Hartford Accident and Indemnity Company (“Hartford”) appeals the district court’s grant of summary judgment to Intel Corporation (“Intel”). The district court held that the insurance policy issued by Hartford to Intel covered expenses incurred by Intel pursuant to a consent decree it had entered into with the United States Environmental Protection Agency (the “EPA”); under the consent decree, Intel agreed to clean up toxic waste contamination at the site of a former manufacturing facility.
We affirm in part, reverse in part and remand.
BACKGROUND
I.
Intel is a manufacturer of semiconductors. Its headquarters are located in Santa Clara, California. During the late 1960’s through the early 1980’s, Intel maintained a number of production facilities in Northern California. This case involves an Intel facility located on Middlefield Road in Mountain View, California. The property was leased to Intel by Renault & Handley.
Intel engaged in manufacturing on the property from 1968 through 1980. As part of the manufacturing process Intel used chemical solvents which contained various combinations of the following substances: *1554 1,1,1,-trichloroethane, trichloroethylene, trichlorobenzene, dichloroethylene, phenol, and xylene. Each of these substances has been classified as a “hazardous substance” within the meaning of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”).
Intel stored these hazardous chemicals in an underground storage tank. Evidently, the tank was meant only for temporary use. The chemicals were to be transported eventually to another location for permanent disposal.
In 1980 Intel discontinued manufacturing operations at the Mountain View facility. Because Intel’s lease continued through 1984, it sought to sublet the property. As part of this process Intel commissioned soil sampling and testing of the grounds encompassing the area. The tests revealed that the site was contaminated by hazardous waste solvents present both in the soil and in the groundwater beneath the soil.
Intel contacted several government agencies about the problem and initiated a more thorough investigation of the contamination. Soon thereafter Intel began cleanup efforts by excavating the storage tank, removing the adjoining soils, and employing a pump-absorption filtration system to decontaminate the underground water.
In August, 1985, Intel entered into a consent decree with the EPA for the purpose of decontaminating the site. The purpose of the consent decree was to ensure that Intel, a “potentially responsible party” (“PRP”), would clean up the waste quickly and to eliminate the need for further legal proceedings. As part of the decree, Intel accepted responsibility without admitting liability. 1
On January 10, 1985, the Middlefield Road site had been listed on the California State Priority List by the California Department of Health Services in accordance with the state’s Health and Safety Code Section 25356. In the spring of 1985, the California Regional Water Quality Control Board issued separate waste discharge requirements to Intel requiring the company to prepare and implement plans for interim containment and cleanup at its facility. The state notified the EPA at this time of its actions and requested federal intervention.
On May 15, 1985, the EPA contacted Intel and indicated its intent to conduct a remedial investigation and feasibility study at the site. The EPA, however, offered Intel the option of undertaking both the investigation and cleanup itself. Intel submitted a proposal; the EPA accepted it. It was embodied in a consent decree. In the decree the EPA made findings that the site had been contaminated with the chemicals mentioned above, as well as others, to a degree warranting the site’s inclusion on the National Priorities List. 2 A hazard posed by the Middlefield Road site was its proximity to a major public water supply (the site lies within a half mile).
The EPA certified Intel’s work plan as being consistent with the relevant standards and also noted that “all costs reasonably incurred for such work are necessary costs of response.” Additionally, Intel and its co-respondents, Fairchild and Raytheon, were compelled to remit $50,000 to the EPA to cover the agency’s costs for oversight and response costs in connection with the cleanup.
II.
From April 1,1976 through April 1, 1983, Intel was insured under a series of insurance policies with Hartford; these policies covered the Mountain View facility. These “comprehensive general liability” (“CGL”) insurance policies covered a limited array of risks incurred by Intel with respect to the subject property. The policy in effect from April 1, 1981 to April 1, 1982 (the “Policy”) contained the following description of coverage:
The company will pay on behalf of the insured all sums which the insured shall *1555 become legally obligated to pay as damages because of
Coverage A — bodily injury or
Coverage B — property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.
