Northwest Pipe Company v. RLI Insurance Company et al

Filing 233

ORDER: The Court ADOPTS that portion of Magistrate Judge Papaks Findings and Recommendation 215 in which he recommends the Court deny Defendant RLIs Motion 148 for Partial Summary Judgment in its entirety. Accordingly, the Court DENIES Defendant RLI's Motion 148 for Partial Summary Judgment in its entirety. The Court also DENIES Wausaus Motion 223 to Strike and NWPs Motion 225 to Strike. Matter to be reassigned to Judge Brown. With respect to the remaining pending Motion s 177 , 199 , the Court will set a hearing date so the parties to these Motions may summarize their positions for this Court. These Motions will be taken under advisement anew at the conclusion of that hearing. Signed on 07/11/2013 by Judge Anna J. Brown. See attached 13 page Order for further 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.
________________________________
EMPLOYERS INSURANCE COMPANY
OF WAUSAU, a Wisconsin
corporation,
Counter-Claimant,
v.
NORTHWEST PIPE COMPANY, fka
NORTHWEST PIPE & CASING COMPANY,
an Oregon corporation,
Counter-Defendant.
________________________________
1 - ORDER

3:09-CV-01126-PK
ORDER

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.
BROWN, Judge.
Magistrate Judge Paul Papak issued Findings and
Recommendation (F&R) (#215) on April 15, 2013, in which he
recommends the Court (1) deny Defendant RLI Insurance Company’s
(RLI) Motion (#148) for Partial Summary Judgment; (2) reconsider
the Court’s Order (#62) issued August 12, 2010; (3) grant on
reconsideration RLI’s Motion (#28) for Summary Judgment as to its
duty to defend; (4) deny on reconsideration Plaintiff Northwest
Pipe Company’s (NWP) Motion (#32) for Partial Summary Judgment;
(5) reconsider the Court’s Order (#169) issued June 13, 2012;
(6) modify on reconsideration the allocation of NWP’s defense
costs; (7) deny as moot NWP’s Motion (#177) for Partial Summary
Judgment with leave to refile if circumstances warrant; and
(8) deny Defendant Employers Insurance Company of Wausau’s Motion
(#191) for Partial Summary Judgment.
The Findings and Recommendation were based on the Magistrate
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Judge’s conclusion that RLI does not have a duty to defend NWP in
the underlying EPA/DEQ action because NWP failed to maintain its
primary policy from Wausau "in full effect" during "the currency
of" the RLI policy in violation of Condition S of the RLI policy.
NWP, Wausau, and Third-Party Defendants Ace Fire
Underwriters Insurance Company and Ace Property and Casualty
Insurance Company (collectively referred to hereinafter as ACE)
filed timely Objections to the Findings and Recommendation. On
May 30, 2013, Wausau filed Objections (#223) to D. Michael
Haahn's Declaration in support of RLI's Response to the
Objections of NWP and Wausau, which the Court construes as a
Motion to Strike the Haahn Declaration.

On May 31, 2013, NWP

also filed a Motion (#225) to Strike the Haahn Declaration.
The matter is now before this Court pursuant to 28 U.S.C.
§ 636(b)(1) and Federal Rule of Civil Procedure 72(b).

PORTIONS OF THE FINDINGS AND RECOMMENDATION TO WHICH
THE PARTIES DO NOT OBJECT
The parties do not object to that portion of the Findings
and Recommendation in which the Magistrate Judge recommends the
Court deny RLI’s Motion (#148) for Partial Summary Judgment in
its entirety.

The Court, therefore, is relieved of its

obligation to review the record de novo as to this portion of the
Findings and Recommendation.

3 - ORDER

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 this portion of the Findings and
Recommendation.

PORTIONS OF THE FINDINGS AND RECOMMENDATION
TO WHICH THE PARTIES OBJECT
NWP, Wausau, and ACE object to the Magistrate Judge's
recommendation that this Court reconsider its prior Order (#62)
in which this Court concluded RLI has a duty to defend NWP in
this action under the terms of its policy and that the Court
reconsider its prior Order (#169) in which this Court allocated
NWP’s defense costs among ACE, Wausau, and RLI.

