Opinion
CIVIL ACTION NO. 3:00-CV-0250-P
October 11, 2001
MEMORANDUM OPINION AND ORDER
Now before the Court for consideration are:
1. Plaintiff's Motion for Summary Judgment filed April 23, 2001, Defendants' Response, and Plaintiff's Reply.
2. Plaintiff's Motion to Strike and Objections to Defendants' Summary Judgment Evidence filed June 15, 2001, Defendants' Response, and Plaintiff's Reply.
3. Plaintiff International Insurance Company's Motion to Sever, or in the Alternative, Motion for a Separate Trial, filed May 25, 2001, Defendants' Response, and Plaintiff's Reply.
4. Plaintiff's Motion to Strike Paragraph 53 of Defendants' Fourth Amended Answer, Defendants' Response, filed June 11, 2001, and Defendants' Response.
After due consideration, the Court DENIES Plaintiff's summary judgment motion as to the Escrow Agreement and the West Dallas Pollution Facility section OU1; GRANTS summary judgment as to the West Dallas Pollution Facility section OU2, OU3, OU4, OU5; DENIES in part, and DENIES AS MOOT in part Plaintiff's Motion to Strike and Objections to Defendants' Summary Judgment Evidence; and DENIES AS MOOT Plaintiff's Motion to Strike Paragraph 53 of Defendants' Fourth Amended Answer.
I. BACKGROUND
The Court recounts the undisputed facts which are most relevant to these Motions. This Court sits in diversity. Plaintiff International Insurance Corporation ("International") is the successor to the North River Insurance Company ("North River"). North River issued several policies to RSR Corporation and the related defendants in this case (collectively, "RSR") providing environmental impairment liability ("EIL") coverage. The policies ran between September 4, 1981 and September 4, 1982, amended to November 4, 1982; a one-year extension was purchased, the exact nature of which is disputed. The claims in this lawsuit stem from two RSR facilities: the West Dallas smelting facility and the North River facility. In 1983, the West Dallas facility was subject to several lawsuits, including suits involving various governmental authorities charging environmental pollution by the West Dallas facility. North River payed out settlements to RSR. Only one policy has any coverage remaining; that policy is a subject of this lawsuit.
Compare Brief in Support of Plaintiff's Motion for Summary Judgment with Defendants' Response to Plaintiff's Motion for Summary Judgment with Counter-statement of Disputed Facts.
An escrow agreement and a supplemental agreement were formed on February 1, 1985, though the parties dispute exactly which suits the escrow agreement was intended to settle. Approximately $19 million was deposited into the escrow account. Various settlement payouts were made from the account.
On April 16, 1993, RSR notified North River that it had received a notice of potential liability from the federal Environmental Protection Agency regarding the West Dallas Smelter. In 1993, pursuant to an Assumptive Reinsurance Agreement, International succeeded to the interest of North River in the insurance policies at issue, and RSR agreed to the transfer of its policies to International. The escrow agreement was amended to reflect the ownership change. In 1992, the EPA administratively divided the portion of the West Dallas Smelter it was investigating into five "operable units" OU1 through OU5. In May of 1998, RSR, Quemetco Metals, and Quemetco, Inc. entered into a tolling agreement with the United States of America and others acknowledging that they were parties "in the same position on or before August 8, 1998 as they were May 8, 1998, with respect to any issues of timeliness."
Pl's App. at 600-601. Unless otherwise specified, "App," "Brief," "Mot.," "Resp.," and "Reply" refer to a party's summary judgment filing.
RSR also seeks a declaratory judgment that there is policy coverage with respect to an EPA lawsuit against RSR with respect to Harbor Island.
II. SUMMARY JUDGMENT
A. Standard of Review
Summary Judgment shall be rendered when the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). All evidence and the reasonable inferences to be drawn therefrom must be viewed in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). The moving party bears the burden of informing the district court of the basis for its belief that there is an absence of a genuine issue for trial, and of identifying those portions of the record that demonstrate such an absence. Celotex, 477 U.S. at 323.
