Summary
In Bercot, the underlying plaintiffs described that the ongoing asbestos releases threatened their health and the health of others and caused them emotional distress.
Summary of this case from Forbidden Fruit Ciderhouse, LLC v. Ohio Sec. Ins. Co.Opinion
Civil No. 03-637-CO.
July 1, 2004
FINDINGS AND RECOMMENDATION
Plaintiff American States Insurance Company has filed a second amended complaint for declaratory relief relating to insurance coverage against defendants Maurice Bercot; Melvin Stewart; Kenneth L. Tuttle, M.D.; Kenneth L. Tuttle, M.D., P.C. Employee Pension and Profit Sharing Plan and Trust for Kenneth L. Tuttle; and MBK Partnership. Plaintiff seeks declarations that there is no insurance policy, no duty to defend, and no indemnity obligation. This court has jurisdiction pursuant to 28 U.S.C. § 1332. Before the court is plaintiff's motion for summary judgment (#38) and cross-motion for summary judgment by defendants MBK Partnership, Melvin Stewart, Kenneth L. Tuttle individually and as Trustee of the Kenneth L. Tuttle, M.D., P.C. Employee Pension and Profit Sharing Plan and Trust for Kenneth L. Tuttle (MBK defendants) (#59).
I. FACTS
In making the following findings of fact, the court considers the evidence in the light most favorable to the non-moving party:
This dispute arises out of defendants' request that plaintiff defend and indemnify defendants in four cases (underlying cases): Burns et al v. MBK Partnership et al., No. CV 03-3021-CO and West v. MBK Partnership et al., No. CV 03-3037-CO. (Exs. 2, 3, 4.) The Burns and West cases have been consolidated by this Court. The United States EPA (Docket No. CERCLA-10-20030088) and the State of Oregon EQC (No. AQ/AB-ER-01-250A) have brought administrative proceedings to require cleanup of the property. (Exs. 5, 6.) Plaintiffs in the underlying cases allege that the insureds are responsible for ongoing releases of asbestos to the atmosphere, nearby properties, and the environment (since it was transported to other property through the air) which have occurred since 1979 from natural processes and from activity at the site and which threaten their health and the health of others, have caused them to experience physical manifestations of emotional distress, and have caused them necessarily to incur costs. (Ex. 2 ¶¶ 70, 78, 401, 403, 407-408, 417-418, 421; Ex. 14 ¶¶ 70, 78, 416, 418, 432, 433, 436; Ex. 11 at 9.)
The parties listed on the American States policy (Stewart, Bercot and "Tuttle PC") held title to the property at issue together at the time the American States comprehensive policy was issued in February 12, 1982. This claim was tendered to American States on December 6, 2002. American States acknowledged receipt of the claim, denied coverage on May 9, 2003, and instituted this action. (Ex. 14 ¶¶ 30, 35; O'Leary Aff. Ex. 10; Stewart Aff. Ex. A.) The American States comprehensive policy insured Bercot, Stewart, and "Tuttle PC" from February 12, 1982, through February 12, 1985. (Stewart Aff. Ex. A)
Plaintiff states that the burden of proving existence of the policy is on the insureds and it does not undertake that burden in making its motion (see plaintiff's claim one). Plaintiff states that a copy of the complete policy has not been located, but a "purported" declaration sheet, with specimens of the forms identified, is included in the exhibits, (Ex. 7). In their response, MBK defendants include a copy of the policy and state that they provided it to plaintiff, (Ex. 10).
The insurance policy at issue includes the following pertinent definitions:
"bodily injury" means bodily injury, sickness or disease sustained by any person.
. . . .
"damages" includes damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage.
. . . .
"insured" means any person or organization qualifying as an insured in the "Persons Insured" provision of the applicable insurance coverage. . . .
. . . .
"occurrence" means an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
. . . .
"property damage" means injury to or destruction of tangible property.
(Ex. 7 at 6.) The insurance policy provides the following pertinent exclusions:
This insurance does not apply:
. . . .
(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
. . . .
(k) to property damage to
(1) property owned or occupied by or rented to the insured. . . .
( l) to property damage to premises alienated by the named insured arising out of such premises or any part thereof;
(m) to loss of use of tangible property which has not been physically injured or destroyed resulting from
(1) a delay in or lack of performance by or on behalf of the named insured of any contract or agreement, . . .
. . . .
(r) to bodily injury or property damage arising out of structural alterations which involve changing the size of or moving buildings or other structures, new construction or demolition operations performed by or on behalf of the named insured.
(Ex. 7 at 8-9.) The policy also includes the following pertinent provisions:
Each of the following is an insured under this insurance to the extent set forth below:
(a) if the named insured is designated in the declarations as an individual, the person so designated but only with respect to the conduct of a business of which he is the sole proprietor, . . .
. . . .
This insurance does not apply to bodily injury or property damage arising out of the conduct of any partnership or joint venture of which the insured is a partner or member and which is not designated in this policy as a named insured.
(Ex. 7 at 9.)
