
  are properly classified as damages.  After reviewing the record, we
  conclude that at least one of the State's 1995 enforcement actions sought
  to legally obligate plaintiffs to spend money because their activity had
  allegedly polluted the environment in violation of state environmental law,
  and, therefore, was a claim for "damages" as that term could reasonably be
  understood.

                                   A.
   
       ¶  23.  In construing an insurance policy, we read disputed terms
  according to their plain, ordinary, and popular meaning.  State v. CNA Ins.
  Cos., 172 Vt. 318, 324, 779 A.2d 662, 667 (2001).  Because a policy is
  prepared by the insurer with little effective input from the insured, we 
  construe insurance policies in favor of the insured, in accordance with the
  insured's reasonable expectations for coverage based on the policy
  language.  Coop. Fire Ins. Ass'n v. White Caps, Inc., 166 Vt. 355, 360, 694 A.2d 34, 37 (1997); accord State Farm Mut. Auto. Ins. Co. v. Roberts, 166
  Vt. 452, 461, 697 A.2d 667, 672 (1997) (recognizing important role played
  by reasonable expectations of the parties in determining scope of insurance
  coverage).

       ¶  24.   On appeal, Acadia has relied heavily on the reasoning first
  articulated in the now-overruled Wisconsin case of  City of Edgerton v.
  General Casualty.  Edgerton involved a claim by insureds seeking defense
  costs and indemnification against federal and state enforcement actions
  requiring the insureds to incur costs to clean up and remediate polluted
  sites.  The Wisconsin Supreme Court held that such enforcement actions,
  brought under the Comprehensive Environmental Response, Compensation, and
  Liability Act (CERCLA) and related state laws, were not claims for
  "damages" as that term was used in an insurance policy that is almost
  identical to the one at issue here.  Id. at 477-78.  The Wisconsin Supreme
  Court held that "remediation and response costs are by definition,
  considered to be equitable relief and reflect a congressional intent to
  differentiate between cleanup or response costs . . . and damages for
  injury, destruction, or the loss of natural resources."  Id. at 478
  (citations omitted).  In overruling Edgerton, the Wisconsin Supreme Court
  subsequently conceded that it "did not correctly analyze the term 'damages'
  in the standard CGL policy in relation to environmental cleanup costs." 
  Johnson Controls, 2003 WI 108, ¶ 4. 
   
       ¶  25.  In Johnson Controls, the insurers asked the court to reaffirm
  the notion that cleanup costs were an "equitable" form of relief not
  covered by the policies, that, in the insurers' view, applied only to
  "legal damages." Id. ¶ 32.  Taking the opposite view, Johnson Controls
  argued that response costs are "damages" from the perspective of a
  reasonable insured because "the law imposes costs on the insured to
  remediate property that the insured previously damaged."  Id. ¶ 33.  The
  court noted that, in Edgerton, it had misapplied some of the authorities it
  relied on in arriving at its legal/equitable distinction that excluded
  cleanup costs incurred in response to an injunction.  Id. ¶¶ 39-44. 
  The court  recognized that the purpose of some injunctions is to "provid[e]
  compensation for past wrongs," which is the same result accomplished by
  money damages paid directly to an opposing party.  Id.  The court also
  faulted Edgerton for misapprehending the nature of CERCLA cleanup costs. 
  Id. ¶ 45-46.  CERCLA's goal is to promptly restore a contaminated site to
  its original uncontaminated condition; the costs of the necessary remedial
  efforts "are expressly expected to be borne by the parties responsible for
  the polluted condition of the land."  Id. ¶ 47.  The court noted that
  CERCLA imposed liability on Johnson Controls because the government had
  administratively established Johnson Controls's "contribution, in some
  form, to the pollution of the properties."  Id.  The court concluded that
  environmental response costs ordered under CERCLA were properly classified
  as "sums that an insured is legally obligated to pay as damages," and
  therefore must be indemnified by the insurer, unless coverage is otherwise
  excluded by the policy.  Id. ¶ 120.    
   