It also contained a list of exclusions, including exclusion (f), under which the Policy did not apply
to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental;
and exclusion (k), under which the Policy did not apply
to property damage to
(1) property owned or occupied by or rented to the insured
(2) property used by the insured
(3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control.
Intel contacted Hartford in October 1981 and told its insurer about its discoveries at the Mountain View plant. Intel submitted a claim for reimbursement for the reasonable and necessary investigation and cleanup costs incurred by Intel in connection with the facility. The basis of Intel’s claim was the quoted insuring clause and another portion of the Policy defining an “occurrence.” The Policy defines an “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.”
According to the district court, it is not clear when Intel actually filed its claim, but it is clear that Hartford denied the claim in a letter dated May 19, 1982. Hartford cited exclusion (k), the exclusion precluded coverage for damage to “property owned or occupied by or rented to the insured.” Earlier, Hartford had informed Intel that other exclusions might apply: in a letter dated March 31, 1982, it directed Intel’s attention to exclusion (f), as well as to exclusion (k) and others. In addition, according to Intel’s complaint and Hartford’s answer, on November 19, 1982, Hartford informed Intel that exclusion (f) would bar coverage.
After subsequent negotiations as to coverage failed, Intel brought suit against Hartford in California’s Superior Court in the County of Santa Clara. Hartford successfully removed the case to federal court on November 20, 1986. The district judge dismissed the action without prejudice because of a lack of derivative jurisdiction under the applicable removal statute and lack of diversity.
See Intel Corp. v. The Hartford Accident and Indemnity, Co.,
On June 2, 1987, Intel refiled in California Superior Court in Santa Clara County. The case was again removed to federal court. On August 24, 1987, Intel filed its original motion for summary judgment on the issue of coverage. The district court granted Intel’s motion for summary judgment on April 28, 1988. The district court held, in essence, that “as a matter of law ... all expenses incurred by Intel pursuant to the consent decree are governmentally-mandated cleanup expenses which are fully compensable under the terms of the Hartford Comprehensive General Liability policy.”
Intel Corp. v. Hartford Acc. and Indem. Co.,
*1556 Hartford filed a motion for reconsideration. In August 1988, the court issued an amended opinion again granting Intel summary judgment. This appeal followed.
DISCUSSION
We review
de novo
a district court's grant of summary judgment.
Kruso v. International Tel. and Tel. Corp.,
Because this case was removed to federal court on the basis of diversity jurisdiction, we apply California substantive law.
James B. Lansing Sound Inc. v. National Union Fire Ins. Co. of Pittsburg, PA,
I. Propriety of Summary Judgment Grant
We address below each issue in the district court’s grant of summary judgment. However, Hartford also argues that the grant of summary judgment was improper and unfair in a more general sense.
Hartford claims that summary judgment was awarded precipitously, on issues not briefed by either party. Quoting
Cool Fuel, Inc. v. Connett,
In the Notice of its Motion for Summary Judgment, Intel presented the grounds for its motion thus:
This motion is made on the grounds that the insurance coverage issues raised by this Motion are issues of law, proper for adjudication by summary judgment, and that insurance coverage exists under the comprehensive general liability policy of insurance issued by HARTFORD to INTEL for INTEL’S reasonable and necessary costs incurred in the investigation and clean-up of the hazardous chemicals where INTEL undertook the investigation and cleanup in order to prevent or mitigate claims or possible claims of personal injury or property damage to third parties.
Intel described the issues on which it sought decision in expansive terms. Yet the Notice clearly advised Hartford that Intel sought an answer to the broad question of whether “insurance coverage exists” under the policy. As its opinion shows, to answer this question the district court was required to answer a number of smaller questions. Neither party chose to break the broad question down and focus on every one of these sub-questions in its brief. However, Hartford cannot complain that it was not warned of what was at stake in the summary judgment, and that it had no opportunity fully to present its position. 3
Hartford also suggests that summary judgment was improper because it did not have sufficient opportunity to conduct discovery and develop the facts in the case. Yet Intel filed its original suit against Hartford in May, 1986. It had first notified Hartford of contamination problems at the Middlefield Road site in 1981. Hartford thus had ample time to undertake more informal factfinding and, once the
*1557
suit was filed, to conduct formal discovery. Hartford has not been “shortchanged” on discovery.