In 1977, Stewart, Bercot, and Tuttle acquired the North Ridge Estates parcel of land that formerly, in the 1940's, was a Marine barracks. (Ex. 2, ¶ 30; Ex. 14 ¶ 30.) The soil had asbestos-containing material (ACM) on or in it from pipes, insulation, roofing, and siding from some demolished buildings. (Ex. 2 ¶¶ 29, 52-54; Ex. 14 ¶¶ 29, 52-54.) Some other buildings with ACM were still standing (Ex. 2, ¶ 55; Ex. 14 ¶ 55.) All of the ACM, hazardous substances, and piping at issue was part of the facility constructed by the United States Navy, and subsequently owned and operated by the State of Oregon for seventeen years before ownership reverted to the United States, and subsequently was sold to a group of private individuals. Almost all the buildings were abandoned by those parties; most had been demolished before the property at issue was sold to the individuals (Stewart, Bercot, and Tuttle) listed on the American States policy. (Ex. 14 at ¶¶ 26-30, 50-55.)
Stewart, Bercot, and Tuttle were sometimes referenced collectively, and did business together as "MBK Company," "MBK Partnership" or just "MBK." (Ex. 14 at ¶¶ 35-36; Ex. 15 at 1 ¶ 1.)
As of 1979, defendants knew that ACM was in or on the soil on their property. (Ex. 2, ¶¶ 52-60; Ex. 14 ¶¶ 52-60; Ex. 4 Attach. B.) On or about 9/17/79 the EPA issued a compliance order to defendants regarding the asbestos. (Ex. 4 Attach. A.) On 10/1/79, Bercot responded to the EPA, making certain agreements and representations regarding asbestos cleanup, and deed restrictions. (Ex. 4 Attach. B.) After 1979, demolition of more buildings was conducted on the property (Ex. 2, ¶¶ 56-60; Ex. 14 ¶¶ 56-60.)
The members of the partnership changed in 1989, when Bercot withdrew and Mary Lou Stewart became a partner. (Ex. 2 ¶¶ 39-40; Ex. 14 ¶¶ 32, 39-40.)
Defendants first subdivided North Ridge Estates in 1990. (Ex. 2 ¶¶ 85.) Several of the purchasing homeowners have brought actions against defendants, and others, in the above mentioned Burns and West cases (Exs. 2, 3, 4). In those cases, plaintiffs have alleged that defendants allowed asbestos onto and into the soil, and into the air at North Ridge Estates (Ex. 2 ¶¶ 50-78, Ex. 14 ¶¶ 50-78.)
In 2001, a piece of pipe from the Navy facility was encountered in an excavation. The pipe contained two smaller pipes and the void between the pipes contained asbestos insulation; DEQ then visited the site and, for the first time characterized cement-asbestos board (CAB) siding that was observed at the site as friable asbestos-containing material subject to regulation, and subsequently required more than fifty tons of the material which had become subject to demolition regulations after the term of the American States policy had expired, to be removed and disposed of under DEQ supervision (since then much more material, consisting almost entirely of material other than pipe insulation, has been removed under EPA supervision). (Ex. 14 at ¶¶ 72, 229-233, 241, 243; Ex. 15 at 6; Ex. 15 at 8 ¶ 11; Ex. 15 at 15-16.)
On or about April 23 and April 26, 2002, Melvin Stewart and Kenneth Tuttle, dba MBK Partnership, entered into a Mutual Agreement and Order with Oregon EQC (No. AQ/AB-ER-01-250A) regarding asbestos disposal and abatement and payment of civil penalties regarding North Ridge Estates (Ex. 6.)
On or about May 20, 2003, Melvin Stewart and Kenneth Tuttle, individually and dba MBK Partnership, entered into and agreed to an Administrative Order on Consent for Removal Action and Streamlined Risk Assessment (Docket No. CERCLA-10-2003-0088) with the U.S. EPA regarding asbestos disposal and removal, and payment of certain costs and penalties regarding North Ridge Estates. (Ex. 5.)
II. LEGAL STANDARD
A moving party is entitled to summary judgment as a matter of law "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issues as to any material fact. . . ." Fed.R.Civ.P. 56(c); Freeman v. Oakland Unified Sch. Dist., 291 F.3d 632, 636 (9th Cir. 2002). The court cannot weigh the evidence or determine the truth but may only determine whether there is a genuine issue of fact. Playboy Enters., Inc. v. Welles, 279 F.3d 796, 800 (9th Cir. 2002).
The moving party must carry the initial burden of proof.Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). The moving party meets this burden by identifying for the court portions of the record on file which demonstrate the absence of any genuine issue of material fact. Id.; Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc). In assessing whether a party has met its burden, the court views the evidence in the light most favorable to the non-moving party. Allen v. City of Los Angeles, 66 F.3d 1052, 1056 (9th Cir. 1995). All reasonable inferences are drawn in favor of the non-movant.Gibson v. County of Washoe, 290 F.3d 1175, 1180 (9th Cir. 2002), cert. denied, 537 U.S. 1106 (2003).
If the moving party meets its burden with a properly supported motion, the burden then shifts to the opposing party to present specific facts which show there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Auvil v. CBS "60 Minutes", 67 F.3d 816, 819 (9th Cir. 1995); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n. 4 (1986). If the moving party presents evidence which, taken by itself, would establish the right to a directed verdict at trial, the motion for summary judgment must be granted, in the absence of any significant probative evidence tending to support the opposing party's theory of the case.THI-Hawaii, Inc. v. First Commerce Fin. Corp., 627 F.2d 991, 993-94 (9th Cir. 1980); First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 290 (1968). Conclusory allegations, unsupported by factual material, are insufficient to defeat a motion for summary judgment. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposing party must, by affidavit or as otherwise provided by Rule 56, designate specific facts which show there is a genuine issue for trial. Devereaux, 263 F.3d at 1076.
