## Facts

- A low-level radioactive waste disposal facility in Fleming County, Kentucky operated from 1963 to 1977 and received millions of cubic feet of waste.
- Radioactive contamination migrated from the disposal area onto adjacent property, prompting closure and long-term remedial requirements.
- The U.S. Environmental Protection Agency required investigation and remediation under CERCLA, including containment and monitoring “site measures.”
- The private operators were insured under specialized nuclear liability policies issued by Aetna and other insurers, covering “all sums” the insured became legally obligated to pay “as damages because of” bodily injury or property damage caused by a nuclear hazard.
- The policies expressly treated radioactive contamination as “property damage,” did not define “damages,” and included a pollution-type exclusion (Exclusion (f)).
- The insurers sought declaratory relief to avoid defense and indemnity obligations for CERCLA-related costs; a jury verdict and judgment largely favored the insureds and the Commonwealth.
- The Court of Appeals affirmed most rulings but ordered a new trial on the adequacy of the fortuity jury instruction; discretionary review followed.

## Issues

1. Whether reversal and a new trial were required due to alleged error in the fortuity jury instruction.
2. Whether costs incurred by insureds to participate in and respond to CERCLA proceedings are covered.
3. Whether CERCLA-mandated remediation and “site measures” are covered “damages because of property damage” under the policies.
4. Whether Exclusion (f) bars coverage for the radioactive contamination claims.
5. Whether the policies require insurers to pay attorney’s fees and costs incurred in the insureds’ state-court coverage litigation.
6. Whether coverage, once triggered, permits access to full limits for a triggered year (“all sums”) or requires pro rata allocation across multiple policy years.

## Decision

- The court affirmed in part and reversed in part the intermediate appellate decision and remanded for further proceedings consistent with its rulings.
- It held that CERCLA cleanup and remediation obligations constitute covered “damages because of property damage” under the nuclear liability policies.
- It rejected the insurers’ reliance on Exclusion (f) as a clear bar to coverage for the claims at issue.
- It treated CERCLA participation and related defense/response costs as potentially covered under the policies’ defense and coverage provisions, subject to policy terms and limits.
- It limited recovery of attorney’s fees in the coverage litigation itself, declining to require payment of all fees incurred to establish coverage.
- On trigger/allocation, it generally adopted an “all sums” approach once property damage during a policy period triggers coverage, rejecting automatic pro rata reduction across years.
- On fortuity, it declined to undo the coverage determinations based on the insurers’ request for broad retrial relief, focusing on the insureds’ subjective expectation or intent and limiting relief to what instructional error rules required.

## Legal Principles

- Undefined coverage terms in insurance contracts are construed according to their ordinary, functional meaning; ambiguities are construed against the insurer as drafter.
- Sums an insured is legally obligated to spend to remediate property damage under CERCLA can qualify as covered “damages because of property damage” when policy language is broad and does not clearly exclude such obligations.
- Policy exclusions are construed narrowly; the insurer bears the burden to show an exclusion clearly applies to the claim.
- Fortuity limits coverage for losses that are intended or expected by the insured; the relevant inquiry centers on the insured’s subjective expectation or intent at the time of the conduct.
- Defense/response obligations may extend to governmental enforcement proceedings and related participation costs when they function as defense against claims seeking recovery for covered property damage.
- Under “all sums” language, once coverage is triggered by property damage within a policy period, the insurer’s obligation may reach full limits for a triggered year rather than being automatically prorated across all years of damage.

## Conclusion

The court treated CERCLA-driven remediation and related costs from radioactive contamination as covered damages under nuclear liability policies, construed exclusions and ambiguities against the insurers, limited recovery of fees for the coverage lawsuit, and favored an “all sums” approach to limits once triggered, while narrowing the scope of any retrial based on the fortuity instruction.


Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830 (Ky. 2005)