Campbell Global, LLC et al v. American States Insurance Company et al
Filing
38
OPINION AND ORDER: For these reasons, the Court GRANTS Defendants' Motion (#22) for Summary Judgment on Count One of Plaintiffs' Complaint and DENIES Plaintiffs' Corrected Motion (#27) for Summary Judgment on Stage One Claims. Signed on 8/30/17 by Judge Michael W. Mosman. (dls)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
CAMPBELL GLOBAL, LLC, a
Delaware limited liability company; and
BASCOM SOUTHERN, LLC, a
Delaware limited liability company,
No. 3:16-cv-02091-MO
OPINION AND ORDER
Plaintiffs,
v.
AMERICAN ECONOMY INSURANCE
COMPANY, an Indiana corporation;
GENERAL INSURANCE COMPANY OF
AMERICA, a New Hampshire corporation;
and FIRST NATIONAL INSURANCE
COMPANY OF AMERICA, a New
Hampshire corporation,
Defendants.
MOSMAN, J.,
Plaintiffs-insureds bring this action against Defendants-insurers for breach of contract on
the basis that Defendants allegedly breached their duty to indemnify Plaintiffs (Claim One), and
for negligent claims handling on the basis that Defendants failed to timely indemnify Plaintiffs
after an arbitration award was entered against them (Claim Two). By Order (#15) issued January
27, 2017, the Court granted the parties’ joint request to proceed only as to Claim One in the first
stage of this litigation, and, if necessary, to proceed to discovery and dispositive motions on
Claim Two only after resolving dispositive motions on Claim One.
1 – OPINION AND ORDER
On May 19, 2017, Defendants filed a Motion (#22) for Partial Summary Judgment on
Count One of Plaintiffs’ Complaint. On May 23, 2017, Plaintiffs filed a Corrected Motion (#27)
for Summary Judgment on Stage One Claims. 1
For the reasons stated below, the Court GRANTS Defendants’ Motion (#22) for Partial
Summary Judgment and DENIES Plaintiffs’ Corrected Motion (#27) for Summary Judgment on
Stage One Claims.
BACKGROUND
The following facts are undisputed and taken from the record on summary judgment.
In 1968 Plaintiffs’ predecessor organization leased approximately 11,000 acres of forest
land in Alabama from the Gray family and related organizations (referred to collectively as “the
Grays”) for a term of 45 years. Defendants provided liability insurance to Plaintiffs beginning in
the early-2000s through the termination of the lease.
Among other provisions, the lease required Plaintiffs to return the land to the Grays in
“good condition” upon the termination of the lease. The lease also contained an attorney fees
provision that required the non-prevailing party to pay the attorney fees of the prevailing party in
any action to enforce the lease. Declaration of Margaret M. Van Valkenburg (#23) Ex. 2, at 14.
An agent of the Grays surveyed the land in 2009 in anticipation of the lease’s 2013
expiration, and identified for Plaintiffs several deficiencies in the condition of the land that, in
the Grays’ view, needed to be remedied. When the lease expired in 2013, however, the Grays
still found the condition of the land to be inadequate. Accordingly, the Grays filed an arbitration
1
Plaintiffs filed their initial Motion (#25) for Summary Judgment on Stage One Claims on May
19, 2017. Because that Motion was superseded by Plaintiffs’ subsequent Corrected Motion
(#27), the Court DENIES Plaintiffs’ Motion (#25) as moot.
2 – OPINION AND ORDER
action against Plaintiffs for, inter alia, breach of contract and negligence. Defendants provided a
defense to Plaintiffs in the arbitration action under a reservation of rights.
On August 17, 2016, after a six-day arbitration in July 2016, the arbitrators found
Plaintiffs (Respondents in the arbitration) to be jointly and severally liable for $3,506,214.00 in
damages, which included $907,714.00 in attorney fees and costs incurred by the Grays
(Claimants in the arbitration). The arbitrators concluded the claims that were not based on
negligence or breach of contract were unfounded. Van Valkenburg Decl. (#23) Ex. 7, at 2. With
respect to negligence and breach of contract, however, the arbitrators found:
As to the Claimants’ remaining claims for negligence and breach of contract, the
Respondents’ Motion for Judgment as a Matter of Law is DENIED, and the
Arbitrators hereby find as follows:
a.
The Respondents were required to surrender the “Lands” to the
Claimants in “good condition” as of March 31, 2013.
b.
The “Lands” were not in “good condition” as of March 31, 2013.
c.