Once the moving party has made an initial showing, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The party defending against the motion for summary judgment cannot defeat the motion unless he provides specific facts that show the case presents a genuine issue of material fact, such that a reasonable jury might return a verdict in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Mere assertions of a factual dispute unsupported by probative evidence will not prevent summary judgment. Id. at 248-50; Abbot v. Equity Group, Inc., 2 F.3d 613, 619 (5th Cir. 1993). In other words, conclusory statements, speculation and unsubstantiated assertions will not suffice to defeat a motion for summary judgment. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1429 (5th Cir. 1996) (en banc). If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to is case, and on which he bears the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
Finally, the Court has no duty to search the record for triable issues. Guarino v. Brookfield Township Trustees, 980 F.2d 399, 403 (6th Cir. 1992). The Court need only rely on the portions of submitted documents to which the nonmoving party directs. Id.
B. Escrow Agreement
Plaintiff seeks to terminate the escrow agreement on the grounds that the contractual conditions for its termination have been satisfied. The Court finds that the escrow account should not be dissolved. The parties agree that New York law governs the escrow agreement, and do not dispute that Texas contract law governs the insurance contract.
The Escrow account provides that its funds will be used "only for the purpose of settling the personal injury and property damage lawsuits identified herein as part of the Dallas Pollution Claim," and to pay the escrow agent's fees and expenses. The funds were not to be "used or deemed security for any of RSR's obligations, except its obligations in connection with settlement of the personal injury and property damage lawsuits identified herein as part of the Dallas Pollution Claim." The escrow agreement defined the phrase "personal injury and property damage lawsuits" as referring to four lawsuits, the Young, Spears, Wells, and Hayes suits. The agreement further named an "enforcement lawsuit" against RSR by the City of Dallas and the State of Texas. It defined "threatened lawsuits" by stating that they "include, but are not limited to, lawsuits threatened or demands made" by several parties listed therein. According to the agreement, the above-referenced lawsuits and "all other lawsuits, threatened lawsuits or demands which, after the date of this agreement, may arise out of the same facts, circumstances, emissions and/or pollutants which are referred to in the lawsuits and threatened lawsuits referred to above . . . comprise the `Dallas Pollution Claim.'"
Pl's App. at 18.
Pl's App. at 18.
Pl's App. at 14.
Pl's App. at 15.
Pl's App. at 15.
Pl's App. at 16.
The Escrow Agreement provides that when any one of three circumstances occurs, the agreement terminates and appropriate funds are returned to North River; the provision currently in dispute terminates the agreement when RSR's representatives "notify the escrow agent, in writing, that those portions of the Dallas Pollution Claim, referred to herein, have been settled and all payments required by that settlement have been made". Defendants agree that the "personal injury and property damage lawsuits," the "enforcement lawsuit," and all the "threatened lawsuits" from parties explicitly named in the agreement have been settled. Plaintiff argues that the termination provision therefore applies, and Defendants' refusal to notify the escrow agent constitutes a breach of the agreement.
Pl's App. at 23; Pl's Brief at 20.
Pl's App. at 610-611. The Dallas Housing Authority, mentioned in the escrow agreement, was evidently an intervenor in a personal injury and property damage lawsuit," so it too has apparently been extinguished from the case. See Pl's App. at 15.
The disputed language in the agreement's termination provision is the phrase "those portions of the Dallas Pollution Claim, referred to herein." Defendants ask the Court to consider the contemporaneously-created supplemental agreement in construing the meaning of the phrase. See Mayo v. Royal Ins. Co. of America, 662 N.Y.S.2d 654-654-55 (N.Y.App.Div. 1997). The supplemental agreement makes clear that threatened lawsuits or demands included in the Dallas Pollution Claim are not limited to those explicitly listed (paralleling the escrow agreement's language). Defendants also argue that Plaintiff's construction is inconsistent with the purpose of the escrow agreement, noting that a request for disbursement need only state that it "is to settle a matter or part of a matter identified herein as the Dallas Pollution Claim."
See Pl's App. at 7 (supplemental agreement).
The Court interprets the language of the termination provision to simply refer to all portions of the Dallas Pollution Claim referred to in previous paragraphs. The Dallas Pollution Claim as defined in the Agreement must be settled before the Agreement terminates. Since the OU1 claim fits the definition of the Dallas Pollution claim as "all other lawsuits, threatened lawsuits or demands which, after the date of this agreement, may arise out of the same facts, circumstances, emissions and/or pollutants which are referred to in the lawsuits and threatened lawsuits referred to above," then it is part of the Dallas Pollution Claim. Therefore, the Escrow Agreement does not terminate. Further, the parties could easily have limited the escrow to pending cases or other specifically delineated types of cases if they had wished to do so. "In construing the terms of a contract, the judicial function is to give effect to the parties' intentions." Federal Ins. Co. v. Americas Ins. Co., 691 N.Y.2d 508, 512 (N.Y.App. 1999). The parties' decision to continue the escrow agreement past the point at which it might have terminated supports the Court's interpretation of the phrase, indicating that the parties intended the escrow agreement to continue as long as any threatened claims were outstanding. See id. ("[T]he parties' course of performance under the contract is considered to be the most persuasive evidence of the agreed intention of the parties.") (internal quotes omitted). International did not initially demand that RSR inform the escrow agent that the termination provision applied.
