Northwest Pipe Company v. RLI Insurance Company et al
Filing
169
ORDER: The Court GRANTS the Motions for Joinder in Wausaus Motion for Partial Summary Judgment filed by Plaintiff Northwest Pipe Company and Third-Party Defendants Ace Property and Casualty Insurance Company and Ace Fire Underwriters Insuran ce Company (#125 and #132 respectively). The Court also ADOPTS in part and otherwise modifies the Magistrate Judges Findings and Recommendation 151 as set forth herein. Thus, the Court GRANTS the Motion 120 for Partial Summary Judgment of Employ ers Insurance Company of Wausau, Ace Property and Casualty Insurance Company, Ace Fire Underwriters InsuranceCompany, and Plaintiff Northwest Pipe Company and allocates the percentage of NWPs defense costs as follows: ACE - 24.92%; Wausau - 31.81%; RLI - 43.27%. Signed on 06/13/2012 by Judge Anna J. Brown. See attached 15 page Opinion and Order for full text. (bb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
NORTHWEST PIPE COMPANY, fka
NORTHWEST PIPE & CASING COMPANY,
an Oregon corporation,
Plaintiff,
v.
RLI INSURANCE COMPANY, an
Illinois corporation, and
EMPLOYERS INSURANCE COMPANY
OF WAUSAU, a Wisconsin
corporation,
Defendants.
________________________________
RLI INSURANCE COMPANY, an
Illinois corporation,
Third-Party Plaintiff,
v.
ACE FIRE UNDERWRITERS INSURANCE
COMPANY, a Pennsylvania company,
and ACE PROPERTY AND CASUALTY
INSURANCE COMPANY, a Pennsylvania
company,
Third-Party Defendants.
1 - OPINION AND ORDER
3:09-CV-01126-PK
OPINION AND ORDER
MICHAEL B. MERCHANT
MARGARET E. SCHROEDER
Black Helterline LLP
805 Southwest Broadway, Ste. 1900
Portland, OR 97205
(503) 224-5560
Attorneys for Plaintiff Northwest
Pipe Company
CHRISTOPHER W. TOMPKINS
Betts Patterson & Mines PS
701 Pike St., Ste. 1400
Seattle, WA 98101
(206) 292-9988
BRUCE C. HAMLIN
TIMOTHY J. FRANSEN
Martin Bischoff Templeton
Langslet & Hoffman LLP
888 Southwest Fifth Ave.
900 Pioneer Tower
Portland, OR 97204
Attorneys for Defendant and Third-Party
Plaintiff RLI Insurance Company
BRYAN M. BARBER
Barber Law Group
101 California St., Ste. 810
San Francisco, CA 94111
(415) 273-2930
WILLIAM G. EARLE
HANNE EASTWOOD
Davis Rothwell Earle & Xochihua P.C.
111 S.W. Fifth Ave., Ste. 2700
Portland, OR 97204
(503) 222-4422
Attorneys for Defendant Employers
Insurance of Wausau and Third-Party
Defendant Ace Fire Insurance Company
2 - OPINION AND ORDER
BROWN, Judge.
On March 19, 2012, Magistrate Judge Paul Papak issued
Findings and Recommendation (F&R)(#151) recommending the Court
grant in part Defendant Employers Insurance Company of Wausau’s
Motion (#120) for Partial Summary Judgment on its Cross-Claim for
equitable contribution against Defendant/Third-Party Plaintiff
RLI Insurance Company as to which Plaintiff Northwest Pipe
Company (NWP) and Third-Party Defendants Ace Property and
Casualty Insurance Company and Ace Fire Underwriters Insurance
Company (hereinafter referred to collectively as ACE) filed
Motions for Joinder (#125 and #132 respectively).
The Court
hereby GRANTS those Motions (#125, #132) to join Wausau’s Motion
(#120) for Partial Summary Judgment.
In particular, the Magistrate Judge recommended this Court
grant the Motion for Partial Summary Judgment to the extent that
he found Wausau, NWP, and ACE were entitled to contribution from
RLI.
The Magistrate Judge, however, did not recommend finding in
their favor as to the amount of RLI’s contribution.
NWP, Wausau, and ACE filed timely Objections to the
Magistrate Judge’s Findings and Recommendation.
The matter is
now before this Court pursuant to 28 U.S.C. § 636(b)(1) and
Federal Rule of Civil Procedure 72(b).
3 - OPINION AND ORDER
BACKGROUND
The issue at the heart of this insurance coverage case is
whether Comprehensive General Liability (CGL) insurance policies
issued to NWP by ACE, Wausau, and RLI from 1982 until 1986
provide coverage to NWP for defense costs and indemnity costs
incurred by NWP as a result of environmental contamination at its
Portland Harbor facility beginning in 1982 and, if so, the extent
of such coverage.
