JANICE M. STEWART, Magistrate Judge.
Plaintiff, Siltronic Corporation ("Siltronic"), filed the underlying action for declaratory judgment and breach of contract in order to allocate financial responsibility for environmental claims arising out of the Portland Harbor Superfund Site pursuant to various insurance policies. Between 1978 and 1986, defendant, Employers Insurance Company of Wausau ("Wausau"), issued seven annual Comprehensive General Liability Policies to Siltronic. Complaint, ¶ 9. Wausau defended Siltronic on various environmental claims until September 2009 when it concluded that the $6 million indemnity limits of the six policies covering the time period from 1980-86 were exhausted.
Siltronic has now filed a Second Motion for Partial Summary Judgment (docket #141) on the limited issue of whether Wausau has a continuing duty to defend Siltronic under its first policy ("1978-79 Policy") and must reimburse Siltronic for unpaid defense costs. Granite State joins the motion, but disputes the amount of indemnity costs already paid by Wausau as represented by Siltronic (docket #147). All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with FRCP 73 and 28 USC § 636(c). For the reasons stated, the motions are granted in part, denied in part and deferred in part.
In 1978, Siltronic bought real property located at 7200 NW Front Avenue ("Property") on the southwest shore of the Willamette River in a "heavy industrial" area. McCue Decl. (docket #145), ¶ 8.
Northwest Natural Gas Company ("NW Natural") owns real property adjacent to the Property. Id, ¶ 9. The Property and adjacent NW Natural property were once owned as a single parcel by NW Natural's predecessor, the Portland Gas and Coke Company ("GASCO"), on which it operated an oil gasification plant. Id; Burr Decl. (docket #146), Ex. 1, p. 2. GASCO disposed of the waste generated at the plant, Manufactured Gas Product ("MGP"), in tar ponds now located on the Property from 1940-41 until 1956 when the MGP operations ceased. Burr Decl., Ex. 1, p. 2. This disposal area became known as the "GASCO Sediment Site." Id, Ex. 4, p. 8. Before Siltronic purchased the Property, the MGP waste was covered up with fill materials, including material from the Willamette River. McCue Decl., ¶ 9. Siltronic first learned of these MGP disposal activities and the placement of cover-up fill materials several years after it purchased the Property. Id.
In February 1979, Siltronic began construction of an outfall pipe for treated effluent from the wastewater treatment pipe on the Property to the river. Id, ¶ 11(a)-(b). The construction required excavation and removal of fill material and a limited amount of submerged sediment along the northeast border of the Property. Id. On May 18, 1979, the excavation and pile driving activities disturbed oily sediment containing the buried MGP, and Siltronic set up an oil boom in the river to contain surfacing oil. Id, ¶ 11(c)-(d) & Exs. 5-9. Siltronic deposited the dredge material containing the oil on the riverbank away from the river. Id, ¶ 11(d) & Ex. 11. Although a dredged material disposal agreement between Siltronic's predecessor, Wacker Siltronic, and the Port of Portland designated Swan Island for disposal of dredging spoil materials, the dredge material remained on the Property. Id, ¶ 11(f)-(g) & Ex. 10.
In March 1980, Siltronic began manufacturing silicone wafers on the Property, generating trichloroethene ("TCE") waste. Gorman Decl. (docket #142), Ex. 1, p. 3.
On October 4, 2000, DEQ issued an Order ("2000 DEQ Order") requiring Siltronic and NW Natural to "perform a Remedial Investigation" of the Property "to determine the nature and extent of releases of hazardous substances to Willamette River sediments" and "to develop and implement source control measures to address such releases, if necessary." Burr Decl., Ex. 1, p. 5. The 2000 DEQ Order included the following findings of fact specifically identifying MGP as one of the "hazardous substances:"
Id, p. 2.
The 2000 DEQ Order also identified NW Natural and Siltronic "[a]s current or past owner or operator of a facility," each of whom is "strictly and jointly and severally liable under ORS 465.255, and therefore may be required by DEQ to conduct any removal or remedial action necessary to protect public health, safety, and welfare and the environment, pursuant to ORS 465.260(4)." Id, p. 4.