In addition, NWP

objects to the recommendation that the Court deny as moot NWP’s
Motion (#177) for Partial Summary Judgment.

Wausau also objects

to the recommendation that the Court deny Wausau’s Motion (#191)
for Partial Summary Judgment.
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 United States v. Reyna-

Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003)(en banc); United
States v. Bernhardt, 840 F.2d 1441, 1444 (9th Cir. 1988).

4 - ORDER

I.

Pertinent Policy Language
A.

RLI Policy

Condition S of RLI’s insurance policy issued to NWP
provides:
It is a condition of this policy that the
policy or policies referred to in the
attached “Schedule of Underlying Insurances”
shall be maintained in full effect during the
currency of this policy except for any
reduction of the aggregate limit or limits
contained therein solely by payment of claims
in respect to accidents and/or occurrences
occurring during the period of this policy.
Failure of the Assured to comply with the
foregoing shall not invalidate this policy
but in the event of such failure, the Company
shall only be liable to the same extent as
they would have been had the Assured complied
with the said condition.
The “Schedule of Underlying Insurances” lists Employers of
Wausau as the carrier providing “Comprehensive General Liability
Including Products” coverage at a “Combined Single Limit” of
$1,000,000.

Compl., Ex. 2 at 10.

The Schedule does not list a

policy number, dates of coverage, or any other information about
the Wausau policy.
The issue date of the RLI policy is September 3, 1985, and
the policy’s effective date is July 8, 1985.
B.

Compl., Ex. 2 at 3.

1985-1986 Wausau Policy

The 1985-1986 Wausau policy contains an absolute pollution
exclusion that was included in the policy in Endorsement 8.
Endorsement 8 has an issue date of August 6, 1985 (written as
5 - ORDER

“08 06 85E.”) and an effective date of July 8, 1985.
It is undisputed that the effective dates of the 1985-1986
Wausau policy are July 8, 1985, through July 8, 1986.

The

billing document for the policy lists an issue date of August 6,
1985.

Compl., Ex. 3 at 1.

The policy’s Endorsements 1-8 also

have effective dates of July 8, 1985, and issue dates of
August 6, 1985.

Compl., Ex. 3 at 11-22.

A number of undated

pages of the policy refer to these various endorsements; for
example, the “Summary of Insurance and Premium Charges”
identifies the named insured and below “Northwest Pipe & Casting”
states:

“(SEE ENDORSEMENT #1).”

Compl., Ex. 3 at 2.

Similarly,

the policy’s “Coverage Schedule” under “Limits of Liability”
states “SEE G633,” which appears at Endorsement 2.

Compl., Ex. 3

at 4, 12-13.
II.

Analysis
As noted, NWP, Wausau, and ACE object to those portions of

the Findings and Recommendation in which the Magistrate Judge
recommends this Court reconsider its prior Orders (#62, #169).
Specifically, NWP, Wausau, and ACE1 object to the Findings and
Recommendation’s conclusion that RLI does not have a duty to

1

The Court notes ACE objects to the Findings and
Recommendation on the basis that the Magistrate Judge exceeded
the charge and answer sought by the Court’s directive in its
Order (#183) issued September 7, 2012. In light of this Court’s
conclusions herein, however, the Court need not address that
basis of ACE’s Objections.
6 - ORDER

defend NWP because NWP failed to maintain the underlying Wausau
policy “in full effect” during “the currency of” the RLI policy
in violation of Condition S of that policy.

The Magistrate Judge

found:
It appears clear, especially in light of the
fact that Wausau has at all material times
undertaken Northwest Pipe’s defense under
Wausau’s policies covering the period from
July 8, 1983, through July 8, 1984, and the
period from July 8, 1984, through July 8,
1985, which lack the so-called “absolute”
pollution exclusion that was added to
Wausau’s 1985-1986 policy by endorsement
after the date the RLI policy issued, that
but for the amendment by endorsement of the
underlying policy to add the absolute
pollution exclusion, Northwest Pipe’s losses
in connection with the EPA/DEQ investigation
and claims would be covered under the
underlying policy. It follows that, under
Condition S, RLI does not owe Northwest Pipe
a duty to defend under the RLI policy for the
period July 8, [1985], through February 19,
1986.
F&R at 18.
The Magistrate Judge found RLI does not have a duty to
defend NWP because Endorsement 8 was retroactively added to the
1985-1986 Wausau policy after both the Wausau and RLI policies
were initially issued, and, therefore, Endorsement 8 changed the
Wausau policy “during the currency” of the RLI policy.