       ¶  26.   The Federal District Court for the District of Vermont also
  concluded that cleanup costs ordered under CERCLA are "damages" covered by
  a CGL policy.  Village of Morrisville Water & Light Dep't v. U.S. Fid. &
  Guar. Co., 775 F. Supp. 718, 725 (D. Vt. 1991) (applying Vermont law to
  interpret policy language that is identical to the language at issue here). 
  The insured had sought coverage for money it had expended in environmental
  response costs ordered by the Environmental Protection Agency (EPA) in a
  Potentially Responsible Party (PRP) letter sent to the insured.  Among
  other reasons, the insurer denied coverage because of its belief that such
  response costs were not "damages."  The court rejected any definition of
  damages that included a technical distinction between legal and equitable
  forms of relief.  Id.  Recognizing that the court may take judicial notice
  of an insurance term's dictionary definition when that term is not defined
  by the policy, Simpson v. State Mut. Life Assurance Co., 135 Vt. 554, 556,
  382 A.2d 198, 200 (1977), the court turned to the following dictionary
  definition to determine the policy term's plain meaning: "Damages are
  defined as 'money claimed by, or ordered paid to, a person to compensate
  for injury or loss caused by the wrong of the opposite party or parties.' "
  Id. (quoting Webster's New World Dictionary 348 (3d ed. 1988)); see also
  American Heritage Dictionary of the English Language 333 (8th ed. 1979)
  (defining "damages" as "Money paid or ordered to be paid as compensation
  for injury or loss").  The court then ruled that nothing in the definition
  limited "damages" only to those sums awarded by a court of law, and cited a
  number of federal and state courts that adopted a similar view based on the
  law in other jurisdictions.  Id. at 725-26 nn.10-11.  After focusing its
  analysis on the expectations of an insured in Morrisville's position, the
  court held that "Morrisville, having insured itself against liability for
  'damages,' could reasonably conclude that it was protected from financial
  loss without regard to the basis upon which its liability might technically
  be premised."  Id. at 727.  Moreover, the court acknowledged that other
  courts had adopted a more technical definition of the term "damages." Id. 
  But the existence of a second reasonable definition created an ambiguity
  that, under our law, must be construed against the insurer.  Id.; see
  Peerless Ins. Co. v. Wells, 154 Vt. 491, 494, 580 A.2d 485, 487 (1990)
  (stating rule that ambiguous terms must be construed against insurer and in
  favor of coverage). 
   
       ¶  27.  The cases dealing with the "damages" issue in Wisconsin and
  other jurisdictions involved insureds seeking coverage for expenses
  incurred as a result of federal and state enforcement actions brought under
  certain provisions of CERCLA, 42 U.S.C. §§ 9601-9675 (West 1995), and its
  state equivalents.  The statute empowers the federal government, acting
  through the EPA, to identify hazardous waste sites and take necessary
  actions to clean up those sites.  Id. § 9604(a)(1).  CERCLA allows the EPA
  to impose liability for response costs on a range of "responsible parties"
  that contributed in some way to the contamination.  Id. § 9607(a).  In
  administering site remediation, the EPA may either undertake cleanup itself
  and then sue responsible parties for reimbursement, 42 U.S.C. § 9607(a), or
  obtain a federal injunction mandating a responsible party to perform the
  cleanup under EPA's supervision, id. § 9606(a).  

       ¶  28.  Vermont's Hazardous Waste Act (HWA), 1985, No. 70, parallels
  CERCLA in many relevant respects.  See Developments in Vermont Law,
  Successor Landowner Liability Under the Vermont Hazardous Waste Act of
  1985, 10 Vt. L. Rev. 487, 487-90 (1985) (discussing similarities between
  CERCLA and Vermont Hazardous Waste Act).  As we discuss further below, the
  HWA is implicated in this lawsuit because the June 9, 1995 PRP letter
  indicates that the State had placed plaintiffs' property on the Vermont
  Hazardous Sites List, designating it as #95-1792.  Most significantly, the
  Hazardous Waste Act creates responsible party liability for the abatement
  of releases or threatened releases of hazardous materials, as well as the
  "costs of investigation, removal and remedial actions incurred by the state
  which are necessary to protect the public health or the environment."  10
  V.S.A. § 6615(a)(1)-(4)(A)-(B).  In addition, if responsible parties fail
  to adequately respond to state requests for appropriate remedial actions,
  the statute empowers the Agency of Natural Resources (ANR) to obtain a
  court order requiring such actions, and permits treble damages in the event
  of noncompliance with such an order.  Id. § 6615(b).

