Atlanta Gas Light v. Aetna Casualty , 68 F.3d 409 ( 1995 )

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 93-9278
D. C. Docket No. 1:91-cv-1803-RLV
ATLANTA GAS LIGHT COMPANY,
Plaintiff-Appellant,
versus
AETNA CASUALTY AND SURETY COMPANY,
AMERICAN HOME ASSURANCE COMPANY,
AMERICAN REINSURANCE COMPANY,
ASSOCIATED ELECTRIC & GAS
INSURANCE SERVICES, LTD.,
BIRMINGHAM FIRE INSURANCE COMPANY, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Georgia
(October 20, 1995)
Before COX, Circuit Judge, FAY, Senior Circuit Judge, and NELSON*,
District Judge.
COX, Circuit Judge:
*
Honorable Edwin L. Nelson, U. S. District Judge for the
Northern District of Alabama, sitting by designation.
Atlanta Gas Light Company (AGL) appeals following the entry of
summary judgment for thirteen insurers in this declaratory judgment
action. AGL filed this action to determine the extent of its
insurers' liability for environmental cleanup costs arising from
twelve of its former manufactured gas plants (MGPs). Because we
conclude that no justiciable controversy existed when the complaint
was filed, we vacate the district court's entry of summary judgment
and remand with instructions to dismiss for want of jurisdiction.
I. BACKGROUND
AGL currently is in the business of distributing natural gas
in Georgia. Prior to the availability of natural gas, from the
mid-1800s until sometime in the 1950s, AGL, or its predecessor
Savannah Gas, owned and operated several MGPs in Georgia and
Florida.1 MGPs produced gas from oil, coal, pine knots, and other
combustibles. Manufactured gas became obsolete with the advent of
interstate pipelines in the 1950s, which made cheaper natural gas
readily accessible. Because natural gas quickly became widely
available, the need for MGPs disappeared, and AGL dismantled its
plants or simply razed them and left the rubble on site.
Gone and perhaps forgotten, the manufactured gas industry
later came back to haunt AGL. Various byproducts of the gas
manufacturing process contained hazardous materials such as
benzene, toluene, xylene, and cyanide. AGL's methods of disposing
1
AGL, or in some cases Savannah Gas, which merged with AGL in
1966, owned MGPs in Orlando, Sanford, and St. Augustine, Florida,
and in Athens, Augusta, Brunswick, Griffin, Macon, Rome, Savannah,
Valdosta, and Waycross, Georgia. (R. 6 at 90 Ex. C.) The St.
Augustine and Orlando sites are not at issue on appeal.
2
of these byproducts were unsophisticated. It either covered the
wastes with dirt, dumped them into unlined pits, or buried them in
brick containers, many of which were unsealed and later began to
leak.
During their heyday, MGPs were not subject to environmental
regulations. By the mid-1980s, though, MGPs had come under closer
regulatory scrutiny, and AGL was aware that the wastes buried on
its sites could pose environmental threats. In 1985, the United
States Environmental Protection Agency (EPA), pursuant to the
Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA), commenced emergency cleanup operations at AGL's Rome,
Georgia site after the then owner of the site uncovered a deposit
of coal tar. In 1988, AGL paid $75,000 to reimburse the EPA for
cleanup costs at Rome, but admitted no liability and sought no
recovery from its insurers.
AGL retained environmental counsel after the EPA raised
"concerns" about adverse effects from former MGP sites around the
country.2 AGL's lawyers in turn engaged a consulting firm, Law
Environmental, to conduct preliminary assessments of the sites
before any government agencies took formal action. Law
Environmental reported to AGL that, if remediation was required,
the cost would be "in excess of several million dollars." (R. 54-
2
The EPA commissioned a national study to look into the
threats to public health and the environment posed by former MGP
sites. In 1985, the study, known as the Radian Report, concluded
that much more research was needed to ascertain the full effects of
wastes deposited at some 1500 former MGP sites around the country,
including those owned by AGL.
3
529 at 6.) But when AGL presented Law Environmental's findings to
the Georgia Department of Natural Resources, Environmental
Protection Division (GEPD), GEPD advised AGL that the sites posed
no threats to public health or drinking water. As a result, AGL
concluded that it was unlikely that further cleanup of the sites
would be required, or that third parties would file actions for
reimbursement of cleanup costs.