On December 8, 2000, the EPA issued a Notice of Potential Liability ("2000 EPA Notice") which deemed Siltronic a potentially responsible party ("PRP") for sediment contamination then alleged to exist in a designated section of the Willamette River. Id, Ex. 2, p. 2. It also stated that Siltronic might "be ordered to perform response actions deemed necessary by EPA [or] DEQ" and "to pay for damages to, destruction of, or loss of natural resources, including the costs of assessing such damages." Id, p. 1.
On June 23, 2003, Siltronic notified Wausau of the EPA and DEQ actions against it. Gorman Decl., Ex. 1. Wausau, though its administrator, Nationwide Indemnity Company, agreed to pay Siltronic's defense costs subject to a reservation of rights. Id, Ex. 2, p. 4; Burr Decl., Ex. 6, p. 1. Beginning on or about September 2003, Wausau began paying Siltronic's costs incurred in response to the EPA and DEQ demands. Complaint, ¶ 29; Moore Decl. (docket #150), ¶ 4.
On February 5, 2004, DEQ issued an Order ("2004 DEQ Order") requiring Siltronic to perform additional remedial investigations and conduct additional source control measures specifically targeting discovery of releases of TCE. Burr Decl., Ex. 3.
In early September 2009, EPA, NW Natural, Siltronic, and other parties entered into an Administrative Settlement Agreement and Order on Consent for Removal Action ("2009 Settlement Agreement"). Id, Ex. 4. This Agreement made Siltronic and NW Natural "liable for performance of response action and for response costs incurred and to be incurred" related to the GASCO Sediments Site. Id, p. 18. At the same time, Siltronic and NW Natural entered a Participation and Interim Cost Sharing Agreement ("Cost Sharing Agreement") to jointly conduct the remedial design activities in order to comply with the 2009 Settlement Agreement and allocate the associated costs. Moore Decl., Ex. B, p. 1.
Also in September 2009, Wausau declared exhaustion of the coverage limits under the six policies issued from 1980-86 and refused to pay any additional defense costs. Id, ¶ 9. Wausau contends that between 2003 and 2009, it not only paid the full $6 million in indemnity costs under those six policies, but also paid $7,699,837.00 in defense costs, including payments to attorneys, environmental consultants, and others. Id, ¶ 10.
In 1978, Wausau issued the 1978-79 Policy for the period of August 17, 1978, through January 1, 1980. Complaint, Ex. A, p. 6. The provision at issue, which also appears in the other six policies, provides that Wausau will pay:
Id, p. 7 (emphasis added).
The 1978-79 Policy defines "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected not intended from the standpoint of the insured." Id, p. 3. "Property damage" is defined as
Id.
The 1978-79 Policy provides $1 million in indemnity liability and requires Wausau to defend Siltronic until the $1 million indemnity limit is exhausted. Id, p. 11.
FRCP 56(c) authorizes summary judgment if "no genuine issue" exists regarding any material fact and "the moving party is entitled to judgment as a matter of law." The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party does so, the nonmoving party must "go beyond the pleadings" and designate specific facts showing a "genuine issue for trial." Id at 324, citing FRCP 56(e). The court must "not weigh the evidence or determine the truth of the matter, but only determine[] whether there is a genuine issue for trial." Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9
The environmental claims against Siltronic involve two primary contaminants, MGP and TCE. Siltronic did not begin to use TCE at the Property until March 1980, after expiration of the 1978-79 Policy. Wausau paid Siltronic's defense costs for TCE contamination under its 1980-86 policies until September 2009 when it declared that the indemnity limits of those polices were exhausted. At that point, Granite State began paying Siltronic's defense costs.
Siltronic and Granite State contend that Wausau had, and continues to have, a duty to defend Siltronic in connection with its cleanup responsibilities for MGP contamination under the 1978-79 Policy. Therefore, they seek payment by Wausau of Siltronic's defense costs under the 1978-79 Policy until its $1 million indemnity limit is exhausted. They contend that Wausau's duty to defend under the 1978-79 Policy was triggered due to: (1) contamination of the Property with legacy MGP waste, causing continuous damage and uncontrolled migration; and (2) Siltronic's redistribution of the MGP while constructing an outfall pipe in 1979.