See Beneficial Standard Life Ins. Co. v. Madariaga,
Thus, because Hartford had sufficient notice of what was to be decided, and opportunity to conduct discovery or request additional time for discovery, we find no merit in its claims of unfairness.
II. Existence of an “occurrence” within the meaning of the Policy
Under the Policy, Hartford was obliged to pay damages Intel became liable to pay that were “caused by an occurrence.”
Although its opinion does not focus on this point, in finding that coverage existed under the Policy, the district court implicitly found that there was no dispute that an “occurrence” had taken place.
A. Burden of Proof
In insurance litigation, “[w]hile the burden is on the insurer to prove a claim covered falls within an exclusion, the burden is on the insured initially to prove that an event is a claim within the scope of the basic coverage.”
Royal Globe Ins. Co. v. Whitaker,
In
Clemco,
the court rejected the argument that the location of the “occurrence” language within the policy is decisive. It reviewed the background of the clause. The “occurrence clause” came into use in standard insurance policies in about 1966; it was meant to serve the same “ ‘exclusion’ objective” as a clause, previously in use, which excluded coverage for damages arising from “ ‘bodily injury or property damage caused intentionally by or at the direction of the insured.’ ” James L. Rigel-haupt, Jr., Annotation,
Construction and Application of Provision of Liability Insurance Policy Expressly Excluding Injuries Intended or Expected by Insured,
The
Clemco
court thus took a “functional” view of the occurrence clause. However sound its reasoning may be, Clemco’s support in California caselaw is not so sturdy.
Clemco
relies principally on
U.S. Fidelity & Guar. v. Am. Employers Ins.,
Moreover, there are California cases which would support a result contrary to
Clemco.
For example, in
Royal Globe Ins. Co. v. Whitaker,
Thus, existing caselaw provides no clear answer as to how a California court would allocate the burden of proof on the “occurrence” issue. However, we need not decide this question as we hold that, even if it bears the burden of showing the contamination constituted an “occurrence,” Intel has met that burden.
B. Intel’s showing that the contamination constituted an “occurrence”
Summary judgment will be granted “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R.Civ.P. 56(c). If the moving party meets its initial burden of showing “the absence of a material and triable issue of fact,” “the burden then moves to the opposing party, who must present significant probative evidence tending to support its claim or defense.”
Richards v. Neilsen Freight Lines,
As noted above, the district court did not focus on the “occurrence” issue; the parties, too, did not argue it in detail. However, the materials supporting Intel’s motion clearly present a scenario of unexpected and unintended environmental damage. Affidavits adduced by Intel indicate company employees learned of contamination only after a prospective sublessor requested Intel to conduct soil sampling and testing. Thus, Intel met its initial burden.
The district court properly granted summary judgment on this issue because Hartford, when the burden shifted to it, failed to show that there remained genuine issues of fact. In opposing Intel’s motion, Hartford neither presented any additional evidence disputing Intel’s showing, nor pointed to facts already before the court that revealed the existence of a dispute.
Hartford asks the court to “infer” that “Intel’s contamination of its property was expected, if not intended.” As the non-moving party, Hartford is entitled to have all reasonable inferences drawn in its favor.
Matsushita,
In conclusion, the district court did not err in granting summary judgment on the “occurrence” issue.
III. Applicability of Exclusion (f)
Two exclusions in the policy were arguably relevant to coverage of the contamination at the Middlefield Road site: exclusion (f) and exclusion (k). We discuss first the former.
A. Waiver
The district court found that Hartford had waived reliance on exclusion (f). When Hartford, in its letter of May 19, 1982, informed Intel that it was denying coverage, it cited only exclusion (k). Relying on
McLaughlin v. Connecticut General Life Ins. Co.,
Under California law, waiver is a question of fact. Waiver is an affirmative defense, for which the insured bears the burden of proof.