                                     B.
   
       ¶  29.  Turning to the instant case, we conclude that the State did
  assert a claim for "damages" as defined above.  The 1995 documents
  contained in the record include (1) the March 24 "Application for Emergency
  Order," (2) the May 9 "Application for Access Order Pursuant to 10 V.S.A. §
  8005(b)(1)(c)," and (3) the June 9 "Request for investigative activities at
  Green Mountain Sanitation, Hardwick (VT DEC Site #95-1792)," referred to by
  plaintiffs as the "Potentially Responsible Party" letter.  Of these, the
  trial court focused only on the March 24 application even though all three
  documents were submitted with plaintiffs' second motion.  On appeal, Acadia
  has not argued that any of the documents is insufficient to initiate a
  "claim" or "suit" as those terms are used in the policy.  See CNA Ins.
  Cos., 172 Vt. at 324, 779 A.2d  at 667 (construing the word "suit," as used
  in an insurance policy, to include administrative actions that are
  sufficiently adversarial and coercive in nature).   Accordingly, we have
  reviewed them all to see if any one contains allegations that would satisfy
  the policy requirements.
   
       ¶  30.  Of the three purported 1995 "damages" claims plaintiffs have
  identified,  we conclude that the June 9, 1995 PRP letter is a claim for
  "damages" sufficient to trigger Acadia's duty to defend under the policy. 
  This conclusion is based on the fact that the letter requested plaintiffs
  to expend money because they were responsible for causing at least one, if
  not several, injuries to the State's environment by mishandling hazardous
  materials, and as a consequence were statutorily liable under § 6615 for
  the abatement of this injury.  See Village of Morrisville Water & Light
  Dep't, 775 F. Supp.  at 727 (holding that "damages" include money ordered to
  be paid as part of environmental cleanup); see also CNA Ins. Cos., 172 Vt.
  at 325, 779 A.2d  at 668 (stating, in dicta, that liability imposed on an
  insured for "any cost of investigation or clean-up as required by [10
  V.S.A. § 6615] would be damages covered by [a] policy" similar to the one
  at issue here).  In the CERCLA context, the Wisconsin Supreme Court
  concluded, as we do here, that the term "damages" is broad enough to
  encompass these administratively-ordered costs.  Johnson Controls, 2003 WI
  108, at ¶ 120.  In the absence of a specific exclusion, a reasonable
  insured, reading the "as damages" language and assessing the coverage he is
  about to buy, would conclude that the policy provides indemnification for
  costs incurred by complying with a government order to take actions aimed
  at cleaning up contamination that he caused.  See Avondale Indus., Inc. v.
  Travelers Indem. Co., 887 F.2d 1200, 1206-07 (2d Cir. 1989) (interpreting
  similar policy by viewing operative language from perspective of reasonable
  businessman).  

       ¶  31.  Moreover, plaintiffs operated a waste collection and recycling
  business; thus, it would have been reasonable for the parties to anticipate
  potential liability under myriad statutes that governed the handling of
  various sorts of waste.  This is especially true where the coverage is
  under a "pollution liability hazard" defined to include all " 'property
  damage' arising out of the discharge, release, or escape of 'pollutants' at
  or from a. premises you own, rent or occupy.' " The policy defined
  "pollutants" as "any solid, liquid, gaseous or thermal irritant or
  contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals
  and waste.  Waste includes materials to be recycled, reconditioned or
  reclaimed."  (Emphasis added.)   

       ¶  32.  As we stated above, the trial court's analysis inexplicably
  omitted any mention of the PRP letter even though plaintiffs referenced it
  in their second motion for partial summary judgment, and attached it to
  their statement of undisputed facts.  At oral argument, plaintiffs' counsel
  conceded that his clients' appeal hinges on whether the PRP letter was a
  claim under the policy.  The true import of the PRP letter can be
  understood, however, only in light of the averments and allegations
  contained in the affidavits accompanying the Application for Access that
  were also in the trial court record.  These affidavits recite numerous
  instances of potential contamination on plaintiffs' property.  
             