State and federal agencies eventually grew less tolerant of
former MGP sites. In March, 1990, the EPA revised the "toxicity
characteristics" used to identify hazardous wastes under the
Resource Conservation and Recovery Act (RCRA), by adding benzene,
a common component of MGP wastes, to the formula used to determine
"toxicity" of wastes. See Toxicity Characteristic Revisions, 55
Fed. Reg. 11,798 (1990) (codified at 40 C.F.R. scattered pts.).
The change was significant because the new regulation made it more
likely that MGP sites would be considered environmentally
dangerous. By the fall of 1990, one regional EPA administrator had
taken the position that MGP sites no longer qualified for exemption
under RCRA, and the EPA added three MGP sites owned by other
utilities to the National Priorities List (NPL) under CERCLA.3
3
The NPL includes those environmentally hazardous sites that
pose the greatest danger to public health or the environment. See
42 U.S.C. § 9605(a)(8) (1988). Once the EPA affirmatively includes
a site on the NPL, federal "Superfund" dollars can be used for site
remediation. 40 C.F.R. § 300.425(b)(1) (1994). The former MGPs at
issue in this litigation have never been placed on the NPL,
although other MGP sites have been listed. See Amendment to
National Oil and Hazardous Substances Contingency Plan; National
Priorities List, 48 Fed. Reg. 40,658 (1983) (adding Pine Street
Barge Canal Site, Burlington, Vt.; Brodhead Creek, Stroudsberg,
Pa.).
4
In June, 1990, the current owner of AGL's Sanford, Florida
site informed AGL that the Florida Department of Environmental
Regulation (FDER) had completed a preliminary assessment of the
site and had recommended additional screening. No cleanup was
ordered, but by October, 1990, FDER had broadened its investigation
of former MGPs to include twenty-three additional sites (not owned
by AGL) throughout Florida.
Based on these developments, AGL concluded that it should
conduct more "formal" investigations of the environmental
conditions at its former MGPs. In early 1991, AGL engaged an
insurance archaeologist to search for and review insurance policies
that AGL had purchased since the 1940s that potentially covered
environmental cleanup costs. A few of the policies afforded a
modest amount of direct coverage which began at the first dollar of
loss by AGL.4 Most of the policies were excess comprehensive
general liability policies, triggered only when AGL's self-insured
retention and any underlying layers of coverage (a combined amount
of up to thirty million dollars) were exhausted.
On April 16, 1991, AGL sent notice to twenty-three insurers
that had issued policies to AGL of their potential liability for
costs of cleanup at AGL's MGP sites. At the time, AGL's only
comprehensive cleanup cost estimate--Law Environmental's 1986
figure "in excess of several million dollars"--was well below the
4
Zurich Insurance Company was AGL's direct insurer, issuing
policies that required no deductibles or self-insured retentions.
The Zurich policies ranged from $10,000 to $25,000 of aggregate
coverage. (R. 42 at 379.)
5
amounts required to implicate many if not all of the excess
liability policies. When AGL mailed notice to its insurers, AGL
had incurred no cleanup costs for which it sought reimbursement; no
environmental agency had ordered a cleanup at any of AGL's sites;
and no then-owners of MGP sites, adjacent property owners, or other
third parties had filed claims against AGL for recovery of any
cleanup costs.5
II. PROCEDURAL HISTORY
This litigation began on April 17, 1991, the day after AGL
mailed notice to its insurers and before the insurance companies
received the notice. AGL filed a declaratory judgment action to
determine the extent of its insurance coverage should cleanup costs
be incurred or third party property damage actions arise because of
hazardous wastes located on its former MGP sites. AGL sought
judicial guidance as to both the insurers' duty to defend AGL in
third party actions and their duty to indemnify AGL for losses
incurred.6
5
Although the owner of the Sanford, Florida site had notified
AGL that AGL would be a potentially responsible party with respect
to any cleanup costs incurred, when AGL mailed the notice, FDER had
ordered no remedial action with respect to the site.
