Major Victory for Policyholders in Oregon Environmental Coverage Dispute

Today the Ninth Circuit affirmed the trial court's decision in Anderson Brothers v. St. Paul Fire & Marine in favor of the policyholder in the first case to reach the Ninth Circuit on the issue of whether an EPA "104(e)" information demand triggers an insurance carrier's duty to defend.  I am very proud to represent Anderson Brothers, a family-owned and operated business with deep roots in Portland, in this litigation.  The decision, written by Judge Rheinhardt, confirms what not only the trial judge (Judge Mosman) had held, but what two other judges in Oregon have held, which is that a 104(e) letter from the EPA (in this case, issued as part of the Portland Harbor Superfund Site process) is one potential starting point for CERCLA's adversarial process involving (potentially) strict liability. As such, a 104(e) letter qualifies as a "suit" not only under Oregon common law but under the Oregon Environmental Cleanup Assistance Act (OECAA), Oregon's unique statute governing some environmental insurance claims.  This is a significant victory for a small business caught up in some very dramatic machinations here in Portland as insurance companies try to control their overall exposure to the costs of defending hundreds of businesses and government entities in the line of fire at the Harbor Site, and is proof positive that the Oregon legislature did right by small business when it passed the OECAA in 1999.

*Disclaimer:  Success in this (or any other) case does not guarantee success in any other case.

Oregon Federal Court: Participation in Superfund Site ADR Part of Defense Obligation

Judge Marco Hernandez recently issued his rulings after a bench trial in the long-running Ash Grove Cement Co v. Liberty Mutual et al. environmental coverage litigation.  In 2008 Ash Grove became embroiled in the Portland Harbor Superfund Site when it received a “104(e)” information demand from the EPA.  When Ash Grove’s insurers (including Liberty and Travelers) refused to pay for Ash Grove’s defense, it sued.  In 2010, Ash Grove prevailed on the issue of whether the “104(e)” letter triggered the duty to defend – an issue of first impression under Oregon law – meaning that Ash Grove’s insurers were held liable for defense costs.  Of course since 2008 a lot has happened at the Harbor, including the commencement of an ADR process involving all the major players at the site.  At the March, 2013 trial on Ash Grove’s damages, the insurers argued that even if (as the Court had already found) they are required to pay for the response to the “104(e)” letter, Ash Grove’s costs to participate in the ADR process are not a reasonable and necessary part of the defense to the "104(e)" letter.   In effect, the insurers were trying to pick apart the defense obligation into discrete parts.  Ash Grove argued that in a complicated, fluid, non-traditional situation like a Superfund dispute such an approach makes no sense.  Judge Hernandez’s Findings and Conclusions, available here, adopted Ash Grove’s argument.  In so doing he established an important precedent (on that issue, and others) for all of the other policyholders who are currently suing their insurers to cover costs of defense associated with the Harbor.  The insurers have pledged to appeal.

Insurer Gets Creative Seeking to Defeat SB 814 Independent Counsel Provision

Insurer CNA has filed its brief in the long running Schnitzer coverage litigation concerning defense coverage at the Portland Harbor Superfund Site and it's interesting reading.  The issue here is not the duty to defend per se, because Schnitzer's insurers are defending. The issue rather is whether the "independent counsel" provision of SB 814, the amendment to Oregon's Environmental Cleanup Assistance Act (OECAA) passed this last legislative session, mean that Schnitzer's insurers have to pay the full rates being charged by Schnitzer's Los Angeles-based environmental defense counsel.  So far CNA has been paying only what it claims is its ordinary "panel" rate for Oregon defense lawyers, which is a small portion of the hourly rate charged by Schnitzer's LA lawyers.

SB 814 contains a clause requiring an insurer to pay for experienced environmental counsel, which Schnitzer argues means whatever rates are charged by available experienced Superfund defense lawyers; since all of the lawyers with that kind of experience in Portland are already representing other entities at the Site, CNA must pay Los Angeles rates.

CNA makes the following arguments that I found interesting (and I'm paraphrasing heavily here): 1) the insurance policies (which are standard older GL forms) give it the absolute right to control the defense, and therefore the "savings clause" in the OECAA applies, negating the independent counsel provision; 2) SB 814 cannot apply to existing counsel that are already being paid by the insurance company because that would interfere with the Oregon State Bar's rules on conflicts of interest and attorney ethics, and the Legislature cannot overrule the Bar's rules.  The second point is the most creative, but seems a little thin at first glance.  The problem with the first argument is that Oregon courts have not directly confronted the scope of an insurer's right to control the defense - which CNA acknowledges by citing only out-of-Oregon cases in its brief.  But if CNA wins the day, that could spell trouble for anyone trying to take advantage of the independent counsel provision, not just those in Schnitzer's highly unusual situation.