       ¶  33.  The following excerpts from these affidavits demonstrate the
  extent of the State's knowledge of plaintiffs' alleged pollution-causing
  activities prior to the June PRP letter.  In his affidavit, Water Quality
  Division Engineer Daniel Maxon summarized his on-site observations,
  indicating the ways in which plaintiffs' operations were "creating a
  serious threat to the water quality of the Lamoille River."  Maxon
  described the conditions around a small stream that fed into the Lamoille
  River: "Within 20 feet of the stream . . . a dumpster filled with
  mechanical parts . . . was leaking heavy black machine oil, which was
  pooling in the stagnant water within 25 feet of the stream.  At least one
  ditch existed through which stormwater from the Project Tract had recently
  drained into the stream."  He concluded that "[w]ithout immediate
  installation of the erosion and stormwater control measures and cleaning-up
  of the Project Tract, I expect that the contaminated stormwater from the
  Project Tract will continue to flow into the Lamoille River."  State
  Fisheries Biologist Eric Palmer described "several likely sources of soil
  and water contamination including an oily puddle from a dripping 'rolloff
  box' dumpster" close to the stream, and another "puddle of bright green
  fluid nearby which was speculated to be ethylene glycol anti-freeze or
  hydraulic fluid, and several large lead-acid batteries strewn about on bare
  ground with no overhead cover."  In his affidavit, District Environmental
  Coordinator Charles Gallagher corroborated the other affiants' observations
  and also discussed how plaintiffs were illegally filling the Lamoille
  River's 100-year floodplain and floodway areas with construction and
  demolition debris.  Based on the Application for Access and these
  affidavits, the district court concluded that there were reasonable grounds
  to believe that plaintiffs had violated 10 V.S.A. § 6610a (FN1) and that
  further examination of the property would aid in the violation
  determination.  ANR personnel conducted the ordered examination of the
  property on May 15, 1995. 

       ¶  34.  Following its March and May 1995 site investigations, the
  Department of Environmental Conservation's (DEC) Sites Management Section
  (SMS) added plaintiffs' property to the Hazardous Sites List. 

    The Sites Management Section (SMS) provides state oversight for
    the investigation and cleanup of properties where a release of a
    hazardous material has contaminated the environment including
    soils, groundwater, surface water and indoor air. The primary
    authority for this oversight can be found in 10 V.S.A. Section
    6615. A list of properties being managed under this program is
    maintained by SMS and can be found in both list form and by
    geographic location.

  State of Vermont Agency of Natural Resources Waste Management Division
  Homepage, Sites Management Section, at
  http://www.anr.state.vt.us/dec/wastediv/SMS/sites_management_section.htm.  
  (last visited Dec. 14, 2004).  Other than the PRP letter, the record does
  not contain any communication from the State to plaintiffs regarding its
  decision to list the property.  Nonetheless, we can safely infer from the
  details in the PRP letter that the property was in fact listed.  First, the
  letter was sent by an SMS Official and SMS is the ANR section responsible
  for administering listed properties.  Id.  Second, the PRP letter indicated
  that the site had been listed as VT DEC Site #95-172.  Contrary to Acadia's
  assertion, SMS's decision to list the site after two extensive site visits
  conducted by agency specialists is conclusive evidence that some
  contamination existed on the site, even if the full scope of the
  contamination and its various causes were as yet not fully defined.   
   
       ¶  35.  Unlike the other 1995 documents that required plaintiffs only
  to provide the State with access to their property, the PRP letter requests
  plaintiffs to take the following actions, which necessarily required
  plaintiffs to expend money:

    Define the degree and extent of contamination to the soil.  This
    may be accomplished by soil borings, digging test pits, or
    performing a soil gas survey.

    Determine the degrees and extent of contamination, if any, to
    groundwater.  A sufficient number of monitoring wells should be
    installed in locations which will adequately determine if
    groundwater contamination exists on-site and, if so, define the
    severity of this contamination.  

    Perform an assessment of the site to determine the potential for
    sensitive receptors to be impacted by the contamination.  This
    should include basements of adjacent buildings, nearby surface
    water, and any public or private drinking water wells which are
    located within the vicinity of the site. . . .