Note that Defendants do not argue that the subsequent agreement creates any waiver of the termination provision.
Since the Court finds that the conditions for termination of the escrow agreement have not been met, summary judgment is DENIED as to the escrow agreement.
C. West Dallas Smelter Facility
There is no dispute that no insurance claim exists for OU2 since the EPA has resolved its claims against Defendants. Defendants agree that they do not seek coverage for OU4. Nor do Defendants contest in their brief that Plaintiff has no liability for OU3 since it is found offsite from Defendants' premises. Exclusion 12(c) of the insurance agreement excludes landfills. Though there may be evidence, not cited by Defendants, that OU3 also contains vacant land, Plaintiffs point out that cleanup costs are only sought for the landfill portion of the land. Accordingly, the Court finds that Plaintiff has no liability for OU2, OU3, and OU4.
Pl's App. at 31 (discussing waste disposal sites).
The most contentious coverage issue centers on OU1. Two questions must be answered: which clause or clauses of the insurance contract cover Defendants' claim, and whether Defendants waived coverage by not properly consulting Plaintiff before acting. The Court finds as a matter of law that only Agreement 3 of the insurance contract applies to Defendants' claims, and that Defendants waived coverage.
The supplemental agreement to the insurance contract, signed in 1985, provides, "The Policies were written on a claims-made basis and have now expired." There is no dispute that the Court should analyze the language of policy JU 3004 in order to interpret JU 3007, the policy with coverage remaining, because the latter "follow[s] the form" of the former. The policy contains five insurance agreements. The first covers "(a) Personal Injury, including death at any time resulting therefrom; (b) Property Damage; (c) Impairment or diminution of or other interference with any other environmental right or amenity protected by law . . . caused by Environmental Impairment. . . ." The second provides, "In the event of liability arising as a result of the insured being held responsible under the concept of joint and several liability for environmental impairment caused or contributed to by others this Policy shall apply. . . ." The key third provision provides:
Pl's App. at 7.
Pl's App. at 68.
Pl's App. at 30.
Pl's App. at 30.
Pl's App. at 30.
Insurers shall reimburse the Insured for costs and expenses of operations outside the insured's premises designed to remove, neutralize or clean up any substance released or escaped which had caused Environmental Impairment, or could cause Environmental Impairment if not removed, neutralized or cleaned up, to the extent that such costs and expenses have been incurred or have become payable by the Insured as a result of a legal obligation or in the endeavour (sic) to avert a loss covered by this Policy, provided that such costs and expenses . . . are incurred with prior written consent of insurers, such consent not to be unreasonably withheld.
Pl's App. at 30.
The fourth provision covers certain litigation expenses recovered by any claimant against the Insured and/or expenses of litigation incurred by the Insured with the written consent of Insurers in the defense of any claim covered by this Policy."
Pl's App. at 30.
Defendants have not shown that the coverage they seek is for anything other than environmental cleanup costs and the associated litigation costs. The Court finds that only Agreement 3 provides Defendants with coverage for cleanup costs. This Court agrees with the reasoning of Rhone-Poulenc, Inc. v. International Ins. Co., 1997 WL 264299 (W.D. Ill. 1997). That case held that where an environmental impairment liability insurance policy contained a clause specifically providing for recovery of cleanup costs, a property damage provision that might otherwise logically cover such damages did not apply. Id. at *6. Similarly, Agreement 3 covers cleanup costs, so Agreement 1 covering property damages does not apply. For this Court to find otherwise would make Agreement 3 redundant and superfluous; this would be contrary to principles of contract construction. The logic extends to the other clauses under which Defendants seek recovery for costs that would be covered under Agreement 3; Defendants cannot seek reimbursement under Agreement 2 for recovery that would fall under Agreement 3. Defendants have not pointed out a class of claims, under their construction, would fit under Agreement 3 but would not be covered by the other agreements. Defendants' construction cannot stand, for it would permit Defendants to circumvent the permission requirements of Agreement 3, which the Court presumes the parties would wish to give effect. Defendants' distinction of Rhone-Poulenc as involving the insured's remediation of property rather than a claim for EPA past costs is unavailing, as the terms of the policy apply to both expenses that "have been incurred" and that "have become payable by the Insured."