In this diversity action, Oregon law governs the construction of the Policy. Larson Constr. Co. v. Oregon Auto. Ins. Co., 450 F.2d 1193, 1195 (9
Ledford v. Gutoski, 319 Or. 397, 400, 877 P.2d 80, 83 (1994) (en banc) (citation omitted).
Conversely, "[i]f the complaint does not contain allegations of covered conduct ..., then the insurer has no duty to defend." Abrams v. Gen. Star Indem. Co., 335 Or. 392, 400, 67 P.3d 931, 935 (2003).
Siltronic claims that it has incurred unpaid defense expenses in excess of $1.6 million associated with the 2000 DEQ Order, 2000 EPA Notice, 2004 DEQ Order, and the 2009 Agreement. Barber Decl. (docket #149), Ex. A, pp. 3, 5 (Answers to Interrogatories Nos. 27 & 31). The parties do not dispute that the various EPA and DEQ actions finding Siltronic a potentially responsible party are the equivalent of "suits" under the 1978-79 Policy. For the purpose of compelling coverage in a general liability insurance policy, ORS 465.480 treats environmental claims as if they were lawsuits:
ORS 465.480(2)(b) (emphasis added); St. Paul Fire & Marine Ins. Co. v. McCormick & Baxter Creosoting Co., 126 Or.App. 689, 701, 870 F.2d 260, 266 (1994) (administrative order to clean up is a "suit").
Instead, the parties dispute whether, as a result of these "suits," Siltronic was liable for property damage resulting from MGP contamination during the policy period.
The 1978-79 Policy covers only property damage that occurred during the policy period. Complaint, Ex. A., p. 3. Siltronic contends that property damage occurred in 1979 as a result of the legacy MGP contamination by NW Natural.
Wausau does not contest that the legacy MGP contamination by NW Natural caused covered property damage in 1979, rendering Siltronic, as the owner, potentially liable for remediation of that contamination. However, it argues that it had, and still has, no duty to defend Siltronic under the 1978-79 Policy because: (1) Siltronic only tendered defense to Wausau of the TCE contamination; and (2) Siltronic has incurred no defense costs associated with the MGP contamination.
Wausau's first argument is easily rejected. Wausau argues that it has no duty to defend Siltronic for any MGP contamination that occurred prior to the production of TCE on the Property in 1980 because Siltronic only tendered coverage for liability stemming from the TCE contamination. Wausau points to Siltronic's three-year delay in notifying Wausau about the claims as confirming that it was only seeking a defense for claims involving TCE contamination.
Id, p. 5.
Admittedly, the discovery of the TCE contamination prompted Siltronic to tender the claims to Wausau nearly three years after Siltronic received the 2000 DEQ Order and 2000 EPA Notice. However, Wausau's duty to defend when receiving Siltronic's tender may only be premised on facts alleged in the "suits" tendered to it by Siltronic. Ferguson v. Birmingham First Ins. Co., 254 Or. 496, 505-06, 460 P.2d 342, 346 (1969) (en banc) ("The insurer's knowledge of facts not alleged in the complaint is irrelevant in determining the existence of the duty to defend and consequently the insurer need not speculate as to what the `actual facts' of the alleged occurrence may be."). Siltronic clearly gave notice of and tendered its claims for defense and indemnity to Wausau arising from the claims in the 2000 DEQ Order and 2000 EPA Notice. Although the attached 2000 DEQ Order did not state when the "occurrence" happened in 1979, it found that Siltronic acquired the Property in 1978 (Burr Decl., Ex. A, ¶ 2(B)), that the former GASCO plant discharged hazardous substances, including MGP, into ponds located on the Property beginning in 1941 (id, ¶ 2(D)), that "[s]ubsurface petroleum or tar has been encountered before and during various construction activities on the [Siltronic] Property after [Siltronic's] acquisition of the property" (id, ¶ 2(E)), and that Siltronic, as the current owner, is required to remediate all contamination on the Property. Id, ¶ 3(E). Accordingly, Wausau was notified of legacy MGP contamination since 1941 and continuing through 2000 which includes the 1978-79 Policy period.