Insurance Co. of the West v. Haralambos Beverage Co.,
California courts will find waiver when a party intentionally relinquishes a right, or when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.
Rheem Mfg Co. v. United States,
In the insurance context, however, the waiver doctrine has developed somewhat differently, and the distinction between waiver and estoppel has been blurred.
5
In cases where waiver has been found, there is generally some element of misconduct by the insurer or detrimental reliance by the insured. For example, in
Miller v. Elite Ins. Co.,
Federal cases applying California law also suggest such misconduct or reliance must be shown.
See Zumbrun v. United Services Auto. Ass’n,
McLaughlin is consistent with this trend. The language cited above, and relied on in the district court’s decision, suggests a more absolute rule: whatever exclusions an insurer fails to include in a letter denying coverage are lost forever. However, the facts in McLaughlin, and the policies behind the decision, suggest that a finding of waiver should not be so automatic.
In
McLaughlin,
the insured sought coverage for experimental cancer treatment. The insurer denied coverage; in the period leading up to litigation it based its denial on the fact that the treatment was not approved by the FDA, and informed the insured that this was the only basis for its denial. Apparently, the insurer conducted only minimal investigation of the insured’s treatment. When the insured sued, however, the insurer invoked a series of other potentially applicable exclusions it had not previously mentioned. The district court held that the insured had waived these exclusions, which it had not investigated before denying coverage, and had not raised when it denied coverage.
McLaughlin,
Thus, in
McLaughlin
it was necessary to find waiver to protect insureds who had been mislead by the insurer’s statements as to the denial of coverage. The policy grounds set forth by the
McLaughlin
court, and subsequently by the court in
Zumbrun,
make clear the rationale of protecting insureds and providing incentives for insurers to proceed properly.
McLaughlin
relied on
Egan v. Mutual of Omaha,
Applying the waiver doctrine as it has been applied by California courts and federal courts applying California law, we *1561 find that the district court erred in granting summary judgment on the exclusion (f) issue on grounds of waiver. Intel has failed to make the required showing as to waiver by Hartford. The record showed that Intel was informed on March 31, 1982 that exclusion (f) might apply. While there was no mention of that exclusion in the May 19, 1982 letter denying coverage, Hartford mentioned the exclusion again when it reiterated its denial of coverage on November 19, 1982. Intel points to Hartford in-house communications in which employees expressed doubt as to whether exclusion (f) would apply; however, Intel did not know of such communications at the time they were made and thus could not have relied on them to its detriment. There is no evidence Hartford attempted to “sandbag” or mislead Intel with the belated announcement of a new grounds for denial of coverage, nor has Intel shown it was prejudiced by the failure to mention exclusion (f) in the May 19, 1982 letter.
Thus, on these facts, the district court should not have found Hartford waived reliance on exclusion (f). However, we nonetheless affirm the grant of summary judgment on the application of exclusion (f). We find Hartford failed to meet its burden of showing that summary judgment on the issue of coverage was precluded because there was a genuine issue of fact as to the application of exclusion (f).
B. Absence of Issue of Fact as to Applicability of Exclusion (f)
As the district court noted, “courts have differed” as to the construction and application of pollution exclusions such as exclusion (f). The trend appears to be towards an application of the exclusion according to the “plain, everyday meaning” of its terms.
See, e.g., FL Aerospace v. Aetna Casualty and Sur. Co.,
We need not enter this controversy, however, for we find that even if exclusion (f) is applied on its terms, Hartford has failed to meet its burden of showing that there is an issue for the trier of fact as to whether it bars coverage in this case.