Pl's App. at 30.
All of the cases cited by Defendants construe policies containing property damage or other general clauses rather than separate EIL clauses; therefore none of them detract from the Court's reasoning in this case. See Snyder General Corp. v. Century Indem. Co., 113 F.3d 536, 539 (5th Cir. 1997) (property damage); Bituminous Casualty Corp. v. Vacuum Tanks, Inc., 75 F.3d 1048, 1053 (5th Cir. 1996) (property damage); Olin Corp. v. Ins. Co. of N. Amer., 972 F. Supp. 189, 204 (S.D.N.Y 1997) (property damage); Metro Wastewater Reclamation Dist. v. Continental Casualty Co., 834 F. Supp. 1254, 1259 (D. Colo. 1993) (comprehensive general liability coverage).
Condition 3 of the insurance agreement provides, "The Insured shall not, without the consent in writing of the Insurers, make any admission or negotiate any offer, promise or payment in connection with any incident or claim related to the Insurance herein expressed." Defendants entered a tolling agreement with the EPA that removed Defendants' statute of limitations defense to an EPA claim. The parties dispute whether Defendants' failure to obtain Plaintiff's consent to enter the tolling agreement negated Defendants' coverage. The Court will first consider whether as a matter of law Condition 3 demands that Defendants receive Plaintiff's permission to enter into a tolling agreement. The Court finds that Condition 3 is not ambiguous with respect to tolling agreements, and that the provision requires the insurance company's consent before an insured enters into a tolling agreement. Defendants contend that permission is only required when an insured enters into a settlement. However, by its plain words, when an insured agrees with the EPA that the EPA should retain its right to sue despite the imminent expiration of the statute of limitations, the insured has "negotiate[d]" a "promise" "in connection with" "any incident or claim related to the Insurance," whether or not that promise was given in exchange for a delay in the EPA filing suit. The Court cannot agree that Condition 3 only applies to a settlement, for Condition 3 could easily have been limited to settlements that disposed of a pending or threatened claim, but more encompassing language was used. An insured who enters a tolling agreement has vivified an otherwise moribund legal claim; Condition 3 clearly attempts to include the insurance company in such decisions. Defendants describe a parade of horribles that would follow if this Court interprets the word "promise" to include every agreement on every bit of minutiae involved in case management, such as where to schedule a deposition or take a break during one. Fortunately, this Court is not faced with those facts; it is enough to find that a tolling agreement is within the plain language of Condition 3. Since the Court finds Condition 3 to be unambiguous, it will not consider the factual interpretations offered by Defendants. Plaintiff has shown that Defendants' agreement on its face appears to violate Condition 3.
Pl's App. at 32.
Plaintiff does not dispute Defendants' contention that the tolling agreement staved off an imminent lawsuit from the EPA. This contention alone is of no consequence.
See also Condition 2 of the insurance agreement (Pl's App. at 32) (requiring prompt notice to the insurer); Condition 4 ( id.) (permitting insurer to take over and conduct the defense of a claim and requiring the insured to provide information and assistance).
Having found that entering the tolling agreement required the permission of International under the insurance agreement, the Court considers whether Plaintiff had actually given such permission to Defendants, or has waived the permission provision, or is estopped from asserting it, or cannot assert it for lack of prejudice against it. The Court finds any assertion that an oral conversation informing International of the tolling agreement fulfills the terms of Condition 3 to be without merit, as Condition 3 demands the consent be in writing. Defendants' cases do not support the contention. The closest case finds that even with a written contract that contains a provision requiring modifications be in writing, modification can occur if the party urging modification establishes that the parties mutually consented to the agreement as modified. See Taita Chem. Co. v. Westlake Styrene Corp., 246 F.3d 377, 386-87 (5th Cir. 2001). But Defendants do not argue that a modification of the contract occurred. Defendants have not shown written consent or a modification of the written consent requirement.
The second case cited by Defendants Bredsue v. Johnson, 188 F.3d 250, 256 (5th Cir. 1999), lends no support whatsoever, as it considers federal/state court decisionmaking, not contract law.
