Siltronic Corp. v. Employers Insurance Co. of Wausau, Oregon Federal District Court Cause No. 3:11-cv-01493, Opinion and Order on Summary Judgment (February 4, 2013) (Dkt. No. 62)
In this environmental coverage action, the insured, Siltronic, moved for summary judgment requesting the trial court to find that one of its primary insurers, Wausau, who had issued six years of primary coverage, had a continuing duty to defend even after its indemnity coverage had been exhausted by payment of claims.
Each of the six Wausau policies provided $1 million in liability limits, for a total of $6 million of available liability coverage. Each policy also provides separate coverage for defense costs. The provision at issue is the same in each of the Wausau policies and provides the following coverage for property damage:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such . . . property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.
Over approximately ten years, the Oregon Department of Environmental Quality (“ODEQ”) and the United States Environmental Protection Agency (“EPA”) required Siltronic to perform various remediation and removal actions, as well as pay for liability for natural resource damage, related to the Portland Harbor Superfund site. In September 2009, Wausau declared that its indemnity limits had been exhausted and refused to pay additional defense costs. Wausau claimed that it had paid $6M in indemnity in addition to $7.699M in defense costs.
Upon Wausau’s declaration of exhaustion, Siltronic tendered to its excess carrier, Granite State, who agreed to defend under reservation of rights. significantly, Granite State claims that its policy is a “wasting policy” where payment of defense costs erodes limits. At some point, Granite State determined that Wausau had not properly exhausted and that it had no current obligation to pay defense or indemnity. Siltronic retendered to Wausau and Wausau rejected the tender. Siltronic then filed this coverage action.
The court found that “[r]esolution of the issue of whether Wausau has a continuing duty to defend turns on how to interpret the policy provision which states that Wausau “shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.” Siltronic took the position that the phrase “judgments and settlements” is not ambiguous and that Wausau must continue to defend Siltronic in the ongoing proceedings with DEQ and EPA until those proceedings are finally resolved though “judgments and settlements.” Given the large number of PRPs involved in the Portland Harbor Superfund Site, the parties predict that such a resolution may take years. Wausau contended that the language at issue is unambiguous, and arguied that Wausau’s payment of environmental cleanup costs mandated by DEQ.
The court reasoned:
Because the phrase “exhausted by payment of judgments or settlements” is not defined by the policies, the court must look to its plain meaning. Though this phrase may seem straightforward at first glance, the fact cannot be overlooked that this is not an ordinary insurance coverage case, but instead involves an environmental action by DEQ and EPA. As summarized by another court:
In the typical coverage case, a primary insurer validly exhausts its indemnity limits when it pays a settlement or judgment resolving third party claims . . . In an environmental action like this one where the insured is faced an RAO (Remedial Action Order), however, there is no settlement or judgment in the usual sense of the words. For these reasons, it is difficult to ascertain precisely at which point indemnity limits may be validly exhausted. Consequently, in the context of an environmental action, the phrase “exhausted by payment of judgments or settlements” is ambiguous because it is subject to more than one reasonable interpretation. The court must therefore consider the context in which the term is used in the policy as well as the “broader context of the policy as a whole.”
The court found persuasive that for the purposes of compelling coverage for environmental claims, ORS 465.480 treats environmental claims as if they were lawsuits. The court further concluded that the DEQ and EPA orders and agreements with Siltronic included language of finality and an intent to create legally enforceable rights and responsibilities to a third party. The court found that there was no evidence that Wausau’s payment of the indemnity limits was anything other than in good faith. The underlying environmental action had been ongoing for nine years before Wausau declared exhaustion of the coverage limits. Additionally, and perhaps most importantly, Wausau accepted tender for coverage at the time that Siltronic gave notice of the environmental contamination actions against it. Within two months, it began paying the costs Siltronic incurred in response to DEQ’s and EPA’s various demands. and it continued to pay those costs for six years.
The court found that the facts before it at the summary judgment proceeding were not sufficient to determine whether Wausau had indeed paid $6M in indemnity, but that assuming it had, then it had indeed exhausted its indemnity liability by payment of “judgments or settlements” and had no continuing duty to defend Siltronic.