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CGL Policy That Would Reimburse Cleanup Costs Does Not Reimburse Seller For Price Discount Given To Purchaser Of Contaminated Properties

By Gail Wurtzler

In Goodstein v. Continental Casualty Co., No. 05-35805, (9^th Cir. December 3, 2007), a property owner sought reimbursement under his Comprehensive General Liability policy for a discount he provided to purchasers of two contaminated Washington properties. The purchasers did not commit to clean up the properties on their own, but they did agree to be responsible for any cleanup that might be required in the future by government agencies or potential purchasers. Under Washington state law, if Mr. Goodstein had actually cleaned up the properties, his CGL policy would have covered the costs of those cleanups. However, the insurers rejected Mr. Goodstein’s assertion that the price discounts were the functional equivalent of cleanup costs and should be reimbursed under the CGL policy. Mr. Goodstein sued, asserting claims for breach of defense and indemnity duties under the policy. The trial court granted the insurers summary judgment on Mr. Goodstein’s claims. 

On appeal, the Ninth Circuit affirmed the holding that the policy did not cover the diminution in sale value of the properties. For the appellate court, a key fact was that Mr. Goodstein failed to ensure that the contaminated properties would be cleaned up promptly. The purchase agreements contained no cleanup condition, and the purchasers retained the right to contest any specific government-imposed cleanup requirement that might be imposed in the future as well as the right to delay incurring cleanup costs as long as possible. For these reasons, the reduction in price was “thus almost surely not equivalent in amount to the present costs of prompt cleanup.” Slip op. at 15586.

In addition, the policy language weighed against an interpretation that a price discount was covered. First, the policy requires “physical injury to tangible property” for “property damage.” Under Washington law, diminution in property value by itself does not constitute such an injury.

Slip op. at 15587. Second, diminution in value is not included in “‘damages’ that the ‘insured shall become legally obligated to pay’ because of ‘property damage.’” Slip op. at 15587-88. Mr. Goodstein was not required to spend any money and did not ‘constructively’ spend any money because the purchaser was not obligated to perform any cleanup. All of these reasons lead the Ninth Circuit to affirm the lower court summary judgment.

Full post as published by Environmental Toxic Torts Blog on February 20, 2008 (boomark / email).