questions, as described above, the jury was not asked to determine what liability and damages, if any, flowed from the property injury found by the jury. This was left to be determined by the court.
The insurance policies do not automatically require INA to make indemnity simply because Olin incurred costs to remedy soil injury or to remedy groundwater injury. Referring to the language of the policies quoted earlier, the question under the both forms of policy is whether Olin has incurred legal liability for damages (sums of money) on account of accidental injury to property. It is the task of the court to resolve this question, taking as the starting point the jury's answers to the questions about injury to property.
The great bulk ($ 3.7 million) of the costs incurred by Olin related to soil clean-up under the EPA direction. But the jury found accidental injury to soil for only the first two of the fifteen years of the INA insurance, and it is only accidental injury which is covered. This finding obviously threatens Olin with being indemnified for only a small part of its costs.
To deal with this problem, Olin has turned to the theory that the soil clean-up costs were incurred not merely to remedy the condition of the soil, but also to remove the source of groundwater contamination. Since the jury found that injury to groundwater was accidental, and was thus a covered injury under the policies, this theory would, in Olin's view, allow recovery against INA, not only of the $ 400,000 spent on groundwater testing at the direction of the State of North Carolina, but also of the $ 3.7 million expended in the soil clean-up at the direction of the EPA.
This theory must be tested against the terms of the insurance coverage. The question under the policies, raised by Olin's theory, is whether Olin was held legally liable to pay the $ 3.7 million soil clean-up cost on account of the groundwater injury.
In dealing with the question of legal liability within the meaning of the insurance policies, the obvious fact must be kept in mind that the present case does not involve liability created by a standard lawsuit in which a plaintiff claimed that he was injured by Olin and sued to recover damages. There was no such lawsuit, nor was there any finding of liability in the usual sense by a jury or judge, nor was there any judgment for damages based upon such a finding. Also, there was no settlement of a lawsuit. To the extent that there was legal liability for damages in the present case, it consisted of compliance by Olin with the directives of the EPA and the State of North Carolina, and expenditure of money by Olin in connection with such compliance. In order to fit the circumstances of the present case into the framework of the insurance, one must answer the following questions: What was it that Olin was liable to the EPA for? What was it that Olin was liable to the State of North Carolina for?
Liability to the EPA
The EPA's original 1986 order contained a finding of soil contamination by pesticide components based on certain preliminary sampling taken by the State of North Carolina. The order further recited that a new public water supply well was proposed to be constructed 200 yards from the site of the former Olin operation, and that this site was located 100 yards from the Roanoke River and lay in its floodplain. The order directed the removal of all contaminated soil in areas where waste was spilled and/or dumped on the property and the disposal of such soil at an approved facility. The order also directed that Olin should install and sample monitoring wells in appropriate locations to identify the extent of groundwater contamination and to assure that the contamination was not migrating from the property. Aside from this monitoring and sampling, no work was ordered regarding groundwater.
A second order was issued by the EPA on August 7, 1987. It was essentially the same as the 1986 order. The direction about sampling groundwater was slightly expanded to provide for the use of the old Olin well or, if testing from this well was not adequate, the installation of an additional well.
As it turned out, the old well was not relied upon. A new monitoring well was installed in September 1987 (now referred to as "MW-10"). It was located between the site of the former Olin pesticide operation and the proposed town well. MW-10 was sampled in early October, 1987. The sampling demonstrated that there was no contamination of groundwater moving from the former Olin site in the direction of the town water supply.
At that point, the EPA effectively dropped its claim regarding groundwater. The record shows that the soil clean-up, which commenced in 1988 and was under continual on-site direction by the EPA, was carried out to eliminate contaminated soil, without any reference to groundwater. There were three areas of soil removal. The largest - amounting to about 1 1/2 acres - was in the area of the former pesticide plants and warehouse. There were two other, much smaller, areas of soil removal - one where some metal drums had been buried in connection with the pesticide operation, and the other where there was petroleum contamination which had been caused by Kerr-McGee. These areas are illustrated in Appendix A to this opinion. Aside from MW-10, no monitoring wells were installed during the EPA process, except for three temporary wells installed in the petroleum excavation area in 1990. There is little or no evidence about what was found in the latter wells, and there is no evidence of any action taken by the EPA as a result of any tests in those wells. In any event, they had no relation to Olin.