III. DISCUSSION
Plaintiff moves for summary judgment on its second claim seeking a declaration that there is no duty to defend and its third claim seeking a declaration that there is no duty to indemnify. In making its motion, plaintiff assumes that a commercial general liability policy, Policy No. 01AP-048790-1, providing owners, landlords, and tenants coverage, effective February 12, 1982, through February 12, 1985, was issued to named insureds Bercot, Stewart and Tuttle, M.D., P.C. Plaintiff contends that there is no duty to defend or indemnify in any of the underlying cases or claims for the following reasons: the named insureds are insured as "individuals" and are insured for individual acts; none of the underlying complaints allege bodily injury; under the pollution exclusion, exclusion (f), the loss was not "unexpected and unintended"; under the owned and alienated property exclusions, exclusions (k) and (l), the property was owned by the insureds prior to the policy period and subsequently alienated by them to MBK Partnership in 1979; insured Bercot failed to perform the contract set forth in his 1979 letter, exclusion (m); and there was no "occurrence" — property damage — during the policy period. MBK defendants and defendant Bercot oppose plaintiff's motion.
Oregon District Court consolidated case Burns v. MBK Partnership, CV-03-3021-CO (lead) consolidated case (trailing case, West v. MBK Partnership, CV-03-3037-CO) (Exs. 2, 4, 14, 15); United States Environmental Protection Agency Administrative Order on Consent for Removal Action and Streamlined Risk Assessment, U.S. EPA Region 10 Docket No. CERCLA-10-2003-0088 (Ex. 5); and Oregon Environmental Quality Commission Mutual Agreement and Order, No. AQ/AB-ER-01-250A Klamath County, (Ex. 6).
Plaintiff asserts that the factual recitations in the EPA and EQC administrative proceedings do not essentially differ from the allegations in Burns and West. Both parties refer to the second amended complaint in Burns in making their arguments in support of their positions. Accordingly, references by the court to allegations in the underlying cases are references to allegations of the second amended complaint actually filed in theBurns case, the operative pleading, which is attached as Exhibit 14 to MBK defendants' concise statement of facts. Plaintiff does not dispute that each of the administrative proceedings constitutes a claim or suit under Oregon law requiring a defense under the policies issued by plaintiff, as advanced by defendants. Therefore, for these reasons, any findings or determinations made by the court will apply to each of the underlying cases.
MBK defendants move for summary judgment on the grounds that plaintiff's policy of insurance provides coverage for the claims being presented in the underlying cases requiring plaintiff to provide defense to those claims. Defendants contend that the insurance policy must be strictly construed and any ambiguities construed in favor of coverage; plaintiff is obligated to provide a defense because none of the insureds expected or intended any of the alleged damages; the insureds have produced a policy establishing all essential coverage terms; the defined words in the insuring clause have been definitively interpreted by Oregon courts; the underlying complaint alleges covered claims; the pollution exclusion is inapplicable; and ORS 465.480 provides that the EPA and DEQ administrative enforcement actions are claims or suits requiring defense under the policies issued to the insureds.
An insurer has a duty to defend if the allegations of the complaint in the underlying action, without amendment and with ambiguities construed in favor of the insured, could impose liability for conduct covered by the policy. W. Equities, Inc. v. St. Paul Fire Marine Ins. Co., 184 Or. App. 368, 371 (2002); Ledford v. Gutoski, 319 Or. 397, 399-400 (1994) (and cases cited). The "without amendment" standard assures that an insurer will not owe a duty to defend unless the underlying complaint provides the insurer with sufficient notice of the insured's potential liability for conduct that is covered under the policy. Marleau v. Truck Ins. Exch., 333 Or. 82, 90-91 (2001). Thus, if a complaint contains one claim that the policy covers, the insurer has a duty to defend, even if some of the conduct alleged would not be covered. Id. at 91; Ledford, 319 Or. at 400;Abrams v. Gen. Star Indem. Co., 335 Or. 392, 299-400 (2003);Drake v. Mut. of Enumclaw Ins., 167 Or. App. 475, 478, 488 (2000).
The duty to defend is determined by reference to the insurance policy and the facts alleged in the complaint against the insured. W. Equities, 184 Or. App. at 371. The insured bears the burden of proving that the terms of the policy could provide coverage for its claims. See Lewis v. Aetna Ins. Co., 264 Or. 314, 316 (1973).
In construing an insurance contract, "the primary and governing consideration is to ascertain the intent of the parties." First Far W. Transp., Inc. v. Carolina Cas. Ins. Co., 47 Or. App. 339, 343 (1980).
At the telephone hearing on these motions, plaintiff conceded that it is Oregon law that if one claim causes a duty to defend, the insurer has a duty to defend the entire case, abandoning its contention made in its summary judgment briefs that,"If the complaint states a claim that either is not included within the policy coverage or is specifically excluded by the policy, the insurer has no duty to defend," (Pl. Mem. at 4, relying onMacDonald v. United Pac. Ins. Co., 210 Or. 395, 410 (1957)).
