Absolute Pollution Exclusions Are Not Absolute

Insurance is a crucial source of funding for most environmental cleanups. For the past 30 years, comprehensive general liability insurance policies have uniformly included an "absolute pollution exclusion" in some form or another. The earliest such exclusions appeared in the 1950's, but they became ubiquitous boilerplate in the mid-1980s. As a result, most applicable environmental coverage is found in policies pre-1985, and many policyholders incorrectly assume that their post-1985 policies provide no such coverage. This assumption stems from a string of court decisions finding that absolute pollution exclusions eliminate coverage for traditional industrial pollution under Oregon law. Martin v. State Farm Fire & Cas. Co., 146 Or. App. 270, 275-80, 932 P.2d 1207 (1997); Ind. Lumbermens Mut. Ins. Co. v. W. Or. Wood Prod., Inc., 268 F.3d 639 (9th Cir. 2001). While absolute pollution exclusions are broad, and often do exclude pollution from traditional sources, they do not eliminate all coverage for environmental claims, and policyholders should thoroughly review each of their policies to determine whether coverage exists.

Most absolute pollution exclusions are incorporated into standardized forms and use language originally written by the Insurance Services Office (the "ISO"). The ISO's pollution exclusion, which is widely referred to as the "absolute pollution exclusion," actually expressly creates coverage in certain circumstances. For example, the ISO's exclusion does not apply if contamination results from a "hostile fire" or from a failure of equipment used to heat, cool, or dehumidify a building. While the factual scenarios in which express coverage is created are limited, a policyholder should determine whether any such scenarios apply. Even if only part of the environmental claim falls within the scope of express coverage, the insurer may be required to provide a full defense under Oregon law. While the scenarios where coverage is expressly not excluded are few, it is important to review each such scenario at the outset to ensure that no coverage is missed.

Another important analysis is whether the environmental claim involves a pollutant as defined by the policy. If the contamination does not result from the release of a "pollutant," the exclusion typically will not bar coverage. The ISO exclusion includes a very broad definition of what constitutes a pollutant. While many courts have given the term "pollutant" a very broad interpretation, other courts have interpreted "pollutant" to include only traditional or inherently dangerous contaminants. MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 73 P.3d 1205, 3 Cal Rptr. 3d 228 (2003); In re Hub Recycling, Inc., 106 B.R. 372 (D.N.J. 1989). Determining whether a released substance is a pollutant often requires a review of how the substance was used and how it has impacted the property. While many courts have addressed whether commonly applied products, such as pesticides, can be considered pollutants, many of these questions remain unanswered under Oregon law. If contamination has resulted from something other than the accidental release of a regulated substance, a policyholder may have coverage despite the inclusion of an absolute pollution exclusion by showing that the substance is not a "pollutant."

Policyholders also need to be on the lookout for policies that include purported absolute pollution exclusions that do not utilize standardized ISO language. While most policies include standardized ISO exclusions, some insurers have used individualized exclusions that apply less broadly. For example, some of the early insurer-specific absolute pollution exclusions apply only to releases into waterbodies or to claims brought by government authorities. In these cases, coverage remains in place for releases onto land or claims brought by corporations. Insurer-specific absolute pollution exclusions are most commonly found in policies from the 1980s, but a policyholder may run into them at any time.

While absolute pollution exclusions often leave an insured without coverage, they are not as ironclad as their name suggests. The policyholder facing an environmental claim should retain coverage experts as soon as possible to determine which policies create coverage, including those policies that include purported absolute pollution exclusions.
           

Oregon District Court Provides Clarification on Environmental Coverage Issues

In the most recent opinion in the ongoing Marine Group litigation, Judge Acosta clarified two issues that recur in complex environmental insurance litigation: first, which party has the burden of proving that incurred defense costs were reasonable and necessary; and second, whether an insured can recover pre-tender defense costs.

Burden of Proving Reasonableness and Necessity

The issue of which party has the burden of proving, or disproving, that incurred defense costs were reasonable and necessary was addressed in Ash Grove Cement Co. v. Liberty Mut. Ins. Co. In that case, Judge Hernandez endorsed California's rule by holding that when" the insurer has breached its duty to defend, it is the insured that must carry the burden of proof on the existence and amount of the site investigation expenses, which are then presumed to be reasonable and necessary as defense costs, and it is the insurer that must carry the burden of proof that they are in fact unreasonable or unnecessary." Under the clear language of the Ash Grove opinion, a breaching insurer must prove the defense costs to be unreasonable and unnecessary, after the insured proves their existence and amount. Despite holding that this burden-shifting rule applies, Judge Hernandez's application of the rule was unclear, and several breaching insurers have questioned whether they do indeed have the burden of proving defense costs to be unreasonable and not necessary.