Stay tuned, as they say.

Magistrate Judge Sullivan Endorses Conventional Wisdom on Oregon Bad Faith Claims

It is conventional wisdom in the insurance coverage bar that there is no bad faith claim available when a liability insurer breaches the duty to defend.  This is based on several rather old cases.  In more modern times the Oregon Court of Appeals has suggested that the issue may be ripe for re-examination.  But in this decision (link below) federal Magistrate Judge Sullivan adopted the conventional wisdom and granted a motion to dismiss the policyholder's bad faith claim.  What is somewhat remarkable here is that this is an environmental contamination coverage claim governed (it appears) under the Oregon Environmental Cleanup Assistance Act.  That Act was amended effective June 10, 2013 (a few weeks before this decision came down) to provide for bad faith claims in these kinds of situations (whether the amendments would apply here may be an open question).  No objections were filed, so Judge Hernandez adopted Judge Sullivan's findings without review.  This case may be a good illustration of exactly why the amendments (SB 814) adopted this legislative session were so necessary.

Russell v. Liberty Mutual Insurance Company, Dist. Court, D. Oregon 2013 - Google Scholar:

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Oregon Supreme Court Will Review Landmark Case on Stipulated Judgments

The Oregon Supreme Court has accepted review in the landmark Brownstone Homes Condo Ass'n v. Brownstone Forest Heights LLC case, on the issue of stipulated judgments.  To simplify greatly, the case involves a developer (the LLC) that was sued along with one of its subcontractors, A&T Siding, by the condo association.  A&T was denied coverage by its carrier, and so entered into a stipulated covenant judgment with the association in which it assigned its coverage claim against its carrier, Capitol.  The condo association then attempted to enforce the judgment as a garnishee on Capitol.  The trial court denied recourse, holding that: 1) under the "Stubblefield" rule Capitol had no liability because the covenant did not leave any potential unsatisfied liability; and 2) ORS 31.825 (which permits assignments) did not control because that statute requires that the assignment take place after judgment was entered, and here the assignment and judgment happened at the same time.  The Court of Appeals affirmed, holding that a garnishment proceeding by an injured claimant is subject to Stubblefield because of the Reuter decision, which limited the rights of a garnishee to those held by the primary defendant.  The court also agreed that ORS 31.825 requires a specific sequence in a stipulated judgment with assignment and that unless the proper sequence is followed, the statute has no application.  Finally, the court held that a good-faith-cooperation requirement in the agreement did not make the agreement Stubblefield-compliant with regard to the insured's continued exposure to liability.

The Oregon Supreme Court identified the following issues for appeal (I'm paraphrasing): 1) does Reuter really mean that Stubblefield applies to garnishment proceedings?; 2) does ORS 31.825 require that judgment-covenant proceed in a specific order; and 3) most tantalizingly, if the Court of Appeals were right on #1 and #2, should Stubblefield be abrogated?  The alignment of the parties and interests of the counsel pursuing the appeal are somewhat odd, so amicus participation seems likely.  This will be one to watch in the fall as briefing comes in.

Duty to Cooperate Alive and Well in Oregon

Insurers are celebrating the new decision from Oregon's federal district court in the long-running Charter Oak et al. v. Interstate Mechanical et al. case finding that the policyholder lost all coverage by breaching the duty to cooperate.  In my view, this is a bad-facts-make-bad-law situation involving a fact pattern not likely to be repeated, that will unduly encourage out-of-state insurer lawyers to take an aggressive position in coverage disputes.  In this case the developer and the general contractor on a project in Montana were owned by the same person, and were therefore aligned as opponents in the defect litigation in that state.  The carrier agreed to defend the contractor (as an additional insured) in the underlying case.  The problem was that (according to the decision, at least) they failed to maintain even the appearance of an arms-length relationship in concocting the damages being sought from the contractor, including having the insurance defense lawyer for the contractor submit a declaration from the developer's damages expert using the defense lawyer's letterhead.  Those kind of bad facts make it difficult to survive the "smell test" that all judges employ, no matter what the legal standard is.

The notable points in the decision are these: a prediction that Oregon courts would find that a court can find an insurer to have been prejudiced by a lack of cooperation even before the underlying case is over; and a finding that an insured's giving notice of an intent to stipulate to a judgment needs to be roughly contemporary with the settlement itself - it is not enough to have warned the carrier earlier in the litigation that the insured was contemplating such a move.  While one can take issue with both propositions (and I do), it is somewhat easy to understand how those calls came down when you go back to the "smell test" problem.  And like it or not, these holdings demonstrate why competent policyholder counsel need to keep up to date on developments from every jurisdiction considering new points of Oregon coverage law.