Plaintiff moves for summary judgment on its claim that is has no duty to indemnify. It offers no argument or authority in support of its motion as to this claim. "[T]he duty to defend is different from the duty to indemnify, and the breach of one does not, in and of itself, establish the breach of the other."Northwest Pump Equip. Co. v. Am. States Ins. Co., 141 Or. App. 210, 227, modified, 144 Or. App. 222 (1996) (citing Ledford v. Gutoski, 319 Or. 397, 403 (1994)). Accordingly, plaintiff's motion for summary judgment as to its claim that is has no duty to indemnify should be denied. The court will address plaintiff's motion as to it duty to defend.
Coverage as to the named insureds
The court will first address plaintiff's argument that its policy does not provide coverage to the named insureds. Plaintiff contends that it has no duty to defend because the individuals were insured for individual acts and not partnership acts or individual acts as partners. The bases of plaintiff's argument are that the policy insures Bercot, Stewart, and Tuttle as "individuals," (Pl. Mem. at 5), which plaintiff contends under the policy language means that they are insured only for their own acts with respect to a business of a sole proprietor; and that during the policy period 1982 to 1985, only MBK partnership owned the property. Defendants respond that plaintiff misstates the policy when it asserts that the policy insures "individuals" when the plural is not present in the policy. Defendants contend that the policy language relied on by plaintiff is ambiguous, at best, since the singular "individual" as the "Legal Entity" is used to characterize the three partners together, which is the form they are alleged to have taken title to the property — as three individuals. Defendants argue that, even if plaintiff is correct that coverage for the partnership is defeated by how plaintiff characterized the insureds on the form it generated, the argument nevertheless fails because the Burns complaint alleges individual liability against the three insureds listed. Defendants contend that to interpret the policy language otherwise would infer that the insureds paid premiums for no coverage; and reading ambiguous language to suggest that the parties intended a meaningless act is contrary to fundamental principles of construction. Plaintiff replies that the policy did not insure a partnership or liabilities arising from partnership activities, but identified and treated the three named insureds as individuals. Plaintiff contends that, because Bercot, Stewart, and Tuttle, formed a new entity, and that entity, rather than the insured in plaintiff's policy, held the land and did business with the land, the individuals are not insured for those business acts. Plaintiff asserts that there is no coverage for Bercot, Stewart, and Tuttle in any capacity other than as individuals.
In the declarations section of the insurance policy appears in pertinent part the following: "Insured Name and Address:" followed by: "Maurice E. Bercot, Melvin Stewart, and Kenneth L. Tuttle, MD PC" and a Klamath Falls, Oregon, street address; "Legal Entity:" followed by: "Individual"; and "Policy Term:" followed by: "From 2-12-82 to 2-12-85." (Ex. 7 at 1; Ex. 10 at 1.)
In support of its contention that there is no coverage for Bercot, Stewart, or Tuttle, plaintiff relies on the argument that Bercot, Stewart, and Tuttle sold the property to the MBK partnership before 1979, before the policy period. (See Pl. Concise Statement, proposed Fact 12, citing Ex. 3 Am. Compl. ¶ 29; see Pl. Mem. at 14 n. 2). However, in support of its argument, plaintiff relies on language of the Burns amended complaint, (Ex. 3), which was superseded by the second amended complaint, (Ex. 2; Ex. 14), which does not contain the allegations cited, but contains allegations indicating the following: on December 21, 1977, North Ridge Estates (NRE) was conveyed to "Stewart, Bercot, and Tuttle," (Ex. 2 Ex. 14 ¶ 30); on or about December 1982, Stewart conveyed his interest in NRE to M.L. Stewart, Inc., (Ex. 2 Ex. 14 ¶ 31); on or about August 1989, Bercot conveyed his one-third interest in NRE, except for some portion of his interest which was reserved, to Stewart, who then conveyed a one-sixth interest to Tuttle, (Ex. 2 Ex. 14 ¶ 32); on or about August 1990, M.L. Stewart, Inc. conveyed "some of its interest" in NRE to Stewart and Tuttle, and on or about 1991, M.L. Stewart, Inc., Stewart, and Tuttle conveyed "some of their interest" in NRE to MBK Partnership (a partnership consisting of Stewart, Mary Lou Stewart, and Tuttle), (Ex. 14 ¶ 33); and on or about 1993, M.L. Stewart, Inc., Stewart, and Tuttle conveyed "some of their interest" in NRE to MBK Partnership, (Ex. 14 ¶ 34). (See Defs. Concise Statement at 2-3, response to Pl. Fact 12.) Thus, plaintiff's premise in support of its argument that the property was owned by MBK partnership during the policy period has no support in the allegations of the operative complaint in Burns, since the operative pleading alleges that the property was owned by Bercot and Tuttle during the policy period, and by Stewart for a portion of the policy period, until December 12, 1982.
Plaintiff's proposed Fact 12 states in pertinent part: "Between 1977 and September 17, 1979, defendants transferred their interests to their partnership, `MBK.' (Exhibit 3 [Amended Complaint in Burns], ¶ 29)." (Pl. Concise Statement at 4.)
