Ash Grove Cement Company v. Liberty Mutual Insurance Company et al
Filing
208
Opinion and Order - Defendant Liberty Mutual Insurance Companys Motion for Partial Summary Judgment 175 , United States Fidelity and Guaranty Companys Joinder in Liberty Mutual Insurance Companys Motion for Partial Summary Judgment 180 , Plaintiffs Cross-Motion for Partial Summary Judgment Against Liberty Mutual Insurance Company 186 , and Plaintiffs Cross-Motion for Partial Summary Judgment Against United States Fidelity and Guaranty Company 191 are denied. Three motions to compel are pending. I ask counsel to confer and inform the court by July 15 which subparts of the motions still require resolution in light of this ruling. Signed on 6/20/2011 by Judge Garr M. King.( See formal Opinion and Order, 15-pages) (ecp)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
ASH GROVE CEMENT COMPANY,
a Delaware corporation,
Plaintiff,
3:09-cv-00239-KI
OPINION AND ORDER
vs.
LIBERTY MUTUAL INSURANCE COMPANY,
a Massachusetts insurance company, TRAVELERS
INSURANCE COMPANY, a Connecticut insurance
company; HARTFORD ACCIDENT and
INDEMNITY COMPANY, a Connecticut insurance
company; and UNITED STATES FIDELITY &
GUARANTY COMPANY, a Maryland insurance company,
Defendants.
Michael E. Farnell
Spencer S. Adams
Seth H. Row
Parsons Farnell & Grein, LLP
1030 SW Morrison Street
Portland, Oregon 97205
Page 1 - OPINION AND ORDER
Daniel A. Zariski
Michael R. Wrenn
Wolfe Wrenn & Zariski
Two Union Square
601 Union Street, Suite 5110
Seattle, Washington 98101
Attorneys for Plaintiff
Kevin G. McCurdy
McCurdy & Fuller
4300 Bohannon Drive, Suite 240
Menlo Park, California 94025
Kimberly R. Griffith
Thomas M. Christ
Cosgrave Bergeer Kester, LLP
805 SW Broadway, 8th Floor
Portland, Oregon 97205
Attorneys for Defendant Liberty Mutual Insurance Company
Thomas A. Gordon
Andrew S. Mosses
Gordon & Polscer, LLC
9755 S. W. Barnes Rd., Suite 650
Portland, Oregon 97225
Attorneys for Defendant United States Fidelity & Guaranty Company
KING, Judge:
Plaintiff Ash Grove Cement Company (“Ash Grove”) filed this action seeking a
declaratory judgment that its insurers, defendants Liberty Mutual Insurance Company (“Liberty
Mutual”) and United States Fidelity and Guaranty Company (“USF&G”) have a duty to defend
and indemnify Ash Grove concerning contamination at the Portland Harbor Superfund Site
(“Site”). I previously held that the insurers had a duty to defend Ash Grove. The parties now
dispute the scope of the duty to defend and have filed cross motions for summary judgment. As
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discussed below, I am able to determine what law I will follow but factual issues preclude me
from applying the law to the facts.
FACTS
On January 11, 2008, David Batson wrote Ash Grove as a convening neutral to invite the
company to an informational meeting of parties associated with the Site. Batson explained that
he would:
serve as a confidential neutral professional and assist parties to prepare for
eventual negotiations with federal and state agencies through organizing into a
group of potentially responsible parties (PRPs) and conducting an allocation of
site costs among parties associated with the Site. I serve at the discretion of an
initial group of parties (the Convening Group) brought together by the U.S.
Environmental Protection Agency (EPA) for the purpose of exploring the creation
of a PRP Group.
....
. . . There are no preconditions or commitments required for your attendance at the
convening meeting; just your desire to learn about how to take advantage of the
opportunity of joining other similarly situated parties in meeting your common
interests.
McCurdy Decl. Ex. 4, at 1, 3.
Ash Grove joined the ADR process explained in Batson’s letter, also known as the
allocation process. Approximately 70 entities are taking part in this process. Ash Grove retained
Leslie Nellermoe to represent it in connection with the Site. Nellermoe states that the EPA
informed companies participating in the ADR process that it intends to negotiate only with
entities that participated.