The Claimants have suffered damages due to the “Lands” not
being in “good condition” as of March 31, 2013.
d.
The “Lands” include the following specific items for which
Claimants are awarded damages:
i.
Stocking – Damages for overstocked stands and understocked
stands are reasonably assessed in the amount of $400,000.
ii.
assessed.
Release – No damages for release of hardwood competition are
iii.
Roads – The roads need repair (including culverts to address creek
sediment), and the reasonable damage to the roads (including culverts) is
$590,000.
iv.
Skid Trails – The skid trails need repair, and the reasonable
damages for the skid trails is $565,000.
v.
3 – OPINION AND ORDER
Creek sediment damage is $6500.
vi.
Nuisance Control – The invasive species need treatment, and the
damages for the treatment of the invasive species is $25,000.
vii.
Boundary Lines – The damages for the boundary lines is $12,000.
viii. 1st and 2nd Generation Seedlings – Planting 1st generation
seedlings on the Lands has damaged the Claimants and these damages are
assessed in the amount of $1,000,000.
ix.
Attorney’s Fees and Costs – After considering the Claimants’
request for attorney’s fees and costs as follows: McCorquodale Law Firm, 1500
hours, $450,000; Wilson and Drinkard, 200 hours, $60,000; McCorquodale Law
Firm expenses as of August 8, 2016, $120,823.05; and Gray Family expenses of
$276,890.72; totaling $907,714, the Arbitrators hereby find that the attorney’s
fees and costs are reasonable and necessary and due to be awarded to the
Claimants.
Id. Ex. 7, at 2-4. In addition, the arbitrators made the following “findings of fact and
observations”:
a.
Although the damages awarded herein are actual damages, and not
punitive or exemplary damages, the Arbitrators find that the Respondents did not
act in good faith. The Respondents, Campbell and Bascom, were intent on getting
by as cheaply as they could, without regard to the lease and good management
practices. A good example of this is that they planted 1st generation trees (not
used much since the mid 1980”s [sic]) on this leased land and 2nd generation on
their own fee lands, which constituted a violation of the spirit and intent of the
lease and resulted in long-term damage to the landowners;
b.
Also, the Respondents permitted serious BMP (Best Management
Practices) violations by loggers damaging roads and skid trails. Contract logging
operation management and oversight was non-existent by the Respondents on
ground management. In their efforts to maximize timber harvesting near the end
of the lease, damage was done to the lands when operations should have been shut
down because of weather conditions. The landowners were not free from fault, as
they could have contacted the Alabama Forestry Commission and reported the
BMP violations. The Arbitrators question whether the Respondents even required
performance deposits and, if so, what became of them. When it was evident that
there were problems with BMP violations the Respondents did not go back and
fix them.
c.
The Arbitrators considered the invasive species issues and
concluded that although hunters are expected to have a minimal negative impact
on the roads and skid trails, they could have had more impact on the invasive
species issue.
4 – OPINION AND ORDER
Id. Ex. 7, at 4-5. Although Defendants provided Plaintiffs with a defense in the arbitration under
a reservation of rights, Defendants refused to indemnify Plaintiffs for the damages awarded,
including the attorney fees and costs.
The insurance policies that Plaintiffs obtained provide Defendants “will pay those sums
that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies.” VanValkenburg Decl. (#24) Ex. 8, at 6. The
policies also state they only apply to bodily injury or property damage that was “caused by an
‘occurrence’” during the policy period. Id. Ex. 8, at 6. In addition, the policies providing
coverage only apply if Plaintiffs (including their agents) did not know prior to the policy period
that the bodily injury or property damage had occurred in whole or in part. Id. Ex. 8, at 6.
The policies define “occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” Id. Ex. 8, at 20. The policies
define “property damage” as:
a.
Physical injury to tangible property, including all resulting loss of use of
that property. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it; or
b.
Loss of use of tangible property that is not physically injured. All such
loss of use shall be deemed to occur at the time of the “occurrence” that caused it.
Id. Ex. 8, at 21.
The policies also included several exclusions from coverage that Defendants contend are
relevant to this case, including exclusions for “expected or intended injury,” certain types of
damage to property arising out of Plaintiffs’ own work and operations, damage to Plaintiffs’
“work,” and “damage to impaired property or property not physically injured.” In addition, the
policies require Defendants to pay “[a]ll court costs taxed against the insured in” any lawsuit
5 – OPINION AND ORDER
against Plaintiffs that Defendants defend, but that such “payments do not include attorneys’ fees
or attorneys’ expenses taxed against the insured.” Id. Ex. 8, at 9.