This question arose in Marine Group through a complicated motion to compel in which the relevancy of various documents was in question. In ruling on relevancy, Judge Acosta found that it was necessary to establish who has the burden on the issues of reasonableness and necessity. Judge Acosta endorsed the position taken by Judge Hernandez: that when a carrier has breached its duty to defend, the burden of proving the reasonableness and necessity of the fees shifts from the insured to the insurer. Thus, the insured's fees are presumed to be reasonable and necessary when an insurer has improperly breached its duty to defend. This is a win for policyholders, and should make it easier for insureds to recover fees when insurers have wrongfully refused to participate in a defense.

Another wrinkle in the Marine Group litigation is the presence of a paying insurer, Argonaut. Since early on in the defense, Argonaut has paid Marine Group's defense costs. Thus, most of the damages being sought are through a contribution action between insurers, and not a direct coverage claim. Marine Group, along with Argonaut, made the argument that since the claim is primarily a contribution action between insurers, the reasonableness and necessity of the fees was not at issue, but instead the issue is whether Argonaut acted as a reasonable insurer. Similarly, both parties made arguments under ORS 465.480(4)(d) that the common law of contribution was preempted and that the breaching insurers should be prohibited from questioning the defense costs incurred. Judge Acosta rejected this line of reasoning in holding that St. Paul could question the defense costs, but that it bore the burden of proving the fees to be unreasonable and not necessary.

Pre-Tender Defense Costs

While the Marine Group litigation primarily involves a contribution action between Argonaut and other insurers, Marine Group also has a direct contractual claim against its insurers for certain sums not paid by Argonaut. Some of these unpaid defense costs are pre-tender. In other words, they were incurred by Marine Group before it formally sent a letter to its insurers that detailed the claims faced and requested that a defense be provided.

Most states follow the rule that pre-tender defense costs cannot be recovered by an insurer; this underlines the importance of identifying, and tendering to, insurers at the earliest point of any litigation. Marine Group attempted to escape the strict application of the pre-tender rule by invoking the notice-prejudice rule, which does not allow an insurer to deny defense costs because of delayed notice, unless it can show that the delay caused prejudice to the insurer. Judge Acosta found the notice-prejudice rule to be inapplicable because the duty to defend did not arise until the tender occurred. Thus the court held that the notice-prejudice rule does not apply to pre-tender defense costs, because it applies only to covered claims.

Ultimately, Judge Acosta ruled that under Oregon law, pre-tender defense costs are not recoverable. This presents a particularly difficult situation for companies facing historic environmental liabilities. Typically, the only policies that cover historic pollution events were written before 1986. Many companies do not have readily available copies of these insurance contracts. Indeed, historic insurance archaeologists must often be retained to identify these policies. Judge Acosta's decision reinforces the rule that defense costs incurred while a party is looking for its insurance coverage are not recoverable, even to the extent that the delay does not meaningfully prejudice the insurers.

Oregon Trial Court Adopts "All-Sums" In Environmental Coverage Case

A great win last month for the Zidell real-estate group (owner of much land in the South Waterfront area of Portland, including a historic ship-repair yard) in the longest-running environmental contamination case in Oregon history: a Multnomah County judge held that Zidell's carriers must pay for environmental remediation based on the "all sums" approach.  (Click here for Zidell's reply brief in support of its motion for summary judgment, and here for the court's order granting Zidell's motion).

The case centers around costs that Zidell paid many, many years ago to clean up contamination portions of the Willamette River in downtown Portland upriver from the Portland Harbor Superfund Site.  The dispute, which is between Zidell (or really its "ZRZ Realty" entity) and numerous carriers including various Lloyd's syndicates, is back in the trial court after its umpteenth trip into the appeals courts.  Recently, the court was asked to decide (among other things) whether the insurance carriers could limit their indemnity obligations based on the so-called "time on the risk" approach, where each carrier only pays in proportion to the number of years that it issued policies to the insured, meaning that if the insured settled with other carriers, or was uninsured for any years, there could be large portions of the costs that are not reimbursed.  The alternative is the "all sums" approach, in which the carrier is liable to pay for all of the property damage if there was property damage during any of its policy years, up the limit of its policies.