Here, after Intel made its showing that there remained no genuine issues of material fact as to coverage under the policy, the burden shifted to Hartford to show that such issues did exist. As noted above, the insurer has the burden of proof as to the application of exclusions. Hartford failed to show that there existed evidence such that a reasonable jury might find for it on the application of exclusion (f). In the materials supporting its opposition, it made no showing that the contamination at the Middlefield Rd. site fell within the exclusion. “[T]he plain language of Rule 56(c)
*1562
mandates the entry of summary judgment, after adequate discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477
U.S. 317, 322-23,
Therefore, although on grounds other than those relied on by the district court, we find that the district court properly granted summary judgment on the issue of exclusion (f).
IV. Application of Exclusion (k)
A. Cleanup costs as “damages”
The Policy provides coverage for “all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies.” In holding that Intel was entitled to summary judgment on the issue of coverage, the district court determined that the expenses Intel incurred pursuant to the consent decree constituted “damages” within the meaning of the policy. We affirm the district court on this issue. Relying on the decision of the California Supreme Court in
AIU Ins. Co. v. FMC Corp.,
1. AIU Ins. Co. v. FMC Corp.
FMC was insured by AIU under a series of policies which contained “damages” language identical or similar to the clause in Intel’s policy with Hartford. The U.S. and local administrative agencies (collectively, the “agencies”) filed suit against FMC for alleged violations of CERCLA and other environmental statutes. The agencies sought injunctive relief compelling decontamination of FMC waste disposal sites, and reimbursement for the agencies’ costs of investigating and monitoring waste disposal and initiating cleanup. FMC sought recovery from its insurer for costs incurred pursuant to these suits.
The California Supreme Court held that FMC’s costs of complying with the injunction and the reimbursement it was required to pay were “sums ... [FMC became] legally obligated to pay as damages because of ... property damage.” It looked first at the phrase “legally obligated,” and found that although “both injunctions and awards of response costs under CERCLA reasonably can be viewed as equitable relief,” “as a matter of plain meaning, the term ‘legally obligated’ covers injunctive relief and recovery of response costs.”
AIU,
The court then examined the two forms of relief the agencies sought. It first explored more generally the term “damages.” It noted that, while statutory and dictionary definitions of “damages” were relatively straightforward, the application of this term to the remedies available to the agencies under CERCLA creates some ambiguity:
[T]he policies necessarily present some ambiguity in light of statutory schemes that by their very operation tend to eliminate the formal distinction between compensation paid to an aggrieved party and sums expended by the insured under compulsion of injunction.
To the extent that policy language is ambiguous in light of the way environmental statutes authorize relief, our goal remains to protect the objectively reasonable expectations of the insured.
Id. at 1268-69.
The court then held that reimbursement of government response costs constituted “damages” within the meaning of the policy:
The ordinary, nontechnical meaning of “damages,” as stated by statute and dictionaries and used by the courts in relat *1563 ed contexts, encompasses reimbursement of response costs. The agencies’ expenditure of federal funds to investigate and initiate cleanup of hazardous waste constitutes “loss” or “detriment.” Furthermore, reimbursement by responsible parties is monetary “compensation” for such loss.
Id. at 1269.
The court rejected several arguments against its holding. In particular, it rejected the argument that the distinctions or definitions contained in CERCLA with regard to the types of available relief were relevant to its determination: at issue was the interpretation of the insurance policy under state law. It also rejected the argument that the agencies’ remedial action was “prophylactic in nature”:
Because the third party suits here rest on allegations of past and present damage to land and water on and surrounding hazardous waste sites, they concern reimbursement not for prophylactic purposes, but rather for remedial mitigative actions.
Thus, even if government response costs are incurred largely to prevent damage previously confined to the insured’s property from spreading to government or third party property (ie., the costs are mitigative in character), reimbursement of such costs constitutes “damages” in ordinary terms.
Id. at 1272.