The proposed second amended complaint included by plaintiffs in their exhibits as exhibit 2 differs in some respects from the second amended complaint actually filed by plaintiffs in Burns on March 11, 2004 (1-CV-03-3021, #187). Defendants include in their exhibits as exhibit 14 the second amended complaint actually filed.
The cited paragraph of the second amended complaint actually filed, (Ex. 14), differs from that alleged in the proposed second amended complaint, (Ex. 2).
See supra fn. 7.
The policy was effective as of February 12, 1982. (Ex. 7 at 1; Ex. 10 at 1.)
The court finds that the bases of plaintiff's argument in this regard fail. Both plaintiff and defendants seem to agree that the allegations in the underlying cases are that Bercot, Stewart, and Tuttle acquired the property together. The three insureds purchased plaintiff's policy jointly. It is an undisputed fact that Stewart, Bercot, and Tuttle, P.C., held title to the property together at the time that the policy was issued. Any ambiguity arising from the listing of "Legal Entity" as "Individual" on the policy should be construed against the insurer. Accordingly, the court finds that plaintiff's policy covers the named insureds, Stewart, Bercot, and Tuttle, in the underlying cases. This ground for granting summary judgment in favor of plaintiff should be denied.
Occurrence during the policy period
Defendants contend that the complaint in the underlying cases allege covered claims so that plaintiff owes the insureds a defense. Defendants focus on the strict liability and negligence claims alleged in the second amended complaint in arguing that covered claims are alleged.
The parties agree that the insurance policy is an occurrence policy, but disagree on whether an "occurrence" took place within the meaning of the policy. An "occurrence" is defined in the policy as: "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Ex. 7 at 6; Ex. 10 at 2 (emphasis added).) In arguing that there was no occurrence, plaintiff contends that there is no allegation of property damage within the policy period. Plaintiff asserts that the damage occurred during demolition which was completed by the end of 1979, and that it lay static until subdivision began, which occurred after the policy expired. Defendants contend that the complaint alleges asbestos releases to air, other properties, and the environment every year since 1979.
It is undisputed that, "Plaintiffs in the underlying cases allege the insureds are responsible for ongoing releases of asbestos to the atmosphere, nearby properties, and the environment (since it was transported to other property through the air) which have occurred since 1979 from natural processes and from activity at the site. . . ." The allegations of the second amended complaint in support state the following: "The demolition occurred over a period of time between 1979 and 1991," (Ex. 14 ¶ 70); asbestos has been, since the demolition activities, on the surface of the soil, in the surface soils, and buried in NRE such that normal climactic conditions and foreseeable activity releases asbestos into the air, "and that such releases have been occurring every year since 1979," (Ex. 14 ¶ 78); in 1979 and thereafter, continuing through at least 1991, demolition of buildings on NRE has occurred, (Ex. 14 ¶ 416); during the course of the demolition, asbestos was scattered on the surface of NRE and was released into the environment at or near NRE, (Ex. 14 ¶ 418); "Every year since 1979," asbestos fibers have existed on or resurfaced on the soils of properties within and around NRE, (Ex. 14 ¶ 432); and the continuing presence and redisposition of asbestos constitutes a nuisance, (Ex. 14 ¶ 433). Because these allegations clearly state that demolition occurred for a period between 1979 and 1991, and that releases of asbestos have occurred "every year since 1979," the court finds that these allegations allege property damage during the policy period, 1982 to 1985. See St. Paul Fire Marine Ins. Co. v. McCormick Baxter Creosoting Co., 324 Or. 184, 201-02, 216 (1996). This ground for granting summary judgment in favor of plaintiff should be denied.
In its reply brief, plaintiff argues that the allegations of the underlying complaint do not support a claim for property damage. Relying on Martin v. State Farm Fire Cas. Co., 146 Or. App. 270 (1997), plaintiff asserts that pure economic reduction does not constitute property damage, and the policy excludes damages to the underlying plaintiffs' interests as opposed to actual physical damage to the property during the policy period, which has not been pleaded. Defendants address this contention in their reply brief, contending that plaintiff's reliance on Martin is misplaced. They contend that plaintiff continues to ignore the allegations of the nuisance and negligence claims.
In Martin, in addressing whether the policy at issue there covered the negligent misrepresentation claim alleged, the court noted that the claim was not based on physical damage to the property, but was based on the liability that the plaintiffs in the underlying case incurred when they purchased it. The court found that nothing in the allegations of the negligent misrepresentation claim suggested that the misrepresentation caused any physical damage to tangible property, as required under the policy definition of property damage. The court found that there was no causal connection between the misrepresentation and the physical damage, and that the only connection was with damage to plaintiffs' economic interests, which was not covered by the policies. 146 Or. App. at 279-80. Martin is inapposite to the allegations at issue in the underlying cases here. In contrast to the negligent misrepresentation claim at issue inMartin, plaintiffs in the underlying cases here allege a causal connection between defendants' conduct and injury to tangible property, i.e., property damage within the meaning of the policy, at a minimum, in their negligence and nuisance claims. The court finds that plaintiff's contention that no property damage is alleged is without merit. This ground for granting summary judgment in favor of plaintiff should be denied.