Thus, contrary to Wausau's position, Siltronic's tender of defense in 2003 included all past, present, and future costs to comply with the 2000 DEQ Order and 2000 EPA Notice, including removal or remedial action relating to legacy MGP contamination.
Wausau acknowledges that it may have a future duty to defend Siltronic under the 1978-79 Policy if and when NW Natural or any other party makes a claim against Siltronic for contribution for any remediation costs attributable to the MGP contamination. However, Wausau asserts that it had, and continues to have, no duty to defend under the 1978-79 Policy because Siltronic has not yet incurred any defense costs relating to legacy MGP contamination. Instead, NW Natural assumed full liability for its legacy MGP contamination and agreed to pay all associated remediation costs. As explained by Nationwide's Specialty Consultant:
Moore Decl., ¶¶ 6-7.
Under Oregon law, the duty to defend "is determined by comparing the terms of the insurance policy and the facts alleged in the complaint against the insured." Drake, 167 Or App at 478, 1 P3d at 1068. A determination of liability is not needed to trigger a duty to defend. By comparing the terms of the 1978-79 Policy and the 2000 DEQ Order (the equivalent of "the complaint against the insured"), Wausau clearly had a duty to defend Siltronic for claims arising from MGP contamination. Under the 2000 DEQ Order, Siltronic is "strictly and jointly and severally liable under ORS 465.255, and therefore may be required by DEQ to conduct any removal or remedial action necessary." Burr Decl., Ex. 1, p. 4. That action related to releases of "hazardous substances to Willamette River sediments" which included MGP generated at the former GASCO plant and discharged into the Willamette River and tar ponds now located on the Property. Id, ¶¶ 1, 2(D). Thus, the 2000 DEQ Order alleges that Siltronic is potentially liable for "property damage" caused by an "occurrence" within the 1978-79 Policy coverage period.
As Wausau points out, NW Natural acknowledged its role as the operator of the former GASCO plant and prior owner of the Property and agreed to pay for MGP remedial investigation. As confirmed by the November 10, 2000 letter to DEQ, NW Natural and Siltronic had "agreed that [NW Natural] will perform the remedial investigation of contaminants that may have originated from [NW Natural's] activities and may be migrating to Willamette River sediments from the [Property], as required by the [2000 DEQ Order]." Barber Decl., Ex. C. However, NW Natural did not agree to indemnify Siltronic from all liability for MGP contamination or even purport to pay any defense costs other than "remedial investigation."
Due to evidence that TCE and MGP contamination had become commingled, Siltronic and NW Natural entered into the Cost Sharing Agreement in 2009 to "work together and cooperate" and accept responsibility for "the performance of remedial design activities." Moore Decl., Ex. B, pp. 1-2. As an "interim" allocation, Siltronic agreed to pay 7.5% of the costs and to "attempt to achieve a final allocation of Costs through a process of good faith negotiation." Id, §§ 6.2 & 8, pp. 3-4. The parties also expressly waived "protection from contribution actions or claims granted by paragraph 77.a of the Administrative Settlement." Id, § 7.1, p. 4. In other words, the Cost Sharing Agreement contemplated, but did not resolve, the future allocation of costs associated with final remediation or cleanup of the MGP waste, either through contribution claims or voluntary cost allocation. In an email to Wausau dated July 10, 2009, Siltronic's attorney acknowledged this intent:
Moore Decl., Ex. A, p. 1.
Siltronic's attorney also advised Wausau that NW Natural "does not agree to take responsibility for MGP impacts that result from other parties' redistribution of MGP materials as part of the historical fill operation. ... [A]ll potential claims between Siltronic and [NW Natural] or relevant third parties are preserved and are not jeopardized by the proposed agreement, but are currently premature." Id. He further warned Wausau that "Siltronic likely will have some liability for MGP contamination offshore of its property," as opposed to offshore of NW Natural's property, and that the Cost Sharing Agreement "encompasses only the remedial evaluation and design work ... [and] contemplates that there will be a final allocation between the parties to be determined in the context of the larger harbor-wide allocation process by sediment management areas (SMAs) as well as among and between SMAs." Id, p. 4.
