Pacific Hide & Fur Depot v. Great American Insurance Company et al
Filing
114
ORDER granting 98 Motion for Partial Summary Judgment; denying 104 Motion to Amend/Correct; denying 60 motion for partial summary judgment. Signed by Chief Judge Dana L. Christensen on 10/15/2013. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUTTE DIVISION
PACIFIC HIDE & FUR DEPOT, a
Montana corporation, n/k/a Pacific Steel
& Recyling,
CV 12–36–BU–DLC
ORDER
Plaintiff,
vs.
GREAT AMERICAN INSURANCE
COMPANY, a Delaware corporation; and
RESOLUTE MANAGEMENT INC., and
NATIONAL INDEMNITY COMPANY,
Defendants.
This order resolves three extensively briefed and interrelated pending
motions in this case: (1) Defendant Great American Insurance Company’s motion
for partial summary judgment based on the statute of limitations1 (doc. 60); (2)
Plaintiff Pacific Hide & Fur Depot’s cross-motion for partial summary judgment
on Defendant Great American Insurance Company’s statute of limitations
affirmative defense (doc. 98); and (3) Defendants National Indemnity Company
1
While this motion was filed jointly by Defendants Century Indemnity Company, Central
National Insurance Company of Omaha, and Great American Insurance Company, the Court
granted Plaintiff’s unopposed motion to dismiss Century and Central National on August 19,
2013 (doc. 102).
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and Resolute Management, Inc.’s motion to amend the September 27, 2012
scheduling order so that they may file and brief motions for summary judgment on
the statute of limitations (doc. 104).
For the reasons articulated below, Great American’s motion is denied,
Pacific Hide’s motion is granted, and National Indemnity and Resolute
Management’s motion is denied.
I. FACTS
From approximately 1957 to 1988, Pacific Hide & Fur Depot, Inc.
(“Pacific”) leased a property in Bozeman, Montana that later became known as the
CMC Bozeman Asbestos Site (“Site”). Between 1957 and 1977, Pacific purchased
at least eleven liability policies (doc. 35) from Great American Insurance
Company (“Great American”), which are the subject of this litigation.
The Montana Department of Environmental Quality (“MDEQ”) notified
Pacific sometime in 1990 that it might be potentially liable for the cleanup of
asbestos contamination at the Site. In a letter dated January 2, 1996, pursuant to
the Comprehensive Environmental Cleanup and Responsibility Act (“CECRA”),
MDEQ notified Pacific that it had been identified as a potentially liable person
(“PLP”) for the Site cleanup, and that “if subsequently found liable,” Pacific “will
be required to reimburse MDEQ for remedial action costs incurred by the state
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in . . . implementing or in compelling Pacific . . . to implement remedial
action . . . .” (Doc. 63-1.) MDEQ requested Pacific’s cooperation with CMC, the
Site owner, but made no other requests or demands. (Doc. 63-1.)
In a letter dated September 23, 2003, MDEQ offered Pacific and the other
PLPs the opportunity to conduct either an “interim or permanent remediation” of
the Site, and stated that if Pacific chose not to conduct one of the remedial actions
outlined in the letter, “DEQ may conduct the actions itself and recover its costs or
it may issue an order or initiate a civil action requiring [Pacific] to perform the
actions.” (Doc. 63-5.) Pacific declined to conduct any remedial action, and
exchanged several letters with MDEQ regarding Pacific’s CECRA liability. For
the purposes of these motions, suffice it to say that Pacific did not believe it was
liable, and MDEQ disagreed.
In a letter dated March 25, 2004, counsel for Pacific notified Great
American that Pacific had been identified as a PLP at the Site, and stated:
“It is my understanding that the City of Bozeman has agreed to perform a
voluntary cleanup at the site and is in the process of implementing a cleanup plan.
It is possible that the City of Bozeman will, in the future assert a cost contribution
claim against Pacific. Pacific hereby requests that Great American defend and
indemnify it from all claims arising at the [Site].” (Doc. 63-12.) Pacific attached a
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schedule of the fourteen alleged Great American policies.
In a letter dated April 27, 2005, Great American denied Pacific’s tender for
defense and indemnity coverage. (Doc. 86-10.) On August 7, 2007, Pacific
executed a stipulated consent judgment, under which it agreed to a 15% allocation
of liability for the Site, to be paid to the City of Bozeman as the party that
undertook the MDEQ-mandated site cleanup. (Doc. 86-17.) On July 13, 2010,
Pacific executed an “Agreement and Release” with the City, and tendered a check
for $650,000, an amount that Pacific and the City agreed constituted Pacific’s 15%
allocation. (Doc. 35-7.)