Defendants argue that the parties' past and present conduct prevents summary judgment in Plaintiff's favor. In the past Plaintiff gave Defendants significant latitude in handling its defense of the claims against them. RSR App. 566 (Martin Tr. 55:10-56:9); RSR App. 582 (Melton Tr. 34:17-36:2); RSR App. 585A (Melton Tr. 71:20-73:9) (West Dallas claims). Further, there is evidence that Howard B. Myers, general counsel for RSR, informed Sandra Young, an authorized representative of International, that RSR intended to enter into the Tolling Agreement.
Def's App. at 661.
An insurance company may waive a condition precedent to performance on an insurance policy through its actions. Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 660 (5th Cir. 1999). "Waiver involves the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right." Id. The Court cannot conclude that Plaintiff waived its right to require written permission because Defendants informed Plaintiff that the EPA had requested a tolling agreement and that RSR intended to agree. On the facts of this case as Defendants assert them, Plaintiff's silence is not enough to constitute an intentional relinquishment of a known right.
RSR could not reasonably rely on International's silence to contradict an explicit contractual provision; thus the Court finds no estoppel. See Matador, 174 F.3d at 660 (estoppel requires one party to reasonably rely on the conduct or statements of the other party and to suffer harm). Plaintiff's general consent given long ago was consistent with the insurance agreement, which permitted Plaintiff to intervene in defense of a claim or to demur as it pleased. Thus, granting Defendants the latitude to conduct its own defense was consistent with the insurance agreement, absent any showing that Defendants exercised their latitude in a way that would otherwise run afoul of Condition 3. Yet Defendants conduct in this case violated Condition 3; Defendants cannot claim estoppel where the parties' past conduct would not permit Defendants to reasonably rely on Plaintiff's silence as a sign of latitude to violate the agreement's explicit terms.
Given that a breach of the contract occurred, the Court must determine whether the breach was a material breach that would justify forfeiture RSR's right under the insurance policy. Both parties acknowledge that there is no case law that directly addresses the materiality of the breach of a tolling agreement in a claims-based environmental impact liability insurance policy. Consequently, the Court must rely on general contract principles in construing the insurance agreement. See Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex. 1994) ("Insurance policies are contracts, and as such are subject to rules applicable to contracts generally."). "In determining the materiality of a breach, courts will consider, among other things, the extent to which the nonbreaching (sic) party will be deprived of the benefit that it could have reasonably anticipated from full performance . . . The less the non-breaching party is deprived of the expected benefit, the less material the breach." Id. at 693 (citations omitted). In other words, Texas courts consider the effect of any prejudice to the non-breaching party.
Hernandez considered an evidently occurrence-based automobile insurance claim, and found no materiality in the insureds' failure to obtain consent to a settlement they reached as required by the insurance contract where the insurance company remained in the same position it would have occupied had the insureds complied with the consent provision. Id. at 693-94. The Court stated, "[A]n insurer may escape liability on the basis of a settlement-without-consent exclusion only where the insurer is actually prejudiced by the insured's settlement with the tortfeasor." Id. at 692. Similarly in Hanson Production Co. v. Americas Ins. Co., the insured in an evidently occurrence-based comprehensive general liability policy failed to timely inform the insurance company of a claim, as required by clauses in the relevant policies; a further clause provided that no action would lie against the insurer unless as a condition precedent the insured fully complied with the policy. 108 F.3d 627, 628 (5th Cir. 1997). The Court followed Hernandez in ruling that prejudice must be shown for failure to give notice of a claim. Id. at 630-31. The facts in front of this Court similarly demand a showing of prejudice where RSR did not obtain consent to enter a tolling agreement. International has not shown any prejudice in RSR's failure to consult them, except for the costs of this litigation, which the Court finds to be insufficient to support their claim, for then any breach could be rendered material simply by suing on it.