Under Oregon law, even if some allegations involve conduct not covered by the policy, the duty to defend arises "if certain allegations of the complaint, without amendment, could impose liability for conduct covered by the policy." Ledford, 319 Or at 400. This "complete defense" rule does not permit an insurer to pay defense costs only for covered claims and require the insured to defend uncovered claims in the same lawsuit. Only exhaustion of the policy limits or elimination of the covered claims extinguishes an insurer's duty to defend. See City of Medford v. Argonaut Ins. Grp., No. 1:06-CV-3098-PA, 2012 WL 2367184, at *1 (D Or June 21, 2012) ("when a judgment eliminates all covered claims against the insured, and the dismissal of the covered claims is not appealed, the insurer no longer has a duty to defend"). But see Klamath Pac. Corp. v. Reliance Ins. Co., 151 Or.App. 405, 418, 950 P.2d 909, 916 (1997) opinion adhered to as modified on reconsideration, 152 Or.App. 738, 955 P.2d 340 (1998) ("An intermediate order from a trial court dismissing a claim is not a final resolution of that claim.").
Because the Cost Sharing Agreement is only an interim agreement and does not permanently settle issues of Siltronic's indemnity for MGP legacy contamination, it does not stay, terminate, or otherwise discharge Siltronic's duty to defend. As long as Siltronic is exposed to potential liability for legacy MGP contamination, Wausau has a duty to defend Siltronic under the 1978-79 Policy in order to comply with the 2000 DEQ Order and 2000 EPA Notice with respect to all potential contaminants on the Property. Wausau's duty to defend Siltronic terminates only when all claims covered by the 1978-79 Policy related to MPG
Siltronic asserts that it is not presently seeking a declaration as to what amount it is entitled to recover from Wausau as unreimbursed defense expenses. Rather, it only seeks an order that Wausau's duty to defend under the 1978-79 Policy was triggered in 2003 by the tender of defense and that further proceedings will determine whether Wausau has breached that duty.
The problem facing Wausau is that the 1978-79 Policy only covers indemnity for losses caused by MGP contamination, and not TCE contamination that did not occur until March 1980. Pursuant to the Cost Sharing Agreement, NW Natural has been paying all defense costs related to MGP contamination.
As discussed below, Wausau did not breach its duty to defend by failing to pay pre-tender defense costs, and it is premature to determine whether Wausau breached its duty to defend posttender and, in particular, after September 2009 when it ceased paying Siltronic's defense costs.
Wausau requests a declaration that it is not obligated to pay any defense costs incurred by Siltronic prior to June 23, 2003, the date of the tender of defense. Siltronic represented in its tender that it had "incurred significant costs in performing a remedial investigation ordered by DEQ and in cooperating with EPA and others" totaling "in excess of $450,000" to date, adding that the "[w]ork is ongoing and the end is not in sight." Gorman Decl., Ex 1, p. 6.
The 1978-79 Policy contains the following "voluntary payments" provision:
Complaint, Ex. A, p. 3 (emphasis added).
Based on that provision, coverage is precluded for any costs incurred by Siltronic without notice to and consent of Wausau, which includes those incurred prior to the date of tender of defense. Under Oregon law, "[a]n insurer is not obligated to defend any action not tendered to it." Am. Cas. Co. v. Corum, 139 Or.App. 58, 63 n3, 910 P.2d 1151, 1153 n3 (1996) (citation omitted). "When the duty to defend is at issue, the matter of prejudice from an insured's failure to give notice of the claims is irrelevant." Or. Ins. Guar. Ass'n v. Thompson, 93 Or.App. 5, 11, 760 P.2d 890, 894 (1988). Thus, as recognized by other courts, an insurer is not obligated to pay pre-tender costs. Legacy Partners, Inc. v. Travelers Indem. Co. of Ill., 83 Fed App'x 183, 189 (9
Since the 1978-79 Policy makes payment of costs conditional upon providing written notice, Wausau was under no obligation to pay any defense costs incurred by Siltronic prior to its tender of defense on June 23, 2003.