Ash Grove’s expert witness, J.W. Ring, is an attorney who has dealt with Superfund sites
in more than 15 states. He currently represents two clients in conjunction with the Portland Site
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which are not involved in the litigation before me. According to Ring, convening neutrals, such
as Batson, are EPA employees assigned to gather private parties together to begin a group ADR
process. The convening neutral does not use EPA letterhead because he is not formally
advocating for the EPA’s position in the process. The EPA compensates the neutral at first but
conditions approval of a settlement on the private parties reimbursing the EPA for the neutral’s
costs. In Ring’s experience, an entity that receives an invitation from a convening neutral should
consider itself as having been identified by the EPA as a potentially responsible party. In Ring’s
opinion, an entity that does not participate in the ADR process severely limits its options for
opposing full joint and several liability for the cleanup.
The EPA sent Ash Grove a 104(e) request1 on January 18, 2008. The EPA sent such
requests to 326 entities seeking information about activities that could have resulted in releases
of hazardous substances at the Site. The EPA uses the information it obtains to determine the
need for any response action at the Site and to identify additional potentially responsible parties
1
“Under section 104(e) of the Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA, commonly referred to as Superfund), EPA is authorized to seek
information involving sites containing hazardous substances. Early in the cleanup process, EPA
conducts a search to find all of the potentially responsible parties (PRPs). EPA looks for
evidence to determine liability by matching wastes found at the site with parties that may have
contributed wastes to the site. EPA uses many approaches to do this research, including the use
of ‘information request letters’ to gather information.”
http://www.epa.gov/compliance/resources/publications/cleanup/superfund/104e/ (last visited
June 20, 2011).
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for performing the cleanup. The EPA sent General Notice Letters2 to 141 entities identified as
potentially responsible parties at the Site.3
On January 29, 2008, Ash Grove sent USF&G a copy of the 104(e) request it received,
along with: (1) copies of letters the Lower Willamette Group (“LWG”) sent Ash Grove naming
it as an alleged potentially responsible party and threatening to file suit for contribution; and
(2) a tolling agreement Ash Grove entered into with the LWG. Ash Grove informed USF&G
that it had no time to notify it prior to signing the tolling agreement, but that Ash Grove believed
the tolling agreement also benefitted its insurers. Ash Grove also stated, “Please accept this
notice as a first report of claim.” Rose Decl. Ex. 1.
Also on January 29, 2008, Ash Grove sent Liberty Mutual a copy of the 104(e) request
but did not attach the other documents. The cover letter was very brief, advising that the
company had a policy which would apply to “this claim” and stating that the company would
keep the insurer informed of any further developments. Pearson Decl. Ex. 1, at 1.
USF&G wrote Ash Grove on February 25, 2008 to acknowledge receipt of the January 29
letter and to state that it was searching for potentially applicable policies. The insurer explained
it would review the policies to determine if USF&G had a duty to pay some or all of the costs for
2
“General notice letters inform recipients that they are: identified as PRPs at Superfund
sites, that they may be liable for cleanup costs at the site, and explains the process for negotiating
the cleanup with EPA. The letter also includes information on Superfund, the site, and may
include a request for additional information.”
http://www.epa.gov/compliance/cleanup/superfund/notice.html (last visited June 20, 2011).
3
Kevin McCurdy, counsel for Liberty Mutual, supplied these figures; he obtained the
data from the EPA’s web site on May 4, 2011. Leslie Nellermoe, counsel for Ash Grove,
reported the EPA sent 278 section 104(e) requests and 103 General Notice Letters. The slight
differences are insignificant for this argument.
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a lawyer to represent Ash Grove in the Site dispute and if USF&G had a duty to indemnify Ash
Grove for some or all of the costs associated with the resolution of the matter. USF&G also told
Ash Grove that it should take any steps necessary to fully protect its rights in the matter but,
“Should it be determined that we will participate in representation of Ash Grove Cement
Company under any alleged policies, only fees incurred on or after the date of tender will be
considered for reimbursement.” Id. Ex. 3, at 2. USF&G also reserved all rights and stated that
the letter should not be construed as a waiver of any right or defense.
On February 25, 2008, Liberty Mutual wrote Ash Grove to document a telephone
conversation in which Ash Grove advised that it would provide notice to the insurer of potential
claims but that it was not involved in any litigation and was not presenting a formal claim.