Plaintiff initially argued only that no bodily injury was alleged in the underlying cases; in its reply, in contending that no occurrence within the policy period is alleged, plaintiff contends that there is no allegation that any plaintiff was suffering an actual physical injury at the time the complaints were filed or before that time. Plaintiff contends that plaintiffs allege only a potential for injury, which is speculative. Defendants contend that bodily injury is alleged, that plaintiff does not address the allegations pointed out by them in support of their argument that bodily injury is alleged by underlying plaintiffs and do not argue that the physical manifestations alleged are not bodily injury. They further contend that the arguments and cases relied on by plaintiff are not applicable to the issue.
Bodily injury is defined in the policy as: "bodily injury, sickness or disease sustained by any person." (Ex. 7 at 6.) It is an undisputed fact that plaintiffs in the underlying cases allege that Stewart, Bercot, and Tuttle are responsible for ongoing releases of asbestos to the atmosphere and the environment which have occurred since 1979 which threaten their health and the health of others and which have "caused them to experience physical manifestations of emotional distress. . . ." In support of that fact, defendants point to complaint allegations in the second amended complaint which state that, as a result of defendants' conduct, plaintiff homeowners have suffered emotional distress and have "experienced physical manifestations of their emotional distress." (Ex. 14 ¶ 436.) The court finds that these allegations come within the meaning of "bodily injury, sickness or disease" as provided in the policy at issue and plaintiffs do not argue that they do not. This ground for granting summary judgment in plaintiff's favor should be denied.
On this record, the court finds that an occurrence within the meaning of the policy is alleged by plaintiffs in the underlying cases.
Property owned and alienated exclusions
Plaintiff stated at the telephone hearing of these motions that these exclusions were its strongest argument for finding it has no duty to defend. Plaintiff contends that the property allegedly damaged was all owned at one time by the insureds prior to the policy period and was subsequently alienated by them and, therefore, under the property owned and alienated exclusions, there is no coverage. Plaintiff asserts that there are no claims by plaintiffs in the underlying cases that the release of hazardous substances is contaminating or damaging any property not either owned or alienated by defendants. Defendants contend that the underlying plaintiffs have alleged releases of asbestos and other hazardous substances into the atmosphere and nearby property which have caused bodily injury and property damage and, as plaintiff concedes, these exclusions apply only to property damage. Defendant further argues that the alienated property exclusion is ambiguous because the policy provides additionally that "insured premises" includes "premises alienated by the named insured . . . if possession has been relinquished to others. . . ." (Citing Ex. 7 at 8.) Defendants contend that this contradictory language should be construed against plaintiff. Defendant contends that the owned property exclusion does not exclude coverage for investigating and remediating asbestos and other hazardous substances in the environment because such work is performed to address releases into the atmosphere, groundwater, or other property; and the atmosphere, which is held in trust for all residents of the State of Oregon, was not owned by the insureds. Defendants assert thatMartin, supra, relied upon by plaintiff, is distinguishable. Plaintiff replies that defendants arguments have been rejected by the Martin court, and the policy is not ambiguous. Defendants reply that plaintiff's assertion that the underlying plaintiffs purchased the air over the parcel is inaccurate since the air is not owned but is part of the environment, and Baumann v. N. Pac. Ins. Co., 152 Or. App. 181 (1998), relied upon by plaintiff, is distinguishable.
The court has found that plaintiffs in the underlying cases have alleged bodily injury within the meaning of the policy, supra.
The policy provides in pertinent part that:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental thereto, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage. . . .
(Ex. 7 at 8.) The policy also includes the following exclusions: "This insurance does not apply: . . . (k) to property damage to (1) property owned or occupied by or rented to the insured . . .; ( l) to property damage to premises alienated by the named insured arising out of such premises or any part thereof," (Ex. 7 at 8.) In section "IV. Additional Definition," the policy provides in pertinent part that, "When used in reference to this insurance (including endorsements forming a part of the policy): `insured premises' means . . . (2) premises alienated by the named insured (other than premises constructed for sale by the named insured), if possession has been relinquished to others. . . ." (Ex. 7 at 9.) Plaintiff does not address defendant's argument that, by inclusion of the "Additional Definition" providing that insured premises means premises alienated by the named insured, the policy is ambiguous.
Plaintiff's arguments and its reliance on both Martin andBaumann are inapposite for the reason that plaintiffs in the underlying cases here allege third-party property damage. It is an undisputed fact that plaintiffs allege that the insureds are responsible for releases of asbestos to the atmosphere, nearby properties, and the environment. In support, plaintiffs allege in the second amended complaint that asbestos has been, since the demolition activities, on the surface of the soil, in the surface soils, and buried in NRE such that normal climactic conditions and foreseeable activity release asbestos into the air, occurring every year since 1979, (Ex. 14 ¶ 78); during the course of the demolition, in 1979 and thereafter, continuing through at least 1991, asbestos was scattered on the surface of NRE and was released into the environment at or near NRE, (Ex. 14 ¶¶ 416, 418); every year since 1979 asbestos fibers have existed on or resurfaced on "the soils of properties within and around [NRE]," and "from that surface the fibers are moved by winds and redistributed on other properties within and around [NRE] . . .," (Ex. 14 ¶ 432); and the continuing presence and redisposition of asbestos fibers "on and in the vicinity of the properties of the Homeowners also constitutes a nuisance," (Ex. 14 ¶ 433).