    Determine the extent of disposed solid waste material on-site. 
    This should include survey pits to delineate the boundary and
    depth of disposal throughout the site.

    Determine the need for a long term treatment and/or monitoring
    plan if it is determined that significant contamination exists at
    the site.

    Submit to the Sites Management Section (SMS) a summary report
    which outlines the work performed as well as providing conclusions
    and recommendations.  Included should be detailed well logs,
    analytical data, a site map, an area map, a groundwater contour
    map and an estimate of the volume of solid waste material disposed
    on-site and a plan for removal and proper disposal if it is
    determined that it is necessary.   

  (Emphasis added.)
   
       ¶  36.  Though the actions ordered by the PRP letter are
  investigative in nature and are not cleanup costs per se, they fit within
  the compensation-for-loss-or-injury concept of damages we adopt here.  As
  we recognized in CNA Ins. Cos., ANR has a number of statutory powers and
  duties to safeguard the State's environment from releases of hazardous
  materials.  172 Vt. at 325, 779 A.2d  at 667-68.  When an unlawful release
  of hazardous materials occurs, as the State concluded it had at plaintiffs'
  property in 1995, ANR must expend sums drawn from the public treasury that
  are then lost to the State for other purposes.  The Legislature, in § 6615,
  provided a mechanism to shift the costs incurred as a result of that loss
  onto the party who is responsible for the release of hazardous materials. 
  The statute, including § 6615(b), the provision that created liability for
  investigative costs, was in existence when the parties contracted.  Against
  this backdrop, the parties contracted to insure an operation that handled
  significant amounts of mixed solid and potentially hazardous materials. 
  Accordingly, both parties could have reasonably expected that plaintiffs
  might incur liability under the statute. 

       ¶  37.  The fact that the State chose to impose the investigative
  costs on plaintiffs in the first instance does not affect our conclusion
  that the PRP letter stated a claim that would have triggered Acadia's duty
  to provide plaintiffs with a defense to the State's enforcement action.  As
  with agencies operating under CERCLA, ANR could have chosen to incur the
  investigation costs itself  and then sued to recover those costs under §
  6615(a)(4)(B), but instead SMS issued a PRP letter requesting specific
  investigative actions.  See 10 V.S.A. § 6603(2) (authorizing Secretary of
  ANR  to "[i]ssue compliance orders as may be necessary to effectuate the
  purposes of this chapter and enforce the same by all appropriate
  administrative and judicial proceedings").  As one court stated:
   
    If the state were to sue in court to recover in traditional
    "damages", including the state's costs incurred in cleaning up the
    contamination, for the injury to the groundwater, defendant's
    obligation to defend against the lawsuit and to pay damages would
    be clear.  It is merely fortuitous from the standpoint of either
    plaintiff or defendant that the state has chosen to have plaintiff
    remedy the contamination problem, rather than choosing to incur
    the costs of clean-up itself and then suing plaintiff to recover
    those costs.

  U.S. Aviex Co. v. Travelers Ins. Co., 336 N.W.2d 838, 843 (Mich. Ct. App.
  1983); cf. Avondale Indus., Inc., 887 F.2d  at 1206 (recognizing that
  private remedial efforts are quicker and less expensive than government
  sponsored program).

       ¶  38.  Because we have concluded that the trial court erred in basing
  its final judgment on an overly technical interpretation of the operative
  policy term "damages," we will remand for further proceedings on the
  outstanding issues in the case.  Notwithstanding our conclusion on the
  "damages" issue, we are not ordering the entry of partial summary judgment
  for plaintiffs because the remaining issues at this stage, if resolved in
  Acadia's favor, could still warrant the entry of final judgment for Acadia. 
  Notably, the issue of late notice still remains in the case.

                              III.  Late Notice

       ¶  39.  As an alternative grounds for denying coverage, Acadia also
  argues that plaintiffs forfeited coverage under the 1994-1995 policy by
  failing to promptly notify Acadia of the State's 1995 claims.  Section IV
  of plaintiffs' policy requires plaintiffs to notify Acadia "as soon as
  practicable" in the event that a claim is made against plaintiffs. 
  Plaintiffs concede that they waited roughly five years before notifying
  Acadia of the State's 1995 claims.  Plaintiffs' failure to satisfy this
  condition does not, however, automatically result in a forfeiture of
  coverage under the 1995 policy. 
   