The Fifth Circuit has required a showing of prejudice for occurrence-based policies but not claims-made policies on the issue of notice. As in the case before this Court and unlike in Hernandez and Hanson, the Matador court considered a claims-made policy, in which a claim is only covered under the contract if it is made during the period specified in the contract. See Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 658-59 (5th Cir. 1999). Matador must be distinguished because the existence of coverage itself was under dispute, unlike in the case before this court in which coverage has been triggered but the materiality of a breach of the contract is under consideration. See id. at 656. Unlike in this Court's case, the Matador court considered whether to excuse a delay in the very notice that determines the validity of a claim. See id. at 658-59. The Matador court decided that a showing of prejudice was not necessary to excuse the insurance company from performance. Id. at 660. Yet the facts of Matador reveal an inherent prejudice that would result if the insured were permitted to make a claim outside the policy period: coverage would be created where none ever existed. Id. at 659-60. Had Matador not been decided as it was, the insurance company would have been forced to insure its client for a period longer than that for which it had reasonably anticipated, bargained, and set premiums. In this Court's case, in contrast, a valid claim was made within the appropriate contractual period, triggering coverage. As in Hernandez and Hanson, the dispute arises in relation to an existing claim. There is no inherent prejudice by which the insurance company must provide coverage where none existed. Thus, this Court follows the line of cases which consider the prejudice to the insurance company from unauthorized settlement or other failures to consult the insurance company. Since Plaintiff must show prejudice arising from Defendants' failure to perform a condition precedent before Plaintiff can deny coverage, summary judgment must be DENIED as to the West Dallas Smelter Facility OU1.
Defendants half-heartedly urge in a footnote a defense for OU5, which the parties do not dispute is owned by Defendants, just as OU4 is, and thus would not be eligible for recovery under Agreement 3 since that provision requires the site to be off-premises. Defendants contend that emerging case law suggests that coverage may extend to on-site premises despite the policy's off-site provision where there is a danger of contamination of third-party property. See Figgie Int'l, Inc. v. Bailey, 25 F.3d 1267, 1273-74 (5th Cir. 1994) (discussing the movement of some courts toward that position). The Fifth Circuit, construing Louisiana law, declined to adopt the position that Defendants proffer. Id. The Defendants cite the Court to no supportive Texas cases, and considering the policy language on its face excludes such coverage, this Court will not adopt Defendants' position. Even if the Court adopted Defendants' reasoning, there is insufficient summary judgment evidence to conclude that third party property would be contaminated from OU5, for Defendants' evidence speaks only of "migration of contamination" but does not reveal what third party property would be harmed; it is conceivable that the contamination would spread from one part of Defendants' property to another.
See Defs' App. at 853.
Defendants argue that they cannot be penalized under insurance Agreement 4 for failing to obtain prior written consent for coverage where the insurance company flatly contests coverage. See United States Aviation Underwriters, Inc. v. Olympia Wings, Inc., 896 F.2d 949, 954 (5th Cir. 1990) (insurer who denies coverage cannot contest the reasonableness of a consent judgment agreed to between the insured and injured party). Supposing Defendants' legal analysis to be correct, Defendants would still not be entitled to defense costs for a claim not covered by the policy. Since a claim may exist for OU1, Agreement 4 damages may still exist in relation to OU1 only.
D. HARBOR ISLAND
The Court considers whether Defendants are entitled to coverage for their Harbor Island site. The first issue to consider is which portion of the insurance contract covers Defendants' claim, different provisions of the contract provide different mechanisms for triggering a valid claim. Insuring Agreement 1 provides for coverage when "a claim has been made against or other due notice has been received by the Insured during the Policy Period." In contrast, Agreement 3 has no "other due notice" provision, but insures Defendants for cleanup of Environmental Impairment "to the extent that such costs and expenses have been incurred or have become payable by the Insured as a result of a legal obligation or in the endeavour to avert a lost covered by this Policy. . . ."
Pl's App. at 30.
Pl's App. at 30.
Defendants' Harbor Island claim is for "liability relating to the clean-up of the environment. . . ." As the Court has discussed in regard to the West Dallas Smelter supra, a claim for environmental cleanup can exist under Agreement 3 but not Agreement 1. Defendants' coverage thus stems from Agreement 3. Condition 1 of the insurance agreement requires the Policy to be read in conjunction with the listed Declarations page, where it is specified, "THIS IS A CLAIMS MADE POLICY and is limited to Claims first made against the Insured during the policy period." Since Agreement 3 does not contain the "other due notice" clause contained in Agreement 1, the Court returns to the default language of the Declarations page, and finds that an actual claim triggers coverage but "other due notice" does not.
Defs' Fourth Amended Answer and Second Amended Counterclaim at 9, ¶ 71.
See Pl's App. at 32.
Pl's App. at 29.