Pacific filed a complaint against Great American and the other Defendants
in the Montana Eighteenth Judicial District Court on May 2, 2012, alleging breach
of contract and bad faith claims handling practices. (Doc. 9.) Century and Central
National filed a notice of removal on June 8, 2012 (doc. 1); Great American joined
the notice on the same day (doc. 2). Following the preliminary pretrial conference
on September 11, 2012, the Court bifurcated this litigation, with Phase I to deal
with Counts I-VI (the breach of contract and declaratory judgment claims against
Great American, Century, and Central National), and Phase II to deal with the
remaining Counts (the Bad Faith and Unfair Trade Practices Act Claims).
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Great American moves for summary judgment, arguing that Counts I
through VI of Plaintiff’s amended complaint (the Phase I claims) are barred by
Montana’s eight year statute of limitations for actions founded upon a written
instrument. MCA § 27-2-202.2 In its cross-motion for summary judgment, Pacific
argues that the statute of limitations had not expired by the time it filed its
complaint. Not surprisingly, the point of contention between the parties, and the
issue the Court must now resolve, is when the breach of contract claim accrued
and the statute of limitations began to run.
Following the Court’s dismissal of Century and Central National as
defendants in this case, Phase II defendants National Indemnity Company and
Resolute Management moved the Court to amend its scheduling order to allow
them to file a summary judgment motion on the statute of limitations affirmative
defense. (Doc. 104.) Pacific opposes this motion. (Doc. 108.)
II. SUMMARY JUDGMENT STANDARD
Summary judgment is proper if the moving party demonstrates “that there is
no genuine dispute as to any material fact and the movant is entitled to judgment
2
Because Counts II, III, V, and VI relate to Defendants who have been dismissed since
Great American’s motion for summary judgment was filed, the instant motions relate to Counts I
and IV. In Count I Pacific alleges that Great American breached its contractual duty by failing to
defend and indemnify Pacific against claims brought by MDEQ and the City of Bozeman. Count
IV is a declaratory judgment action to determine Pacific’s rights under its policies with Great
American.
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as a matter of law.” Fed. R. Civ. P. 56(a). The movant bears the initial burden of
informing the Court of the basis for its motion and identifying those portions of
“the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986) (internal quotation marks omitted).
The movant’s burden is satisfied when the documentary evidence produced
by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 251–52 (1986). Where the moving party has met its initial burden, the
party opposing the motion “may not rest upon the mere allegations or denials of
his pleading, but . . . must set forth specific facts showing that there is a genuine
issue for trial.” Id. at 248 (internal quotation marks omitted).
III. ANALYSIS
A. Motions for Summary Judgment on the Statute of Limitations
As previously stated, the resolution of these motions hinges on the question
of when the statute of limitations for Pacific’s breach of contract claims began to
run.
The Court’s jurisdiction over this matter is based on diversity of citizenship
under 28 U.S.C. § 1332. “The source of substantive rights enforced by a federal
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court under diversity jurisdiction . . . is the law of the States.” Guar. Trust Co. of
N.Y. v. York, 326 U.S. 99, 112 (1945). Under Montana law, an action founded
upon a written contract must be commenced within eight years of when the action
accrued. MCA § 27-2-202(1). An action is commenced when the complaint is
filed. MCA § 27-2-102(1)(b). For the purposes of the statute of limitations, such
an action “accrues when all elements of the claim or cause exist or have occurred,
the right to maintain an action on the claim or cause is complete, and a court or
other agency is authorized to accept jurisdiction of the action.” MCA § 27-2102(1)(a). Pacific filed its complaint on May, 2, 2012; thus, if all elements of the
claim existed prior to May 2, 2004, Pacific’s complaint is untimely and barred as a
matter of law.
1. The PTSCA Cases
In support of its motion, Great American relies on three relatively recent
Montana Supreme Court decisions: Montana Petroleum Tank Release Comp. Bd.
v. Capitol Indem. Co., 137 P.3d 522 (Mont. 2006); Montana Petroleum Release
Comp. Bd. v. Federated Service Ins. Co., 185 P.3d 998 (Mont. 2008); and
Montana Petroleum Tank Release Comp. Bd. v. Empire Fire and Marine Ins. Co.,
185 P.3d 1021 (Mont. 2008) (hereinafter collectively referred to as the “PTSCA
cases”).