On March 25, 2008, Ash Grove sent USF&G a letter informing the insurer that Ash
Grove had retained Leslie Nellermoe to defend it in connection with the Site.4
On May 27, 2008, Ash Grove wrote Liberty Mutual to explain the history of the LWG
and to note that the EPA sent 104(e) requests to 280 entities. Ash Grove also stated Liberty
Mutual was responsible for payment of the significant expense Ash Grove incurred to respond to
the 104(e) request. This letter was the first time Ash Grove informed Liberty Mutual that it was
incurring costs to respond to the EPA’s inquiries or asked Liberty Mutual to reimburse those
costs.
Ash Grove submitted its initial response to the 104(e) request on October 24, 2008 and
has not received any written communication from the EPA since. Ash Grove intends to
supplement its response and has put some effort into the supplement.
4
The court does not have a copy of this letter.
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In November 2008, Ash Grove sent invoices to USF&G listing costs Ash Grove incurred
responding to the 104(e) request. This was the first time USF&G learned Ash Grove expected
USF&G to reimburse defense costs.
LEGAL STANDARDS
Summary judgment is appropriate when there is no genuine dispute as to any material fact
and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(a). The
initial burden is on the moving party to point out the absence of any genuine dispute of material
fact. Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate
through the production of probative evidence that there remains a fact dispute to be tried.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the
court “must view the evidence on summary judgment in the light most favorable to the
non-moving party and draw all reasonable inferences in favor of that party.” Nicholson v.
Hyannis Air Service, Inc., 580 F.3d 1116, 1122 n.1 (9th Cir. 2009) (internal quotation omitted).
DISCUSSION
On September 30, 2010, I filed an Opinion and Order in which I held that the
104(e) request for information the EPA sent to Ash Grove, pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9604(e),
constituted a “suit” under the terms of the insurance policies and the Oregon Environmental
Cleanup Assistance Act (“OECAA”), ORS § 464.480, thus triggering the insurers’ duty to defend
Ash Grove.
In these cross motions, the parties dispute when liability under the duty to defend began
and when it ends.
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I.
Defense Costs Prior to Ash Grove’s Tender of the Defense
Based on Ash Grove’s failure to tender earlier, and Ash Grove’s failure to get permission
to incur costs prior to the tender dates, the insurers ask the court to conclude as a matter of law
that they have no obligation to reimburse Ash Grove for any defense costs incurred prior to the
tender dates.
A.
Date of Tender
The tender dates themselves are at issue. Thus, I must determine whether putting the
insurers on notice of the 104(e) request is sufficient to trigger the duty to defend.
The insurers argue that the duty to defend Ash Grove did not begin until the company
tendered the 104(e) request to them, specifically May 27, 2008 for Liberty Mutual and November
2008 for USF&G. Prior to those dates, the insurers contend that Ash Grove informed them of
the 104(e) request but did not ask the insurers to take any action and did not ask for a defense.
Ash Grove contends the insurers’ duty to defend was triggered when Ash Grove
forwarded the 104(e) request to Liberty Mutual and USF&G on January 29, 2008. Ash Grove
argues that the policies do not make the tender of the defense an additional step after providing
notice of a claim. According to Ash Grove, once it sent the 104(e) request to the insurers, the
insurers had a duty to investigate whether coverage existed unless Ash Grove specifically asked
the insurers not to defend. Ash Grove argues that case law from other jurisdictions which
requires the insured to make an affirmative request for a defense, beyond simple notification of a
claim, should not be applied here because the policy language does not put that burden on the
insured.
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“An insurer is not obligated to defend any action not tendered to it.” Am. Cas. Co. v.
Corum, 139 Or. App. 58, 63 n.3, 910 P.2d 1151 (1996). Ash Grove argues this is dicta but the
rule is followed in other jurisdictions. See Unigard Ins. Co. v. Leven, 983 P.2d 1155, 1160
(Wash. Ct. App. 1999) (“the insured must affirmatively inform the insurer that its participation is
desired”); Purvis v. Hartford Accident and Indem. Co., 877 P.2d 827, 830 (Ariz. Ct. App. 1994)
(“What is required is knowledge that the suit is potentially within the policy’s coverage coupled
with knowledge that the insurer’s assistance is desired.”) (internal quotation omitted).
Importantly, however, the Oregon case does not explain what conduct is necessary to
tender a claim or suit. Gaining no guidance from Corum, I turn to the policies, which state:
Insured’s Duties in the Event of Occurrence, Claim or Suit
(a) In the event of an occurrence, written notice containing particulars
sufficient to identify the insured and also reasonably obtainable information with
respect to the time, place, . . . shall be given by or for the insured to the company
or any of its authorized agents as soon as practicable. The named insured shall
promptly take at his expense all reasonable steps to prevent other bodily
injury . . . .