6
On October 1, 1991, AGL filed an amended complaint, adding a
claim for breach of contract. AGL claimed that the insurers had
breached their agreement to defend AGL and indemnify its losses
caused by AGL's MGP sites. AGL also based the contract claim on
its allegation that the insurers had refused to honor their
"obligation to defend and/or indemnify other utility companies"
with respect to other MGP sites under policies like those issued to
AGL. (R. 6-90 at 15-16.) On appeal, both AGL and the insurance
companies refer to this case solely as a declaratory judgment
action, and the record gives no hint that the contract claim was
pursued beyond the allegations raised in the amended complaint. We
therefore treat AGL's claim for breach of contract as abandoned and
6
In early 1993, after nearly two years of pretrial motions and
discovery, twelve of the insurance companies7 moved for summary
judgment on the ground that AGL had given them untimely notice.
They contended that AGL should have given notice after it became
aware of the concerns about MGPs first raised in the 1980s.
Another insurer, General Reinsurance, filed a separate motion for
summary judgment asserting that the policy it issued to AGL was
missing and that AGL could not prove the policy's contents through
secondary evidence.
The district court made no determination as to the existence
of a justiciable case or controversy;8 it proceeded to address the
merits of the summary judgment motions. The court found that AGL's
notice to each and every one of the twelve insurers was late as a
matter of law. But the court, applying Georgia law, held that
proof of prejudice was required before an insurer could avoid
liability due to late notice. The court found that none of the
insurers had been materially prejudiced by the timing of AGL's
notice and granted summary judgment only as to those few insurers
do not discuss it further.
7
Of the twenty-three insurers originally named in the
complaint, ten companies had already been dismissed at various
stages of the litigation.
8
AGL briefed the issue of justiciability for the court in
July, 1993, over two years after the complaint was filed. (R. 52-
502 at 7.) But the court did not address the issue before
proceeding to the merits of the case.
7
that had issued policies explicitly making compliance with their
notice provisions "conditions precedent" to liability.9
The next month, this court decided Canadyne-Georgia Corp. v.
Continental Ins. Co., 999 F.2d 1547 (11th Cir. 1993). The district
court interpreted Canadyne to hold that Georgia law did not require
proof of prejudice for an insurer to be able to avoid liability
when an insured failed to comply with policy notice provisions.
The district court then modified its summary judgment order to
include all the insurance companies, regardless of their ability to
show prejudice or condition precedent language in AGL's policies.
The court also granted summary judgment to General Reinsurance
because it found that AGL had produced insufficient evidence to
prove the contents of the missing policy.
The district court entered a judgment in October, 1993, which
ordered that AGL "take nothing, that judgment be entered in favor
of the defendants, and that the action be . . . dismissed." (R. 58
at 587.) No declaratory judgment defining the rights and
obligations of the parties to these insurance contracts was ever
entered.10
9
The court did not examine each of the 200 policies at issue
to see which ones contained condition-precedent language, but
instead relied upon the parties to figure out which insurers would
be granted summary judgment and which ones would have to show
prejudice. (R. 54-529 at 7-8.)
10
The judgment tracked Fed. R. Civ. P. Form 32, which was
designed to apply to cases involving claims for money damages.
Such a judgment is insufficient to afford declaratory relief. If
the district court meant to "declare" that AGL's insurers had no
liability for these potential losses, the court should have entered
an explicit declaratory judgment to that effect. See American
Inter-Fidelity Exchange v. American Re-Insurance Co., 17 F.3d 1018,
8
III. CONTENTIONS OF THE PARTIES
AGL's principal arguments on appeal focus on the district
court's conclusion that the notice to AGL's insurers was late. AGL
contends that it was error for the court to conclude that notice
was required under any of the subject policies when AGL only had
enough information to know of "potential" exposure to liability.
AGL also takes issue with the district court's conclusion that
Canadyne interprets Georgia law to mean that insurers need not show
prejudice from late notice, whether or not timely notice is made a
condition precedent to liability. AGL argues that the court should
have found that the timing of its notice was reasonable under the
circumstances.