       ¶  40.  In Cooperative Fire Insurance Association v. White Caps,
  Inc., we held that an insurer must show prejudice from an insured's late
  notice before it can avoid its obligations under an insurance policy.  166
  Vt. at 361-62, 694 A.2d  at 38.  We joined the majority of courts in
  requiring the insurer to show that the insured's late notice deprived the
  insurer of the main protections that the notice provision was meant to
  afford.  Id.  The notice provision allows the insurer to investigate the
  claim and take control over the proceedings early on, thereby maximizing
  the insurer's opportunity to avoid being placed in a "substantially less
  favorable position than it would have been in had timely notice been
  provided."  Id. at 362, 694 A.2d  at 38.


       ¶  41.  The late-notice question is complicated by plaintiffs'
  reliance on the retroactivity clause.  Plaintiffs notified Acadia of the
  2000 claim nine days after the State filed its complaint.  Acadia does not
  dispute that this was sufficiently prompt notice of the 2000 claim.  But
  the 2000 claim cannot be separated from the 1995 claim for prejudice
  purposes because both are based on the same "discharge, release or escape
  of pollutants." Acadia may, therefore, prevail on the late notice issue if
  it can show that late notice of the 1995 claim prejudiced it with respect
  to the 2000 claim. 

       ¶  42.  The existence of prejudice is usually a question for the trier
  of fact.  Id. at 363, 694 A.2d  at 39.  The trial court declined to rule on
  this question, deciding instead that Acadia was entitled to additional
  discovery on this issue.  Accordingly, we will remand for further
  proceedings consistent with the trial court's order.

                            IV.  Property Damage
   
       ¶  43.  Our conclusion that the PRP letter was a claim for "damages"
  rests on the fact that DEC had listed plaintiffs' property on the Hazardous
  Sites List because the property was contaminated in some respects.  This
  fact seems to foreclose any argument as to whether the State's claim for
  "damages" resulted from "property damage."  The policy defines "property
  damage" as "[p]hysical injury to tangible property."  The PRP letter and
  the affidavits accompanying the 1995 Access Order Application describe
  conditions on plaintiffs' property that fit within an insured's reasonable
  expectation as to what property damage so defined would be.  Without
  restating them at length, the conditions included the discharge of
  hazardous materials such as petroleum products onto the property and into
  surrounding waterways, and the burial of mixed solid wastes on the
  property. 

       ¶  44.  Plaintiffs have, however, raised questions about whether the
  type of property damage alleged in the State's 1995 claim brings the case
  within the ambit of the policy exclusion 2(j).  The exclusion provides that
  the policy does not cover "[a]ny loss, cost or expense arising out of any
  governmental direction or request that you test for, monitor, clean up,
  remove, contain, treat, detoxify or neutralize pollutants."  Relying on
  Agency of Natural Resources v. United States Fire Insurance Co., 173 Vt.
  302, 307-10, 796 A.2d 476, 480-82 (2001), where we construed and ostensibly
  narrowed the scope of this same exclusion in another policy, plaintiffs
  argue that the exclusion does not apply to the type of government-directed
  remediation activity related to property damage inflicted on property other
  than the insured's, which in this case would be the groundwater and the
  Lamoille River.  The trial court did not address this issue, and Acadia has
  not briefed it on appeal.  Assuming that it becomes necessary when the
  late-notice issue is resolved, we will defer to the trial court to rule on
  this question with the benefit of more complete briefing and argument from
  the parties.  

       Reversed and remanded.



                                       FOR THE COURT:


                                       _______________________________________
                                       Associate Justice


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                                  Footnotes


FN1.  The district court's order actually stated that it had reasonable
  grounds to believe that plaintiffs had violated "10 V.S.A. § 6610(a)";
  however, this was likely a mistake.  In 1987, The Legislature repealed 10
  V.S.A. § 6610 and replaced it with § 6610 A. 1987, No. 78, § 12.