(b) If claim is made or suit is brought against the insured, the insured shall
immediately forward to the company every demand, notice, summons or other
process received by him or his representative.
(c) The insured shall cooperate with the company and, upon the company’s
request, assist in making settlements . . . ; and the insured shall attend hearings
and trials . . . . The insured shall not, except at his own cost, voluntarily make any
payment, assume any obligation or incur any expense other than for first aid to
others at the time of accident.
Row Decl. Ex. B, at 32, Conditions–Insured’s Duties in the Event of Occurrence, Claim or Suit.
There are no other duties listed for the insured. The policies further state: “[T]he company shall
have the right and duty to defend any suit against the insured seeking damages on account of
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such bodily injury or property damage . . . and may make such investigation and settlement of
any claim or suit as it deems expedient . . . .” Id. at 30.
The Oregon legislature also weighed in on what the insurer must do after receiving
notice: “Failing to adopt and implement reasonable standards for the prompt investigation of
claims” is an unfair claim settlement practice under ORS 746.230(1)(c).
Ash Grove’s argument is convincing. As far as I know, the policies do not define a
tender and do not make it a separate obligation from the duty to provide notice, which Ash Grove
provided on January 29, 2008. After receiving notice, the insurers have a statutory duty to
investigate. Without clear Oregon case law or policy language requiring a tender to be
something beyond notice, I have to conclude that the duty to defend may have been triggered as
early as January 29, 2008. I agree with Ash Grove, however, that an insured can tell its insurer
that it does not yet want a defense. The record before me creates a factual issue on whether Ash
Grove asked the insurer to wait. Consequently, I cannot grant summary judgment on when the
duty to defend began.
B.
Voluntary Payment Condition
The insurance policies include a voluntary payment policy, with Liberty Mutual’s policy
effective January 1, 1969, stating: “The insured shall not, except at his own cost, voluntarily
make any payment, assume any obligation or incur any expense other than for first aid to others
at the time of the accident.” Row Decl. Ex. B, at 32, Conditions–Insured’s Duties in the Event of
Occurrence, Claim or Suit. Liberty Mutual’s other policies, as well as the policies from USF&G,
include a substantially similar condition. The insurers claim they are not obligated to reimburse
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any expenses Ash Grove incurred prior to the dates of tender because the payments are voluntary
ones prohibited by the policies.
Ash Grove argues that the insurers waived the voluntary payments condition by refusing
to defend Ash Grove. Ash Grove relies on Holloway v. Republic Indem. Co. of Am., 201 Or.
App. 376, 119 P.3d 239 (2005), rev’d on other grounds, 341 Or. 642, 147 P.3d 329 (2006), in
which the insurer denied a defense to its insured in an employee’s sexual harassment suit. After
the insurer denied a defense by never responding to the request, the insured settled the suit by
stipulating to entry of a $50,000 judgment in exchange for a $6,000 payment by the insured and
assignment of the insured’s rights against the insurer. The court held that the insurer waived the
no voluntary payment condition by refusing to defend the insured. Id. at 380-81.
Because there are factual issues on when the duty to defend began, there are also factual
issues on when the insurers refused to defend Ash Grove. Thus, I cannot determine until trial if
the insurers waived the voluntary payment condition.
II.
Costs for the Alternate Dispute Resolution Process
The insurers ask the court to limit their defense obligation to the costs Ash Grove
reasonably and necessarily incurred to respond to the 104(e) request. Specifically, the insurers
argue they are not obligated to pay for Ash Grove’s participation in the ADR process Batson
initiated in January 2008, prior to Ash Grove’s receipt of the 104(e) request. According to the
insurers, the Batson letter is merely an invitation to attend a voluntary informational meeting,
with no requests to perform a task, produce a document, conduct an investigation, and no penalty
for nonattendance. The insurers note the number of recipients of the Batson letter who are not
taking part in the ADR process. The insurers also rely on my previous ruling that the 104(e)
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request triggered their duty to defend. Thus, they contend that the defense obligation is limited to
action Ash Grove took to comply with that request, which the insurers believe ended when Ash
Grove filed its response with the EPA on October 24, 2008. The insurers maintain that actions
Ash Grove took and will take in anticipation of future claims or suits, which may or may not
transpire, are not defense costs even though participation in the ADR process may be a prudent
business decision.
