Oregon Environmental Coverage Decision Emphasizes Importance of Early Tender

A new decision from the Oregon federal court emphasizes the need to tender any kind of potentially covered claim as early as possible.  The decision was, by and large, a win for the policyholder, but as noted at the end of this post the court carved out a large chunk of costs based on the timing of notice.

The decision, issued on October 28, 2014, came from Magistrate Judge Stewart in the long-running coverage dispute between Siltronic Corporation and its primary layer and excess carriers over costs for both cleanup of some of Siltronic's property within the Portland Harbor Superfund Site ordered by DEQ, and defense against the EPA claims at the Harbor.  The claims against Siltronic involved both contamination of soil, and river sediment, by TCE and MGP (Manufactured Gas Product).  Siltronic had seven potentially applicable policies, from 1978 through 1986, with Wausau as primary and Granite State as excess.  Wausau initially provided Siltronic with a defense under policies from 1980 through 1986, until Judge Stewart held that Wausau could stop defending the company because the primary insurer had paid to clean up TCE contamination and in so doing exhausted those six years of coverage.  Siltronic's excess layer carrier has been paying to defend the company since then.

The issue presented for Tuesday's ruling was what to do with the 1978 - 1980 policy.  Wausau had not been defending under that policy because Siltronic had not produced TCE until 1980, and Wausau contended that Siltronic had not tendered defense of  the MGP contamination.  Judge Stewart rejected that contention, noting that the DEQ letters and orders relating to the cleanup and included both MGP and TCE, and that therefore under the "eight-corners rule" in which the court only looks to the "four corners" of the policy and the "four corners" of the complaint (or equivalent), the tender had included MGP.  Wausau also contended that it had no duty to defend under the 1978 policy because Siltronic had not actually incurred costs to defend against MGP-related liability, because NW Natural Gas, the successor to the prior owner of the MGP-contaminated site, had agreed to pay for cleanup.  However, the evidence did not clearly establish that Siltronic had no potential future liability for the MGP contamination due to the agreement with NW Natural.   Questions about whether Siltronic had incurred defense costs related to MGP were questions for trial on damages, according to the ruling.

The court did exclude from consideration, however, a seemingly large chunk ($450,000) of defense costs incurred by Siltronic relating to the contamination.  It appears that Siltronic did not tender the DEQ and EPA communications to any carrier until TCE issues came to light, which was a few years after Siltronic had begun incurring costs relating to MGP.  Judge Stewart held that under the "voluntary payments" provision of the policies Wausau was under no obligation to pay any pre-tender defenses costs.  This reading of the voluntary payments provision has become the accepted wisdom among Oregon's federal courts, although policyholders continue to challenge it.

The take-away is this: tender early, and tender everything that could be a claim or suit, and do not equivocate about seeking a defense.

Ninth Circuit Asks Alaska Supreme Court Whether Recoupment Available to Insurers

Recoupment is the term most often used to describe the effort by an insurer to get back, from the insured, defense costs paid out where the claim was ultimately not covered.  Some kinds of policies -- principally professional liability and D&O policies -- have policy provisions specifically providing insurers this right.  (And, incredibly, some carriers without such provisions in their policies attempt to assert this right in their reservation of rights letters!)  Recoupment is controversial because if the right is asserted, it is a sword of Damocles hanging over the head of the insured as the underlying litigation progresses, and has in some cases impacted the resolution of an underlying case.

Alaska, by statute, requires insurers to pay for independent counsel where the defense is being conducted under a reservation of rights.  It contains no provision allowing recoupment, but that leaves open the question of whether an insurer may do so if the parties have agreed to recoupment by contract.  The Ninth Circuit, in Attorneys Liability Protection Society v. Ingaldson Fitzgerald, P.C.,, has now asked the Alaska Supreme Court to answer that question, which will no doubt involve not just the intent behind the statute, but also Alaska common law, which provided the genesis for the "independent counsel" requirement in the first place.  See CHI of Alaska, Inc. v. Emp'rs Reinsurance Corp., 844 P.2d 1113 (Alaska 1993).  This is an increasingly important issue for all kinds of policyholders, as the increasing costs of defending almost any sort of claim have increased the incentives for carriers to exercise their recoupment rights.

Montana Decision Has Lessons for Drafting Indemnity Provisions

A new decision from the District of Montana, WBI Energy Transmission v. Colony Insurance, illustrates the dangers of a vaguely-worded additional insured requirement in a contract.  In WBI a pipeline worker employed by a mid-tier contractor, "Pro Pipe" was injured; after collecting from worker's comp, he sued both the owner (WBI) and the sub-contractor.  The owner tendered to Pro Pipe's carriers as an additional insured ("AI") on Pro Pipe's general liability policies, which contained a blanket AI endorsement (in other words, the endorsement provided AI coverage to the extent required in any contract that Pro Pipe entered into).  The liability carriers contended that WBI was not an additional insured because the underlying contract was ambiguous about whether Pro Pipe was required to add WBI as an AI.  The contract stated that Pro Pipe was obligated to "maintain . . . minimum insurance coverage[] . . . to protect [WBI] against liability in connection with Pro Pipe's work." (emphasis added).  

The District Court held that that language -- in combination with the fact that Pro Pipe believed it was required to provide AI coverage, and had given WBI a certificate to that effect -- was not ambiguous, and that WBI was an additional insured.  The court's decision is cleanly-reasoned and worth reviewing.  But the larger lesson is that such problems can be avoided by careful contract drafting and occasionally having a lawyer experienced in insurance issues review form contracts and insurance requirements to make sure that the language matches the expectations in then event that something goes wrong.