Both Martin and Baumann concerned only property damage to the insured's property. The Martin court specifically noted that "The plaintiffs did not allege that the contamination had migrated or threatened to migrate to soils off the property or to groundwater under the property," 146 Or. App. at 273-74, but only alleged continued releases to and migration in the soils at the insured's property,Id. at 277. The insureds' attempts in Baumann to argue that third-party property was damaged by contamination was rejected by the court since the record showed that any property damage was limited solely to property owned by plaintiff. In considering insurance provisions similar to the provisions at issue here, theBaumann court rejected the argument that the potential for third-party property damage should be covered because, "Under the policy's terms, for liability coverage to arise, actual damage must have occurred to the property of a third party." 152 Or. App. at 188. The case of Western World Insurance Co. v. Dana, 765 F. Supp. 1011 (E.D. Cal. 1991), cited by plaintiff, also is distinguishable for the same reason. In that case, property damage occurred only on the property owned or occupied by the insured, before the contamination had migrated to other properties or to groundwater. Id. at 1013-14.
Contrary to plaintiff's representation, the court inWestern World Insurance, did not address whether air is the property of all Californians under California law as argued by the insured, but limited its discussion to soil, since the motion before it was confined to that issue. 765 F. Supp. at 1014-15.
The case of Lane Electric Cooperative, Inc. v. Federated Rural Electric Insurance Corp., 114 Or. App. 156 (1992), concerned an action for pollution clean-up costs. The court affirmed the trial court's judgment in favor of the insured, finding that the groundwater into which fuel had leaked, was not in the insured's control and, thus, not within the policy exclusion which excluded damage to property "owned, used or otherwise in the physical control of the insured." the court found that all water in the state, including groundwater, belongs to the public and the right to control groundwater belongs to the public. Id. at 161. Accordingly, the policy exclusion was not applicable.
Based on these cases, it does not appear that owners of the nearby properties must sue for damages, as plaintiff asserts. Because plaintiffs in the underlying cases allege property damage to third-party properties, which properties were not owned and alienated by the insureds, the court finds that the owned and alienated property exclusions do not exclude coverage for claims alleged by plaintiffs in the underlying cases. This ground for granting summary judgment in plaintiff's favor should be denied.
Analogous to the findings made in Lane, the court also finds that the air and environment were not owned and alienated by the insureds. The court cannot agree with plaintiffs' assertion that when plaintiffs in the underlying cases purchased property in NRE, they purchased the "air immediately under and over the parcel." (Pl. Reply at 3.) Plaintiff offers no authority for its assertion. Nor does this argument assist plaintiff, since plaintiffs in the underlying cases also allege that asbestos fibers were released into the air and carried by winds and redistributed on other properties around NRE.
Pollution exclusion
Plaintiff contends that there is no coverage because "the loss was not accidental and expected and intended." It also contends that, similar to the expected or intended analysis, the "known risk" doctrine renders the risk uninsurable if the insured know or should have known that there was a substantial probability of loss. Plaintiff contends that, because the insureds knew that asbestos pollution was an existing serious problem on the property in the late 1970's before the American States policy, the pollution exclusion applies to deny coverage. Defendants contend that the complaints in the underlying cases allege strict liability, nuisance, and negligence which could subject defendants to liability without prior knowledge, even if the trier of fact determines that the damages were unintended and unexpected from the insureds' standpoint. Defendants contend that, based on the state and federal demolition requirements in effect at the time, the damage was unexpected and unintended. Defendant Bercot contends, in addition, that plaintiff misconstrues the language of the pollution exclusion and the claims in the underlying cases; he contends that it is the releases into the soil and air that are at issue and it is those releases which the insureds did not expected or intend, and not the insureds' knowledge of the asbestos on the property, as asserted by plaintiff. Plaintiff replies that, while the underlying complaints may set forth sufficient allegations of an "occurrence" during the policy period, the pollution exclusion prohibits coverage because defendants were aware of the potential for release of asbestos on the property and the potential harm caused thereby as early as 1979. Plaintiff contends asbestos has been strictly regulated for years, and the EPA in 1979 ordered compliance as to "all asbestos material at the demolition site," (Ex. 4 at 67.) It argues that defendants, who were land developers, were on notice that asbestos posed a threat to the environment regardless of the type of fiber involved. Defendants reply that the exhibits attached to the underlying complaint show that defendants addressed the potential for some materials to release asbestos by burying two tons of asbestos insulation, (Ex. 15 at 6), which has no relationship to the tons of siding ignored by the EPA in 1979 and are now alleged to have caused releases throughout the policy period. Defendants reply that plaintiff does not refer the court to any document referring to CAB or asbestos-containing asphalt shingles as posing a risk, but addresses only "asbestos" generally.
Defendant Bercot joins defendants MBK defendants' arguments.
The policy included the following pollution exclusion:
This insurance does not apply:
. . . .
(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
(Ex. 7 at 8.) In construing an identical exclusion, the Oregon Supreme Court in McCormick Baxter, 324 Or. 184, determined that the policy exclusion was ambiguous and held that the policies at issue did not apply "to discharges, dispersals, releases, or escapes that are `unintended and unexpected.'" Id. at 216.