Apart from the notice issue, AGL attacks the district court's
refusal to rule on the admissibility of evidence relied upon by the
insurers in their summary judgment motions, as well as the court's
disposition of AGL's discovery requests. AGL also questions the
court's determination that AGL had not shown sufficient evidence
for a jury to determine the terms and conditions of the lost
General Reinsurance policy. To defend their summary judgment, the
insurers argue that notice was late as a matter of law and that the
district court properly interpreted Canadyne in reaching that
conclusion.
IV. DISCUSSION
1020 (7th Cir. 1994) (stating that when prevailing party is
entitled to declaratory judgment, court must draft such judgment
rather than assuming that its opinion serves that purpose).
9
We do not address the parties' contentions because, at the
time AGL filed suit, no justiciable case or controversy existed
between AGL and its insurers. Any time doubt arises as to the
existence of federal jurisdiction, we are obliged to address the
issue before proceeding further. Vermeulen v. Renault, U.S.A.,
Inc., 985 F.2d 1534, 1542 (11th Cir. 1993); see also Ashcroft v.
Mattis, 431 U.S. 171, 172, 97 S. Ct. 1739, 1740 (1977) (raising
jurisdictional issue sua sponte). In all cases arising under the
Declaratory Judgment Act, 28 U.S.C. § 2201 (1988),11 the threshold
question is whether a justiciable controversy exists. Maryland
Casualty Co. v. Pacific Coal & Oil Co. , 312 U.S. 270, 272, 61 S.
Ct. 510, 512 (1941); United States Fire Ins. Co. v. Caulkins
Indiantown Citrus, 931 F.2d 744, 747 (11th Cir. 1991) (citations
omitted). Congress limited federal jurisdiction under the
Declaratory Judgment Act to actual controversies, in statutory
recognition of the fact that federal judicial power under Article
III, Section 2 of the United States Constitution extends only to
concrete "cases or controversies." See Tilley Lamp Co. v. Thacker,
454 F.2d 805, 807-08 (5th Cir. 1972).
"Whether such a controversy exists is determined on a case-by-
case basis." Caulkins Indiantown Citrus, 931 F.2d at 747; see also
BP Chemicals v. Union Carbide Corp., 4 F.3d 975, 977-78 (Fed. Cir.
11
28 U.S.C. § 2201(a) provides, in relevant part:
In a case of actual controversy within its
jurisdiction, . . . any court of the United States, upon
the filing of an appropriate pleading, may declare the
rights and other legal relations of any interested party
seeking such declaration, whether or not further relief
is or could be sought . . . .
10
1993) (stating that difference between "definite and concrete"
dispute and case not ripe for litigation is one of degree,
determined by totality of circumstances). The controversy must be
more than conjectural; the case must "touch[] the legal relations
of parties having adverse legal interests." Caulkins Indiantown
Citrus, 931 F.2d at 747 (quoting Brown & Root, Inc. v. Big Rock
Corp., 383 F.2d 662, 665 (5th Cir. 1967)); see also Halder v.
Standard Oil Co., 642 F.2d 107, 110 (5th Cir. Unit B 1981) (stating
that district courts lack jurisdiction to express legal opinions
based on hypothetical or academic facts).
For a controversy to exist, "the facts alleged, under all the
circumstances, [must] show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory
judgment." Maryland Casualty Co., 312 U.S. at 373, 61 S. Ct. at
512 (citation omitted). The party who invokes a federal court's
authority must show, at an "irreducible minimum," that at the time
the complaint was filed, he has suffered some actual or threatened
injury resulting from the defendant's conduct, that the injury
fairly can be traced to the challenged action, and that the injury
is likely to be redressed by favorable court disposition. Caulkins
Indiantown Citrus, 931 F.2d at 747 (citing Valley Forge College v.
Americans United, 454 U.S. 464, 472, 102 S. Ct. 752, 758 (1982)).