In its

Response to the Objections of NWP, Wausau, and ACE, RLI
reiterates its argument that its policy was “gutted” by
Endorsement 8 because it was, according to RLI, added to the
1985-1986 Wausau policy during the currency of RLI’s coverage
7 - ORDER

thereunder.

RLI again contends the analysis turns on the

effective date of the RLI policy (July 8, 1985) instead of the
issue date of RLI’s policy (September 3, 1985).
In any event, this Court notes its task when interpreting
insurance policies under Oregon law is to ascertain the intent of
the parties as interpreted from the perspective of the "ordinary
purchaser of insurance."

See Totten v. New York Life Ins. Co.,

298 Or. 765, 771 (1985).

As noted, the record reflects coverage

under the 1985-1986 Wausau policy was effective July 8, 1985,
even though the full, written policy was not physically issued
until August 6, 1985.

In particular, the record reflects various

endorsements with issue dates of August 6, 1985, are referred to
in the policy and incorporated into the policy.

Thus, the Court

concludes an ordinary purchaser of insurance would have
understood the terms of the policy as issued on August 6, 1985,
were in effect as of July 8, 1985.
On this record, therefore, the Court also concludes the
absolute pollution exclusion in Endorsement 8 was an intended and
integral part of the 1985-1986 Wausau policy which, pursuant to
the policy terms, was in effect as of July 8, 1985.
agrees with the Magistrate Judge that
[a]n ordinary purchaser of insurance could
only reasonably have interpreted the term
“maintained in full effect,” considered in
connection with Wausau’s 1985-1986 policy
presence on the attached “Schedule of
Underlying Insurances,” to mean that, under
8 - ORDER

The Court

Condition S, RLI's obligations as Northwest
Pipe’s insurer would be determined by
reference to the coverage provided under
Wausau’s 1985-1986 policy as ascertainable
from the underlying policy’s language as it
existed as of the date the RLI policy issued.
F&R at 20.

Accordingly, the Court concludes NWP did not violate

Condition S of the RLI policy by failing to maintain the Wausau
policy “in full effect during the currency of” the RLI policy;
i.e., the Wausau policy that was in full effect as of July 8,
1985 (the effective date of the RLI policy and two months before
the issue date of RLI’s policy) included Endorsement 8, and that
Endorsement was not later “added” to the 1985-1986 Wausau policy
“during the currency of” the RLI policy.
Nevertheless, because the terms of the 1985-1986 Wausau
policy would have been “highly material” to RLI, RLI contends “it
is virtually certain” that RLI would have requested and reviewed
the Wausau policy in its ordinary course of business in
conformance with its general practice, and RLI would not have
issued its policy if it had known the underlying Wausau policy
contained an absolute pollution exclusion.

RLI has not, however,

provided any evidence that it reviewed the Wausau policy that was
in effect on July 8, 1985, before issuing its policy to NWP on
September 3, 1985, which was almost two months after the
effective date of the 1985-1986 Wausau policy and almost one
month after Wausau issued its full, written policy even though

9 - ORDER

RLI had sufficient time to investigate and to review the terms of
the underlying Wausau policy that it purports was “highly
material” to RLI when it issued its policy to NWP.
Accordingly, the Court adheres to its decisions in its Order
(#62) issued August 12, 2010, that RLI has a duty to defend NWP
and in its Order (#169) issued June 13, 2012, allocating NWP’s
defense costs, and, therefore, having reconsidered that Order as
recommended by the Magistrate Judge, the Court does not adopt the
Magistrate Judge’s recommendation to grant RLI’s Motion (#28) for
Summary Judgment as to its duty to defend.
III. Factual Correction
Wausau also objects to that portion of the Findings and
Recommendation that identifies each of the three Wausau policies
issued to NWP as having a $500,000 coverage limit.