As shown in Appendix A, MW-10 was not installed in any of the soil removal areas. The EPA requested no monitoring wells to be installed in either the 1 1/2 acre soil removal area, or the small area where the drums had been buried.
There are various documents authored by Olin personnel during the time of the work for the EPA expressing the conclusion that, following the testing at MW-10, there was no groundwater issue.
On March 13, 1990 the EPA issued a new order. The apparent purpose of this order was to reactivate the soil clean-up, which had been suspended since 1988. In addition to providing more detailed directions for soil work than had been contained in the prior orders, the March 1990 order directed the dismantling of the buildings formerly used to produce and store pesticides. The order also recited that the 1987 order had directed the sampling of groundwater. However, no direction as to further groundwater work was contained in the March 1990 order. However, another test at MW-10 was made in 1990, leading to the same conclusion as arrived at previously, that pesticides were not moving in groundwater towards the town water supply.
On November 13, 1991 the EPA wrote Olin stating that the removal action conducted by Olin had complied with the EPA orders and that no further action was required. The letter enclosed a report prepared by an EPA Technical Assistance Team ("TAT") documenting the EPA oversight of the removal action.
The TAT report is a valuable and detailed description of the work done by Olin at the direction of the EPA. One phase of the report which is of particular interest deals with certain excavations which went below the water table and penetrated into the surficial groundwater. The report states:
The last areas to be excavated were the ditch that runs along the south end of the site, and the large hole in front of the Liquid Blending building. These two areas were the most difficult to remediate because high concentrations of pesticides in those areas carried the excavation below the level of groundwater. The ditch was excavated, sampled and backfilled in sections to prevent groundwater from re-entering the area. During excavation of the large hole, contaminated material was removed beyond the level of groundwater into a layer of substrate consisting mainly of sand. At this point, groundwater was entering from the bottom and sides of the hole, spreading the contaminated material in the hole back over the areas (of the hole) which were determined to be clean by the on-site lab.
The report goes on in considerable technical detail about what was done to deal with the conditions described above. Essentially, the report shows that the effort regarding the groundwater was simply to get rid of it, so that the soil excavation could be completed and replacement with clean soil could be carried out.
The groundwater entering the hole was found to be contaminated, although no such express finding appears to have been made as to the ditch. An attempt was made to drain the groundwater from the hole to the river by constructing a new ditch leading off from the hole. This was apparently unsuccessful. What was ultimately done was described in the report as follows:
Originally, water which collected on-site was sprayed directly back in the excavation area to cut down on dust. When groundwater was reached during excavation, the quantity was too great to spray back on-site, and was thus collected in a 50,000 gallon pool. The water was sent through carbon and sand filters, prior to discharge onto the clean backfilled areas, at levels determined by the EPA to represent no additional threat due to any residual contamination . . . .
The material left out at the end of this quotation consists of a reference to an "Appendix B" to the TAT report. Appendix B is not in evidence. The old ditch referred to in the report was a little over 200 feet long. It is not clear from the TAT report how much of the ditch was excavated below the water table. However, the "Rust Report," later rendered by Rust Environment & Infrastructure, indicates quite clearly that the portion of the ditch referred to in the TAT report consisted of a segment of about 100 feet immediately south of the former liquid blending building, and thus immediately south of the deep hole.
The encounter with the groundwater in the hole and the ditch did not lead the EPA to embark upon a program of groundwater testing or cleanup. The EPA field note of August 28, 1990 records a discussion between the EPA representative and others at the scene when they were observing the groundwater seeping into the deep hole. The EPA representative made clear that, although Olin might wish to sample groundwater and embark on a groundwater project if necessary, this "would not be considered a priority at this time . . . and would not be covered under this [the current EPA] order."
On October 16, 1990, S. G. Morrow, who was the main Olin representative at the clean-up operation, wrote a memorandum, which summarized a recent conversation which he had with Art Smith, the EPA representative at the site. The memorandum stated:
I also discussed Art's comment from the last site visit, about possible groundwater contamination in the "pond" area since we were so deep and still not clean. This is not Art's area since he is only Emergency Removal. Art felt if he involved the EPA remediation people, it could take forever to get anything resolved. He thought it would be better to work with the State of NC people to see if there is a problem. Art does not want to amend the Order, but to finish the project as it now stands. After we are finished, he suggested we meet with him, someone from the State, and Olin at the site. I replied that this sounds like a reasonable approach.