LEGAL STANDARD
Summary judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The initial burden for a motion for summary judgment is on the moving party to identify
the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Once that burden is satisfied, the burden shifts to the non-moving party to demonstrate,
through the production of evidence listed in Fed. R. Civ. P. 56(c)(1), that there remains a
“genuine issue for trial.” Celotex, 477 U.S. at 324. The non-moving party may not rely upon the
pleading allegations, Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995)
(citing Fed. R. Civ. P 56(e)), or “unsupported conjecture or conclusory statements,” Hernandez
v. Spacelabs Med. Inc., 343 F.3d 1107, 1112 (9th Cir. 2003). All reasonable doubts and
inferences to be drawn from the facts are to be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
DISCUSSION
As noted, Defendants move for summary judgment on Claim One on the basis that the
arbitration award does not fall within the scope of coverage and, even if it did, it would
nonetheless fall within one of the coverage exclusions. Plaintiffs, on the other hand, oppose
Defendants’ Motion and move for summary judgment in their own right on the basis that the
arbitration award falls within the scope of coverage and none of the exclusions apply. Because
the parties’ respective arguments are effectively mirror images of each other, the Court analyzes
the parties’ Motions together.
6 – OPINION AND ORDER
The parties agree this case is properly before this Court on diversity jurisdiction pursuant
to 28 U.S.C. § 1332. Accordingly, the Court applies the substantive law of the State of Oregon
and federal rules of procedure. 2 Hyan v. Hummer, 825 F.3d 1043, 1046 (9th Cir. 2016); see also
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
With indemnity claims for the amount of a judgment previously entered, the court “must
look to the evidence submitted at trial to determine whether the judgment was based on a claim
covered under the insurance policy at issue.” Ohio Cas. Ins. Co. v. Ferrell Devs., LLC, No. 3:10cv-00162-AC, 2011 WL 5358620, at *5 (D. Or. Jul. 27, 2011) (citing Mutual of Enumclaw Ins.
Co. v. Gass, 786 P.2d 749, 751 (Or. Ct. App. 1990)). “What the insured is legally obligated to
pay as damages can be determined only by reference to the underlying action, which determined
the insured’s legal obligation to pay damages.” Fountaincourt Homeowners’ Ass’n v.
Fountaincourt Dev., LLC, 380 P.3d 916, 925 (Or. 2016). As a result, in the subsequent
proceeding to determine whether the insurer bears a duty to indemnify the insured for the
judgment in the prior action the parties may not “retry [the] insured’s liability[] or alter the
nature of the damages awarded” in the prior proceeding. Id. “Rather, what the insured had
become obligated to pay as damages and whether the insurer ultimately was liable under its
policy present[] questions of law for the court to determine by reference to (a) the contract and
(b) the judgment and record in the underlying proceeding.” Id. at 926.
Plaintiffs bear the initial burden of proving coverage under the terms of the policy. Id. at
927. If Plaintiffs demonstrate coverage exists under the terms of the policy, the burden shifts to
Defendants to prove that an exclusion from coverage applies. Id.
2
The parties agree Oregon substantive law applies to this case and do not point to any evidence
in the record from which the Court could reach any other conclusion.
7 – OPINION AND ORDER
Defendants contend Plaintiffs have failed to carry their burden to demonstrate the liability
they incurred as a result of the arbitration award is covered under the policy. In particular,
Defendants contend the arbitrators awarded damages for breach of contract and, therefore,
Plaintiffs did not incur the liability as a result of an “occurrence” within the meaning of the
policy. Plaintiffs, on the other hand, contend the arbitration award rests at least in part on a
negligence theory and that the liability, therefore, stems from a series of “occurrences.”
As noted, the policy defines an “occurrence” as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” VanValkenburg Decl.
(#24) Ex. 8, at 20. The policy does not define the word “accident,” but Oregon courts have held
in this context that “‘accident’ has a tortious connotation.” Kisle v. St. Paul Fire & Marine Ins.
Co., 495 P.2d 1198, 1200 (Or. 1972). Accordingly, the Oregon Supreme Court “has indicated
that there can be no ‘accident,’ within the meaning of a commercial liability policy, when the
resulting damage is merely a breach of contract.” Oak Crest Const. Co. v. Austin Mut. Ins. Co.,
998 P.2d 1254, 1257 (Or. 2000). The Kisle court, however, observed that a “tort is a breach of a
duty created by law and not necessarily by the agreement of the parties,” and that, therefore,
“[d]amage caused by the negligent performance of a contract can in certain instances be
recoverable in tort” when “the parties have entered into a relationship in which the law requires,
apart from any obligation assumed by contract, that the obligor act with due care.” Kisle, 495
P.2d at 1200. See also Oak Crest Const. Co., 998 P.2d. at 1257.