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The PTSCA cases involve subrogation claims filed by the Petroleum Tank
Release Compensation Board (“Board”) against several insurance carriers. The
Board is a state entity whose purpose is to protect the public health, safety, and the
environment by encouraging prompt cleanup of petroleum releases. Federated
Service, 185 P.3d at 999. The Board is charged with administering the Petroleum
Tank Release Cleanup Fund, which is funded by the owners and operators of
petroleum storage tanks, and provides reimbursement for certain remedial costs
when underground tanks fail. Id. “When the Board reimburses owners or operators
for their cleanup costs, it may be entitled to subrogate against insurance carriers
whose policies covered the cleanup costs of the owners for petroleum spills or
leaks.” Id.
In the PTSCA cases, owners of underground petroleum storage tanks
discovered or were notified of soil and/or groundwater contamination emanating
from their tanks. The owners investigated and remediated the spills as required by
Montana law and demanded by the MDEQ. With the exception of the owner in
Empire Fire, the owners did not notify their insurers of the contamination or of
their obligation to remediate, nor did they file claims to recover the cleanup costs
under their policies. See Capitol Indemnity, 137 P.3d at 525; Federated Service,
185 P.3d at 1000. Instead, the owners sought and received reimbursement from
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the Board for their cleanup costs. The Board then brought direct subrogation
claims against the owners’ insurance carriers to recover the cost of cleanup.
The crux of the insurers’ argument was that the statute of limitations began
to run when the owners could have first filed a claim against their insurers for
payment of the cleanup costs, which they argued occurred no later than when the
owners began paying cleanup costs. Capital Indemnity, 137 P.3d at 526. The
Board countered that the limitations period did not begin to run until the insurers
denied its claims to recover the amount that it reimbursed the owners that
undertook the cleanup. See Capitol Indemnity, 137 P.3d at 526. In each of the
three PTSCA cases, the Montana Supreme Court ruled in favor of the insurer and
against the Board.
In Federated Service, the Court stated: “[T]he statute of limitations for a
contract claim began to run when all the elements had accrued for the insured to
have filed a claim with its insurer—not when the claim had been submitted to and
then denied by the insurer.” 185 P.3d at 1001 (citing Capitol Indemnity, 137 P.3d
522 at ¶ 18). “[A]ll of the elements of the claim or cause existed when the events
that were insured against occurred. When the spills insured by these policies
occurred, the right to maintain an action on the insurance was complete. At that
time, the period of limitations began to run and the insured had eight years to
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commence an action to recover under their policies.” Id. at 1001-1002. As
summarized in Empire Fire: “the statute of limitations for an indemnity claim by
the Board began to run when the claim had accrued–e.g., when [insured]
discovered the leak–not when the insurer denied the claim.” 185 P.3d at 1023.
Great American claims that together, “these cases establish that the eightyear limitations period for suits on insurance contracts in the environmental
pollution context commences when a policyholder learns of environmental
contamination and associated liability,” (doc. 61 at 6.), and that the eight years
began to run when Pacific first learned of the contamination, which the undisputed
record indicates was prior to May 2, 2004. This, however, is an overbroad and
inaccurate interpretation of the holdings in this line of cases.
Great American mistakenly conflates two distinct causes of action to which
Montana’s eight year statute of limitations for “the commencement of an action
upon contract” applies: a subrogation claim for indemnity, and a claim for breach
of the contractual duties to defend and indemnify. There is no indication in any of
the PTSCA cases that the Montana Supreme Court intended for its decisions
regarding the former to apply to the latter. Under Great American’s interpretation,
the cause of action for a breach of contract claim could potentially, as in this case,
accrue before the alleged breach occurred, which is both illogical and contrary to
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the basic precepts of contract law.
This is not an “insurance coverage case” (doc. 61 at 1); this is an action for
breach of contract, and Great American cannot use the Montana Supreme Court’s
narrow holdings in the PTSCA cases to subsume that cause of action. While the
PTSCA cases have some bearing on the duty to indemnify as discussed below,
they are wholly unrelated to the duty to defend.
Montana law is clear that “[a]ccrual begins at the breach in a breach of
contract action,” Testana, Inc. V. Klabuza Oil & Gas, 222 P.3d 580, 587 (Mont.
2010) (citing Kitchen Krafters v. Eastside Bank of Montana, 789 P.2d 567, 571
(Mont. 1990) (abrogated in part on other grounds)), and that “the statute of
limitations runs from the time of breach in a breach of contract action.” Id. Thus,
the dispositive question is not when did Pacific learn of the contamination, but
when did Great American allegedly breach their contractual duties to defend and
to indemnify.