“Defense costs” that are payable by an insurer include
“costs of preliminary assessments, remedial investigations, risk
assessments or other necessary investigation.”
§ 465.480(6)(a).
Or. Rev. Stat.
The Objections of NWP, Wausau, and ACE center
on whether the Magistrate Judge’s recommended formula for
allocating NWP’s defense costs to NWP and to Wausau, RLI, and
ACE complies with Oregon Revised Statute § 465.480(4).
MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION
The Magistrate Judge found as follows:
1.
ACE issued a liability insurance policy to NWP beginning
in June 1980 that applied to NWP’s operations at its Portland
Harbor site beginning in February 1982.
ACE provided 16.5 months
of relevant liability insurance coverage to NWP between February
1982 and June 13, 1983.
4 - OPINION AND ORDER
2.
NWP was uninsured from June 14, 1983, through July 8,
1983, and, therefore, is responsible for defense costs it
incurred during that period.
3.
Wausau insured NWP against “sudden and accidental”
environmental liabilities under policies issued from July 8,
1983, to July 7, 1984, and July 8, 1984, to July 7, 1985.
4.
Wausau did not provide primary insurance coverage to NWP
for environmental liabilities arising from July 8, 1985, to
July 8, 1986, because the policy issued by Wausau to NWP during
that period included an “absolute pollution” exclusion.
5.
RLI’s umbrella policy that was in effect from July 8,
1985, until February 19, 1986, dropped down to cover the gap that
existed in NWP’s primary insurance coverage during that period.
6.
The combined policies issued by ACE, Wausau, and RLI
provided coverage to NWP for a total of 47.85 months between
July 9, 1983, and July 8, 1986.
7.
Each of the relevant insurance coverages provided by
Wausau, RLI, and ACE provided consecutive rather than concurrent
coverage (i.e., only one insurer provided the same type of
insurance coverage to NWP during any given policy period).
8.
Based on the above, the Magistrate Judge concluded
Wausau provided insurance to NWP for 24 consecutive months
(50.65% of the coverage period), RLI provided coverage for 7.35
consecutive months (15.36% of the coverage period), and ACE
5 - OPINION AND ORDER
provided coverage for 16.5 consecutive months (34.48% of the
coverage period).
9.
NWP’s defense costs incurred as of September 23, 2011,
totaled $3,825,817.52.
Ultimately the Magistrate Judge recommended it was
“appropriate to allocate among the [defendant insurers], . . .
[NWP’s] defense costs that are properly allocable” to each
defendant insurer according to that insurer’s “time on the risk”
without taking into account each insurers’ respective policy
limits during the applicable coverage period.
F&R at 12-15.
This conclusion is the primary focus of the objections raised by
NWP, Wausau, and
ACE.
I.
PORTIONS OF THE MAGISTRATE’S FINDINGS AS TO WHICH NO PARTY
OBJECTS.
None of the parties object to the following Findings by the
Magistrate Judge:
1.
NWP was insured under RLI’s umbrella policy between
July 8, 1985, and February 18, 1986, because RLI’s policy dropped
down to fill the gap that existed in Wausau’s primary coverage
arising from an absolute pollution exclusion in Wausau’s policy;
2.
the relevant insurance coverage provided by Wausau,
RLI, and ACE involved consecutive rather than concurrent coverage
(i.e., only one insurer provided the same type of insurance
coverage to NWP during a particular policy period); and
6 - OPINION AND ORDER
3.
NWP’s defense costs incurred as of September 23,
2011, totaled $3,825,817.52.
The Court, therefore, is relieved of its obligation to
review the record de novo as to these portions of the Findings
and Recommendation.
See Shiny Rock Min. Corp v. U.S., 825 F.2d
216, 218. (9th Cir. 1987).
See also Lorin Corp. v. Goto & Co.,
700 F.2d 1202, 1206 (8th Cir. 1983).
Having reviewed the legal
principles de novo, the Court does not find any error in these
portions of the Findings and Recommendation.
II.
PORTIONS OF THE FINDINGS TO WHICH ONE OR MORE PARTIES
OBJECTS.
NWP and RLI each filed timely objections to the Magistrate
Judge’s finding that Plaintiff had a gap in its liability
insurance coverage for a 24-day period in June-July 1983.
Wausau and ACE object to the Magistrate Judge’s Finding and
Recommendation regarding the allocation of defense costs between
the defendant insurers.
When any party objects to any portion of the Magistrate
Judge's Findings and Recommendation, the district court must make
a de novo determination of that portion of the Magistrate Judge's
report.
28 U.S.C. § 636(b)(1).
See also Dawson v. Marshall, 561
F.3d 930, 932 (9th Cir. 2009); United States v. Reyna-Tapia, 328
F.3d 1114, 1121 (9th Cir. 2003)(en banc).