Because the liability stems from the arbitration award, the court begins its analysis and
gives the greatest weight to the findings and conclusions in the arbitration award itself. Although
the factual record at trial is relevant to the extent that it can shed light on the arbitrators’ findings
(see Fountaincourt Homeowners’ Ass’n, 380 P.3d at 926 (noting the court is to look to “the
8 – OPINION AND ORDER
judgment and record in the underlying proceeding”)), the arbitration award is of paramount
importance because it is the ultimate source of the liability that may or may not trigger coverage
under the policy. To adopt any other approach would run the risk of impermissibly re-litigating
or altering the nature of the arbitration award. See id. at 925 (prohibiting a subsequent court from
retrying the insured’s liability or altering the nature of the damages awarded).
Plaintiffs rely on the arbitrators’ denial of their Motion for Judgment as a Matter of Law
as to the Grays’ negligence and breach of contract claims to support their contention that the
liability stems at least in part from negligence and, therefore, is covered under the policy. That
denial of Plaintiffs’ motion for judgment as a matter of law, however, was the only reference to
negligence in the arbitration award, and the denial of a motion for judgment as a matter of law is
not the equivalent of a finding of liability on a negligence theory.
Each of the arbitrators’ findings as to liability speak unambiguously and exclusively in
terms of a contract theory. The arbitrators’ findings as to liability recited directly the elements of
a claim for breach of contract: (1) the existence of a valid contract term (“The Respondents were
required to surrender the ‘Lands’ to the Claimants in ‘good condition’ as of March 31, 2013”);
(2) the breach of that term (“The ‘Lands’ were not in ‘good condition’ as of March 31, 2013”);
and (3) injury (“The Claimants have suffered damages due to the ‘Lands’ not being in ‘good
condition’ as of March 31, 2013”). The arbitrators then concluded their legal findings by
specifying the damages suffered by the Grays. There is not any indication in those findings that
the arbitrators were making findings as to the elements of the Grays’ negligence claim and, in
particular, there is not any indication that the arbitrators found that Plaintiffs owed and violated
any duty imposed by law apart from the lease. See Kisle, 495 P.2d at 1200.
9 – OPINION AND ORDER
Similarly, the only apparent authority that supports the arbitrators’ award of attorneys’
fees and costs to the Grays is the attorneys’ fees and costs provision in the lease itself. See Van
Valkenburg Decl. (#23) Ex. 2, at 14. The attorneys’ fees and costs, therefore, were part of the
damages that stemmed from a breach of contract.
The arbitrators’ specific findings regarding damages further support the conclusion that
the award sounded in contract rather than negligence. Neither the arbitrators nor Plaintiffs
identify any duty imposed by law outside the context of the lease that, for example, required
Plaintiffs to properly stock stands of trees, control for invasive species, maintain boundary lines,
or plant second-generation (not first-generation) seedlings. Accordingly, the Court finds the
arbitration award strongly supports Defendants’ argument that the liability that Plaintiffs
incurred sounded in contract and not in tort.
The record from the arbitration that the parties submitted on summary judgment does not
point to a different result. Although there is some evidence from which a finder of fact could
conclude Plaintiffs acted negligently in certain respects, there is also substantial evidence that
supports the contract theory on which the arbitrators ultimately relied in the award.
On this record, therefore, the Court finds Plaintiffs’ liability arising out of the arbitration
award is in the nature of a breach of contract, and does not arise from any claim of negligence or
any other tort. The Court concludes Plaintiffs’ liability does not arise from any “occurrence”
within the meaning of the insurance policy and, therefore, Defendants do not have any duty to
indemnify Plaintiffs for the damages, attorneys’ fees, and costs in the arbitration award.
Defendants, therefore, are entitled to summary judgment on Claim One.
10 – OPINION AND ORDER
CONCLUSION
For these reasons, the Court GRANTS Defendants’ Motion (#22) for Summary Judgment
on Count One of Plaintiffs’ Complaint and DENIES Plaintiffs’ Corrected Motion (#27) for
Summary Judgment on Stage One Claims.
IT IS SO ORDERED.
DATED this
30th
day of August, 2017.
/s/ Michael W. Mosman_________
MICHAEL W. MOSMAN
Chief United States District Judge
11 – OPINION AND ORDER
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