After Wausau accepted Siltronic's tender of defense, it paid all of Siltronic's defense costs for the underlying EPA and DEQ actions for TCE contamination, including commingling of MGP with TCE, until it concluded that coverage was exhausted under the 1980-86 policies in September 2009. Moore Decl., ¶¶ 6-7. Although Wausau has not paid any defense costs since 2009,
As discussed above, even if the EPA and DEQ actions include TCE and other contaminants in addition to legacy MGP, Wausau has a duty to defend those uncovered claims under Oregon's "complete defense" rule. However, Wausau may be entitled to reduce its liability for future defense costs to the extent it can show exclusion from coverage under the 1978-79 Policy. Based on the following rule, several other "complete defense" states have apportioned defense costs between expenses related to covered claims and those related to ultimately excluded claims when "the distinction can be readily made:"
Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1225-26 (6
Although this rule was developed to apportion defense costs between primary insurers of a single covered event, some courts have applied it in the context of apportioning defense costs when a single insurer has breached its duty to defend. See, e.g, Budd Co. v. Travelers Indem. Co., 820 F.2d 787, 790-91 (6
Oregon has not decided this precise issue, but precedent suggests that Wausau may not have to pay for Siltronic's defense costs that NW Natural has agreed to pay under the Cost Sharing Agreement. Under Lamb-Weston, Inc. v. Or. Auto. Ins. Co., 219 Or. 110, 341 P.2d 110 (1959), Oregon courts apply a scheme of pro rata apportionment to divide a loss when two or more insurers cover the same loss (and contain an "other insurance" clause). That scheme also applies to apportioning defense costs:
Burnett v. W. Pac. Ins. Co., 255 Or. 547, 555, 469 P.2d 602, 606 (1970) (en banc).
Nonetheless, the apportionment doctrine under Oregon law has "no effect on each insurer's independent obligations to make the insured whole to the extent of its applicable policy limits." Cascade Corp. v. Am. Home Assur. Co., 206 Or.App. 1, 7, 135 P.3d 450, 454 (2006).
Id at 8, 135 P3d at 455.
Here Siltronic, as the insured, has voluntarily limited its liability for defense costs and indemnity for legacy MGP contamination by entering into the Cost Sharing Agreement. Under the reasoning in Burnett, Wausau can make a credible argument that until such time as Siltronic incurs defense costs for legacy MGP contamination, it should only have to bear the defense costs that correspond to Siltronic's portion of liability under the Cost Sharing Agreement associated with TCE (and "other contaminants" not assumed by either party under the Cost Sharing Agreement) which it has already paid in accordance with the 1980-86 Policies. If such a position is successful, then Wausau has not yet breached its duty to defend Siltronic under the 1978-79 Policy and will not do so until Siltronic actually incurs defense costs for legacy MGP contamination covered under the 1978-79 Policy.
However, the parties have not had an opportunity to fully address this issue. Therefore, the court defers any ruling as to whether Wausau breached its duty to defend under the 1978-79 Policy post-tender and, in particular, when it ceased paying any of Siltronic's defense costs in September 2009.
For the reasons set forth above, the Second Motion for Partial Summary Judgment filed by Siltronic (docket #141) and joined in by Granite State (docket #147) is GRANTED in part, DENIED in part, and DEFERRED in part as follows:
1. GRANTED as to Wausau's duty under the 1978-79 Policy to defend claims for damage arising from contamination from legacy MGP (and other contaminants, not including TCE, covered by the DEQ and EPA actions) on the Property during the policy period;
2. DENIED as to any obligation by Wausau under the 1978-79 Policy to pay defense costs incurred by Siltronic prior to its tender of defense on June 23, 2003;
3. DENIED as to any obligation by Wausau under the 1978-79 Policy to pay defense costs incurred by Siltronic resulting from TCE contamination; and
4. DEFERRED as to whether Wausau has breached its duty to defend under the 1978-79 Policy after the tender of defense on June 23, 2003.