F&R at 10.

Although these facts do not affect this Court’s analysis herein,
the Court agrees this reference is erroneous and hereby corrects
it as follows:

The record reflects the Wausau policies issued to

NWP covering the periods from July 8, 1983, through July 8, 1984,
and July 8, 1984 through July 8, 1985, each have property-damage
limits of $100,000.

The 1985-1986 Wausau policy has a limit of

$1 million.

MOTIONS TO STRIKE/OBJECTIONS TO EVIDENCE
In RLI’s Response (#222) to Objections to the Findings and
10 - ORDER

Recommendation, RLI objects to NWP and Wausau “raising new
arguments and evidence on appeal.”

In support of its position,

RLI submitted the Declaration (#221) of D. Michael Haahn.

On

May 30, 2013, Wausau filed Objections (#223) to the Haahn
Declaration, which the Court construes as a Motion to Strike the
Haahn Declaration.

On May 31, 2013, NWP also filed a Motion

(#225) to Strike the Haahn Declaration.
The Court disagrees with RLI that the arguments of NWP and
Wausau in their Objections are “new.”

The record reflects the

arguments by NWP and Wausau were, at the latest, made before the
Magistrate Judge on February 7, 2013, at oral argument regarding
RLI’s Motion (#148.

In addition, the exhibits included in

Wausau’s Objections (#218) were already part of the record
because they were also exhibits to NWP’s Complaint.

Even if RLI

were correct that NWP and Wausau raised new arguments and
provided new evidence in their Objections, however, the Court, as
RLI concedes, has discretion pursuant to 28 U.S.C. § 636(b) to
consider new evidence or arguments as part of its de novo review
of a Magistrate Judge’s Findings and Recommendation and,
therefore, exercises its discretion to do so.
Finally, the Court notes neither Wausau nor NWP have been
prejudiced by the Court’s consideration of the Haahn Declaration
in light of the Court’s rulings herein, and, therefore, the Court
denies Wausau’s Motion (#223) to Strike and NWP’s Motion (#225)

11 - ORDER

to Strike.

CONCLUSION
The Court ADOPTS that portion of Magistrate Judge Papak’s
Findings and Recommendation (#215) in which he recommends the
Court deny Defendant RLI’s Motion (#148) for Partial Summary
Judgment in its entirety.

Accordingly, the Court DENIES

Defendant RLI's Motion (#148) for Partial Summary Judgment in its
entirety.

The Court also DENIES Wausau’s Motion (#223) to Strike

and NWP’s Motion (#225) to Strike.
Based on the Court’s analysis herein, the Court reconsiders
but ADHERES to its decision in its Order (#62) issued August 12,
2010, to deny RLI’s Motion (#28) for Summary Judgment as to RLI’s
duty to defend and to grant NWP’s Motion (#32) for Partial
Summary Judgment as to RLI’s duty to defend and also reconsiders
but ADHERES to its decision in Order (#169) issued June 13, 2012,
as to the allocation of NWP’s defense costs.

The Court DECLINES

to ADOPT the remaining portion of the Findings and
Recommendation.
In light of the Court's rulings herein, NWP's Motion (#177)
for Partial Summary Judgment and Wausau's Motion (#191) for
Partial Summary Judgment are not moot.

Referral back to the

Magistrate Judge, however, for further Findings and
Recommendation may again produce objections necessitating review
12 - ORDER

by this Court.

In the interest of judicial economy and to

preserve the resources of the parties, therefore, the Court
concludes this matter should be re-assigned for all purposes to
this judicial officer.

Accordingly, the Court directs the Clerk

to make the reassignment, after which the parties should
designate the case number on future filings as 3:09-cv-01126-BR.
With respect to the remaining pending Motions (#177, #199),
the Court will set a hearing date so the parties to these Motions
may summarize their positions for this Court.

These Motions will

be taken under advisement anew at the conclusion of that hearing.
IT IS SO ORDERED.
DATED this 11th day of July, 2013.
/s/ Anna J. Brown
ANNA J. BROWN
United States District Judge

13 - ORDER