2. The Duty To Defend
As a threshold issue, it is critical to note that not only do the PTSCA cases
not address the breach of contract issue, but they are limited to indemnity claims,
and do not touch upon the duty to defend, which Montana law recognizes as
“independent from and broader than the duty to indemnify created by the same
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insurance contract.” Farmers Mut. Ins. Co. v. Staples, 90 P.3d 381, 384 (Mont.
2004).
Montana law has long recognized that a breach of the duty to defend under
an insurance policy occurs upon “the refusal of the insurer to defend the action,”
which if unjustified, “constitute[s] a breach of the contract.” Indep. Milk & Cream
Co. v. Aetna Life Ins. Co., 216 P. 1109, 1110 (Mont. 1972); see also Home Ins.
Co. v. Pinski Bros., Inc., 500 P.2d 945, 949 (Mont. 1972) (“Having refused to
defend Knight against [plaintiff’s] complaint alleging negligence within Knight’s
policy coverage, Home’s refusal to defend constituted a breach of contract”).
While the Montana Supreme Court has been clear and consistent in its
holdings that a refusal to defend constitutes a breach of the insurance contract, it
has not yet answered the question of when a cause of action for breach of that duty
accrues. Other jurisdictions have articulated two answers to this question. Under
the majority view:
[I]n an action by an insured against an insurer for refusal to
defend, the insured's cause of action under general statutes
of limitations accrues when judgment is obtained against
the insured, as opposed to the date the insurer refused to
defend, the date the insurer denies coverage, or the
insured's payment of a compromise settlement.
Dutton-Lainson Co. v. Cont'l Ins. Co., 716 N.W.2d 87, 100 (Neb. 2006) (quoting
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17 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 236:102 at 236-94
to 236-95 (2000)). If this rule was applied to the undisputed facts of the instant
case, Pacific’s claim would have accrued on August 7, 2007, the date on which it
entered into the consent judgment with the City of Bozeman.
Under the minority rule, the cause of action for breach of the duty to defend
accrues “when the insurer refuses to defend,” and accordingly, “the statute of
limitations period . . . commences on the day the insurer refuses tender of the
defense.” Lambert v. Commonwealth Land Title Ins. Co., 811 P.2d 737, 739 (Cal.
1991). Under this rule, Pacific’s claim would accrue on April 27, 2005, when
Great American refused to defend Pacific.
While the Montana Supreme Court has not yet resolved this question, under
either paradigm, Pacific filed its complaint within eight years of the accrual date
for the alleged breach, and thus within the statute of limitations.
3. The Duty to Indemnify
The Court reaches a similar conclusion on the duty to indemnify. The
Montana Supreme Court has yet to rule directly on accrual of a claim for breach of
the duty to indemnify, but it has ruled on the accrual of indemnity claims. While
the distinction between these two claims is critical to the Court’s decision on these
motions, they are related, such that a breach of the duty to indemnify—and the
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accrual date for that breach—cannot logically occur until the underlying claim for
indemnity accrues.
Under Montana law, the statute of limitations for an indemnity claim starts
to run “when all the elements accrue[] for [insured] to file a claim with [insurer].”
Capital Indemnity, 137 P.3d at 526. In the PTSCA cases, the Supreme Court held
that in subrogation actions for indemnify brought by the Board against insurers,
the statute of limitations begins to run not when the insurer denies the indemnity
claim, but when the claim accrues. Throughout those cases, the court points to
“discovery of the leak and the subsequent obligation on the part of the owners to
cleanup the spilled petroleum” as the moment the owners’ claims accrued.
Federated Service, 185 P.3d at 1002. This language is entirely consistent with the
court’s prior holdings. See, e.g., St. Paul and Marine Ins. Co. v. Thompson, 451
P.2d 98, 102 (Mont. 1969) (stating the statute of limitations will not run on a
common law indemnity claim “until the obligation [to pay] arises”).
There are several critical distinctions between the PTSCA cases and the
case at bar—aside from the fact that this claim is for breach of contract—that
preclude Great American’s extremely broad interpretation of the PTSCA holdings.
First, those indemnity claims arose under the PTSCA scheme of liability, which is
distinct, specific, and automatic. See Mont. Code Ann. § 75-11-309(1)(a) (“If an
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owner or operator discovers or is provided evidence that a release may have
occurred from the owner's or operator's petroleum storage tank, the owner or
operator shall immediately notify the department of the release and conduct an
initial response to the release in accordance with state and federal laws”). The
court gives no indication that its holdings apply outside of the PTSCA context, let
alone to all environmental pollution, as contended by Great American.