The Oregon Environmental Cleanup Assistance Act (OECAA) specifically wrote the "all sums" approach into law for certain policies, and, separately, there is Oregon case law endorsing the "all sums" approach.  Zidell's carriers, however, argued that the OECAA's provisions could not apply to them, and that the "all sums" approach is unfair.  The arguments on both sides are complex and detailed.  Fortunately, the Multnomah County Circuit Court saw the light and rejected the carrier-side arguments, holding that the indemnity obligations will be resolved based on "all sums."  This appears to be the first of hopefully many trial-court decisions adopting the "all-sums" approach in connection with indemnification for environmental liabilities in Oregon.  As the date for issuance of the ROD in the Portland Harbor comes nearer (although several years away), decisions like this one (which will hopefully be affirmed on appeal) will help shape the resolution of hundreds of coverage disputes over paying the billion-plus tab to clean up the downstream portions of the Willamette.

Oregon Environmental Coverage Mediation Program Launched

In 2013 the Oregon Legislature passed SB 814, which amends the Oregon Environmental Cleanup Assistance Act, a unique law regulating environmental coverage disputes.  Part of SB 814 required the State to set up a mediation program for such claims (and made a carrier's refusal to participate in mediation a prohibited claims practice).  That mediation program is now "live."  Here is the announcement from the State's ADR coordinator.

Mediation Case Manager (MCM) has been selected to manage the Environmental Claims Mediation Program established by SB 814 (2013.)  Under the terms of their contract, MCM begins offering environmental claims mediation services today, November 19, 2014.   MCM has established a program website that includes an initial list of qualified mediators and links to case initiation forms. That website is:  https://ecmp.mediationcasemanager.com/Site/index.html.     Additional program information, including the program rules effective October 31, 2014 , are available on the Department of Justice website at: http://www.doj.state.or.us/adr/pages/environmental_claims.aspx.  

We were honored to participate in drafting the regulations that set up this program and in helping select the vendor to administer this program, and are very pleased to see it up and running!

Or. Fed Court Rejects "Hail Mary" Insurer Argument Against Attorney Fees

The dispute between Schnitzer Steel and its carriers over defense at the Portland Harbor Superfund Site has been addressed many times in this blog, because it has raised many novel and fascinating (to me, anyway!) issues.  Here is the latest: on November 12, 2014 Judge Mosman ruled on Schnitzer's motion for attorney fees after Schnitzer prevailed completely at trial this last April, recovering more than $8 million in defense costs.  Schnitzer then requested nearly $3.5 million in fees under ORS 742.061.  In response, the carriers tried a "hail mary" to zap the fee entitlement entirely: they argued that because the statute applies only to actions brought on an insurance policy "in any court of this state," and because actions brought in federal court are brough in a court in Oregon but not of Oregon, the statute did not apply.

Judge Mosman found the argument worthy of some consideration, but ultimately rejected it.  Judge Mosman held that under Erie and consistent with the purposes of the statute, a federal court in Oregon is a court "of the state."  The court noted that any other result would produce an anomaly: a case in an Oregon state court applying Oregon law would result in a fee award, whereas the same case that was removed as of right by an insurance carrier to federal court would not.

This is another important development in the protection of one of the few levers available to policyholders in Oregon because other than in the environmental arena (as of last year), the conventional wisdom is that there is no "bad faith" remedy where an insurance carrier denies a defense under a liability policy.  However, given the size of the attorney fee award (nearly all of what Schnitzer requested), the carriers certainly have an incentive to raise this issue again on appeal.

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.

Wash. Court of Appeals Gets It Dead Wrong on What Is a "Suit"

Earlier this week Division One of the Washington Court of Appeals issued its much-anticipated decision in the Gull Industries v. State Farm litigation.  The issue was whether a letter from the state equivalent of the EPA constitutes a "suit" under a standard-form legacy GL policy (that is, a policy issued before the ISO form defined "suit").  Only if something constitutes a "suit" does the insurer have a duty to defend, which in the environmental context often means paying for very expensive investigations and studies of contamination and remediation options.  So there is potentially a lot at stake.