In support of defendants' contention that CAB siding was not regulated in 1979 and, therefore, the releases alleged by plaintiffs in the underlying cases were unintended and unexpected, they attach some of the regulations in effect in 1979 when the EPA issued its "Compliance Order Re Hazardous Air Pollutants," (O'Leary Aff. Exs. 12, 13). The "National Emission Standard for Asbestos," 40 C.F.R. § 61.20 et seq., effective in 1979 at the time that the EPA issued its Compliance Order regarding demolition activities of defendants, (see Ex. 4 at 65-70; Ex. 15 at 1-6) provided in pertinent part that the emission standard applicable to "Demolition and renovation" applied to: "any owner or operator of a demolition or renovation operation who intends to demolish any institutional, commercial, or industrial building . . . which contains any pipe, duct, boiler, tank reactor, turbine, furnace, or structural member that is covered or coated with friable asbestos material. . . ." (O'Leary Aff. ¶ 5 Ex. 13 at 1, 40 C.F.R. § 61.22(d).) "Demolition" was defined as: "the wrecking or taking out of any load-supporting structural member and any related removing or stripping of friable asbestos materials." 40 C.F.R. § 61.21(j) (July 1, 1979). "Friable asbestos material" was defined as meaning: "any material that contains more than 1 percent asbestos by weight and that can be crumbled, pulverized, or reduced to powder, when dry, by hand pressure." 40 C.F.R. § 61.21(k) (July 1, 1979). State regulations effective at the time were very similar, providing an emission standard applicable to "Demolition" requiring "All persons" intending to demolish any institutional, commercial or industrial building which contained "any boiler, pipe, or load supporting structural member that is insulated or fireproofed with friable asbestos material" to comply with the requirements set forth in the rule. (O'Leary Aff. ¶ 4 Ex. 12 at 3, OAR 340-25-465(4).) "Demolition" was defined at the time as meaning: "the wrecking or removal of any boiler, pipe, or load supporting structural member insulated or fireproofed with asbestos material."14 (O'Leary Aff. ¶ 4 Ex. 12 at 2, OAR 340-25-455(12).) "Friable asbestos material" was defined at the time as: "any asbestos material easily crumbled or pulverized by hand, resulting in the release of particulate asbestos material [and including] any friable asbestos debris." (O'Leary Aff. ¶ 4 Ex. 12 at 2, OAR 340-25-455(15).)
Under the law then governing the emission standard for asbestos, it appears that any ordered compliance by the EPA in 1979 relating to defendants' demolition activities concerned friable asbestos material only. (See Ex. 14 ¶¶ 61, 71, 72; Ex. 15 at 1-6.) The exhibits attached to the complaints in the underlying cases indicate that, in response to the EPA's Compliance Order, defendants disposed of an estimated two tons of asbestos waste. (Ex. 4 at 70; Ex. 15 at 6.) This compares to the undisputed fact that the DEQ subsequently in 2001, "for the first time, characterized CAB siding observed at the site as friable asbestoscontaining material subject to regulation," and required more than fifty tons of the material which has become subject to demolition regulations after the term of the policy had expired to be removed and disposed of under DEQ supervision. The court finds that, according to the allegations of the complaints in the underlying cases and exhibits attached thereto, the releases of asbestos fibers into the atmosphere from asbestos existing on or resurfacing on the soils in NRE and redistributed by winds on other properties within and around NRE was unexpected and unintended and, therefore, "sudden and accidental" within the meaning of the policy. See McCormick Baxter, 324 Or. at 212-16.
The court finds it unnecessary to address plaintiff's arguments concerning the known risk doctrine, which relies on decisions of other jurisdictions. Accordingly, the court finds that the pollution exclusion, which excepts application to "discharge, dispersal, release or escape" of certain waste materials, contaminants, or pollutants that are "sudden and accidental" does not operate to deny coverage to the insureds. This ground for granting summary judgment in plaintiff's favor should be denied.
Failure by insured to perform contract
Plaintiff contends that certain promises by defendant Bercot set forth in a 1979 letter were apparently not done and defendants failure to perform the contract gives rise to an exclusion, exclusion (m), which excludes the Fifth, Sixth, and Eighth claims from coverage.
Because this ground makes no reference to the claims of strict liability, negligence, and nuisance,15 as to which the court has found that an occurrence within the meaning of the policy is set forth, and no exclusions apply to deny coverage, the court finds it unnecessary to address plaintiff's arguments in this regard. This ground for granting summary judgment in plaintiff's favor should be denied.
Conclusion
Plaintiff's policy provides coverage to the named insureds. Defendants sustain their burden of showing that the allegations in the underlying cases contains at least one claim covered by the policy. Plaintiff does not demonstrate that any policy exclusion excludes coverage. On this record, the court finds that plaintiff has the duty to defend the underlying cases.
IV. RECOMMENDATION
Based upon the foregoing, it is recommended that plaintiff's motion for summary judgment (#38) be denied and that MBK defendants' cross-motion for summary judgment (#59) be granted.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment or appealable order. The parties shall have ten days from the date of service of a copy of this recommendation within which to file specific written objections with the court. Thereafter, the parties have ten days within which to file a response to the objections. Failure to timely file objections to any factual determinations of the Magistrate Judge will be considered a waiver of a party's right to de novo consideration of the factual issues and will constitute a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to the Magistrate Judge's recommendation.