The court then turned to the issue of the costs of compliance with injunctions. It acknowledged that “[t]he costs of injunc-tive relief, whether incurred for prophylactic, mitigative, or remedial purposes, do not readily satisfy the statutory or dictionary definitions of ‘damages.’ ” Id. at 1276. However, it observed that the relationship between injunctive and reimbursement relief under CERCLA “is not the same as that between damages and injunctive remedies traditionally available at common law and in equity.” Id. Government agencies seek injunctive relief rather than incur costs themselves because “government cleanup efforts are generally considerably more expensive than cleanups performed by the responsible party.” Id. at 1275. “Under CERCLA and similar statutes, in-junctive relief and reimbursement of response costs serve substantially the same purpose.” Id. at 1278. “It is unlikely ... that the parties to CGL policies intended to cover reimbursement of response costs but not the costs of injunctive relief, at least where the latter costs are incurred — generally at a lower total cost — for exactly the same purposes addressed through governmental expenditure of response costs.” Id. Thus, the court found: “CGL policy language is ambiguous as applied to remedial and mitigative costs incurred pursuant to injunction under CERCLA and similar statutes, and therefore must be construed in favor of coverage to satisfy the reasonable expectations of the insured.” Id. It would apply this construction “regardless of any formal or technical difficulties this reading poses.” Id. at 1278 n. 18.
In concluding, the court interpreted the phrase “because of property damage.” It held that all costs arising from the contamination at issue were incurred “ ‘because of’ property damage,” whether the cleanup took place on the property of FMC or of third parties: “The provisions at issue here do not specify that coverage hinges on the nature or location of property damage. We therefore construe them to encompass damages because of property damage in general, regardless of by whom it is suffered.” Id. at 1279. However, the court also noted one exception to the insurer’s obligation to cover cleanup costs: costs incurred to pay for prophylactic measures, “measures taken in advance of any release of hazardous waste,” were not covered by the policies. Id.
2. Application of AIU to consent decrees
Under AIU, costs incurred to comply with an injunction mandating cleanup or to reimburse a government agency for cleanup expenses the agency has incurred are “damages” within the meaning of the insurance policy. We must now determine, however, whether the California Supreme Court would extend this holding and find *1564 that costs incurred to comply with a consent decree are “damages.” We conclude that it would. 6
The first issue is whether such costs are sums the insured are “legally obligated” to pay. That the insured voluntarily assumed the obligation to conduct cleanup, rather than forcing the government to assume the expenses of a coercive suit or of cleanup itself, should not change the analysis that a legal obligation to be responsible for cleanup does exist.
Our analysis of whether consent decree costs are “damages” parallels the
AIU
court’s discussion of injunctive relief. Consent decrees are an alternative means for government agencies to ensure that cleanup takes place. They are a favored method, as they provide for more rapid, and less costly, cleanup than does full scale litigation.
See
42 U.S.C. § 9622(a) (authorizing the President to “facilitate agreements” with potentially responsible persons “in order to expedite effective remedial actions and minimize litigation”). Faced with an obligation that it will have to meet, sooner or later, an insured would reasonably expect that, if it acts responsibly and cooperates with government agencies, it will not forego coverage to which it would be entitled if it forced the agencies to expend their resources in filing suit, particularly where cooperation will probably result in compliance at a lower cost to the insured (and thus to the insurer).
Cf. AIU,
Public policy supports this holding. If consent decree compliance costs did not constitute “damages,” insureds would be discouraged from entering into consent decrees, and the EPA’s task would be made more time consuming and more costly. Cleanup would be delayed until the government expended its resources to investigate contamination, and perhaps even to conduct cleanup itself, and finally sought relief from the insured.
See
Stephen Moun-tainspring,
Insurance Coverage of CERC-LA Response Costs: The Limits of “damages" in Comprehensive General Liability Policies,
16 Ecology L.Q. 755, 797-98 (1989) (insurance coverage of response costs would encourage PRP cooperation and thus contribute to conserving government resources). The policy arguments on
*1565
the other side are not persuasive. Arguably, insureds, confident of the “deep pockets” of the insurer, will have no incentive to minimize their liability by finding the least costly means of decontamination, assuming cleanup obligations only when they are clearly responsible, and preventing contamination in the first place.