To determine whether AGL has met this burden, we "look to the
state of affairs as of the filing of the complaint; a justiciable
controversy must have existed at that time." International
11
Harvester v. Deere & Co. , 623 F.2d 1207, 1210 (7th Cir. 1980)
(citations omitted). AGL filed its complaint before the insurance
companies received the notice of potential liability AGL mailed to
them the previous day. The insurers not only had no chance to
respond to AGL's notice before the complaint was filed, they had no
knowledge that notice had been given. It is therefore difficult to
understand how AGL could assert that the insurance companies had
failed to defend or indemnify it for cleanup of its MGPs when the
insurers had taken no position at that time with regard to their
duties under AGL's policies. To support its claims, AGL's
complaint asserts only that the defendant insurers denied coverage
to similar utilities under similar circumstances in the past. In
essence, AGL filed its complaint as an anticipatory maneuver
designed to preempt whatever actions the insurers may have taken
after they received AGL's notice.
Regardless of how well-founded AGL's concerns about its
insurers may have been, speculation based on the insurance
companies' dealings with other insureds does not present a concrete
case or controversy. At the time the complaint was filed, AGL
could claim neither actual nor threatened injury resulting from the
insurers' conduct, nor any injury traceable to the insurance
companies at all. When AGL sought the court's guidance through a
declaratory judgment, the issues it presented were no more than
conjectural questions based on the fact that other utilities had
battled with insurers over MGP cleanup costs.
12
The district court made no determination that a justiciable
controversy existed when the complaint was filed; the record would
not support such a finding. Not only had the insurers not yet
received notice, no one knew exactly what had to be cleaned up, who
was to undertake the cleanup, or how much the cleanup would cost.
While it is not necessary to know each of these factors with
certainty in order to seek declaratory relief, when AGL filed its
complaint, it was not clear that state and federal environmental
agencies would ever require cleanups at any of AGL's former MGP
sites.
The record demonstrates that the regulatory climate was
evolving when AGL filed suit: what actions would be required by
regulators was uncertain. At the time the complaint was filed,
GEPD had concluded that AGL's Georgia sites posed no threat to
public health, and FDER had recommended only "additional site
screening" at the Sanford, Florida site. No then-owner of an MGP
site had called upon AGL to reimburse them for cleanup costs or to
clean up wastes itself. No lawsuits had been filed against AGL,
either by owners of former MGP sites or by adjacent property
owners. With so many material facts dependent upon future
contingencies, it would be impossible to resolve all the issues
relative to the timeliness of notice in a way that would do justice
to the parties.12
12
It appears that events that have transpired since the
complaint was filed could give rise to justiciable claims with
regard to some or all of AGL's former MGP sites, under some or all
of AGL's insurance policies. In January, 1992, the current owner of
the Sanford, Florida site actually sued AGL for recovery of
13
In vacating the trial court's disposition of this case, we
emphasize that we do not reach any issues beyond the threshold
question of justiciability. Specifically, by finding that no case
or controversy existed at the time the complaint was filed, we do
not intimate that AGL had no responsibility under its policies to
give notice of potential liability. Nothing in this opinion should
be construed to suggest that a justiciable case or controversy must
exist before notice obligations are triggered. Timeliness of
notice is an inquiry distinct from the question of justiciability,
to be determined by resort to Georgia, rather than federal, law.
IV. CONCLUSION
For the foregoing reasons, we VACATE the district court's
entry of summary judgment for all insurers who are parties to this
appeal and REMAND to the district court with instructions to
DISMISS the action as to the parties to this appeal for want of
jurisdiction.
VACATED and REMANDED WITH INSTRUCTIONS TO DISMISS FOR WANT OF
JURISDICTION.
response costs and damages under CERCLA. (R. 52-502 at 7.) AGL
asserted in the July, 1993 brief on justiciability it filed in
district court that its total liability for the Sanford site could
top $47 million. ( Id.) In May, 1992, AGL entered into four
consent orders with GEPD concerning the Augusta, Griffin, Savannah,
and Valdosta, Georgia sites, which require AGL to take remedial
cleanup measures at those sites. AGL also has produced more
detailed estimates of cleanup costs (some of them in excess of the
amounts required to trigger liability under AGL's excess liability
policies) for all of its former MGP sites. (Id., Attach. 2 & 3.)
While Fed. R. Civ. P. 15(d) permits the filing of supplemental
pleadings in order to assert claims maturing after the filing of
the complaint, AGL never sought leave of court to amend its
pleadings, and no pleading setting forth these recent events was
ever filed.
14