7 - OPINION AND ORDER
A.
Gap in Insurance Coverage.
NWP and RLI filed timely objections to the Magistrate
Judge’s finding that NWP was not insured for the period from
June 14, 1983, through July 8, 1983.
In response, however, ACE
stipulates it provided applicable liability insurance to NWP
during that time-frame.
The Court, therefore, modifies the Magistrate Judge’s
finding as to the allocation of coverage among the insurers to
account for the additional 24 days of insurance coverage provided
by ACE from June 14, 1983, through July 8, 1983.
B.
Method of Allocating Defense Costs.
As noted, the Magistrate Judge recommends the allocation
of defense costs between the three insurers should be based
solely on the length of time each insurer was exposed to the
risk insured against, and should not take into account the
insurers’ policy limits for the risk during that time-frame.
The Magistrate Judge reasoned:
“It is axiomatic that coverage
[i.e., indemnity limits] do not bear on an insurer’s obligation
to undertake an insured’s defense” except when there are periods
of concurrent coverage by multiple insurers.
Wausau and ACE jointly object to this recommendation because
they contend it is error not to take into account each insurers’
applicable policy limits in addition to each insurers’ respective
8 - OPINION AND ORDER
coverage period when determining the amount of defense costs to
be allocated to each insurer.
The Court notes the accounting
urged by Wausau and ACE would result in a substantial increase in
RLI’s share of the total defense costs and a concomitant decrease
in the respective shares of Wausau and ACE.
When allocating defense costs to each insurer, however, RLI,
in turn, asserts it is appropriate to consider only the length of
the insurer’s respective coverage periods without taking into
account the insurers’ respective policy limits.
C.
Applicable Law.
This Court has subject-matter jurisdiction under 28 U.S.C.
§ 1332 based on diversity of citizenship.
The Court applies
Oregon law because the relevant events occurred in Oregon.
See
Bell Lavalin Inc. v. Simcoe & Erie Gen. Ins. Co., 61 F.3d 742,
745 (9th Cir. 1995).
See also Kemper Independence Ins. Co. v.
Davis, No. 07-16197, 2009 WL 166970, *1 (9th Cir., Jan. 29, 2009)
(Oregon law applies to the interpretation of a provision in a
liability insurance policy issued in Oregon).
In Burnett v. Western Pacific Insurance Company, 255 Or. 547
(1970), the Oregon Supreme Court resolved an insurance-coverage
dispute that addressed similar, but not identical, issues to
those in this case.
In Burnett two insurers issued insurance
policies that covered liabilities arising from an automobile
9 - OPINION AND ORDER
accident.
Each policy provided separate but concurrent liability
insurance coverage for damages arising from an accident; i.e.,
the policy periods for each policy overlapped and each policy
included a duty to defend.
The issue before the court, as in
this case, was how the costs of defense should be divided between
the insurers.
The court found:
The issue is whether, when only one insurer
defends, defense costs are to be prorated in
accordance with the proportion that each
insurer's coverage bears to the total
coverage or whether the costs of defense
should be treated separately from the rest of
the loss and divided equally between the
insurers which had the duty to defend. We
believe that the costs of defense should be
governed by the same rule as the rest of the
loss and should be prorated. See Oregon
Auto. Ins. Co. v. United States Fidelity and
Guar. Co., 195 F.2d 958, 960 (9th Cir. 1952).
The insurer who stands to bear the greater
proportion of the loss will be benefitted the
most by a successful defense.
Id. at 555 (emphasis added).
See also Oregon Auto. Ins. Co. v.
State Acc. Ins. Fund., 272 Or. 32, 34 (1975).
The ultimate issue
in both Burnett and Oregon Automobile Insurance Co., however, was
how to allocate defense costs between different insurers whose
policies provided concurrent, overlapping liability insurance
coverage rather than consecutive coverage as in this case.
In any event, in 2003 the Oregon Legislature enacted Oregon
Revised Statute § 465.480 to address specifically how indemnity
and defense-cost liabilities arising from environmental claims
10 - OPINION AND ORDER
should be allocated among multiple insurers.
Sections (4)-(6)
provide:
(4) An insurer that has paid an environmental
claim may seek contribution from any other insurer
that is liable or potentially liable. If a court
determines that the apportionment of recoverable
costs between insurers is appropriate, the court
shall allocate the covered damages between the
insurers before the court, based on the following
factors:
(a) The total period of time that each
solvent insurer issued a general
liability insurance policy to the
insured applicable to the environmental
claim;
(b) The policy limits, including any exclusions to
coverage, of each of the general liability
insurance policies that provide coverage or
payment for the environmental claim for which the
insured is liable or potentially liable;
(c) The policy that provides the most
appropriate type of coverage for the
type of environmental claim; and
(d) If the insured is an uninsured for
any part of the time period included in
the environmental claim, the insured
shall be considered an insurer for
purposes of allocation.