See Maryland Casualty Co. v. Armco, Inc.,
Potentially more troubling is the difference between consent decrees and suits for injunctive relief or reimbursement. Such suits have a coercive dimension not present in the context of a consent decree. A consent decree is more akin to a settlement. Generally, insurers have an active role in any settlement by the insured. In the case before us, though, the insured has had no such participation. As we have just noted, however, we believe insureds have adequate incentives to protect their own, and thus their insurers’, interests when they negotiate consent decrees. Insureds are unlikely carelessly to enter into overbroad consent decrees. Moreover, our holding here will give insurers incentives to do what Hartford has failed to do in this case: to follow more closely the insured’s efforts to meet its cleanup obligations.
B. Application of Exclusion (k)
The final issue considered by the district court was the extent to which coverage of cleanup costs was barred by exclusion (k). The district court acknowledged that it remained for the trier of fact to determine which pre-Consent Decree expenses related only to cleanup of Intel’s own property, and which related to property of third parties. However, as to expenses incurred pursuant to the consent decree, the court found “as a matter of law” that “all expenses incurred by Intel pursuant to the Consent Decree are governmentally-man-dated expenses which are fully compensa-ble under the terms of the Hartford comprehensive general liability policy.”
Intel,
We affirm the district court’s holding insofar as it applies to costs incurred under the consent decree to correct any groundwater contamination that has taken place, and to mitigate any future damage that might occur from the contaminants introduced into the soil and groundwater by Intel, whether or not on Intel’s own property.
Damage to groundwater is not damage to property “owned or occupied by or rented to” Intel. “Release of hazardous waste into groundwater and surface water constitutes actual harm to property in which the state and federal governments have an ownership interest.”
AIU,
Additionally, we hold that exclusion (k) also does not bar coverage of the costs of preventing future harm to ground water or adjacent property that might arise from contamination that has already taken place, whether such contamination has occurred on Intel’s or others’ property. We rely here on
AIU
and on
Aerojet-General Corp. v. Superior Court,
However, we believe that the trier of fact will nonetheless have to face the task of determining what expenses were incurred to remedy existing damage to third-party property or to prevent further damage to that property from contaminants introduced by Intel, and what expenses were incurred only to remedy damage to property Intel itself controlled. The former expenses are covered by the policy, while exclusion (k) bars coverage of the latter. We cannot endorse the district court’s solution of merely adopting the consent decree. The consent decree may be, as the district court puts it, a good measure of costs “ ‘reasonably incurred’ ” as “ ‘necessary costs of response.’ ” However, it does not sort those costs into the two relevant categories: damage to third party property and damage only to Intel’s own property.
The district court’s decision required the trier of fact to examine expenditures incurred prior to the Consent Decree to determine which costs were “consistent with or a foundation for the implementation of the Consent Decree.”
Intel,
AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
Notes
. Fairchild Camera and Instrument Corporation (“Fairchild”) and Raytheon Corporation ("Ray-theon”) were also parties to the consent decree.
. The National Priorities List is the EPA’s inventory of the most seriously contaminated hazardous waste sites in the United States.
. Hartford cites several cases for the proposition that it is unfair to grant summary judgment against a party that has not had "a full and fair opportunity to litigate the issues.” However, each of these cases involves a district court’s
sua sponte
grant of summary judgment; in two, summary judgment was granted to the nonmov-ing party.
See Horn v. City of Chicago,
. For example: "Did Intel, with all its engineers and experts, know, but not follow, the type of precautions that were necessary to prevent the toxic chemicals from escaping after being dumped into an underground tank? Did Intel keep track of the quantities of chemicals it dumped into and removed from the tank so that Intel had to have known, based on the capacity of the tank, that the tank was leaking?" Hartford does not ask the court to make inferences on the basis of facts in the record, but rather to "infer” new facts.
. Indeed, courts often use the two terms interchangeably. 30 Cal. Jur.3d
Estoppel and Waiver
2 (1987).
See, e.g., Insurance Co. of the West v. Haralambos Beverage Co.,
. Although there are numerous decisions on CERCLA cleanup costs as “damages," there is a dearth of caselaw on the issue of consent decrees. In
Aerojet-General Corp. v. Superior Court,