One word describes this Court of Appeals decision: wrong.  Confusingly enough, the decision starts off in the right direction, finding that the term "suit," undefined, is ambiguous.  That's in keeping with that other courts have found, including Oregon's courts.  That's where the decision falls apart: having found an ambiguity, the court should have applied the maxim that ambiguous terms are applied against the drafter (the insurer).  But without any discussion of that standard, rather than adopting a broad, policyholder-friendly interpretation, the court imposed a definition not drawn from any source reflecting the view of an ordinary purchaser of insurance (like the dictionary); rather, the court looked to what other courts had adopted as an interpretation, and picked and chose among aspects of those decisions that it preferred.  The interpretation adopted by the Court of Appeals for "suit" is this: something that "communicate[s] an explicit or implicit threat of immediate and severe consequences" if not responded to and is "adversarial or coercive in nature."

The letter sent by Ecology (the Washington state equivalent of EPA) was in response to a voluntary notification by the policyholder that pollution had been discovered and would be cleaned up.  Ecology told the insured, in response, that it was placing the site on a list of contaminated sites awaiting cleanup.  The letter did not explicitly tell the insured to do anything.  But, as noted by the court, the letter advised the insured that there were specific requirements in state law that cleanup efforts must adhere to.  Implied in that statement is the threat, drawn from the cleanup-requirements statute, that if those standards were not complied with, there will be enforcement action.  But the Court of Appeals completely ignored that reality, simply saying that the letter "did not advise" the insured of those consequences.

The approach taken by Division One has been rejected by many courts, including the Ninth Circuit in Anderson Bros. v. St. Paul Fire & Marine.  In Anderson Brothers the Ninth Circuit affirmed its observation in Aetna Cas. & Sur. v. Pintlar, that the realities of environmental statutes must be considered in deciding whether a communication from a regulatory agency that does not spell out every potential liability or ramification is a "suit."  In Gull Industries the reality was that the the insured, after self-reporting the contamination, was going to constantly be looking over its shoulder to see what Ecology thought of what it was doing.  That makes Ecology's letter a "suit."

The practical effect of decisions like this one is to discourage policyholders from voluntarily entering into agreements with regulators or self-reporting contamination and cleanup efforts.  Instead, policyholders are encouraged to bait regulators into taking explicitly "adversarial or coercive" steps.  That's bad for the environment and bad for the public.  It may be that the Court of Appeals was trying to goad Ecology into changing the wording of its letters, but there's no reason that the burden of solving this problem should be put in the hands of environmental regulators.  This may be a rare circumstance where Washington legislators and policyholder advocates can take a page from Oregon, and enact a Washington version of the Oregon Environmental Cleanup Assistance Act, which (as some of my colleagues have noted) contains a definition of the term "suit" that much broader than the standard adopted by the Washington court.

Schnitzer Verdict In Defense Cost Dispute Good News for All Policyholders

Late last month a jury awarded Schnitzer Steel all of the damages that it sought -- over $8 million -- in a coverage dispute with its liability carriers that centered on the rate being paid the environmental lawyers defending Schnitzer at the Portland Harbor Superfund Site.  This is a very unusual case, but it is likely to have a ripple effect on the insurer-insured dynamic when it comes to selection of defense counsel.  At the heart of the dispute was whether Schnitzer's defending carriers had the right to choose defense counsel, even if the insured believed those lawyers did not have the experience or ability to properly handle the case. Schnitzer's insurers, like most insurers, asserted that they had a nearly unfettered right to choose counsel, and took the position that if the insured insisted on another lawyer the carrier did not need to pay any more than the "panel counsel" rate.  The jury in Schnitzer rejected that argument.  The company recovered the difference between what it has been paying its California-based counsel (at rates nearing $900 per hour) and what its carriers had agreed to pay (roughly $250 per hour) for several years worth of intensive work.

As is usually the case one of the biggest fights was over the jury instructions, which embody the judge's conclusions about the governing law.  I have posted the jury instructions here.  Although the court ruled before trial that the recent amendments to the Oregon Environmental Cleanup Assistance Act (OECAA) relating to standards for "independent counsel" did not apply, the court nevertheless gave the jury an instruction on an insurer's obligations regarding defense counsel that is nearly identical to the statutory standard.  This instruction will give insured's ammunition to use with carriers attempting to foist "panel counsel" on the insured.  In most cases appointed panel counsel are excellent specialists in their fields, but on occasion a carrier will attempt to appoint someone who does not have the requisite experience, or has a particular conflict of interest (such as having represented the carrier on coverage matters).