(5) If an insured is an uninsured for any
part of the time period included in the
environmental claim, an insurer who otherwise
has an obligation to pay defense costs may
deny that portion of defense costs that would
be allocated to the insured under subsection
(4) of this section.
(6)(a) 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
11 - OPINION AND ORDER
Environmental Quality, are defense costs
payable by the insurer, subject to the
provisions of the applicable general
liability insurance policy or policies.
(b) There is a rebuttable presumption that
payment of the costs of removal actions or
feasibility studies, as those terms are
defined by rule by the Department of
Environmental Quality, are indemnity costs
and reduce the insurer's applicable limit of
liability on the insurer's indemnity
obligations, subject to the provisions of the
applicable general liability insurance policy
or policies.
Emphasis added.
When construing these statutory provisions, this Court is
guided by Oregon Revised Statute § 174.010:
In the construction of a statute, the office
of the judge is simply to ascertain and
declare what is, in terms or in substance,
contained therein, not to insert what has
been omitted, or to omit what has been
inserted; and where there are several
provisions or particulars such construction
is, if possible to be adopted as will give
effect to all.
D.
Analysis.
The Magistrate Judge states he is “mindful of the necessity
to consider all of the four statutory factors listed in Or. Rev.
Stat. 465.480(4).”
F&R at 12.
Nevertheless, implicitly drawing
on the Oregon Supreme Court’s holding in Burnett, the Magistrate
Judge finds “as a matter of logic, policy limits bear on the
question of allocating an insured’s defense costs among multiple
insurers only where the insurers’ policies provide at least
12 - OPINION AND ORDER
partially concurrent coverage,” and, therefore, the “logical
consequence is that defense costs should be allocated pro rata
according to policy limits only during, and for purposes, of
concurrent coverage by multiple insurers.”
F&R at 12-13.
Because this case involves only consecutive coverages by the
respective insurers, the Magistrate Judge, like “the majority of
courts” in other jurisdictions that address this issue, did not
give any weight to the “‘policy limits’ factor” set out in Oregon
Revised Statute § 465.480(4)(b).
F&R 12-13.
Burnett, as noted, involved at least partially concurrent
coverages and, in any event, was decided before the Legislature
enacted Oregon Revised Statute § 465.480, which controls the
question currently before the Court.
Having considered the
statute in its entirety, the Court is not persuaded the
Magistrate Judge’s approach is consistent with an accurate
construction of the statute, which notably does not include any
language differentiating between defense costs that accrue during
periods of concurrent coverage among insurers and defense costs
that accrue during periods of consecutive coverage.
Moreover,
there is not any language in any relevant statutory provision
that suggests some of the factors set forth in § 465.480(4) apply
to the allocation of “indemnity costs” but not to the allocation
of “defense costs.”
Thus, to adopt the conclusion set out in the
F&R, the Court would be required to read such differentiating
13 - OPINION AND ORDER
language into the statute, which is not permitted under the
general rules of statutory construction.
See Or. Rev. Stat.
§ 174.010.
Based on the undisputed facts of this case, the Court
concludes Oregon Revised Statute § 465.480(4)-(6) requires the
insurers’ respective policy limits to be considered a factor when
allocating defense costs to each of the Defendant and Third-Party
Defendant insurers.
Accordingly, based pro rata on the insurers’
respective time on the risk and policy limits and the additional
23 days of coverage in June 1983 attributable to ACE, the Court
finds the percentage of NWP’s defense costs to be allocated to
each of NWP’s insurers is as follows:
ACE - 24.92%; Wausau - 31.81%; RLI - 43.27%.
CONCLUSION
For these reasons, the Court GRANTS the Motions for Joinder
in Wausau’s Motion for Partial Summary Judgment filed by
Plaintiff Northwest Pipe Company and Third-Party Defendants Ace
Property and Casualty Insurance Company and Ace Fire Underwriters
Insurance Company (#125 and #132 respectively).
The Court also
ADOPTS in part and otherwise modifies the Magistrate Judge’s
Findings and Recommendation (#151) as set forth herein.
Thus,
the Court GRANTS the Motion (#120) for Partial Summary Judgment
of Employers Insurance Company of Wausau, Ace Property and
14 - OPINION AND ORDER
Casualty Insurance Company, Ace Fire Underwriters Insurance
Company, and Plaintiff Northwest Pipe Company and allocates the
percentage of NWP’s defense costs as follows:
ACE - 24.92%;
Wausau - 31.81%; RLI - 43.27%.
IT IS SO ORDERED.
DATED this 13th day of June, 2012.
/s/ Anna J. Brown
ANNA J. BROWN
United States District Judge
15 - OPINION AND ORDER
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