Second, the precise wording attributing liability “when the leaks were
discovered” is immediately followed by “and the obligation for cleanup occurred,”
Federated Service, 185 P.3d at 1002, which implies that the two are not
necessarily synonymous in the eyes of the court. Here, nothing in CECRA or the
undisputed facts indicates automatic liability, or anything that could be deemed an
“obligation” until Pacific executed the consent judgment on August 7, 2007.
Finally, the owners in the PTSCA cases all paid their cleanup costs more
than eight years before the Board filed its indemnity claims against the insurance
companies, which is a significant factor in the court’s determination and its
underlying policy rationale. Here, the plaintiff settled its liability and paid the
cleanup costs once Great American declined to defend it against MDEQ and the
City of Bozeman, and did so within the eight year statute of limitations.
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The Court rejects the Defendant’s interpretation of the PTSCA cases. Under
the undisputed facts, Pacific first became “obligated,” and thus its indemnity claim
accrued, on August 7, 2007 when it executed the consent judgment. Prior to that
date, Pacific did not render—and was under no legal obligation to render—any
payments for which it could be indemnified. Although Montana law does not yet
define when the claim for breach of a duty to indemnify accrues, it cannot
logically accrue prior to the date on which the indemnity claim itself accrues.
Because the determinations articulated above dispose of the motions before
the Court, no discussion of the myriad of other arguments asserted by the parties
in their extensive briefing on these motions is required.
In summary, the earliest point at which the alleged breach of the duty to
defend could have occurred is on April 27, 2005, when Great American denied
Pacific’s request. The earliest point at which the alleged breach of the duty to
indemnify could have occurred is on August 7, 2007, when Pacific executed the
consent judgment. Thus, as a matter of law, Pacific’s claims were properly filed
within the eight year statute of limitations.
B. Motion to Amend the Scheduling Order
Defendants National Indemnity Company and Resolute Management, Inc.
(“Movants”) have filed a motion (doc. 105) seeking to modify the September 27,
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2012 scheduling order (doc. 35) to allow them to file a motion for summary
judgment,
as to the Statute of Limitations on the grounds that, in the
interest of judicial efficiency and in light of the recent
settlement by Plaintiff . . . of its claims against Defendants,
Century Indemnity Company (“Century”) and Central
National Insurance Company (“Central National”), this
Court’s bifurcation of this action into two separate phases
should be modified to permit NICO and Resolute to
address the legal issues that Century and Central National
raised in the Motion for Summary Judgment as to Statute
of Limitations in general and in the specific context of
Pacific’s bad faith claims.
(Doc. 104 at 2.) Pacific opposes the motion. (Doc. 108.)
The question of the “Statute of Limitations in general” has been
extensively briefed, and is resolved by this order. This case has been bifurcated,
and all claims against the Movants will be addressed during Phase II. The Court
does not find the Movants’ arguments regarding their need to brief on the statute
of limitations “in the specific context of Pacific’s bad faith claims” at this juncture
of Phase I compelling. Modification of the scheduling order at this point does not
serve the purposes of expediency, judicial economy, convenience, or avoiding
prejudice. See Fed. R. Civ. P. 42(b) (“For convenience, to avoid prejudice, or to
expedite and economize, the court may order a separate trial of one or more issues,
claims, crossclaims, counterclaims, or third-party claims.”).
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IV. CONCLUSION
According to the undisputed facts in this case, Pacific’s breach of contract
claims accrued no earlier than April 27, 2005. Thus, the eight year statute of
limitations period had not yet expired on May 2, 2012 when Pacific filed its
complaint. There being no genuine dispute as to any material fact in this case,
Pacific is entitled to judgment as a matter of law on Great American’s statute of
limitations affirmative defense.
Accordingly, IT IS ORDERED that Great American’s motion for partial
summary judgment on the statute of limitations (doc. 60) is DENIED, and Pacific
Hide and Fur Depot, Inc.’s cross-motion for partial summary judgment on the
statute of limitations (doc. 98) is GRANTED.
Because the Court has resolved the statute of limitations question, further
motions and briefing on the issue are unnecessary.
Accordingly, IT IS FURTHER ORDERED that National Indemnity
Company and Resolute Management, Inc.’s motion to amend September 27, 2013
scheduling order (doc. 104) is DENIED.
DATED this 15th day of October, 2013.
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