More generally, the verdict should make carriers particularly leery about going in front of a jury in state or federal court.  The simple fact is that although Schnitzer had very excellent representation, many did not believe that they could convince a jury that a lawyer is worth $900 an hour, under any circumstances.  The fact that they were able to do so certainly speaks to their skill as advocates, but probably also speaks volumes about how juries view insurance companies that try to skirt their coverage obligations.

Oregon Federal Court Rules on Characterization of Environmental Cleanup Costs

Last week Magistrate Judge Stewart issued an order on the thorny issue of how to characterize some of the costs associated with a complex environmental cleanup.  Are they indemnity costs that deplete the insured's insurance policies, or are they defense costs, which do not?  The decision resolves yet more issues in the Siltronic litigation between Siltronic, a major player at the Portland Harbor Superfund Site, its primary layer carriers (principally Wausau), and excess carrier AIG.  Siltronic has had to perform some cleanup-type work and extensive studies and monitoring at its facilities, well in advance of any cleanup of the contaminated sediment in the Willamette River that is the focus of the site.

Under the Oregon Environmental Cleanup Assistance Act's 2003 amendments certain investigatory costs are presumptively deemed "defense" costs, whereas some types of remedial costs are presumptively deemed "indemnity" costs.  But environmental sites are notoriously complex and what seems like remediation to some can look like further investigation to others.  In Siltronic the company and its primary-layer carriers reached an agreement on an allocation of the costs in such a way that the primary policy was exhausted, meaning that the excess carrier (AIG) would be on the hook.  AIG challenged the allocation, arguing that the primary carrier had designated many costs as indemnity that should have been defense.

Judge Stewart's decision is quite nuanced and deserves a close read.  Overall, her approach was to go behind the labels applied by the agencies, vendors, or attorneys to look at what was actually going on when a particular cost was incurred and its purpose, to see whether the statutory presumptions had been overcome (or whether they applied at all).  This decision is something of a harbinger for what will likely be significant disputes between policyholders, their primary carriers, and excess carriers when the "big" remediation at the Portland Harbor begins in earnest.

In Case You Missed It - 2013 Wrap Up of Portland Harbor Coverage Cases

I am making an effort to get onto this blog every case of recent vintage touching on important coverage issues associated with the Portland Harbor Superfund Site (and there have been a lot of them).  Here's one from just before I started this blog last year - Siltronic Corp. v. Employers Ins. Co. of Wausau, 921 F. Supp. 2d 1099 (D. Or. 2013).  In this decision, Magistrate Judge Stewart (by consent of the parties) granted summary judgement in the insurer's favor on the issue of whether cleanup costs paid before there was a final agreement with DEQ/EPA on Siltronic's obligations exhausted the policy limits, thereby excusing any additional defense obligation.  Judge Stewart characterized Siltronic's argument as trying to add the term "final" to the exhaustion clause -- "exhaustion by payment of judgments or settlements" -- and rejected it, looking to Washington and Texas court decisions for guidance on what constitutes such payments in the environmental arena.  Somewhat ironically (given that this argument usually benefits the policyholder in a duty to defend dispute) Judge Stewart gave strong recognition to the somewhat unique structure of environmental "suits" as part of the decision.

'via Blog this'

Implementation of Environmental Coverage Claims Mediation Program Underway

The recent amendments to Oregon's Environmental Cleanup Assistance Act (OECAA) included a potentially useful tool in the policyholder toolbox - one that could benefit all sides and the environment as well.  The amendments provided that an insured could demand that an insurer participate in a mediation over a broad range of environmental coverage disputes, and if the insurer refuses, that is a per se bad faith claims handling practice subjecting the carrier to increased damages.  The Oregon Department of Justice was given the responsibility for creating an environmental coverage mediation program including hiring a mediation service provider (MSP) to administer the program and writing regulations governing issues like qualifications and rates.  DOJ convened a public meeting of stakeholders this past Monday, December 2, in Salem, which was attended by insurers, policyholder advocates, and many representatives of the mediation community.  DOJ has also set up a website for the program which will track its progress.  There are a number of issues under discussion.  Let me know if you have thoughts that you'd like conveyed through the Advisory Committee that is being set up, and stay tuned.