Ash Grove argues that the duty to defend includes the ongoing ADR process until the
liability is resolved. The company contends that the duty to defend is a duty to defend against a
covered liability and not against a document such as the 104(e) request. In environmental
cleanup actions in particular, Ash Grove contends, Oregon courts recognize that a defense
involves activities broader than those in typical civil litigation. Ash Grove argues that
responding to the 104(e) request is part and parcel of a defense to liability for the Site cleanup
and is only the start of a compulsory administrative process. According to Ash Grove, the ADR
process is intertwined with the 104(e) request and is focused on Ash Grove’s liability. Most
importantly, Ash Grove argues that its participation in the ADR process is essential to limiting its
liability because it can advocate for a lower allocation prior to the EPA issuing a unilateral order
which is nearly impossible to challenge. Ash Grove claims that the EPA will not negotiate
resolutions outside the ADR process. Ash Grove reasons that the duty to defend continues until
no set of facts exists under which the insurers may be responsible for indemnifying Ash Grove.
It is true that the OECAA defines a “suit” to include activities well beyond formal judicial
proceedings:
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“Suit” or “lawsuit” includes but is not limited to formal judicial
proceedings, administrative proceedings and actions taken under Oregon or
federal law, including actions taken under administrative oversight of the
Department of Environmental Quality or the United States Environmental
Protection Agency pursuant to written voluntary agreements, consent decrees and
consent orders.
ORS 465.480(1)(a). This definition makes determining the end of liability for defense costs far
murkier than if the EPA sued Ash Grove in court. Consequently, this issue is better framed as
whether the ADR process is a reasonable and necessary defense cost.
I am persuaded by Ash Grove’s argument that the ADR process might be a reasonable
and necessary defense cost because, in a practical sense, Ash Grove must take part in the ADR
process to have any chance of influencing its ultimate responsibility for cleanup costs at the Site.
This is in spite of the fact that participation in the ADR process is completely voluntary. I view
the 104(e) request as equivalent to the Complaint filed in typical civil litigation. The duty to
defend in court is not limited to costs incurred to draft and file an Answer, and I cannot decide as
a matter of law that defense costs here are limited to the response to the 104(e) request.
ORS 465.480(6)(a) also provides a much broader definition of defense costs than is
generally seen in a typical civil litigation:
There is a rebuttable presumption that the costs of preliminary
assessments, remedial investigations, risk assessments or other necessary
investigation, as those terms are defined by rule by the Department of
Environmental Quality, are defense costs payable by the insurer, subject to the
provisions of the applicable general liability insurance policy or policies.
Based on the briefing before me, I have little sense of what is taking place in the ADR
process. I conclude that this is a factual issue which requires resolution at trial. If Ash Grove
believes that portions of the ADR process, or all of it, are reasonable and necessary defense costs,
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Ash Grove can attempt to prove it at the court trial. I caution both sides, however, that they
cannot paint the process with a broad brush. I might decide that certain activities in the ADR
process are covered defense costs and others are not. Thus, I will need details on what categories
of activities are occurring and what costs are incurred for each category.
Ash Grove raises another issue which more clearly extends the duty to defend past Ash
Grove’s October 2008 response to the EPA. Ash Grove states that it has a continuing obligation
to supplement its response if it obtains new information. Ash Grove obtained such new
information while investigating how to respond to an ADR questionnaire, and it is working on
and intends to submit a supplemental 104(e) response to the EPA. If Ash Grove does submit a
supplemental response, the duty to defend would cover all reasonable and necessary costs to
prepare it.
CONCLUSION
Defendant Liberty Mutual Insurance Company’s Motion for Partial Summary Judgment
[175], United States Fidelity and Guaranty Company’s Joinder in Liberty Mutual Insurance
Company’s Motion for Partial Summary Judgment [180], Plaintiff’s Cross-Motion for Partial
Summary Judgment Against Liberty Mutual Insurance Company [186], and Plaintiff’s CrossMotion for Partial Summary Judgment Against United States Fidelity and Guaranty Company
[191] are denied.
///
///
///
///
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Three motions to compel are pending. I ask counsel to confer and inform the court by
July 15 which subparts of the motions still require resolution in light of this ruling. After I rule
on the motions to compel, I will hold a conference to reschedule the trial.
IT IS SO ORDERED.
Dated this
20
day of June, 2011.
/s/ Garr M. King
Garr M. King
United States District Judge
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