Trial Court Rejects Constitutional Challenge to New Provisions of OECAA

Today the trial court judge in the long-running environmental coverage contribution battle between Lloyd's and several other carriers for Zidell Marine rejected a constitutional challenge mounted by Lloyd's to one of the newest provisions of the Oregon Environmental Cleanup Assistance Act (OECAA).  This case has had many zigs and zags but to briefly sum up, Zidell sued its carriers for failing to defend it in a cleanup action brought by the state, both for defense costs and for the cost of the cleanup.  Several of the carriers including Beneficial settled with Zidell.  Lloyd's did not.  Lloyd's later was tagged in the coverage action (which itself has gone on for years with multiple trips up the appellate chain) for millions of dollars; Lloyd's then sued Beneficial and others arguing that those carriers did not contribute to the overall "pie" in proportion to their coverage.  In June of this year new amendments to the OECAA went into effect.  One provision of the amendments provides that a carrier that has settled with a policyholder in "good faith" is protected from a contribution suit by other, non-settling carriers.  Beneficial and the other defendants in the Lloyd's contribution case filed a motion to dismiss arguing that under that new provision, Lloyd's has no cause of action.  Lloyd's in turn argued, among other things, that a) the statute does not apply if there has been a "final judgment" in the underlying coverage case; b) the statute is unconstitutional; c) there are questions of fact about whether the Beneficial et al. settlements were in "good faith."  In today's decision the trial court held that there has been no "final judgment" in the coverage case between Zidell and Lloyd's, meaning that the statute applies, and rejected the constitutional argument.  She held, however, that there are some questions of fact and allowed discovery into whether the settlements were in good faith.  More appeals appear inevitable, so stay tuned.  However, this appears to be the first enforcement by a trial court of the new provisions of the OECAA, and the first rejection of a constitutional challenge to one of the new provisions, and it's certainly notable for that alone.

Presentation on Anderson Brothers Decision

For those of you who missed the OSB Environment and Natural Resources Committee's CLE on the Anderson Brothers decision yesterday, click here for the presentation visuals (via Prezi) and here for a short article that I wrote for ENR on the decision.  Thanks to everyone who came and for the great questions.

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.

Insurers Start Duking It Out Over Impact of SB 814 on Oregon Environmental Coverage Law

Ironically enough, the first attempt that I've heard of to take advantage of the new pro-policyholder provisions of the Oregon Environmental Cleanup Assistance Act (OECAA) was by an insurance company.  That effort, in the form of a motion to dismiss recently filed in the Multnomah County Circuit Court Lloyd's of London v. Beneficial Insurance case, is here.  As I've reported in earlier posts, one provision of SB 814 (which went into effect in early June) added "contribution protection" to the OECAA.  To put it very simply, the provision has this effect: if insurance company A settles a coverage claim with the policyholder in good faith, and the policyholder also sues insurance company B over the same loss and wins, insurance company B can't then sue insurance company A for contribution, arguing that insurance company A didn't pay its righteous share of the loss, and insurance company B overpaid, so company A owes company B.  The idea behind the provision was to encourage insurance companies to settle these claims early, by removing the fear that they will then have to pay again if sued for contribution.

The Lloyd's of London v. Beneficial Insurance contribution case arises out of the Zidell "Moody Avenue" contaminated site (not the Portland Harbor Superfund Site).  Zidell settled early on with Beneficial, then went after Lloyd's, and tagged Lloyd's for a considerable amount (that litigation is still going, after having gone up the appellate court ladder several times, like the contribution case).  Lloyd's sued Beneficial for contribution.  Judge You, who has had this case at the trial level for some time, earlier ruled that because of the date of the DEQ enforcement action against Zidell, the OECAA does not apply to the case.  Beneficial is now trying to both undo that ruling, and assert that the Lloyd's claim is barred by the contribution protection provision of SB 814.  This motion is just the opening salvo.

I can't say I'm unhappy about insurance companies having to spend money on very good lawyers on both sides of a dispute that may help clarify how this new provision of the OECAA, and perhaps related retroactivity and constitutionality problems, will work out in practice.  Stay tuned, as always.

Speaker of Oregon House Signs SB 814, Amending Oregon Environmental Insurance Claims Law

SB 814 :: Oregon Legislature Bill Tracker - Your Government - The Oregonian:

Now all that remains is for the Governor to sign, and the largest change in Oregon insurance law (in potential dollar value) in recent memory will kick in.  Check back for a full analysis of the potential ramifications of this new law on policyholders, particularly those involved in the Portland Harbor Superfund Site.
'via Blog this'