The Court next considers whether a claim was made within the policy period or the extended reporting period provided by Insuring Agreement 5. There is no contention that cleanup was accomplished during the policy period between September 4, 1981 and November 4, 1982. Defendants seek indemnity for what they may have to pay for cleanup as a result of the 2000 EPA proceeding; coverage might exist to recompense Defendants for their "legal obligation." No claim is alleged to have been made against RSR during the initial reporting period. The date of the December 1982 EPA notice falls outside the original policy period.
See Def's App. at 13.
Defendants extended their reporting period during which they could be entitled to coverage by purchasing an endorsement. Endorsement #8 provided: ". . . any claim first made against the Insured prior to 4th November, 1983 for Environmental Impairment shall be deemed to be made during the policy period, but only if the Environmental Impairment occurred prior to the expiry date of the policy." Endorsement #8 does not contain an "other due notice" provision. Thus, in consonance with Agreement 3, the endorsement entitled them to coverage only if the claim was first made against them during the extended reporting period, but not if other due notice was received. Regardless of Endorsement #8, Agreement 5 also contains no "other due notice" provision.
Pl's App. at 40.
Def's App. at 13.
Even if the Court were to find that Defendants have potential coverage under Agreement #1, the Court sees no grounds for grafting the "other due notice" provision onto the extended reporting period since Endorsement #8 omits such language. Consequently, Endorsement #8 requires a claim to be made within the extended reporting period. Other courts construing similar policies agree. See American Casualty Co. of Reading v. FDIC, 958 F.2d 324, 327-28 (10th Cir. 1992); American Casualty Co. of Reading v. Baker, 22 F.3d 880, 888-89 (9th Cir. 1994). Therefore Defendants must demonstrate a claim against them in the extended reporting period in order to establish coverage.
Rhone-Poulenc must be distinguished since it did not consider an extended reporting period. 1997 WL 264299.
The Court finds a question of material fact as to whether a "claim" was lodged against RSR during the extended reporting period. The Court's analysis begins by considering what constitutes a "claim" under the insurance contract, which provides no definition of the word. In interpreting the insurance policy, the Court can presume that the word was intended to have its common, dictionary meaning. See Ramsay v. Maryland American General Ins. Co., 533 S.W.2d 344, 346 (Tex. 1976). Black's Law Dictionary 240 (7th ed. 1999) provides several definitions of the word, including "A demand for money or property to which one asserts a right an insurance claim."
Other courts have also found that an insurance claim must include the assertion by a third party of a legal right for damages caused by the insured. Atlas Underwriters, Ltd. v. Meredith-Burda, Inc., 343 S.E.2d 65 67 (Va. 1986); Lamberton v. Travelers Indem. Co., 325 A.2d 104, 107 (Del.Sup.Ct. 1997) (including in the definition of claim "a demand of a right," but not "an incident or accident which gives rise to various claims under the terms of the policy"). See also Hoyt v. St. Paul Fire Marine Ins. Co., 607 F.2d 864, 866 (9th Cir. 1979) (finding a letter to be a "request for information and explanation" was not a claim even if it gave notice that a claim might follow). Defendants do not controvert the law from other courts that instructs that the insured's mere awareness of a potential claim is not a claim. See also Ins. Corp. of America v. Dillon, Hardamony Cohen, 725 F. Supp. 1461, 1468-70 (N.D. Ind. 1988). Since the EPA does not appear to demand compliance in the evidence presented, the Court need not consider Plaintiff's cases indicating that a demand for compliance with regulations from a federal agency is not a claim.
The Court turns to the Fifth Circuit case of FDIC v. Mijalis, 15 F.3d 1314 (5th Cir. 1994). The case involved a claims-made insurance policy issued to a bank to insure the directors and officers. Id. at 1317, 1331. In a claims-made policy, "the determination of whether a given demand is a `claim' within the meaning of a claims made policy requires a fact-specific analysis to be conducted on a case-by-case basis." Id. at 1331. The expectations of the insured upon receiving a communication or inquiry are not determinative of whether a claim has been made. Id. at 1331. The insuring clause at issue in Mijalis provided, "If during the policy period any claim or claims are made against the Insured . . . the Insurer will pay . . . 95% of all Loss (as hereinafter defined), which the Insureds or any of them shall become legally obligated to pay . . . Mijalis, 15 F.3d at 1328. The loss provisions also contain the word claim. Id. at 1329. The Mijalis court concluded that the term "claim" was "intimately connected" with the word "loss," and concluded that "the policy envisioned `claims' as being closely related to legal obligations to pay money." Id. at 1332 (relying on the claim definition employed in FDIC v. Barham, 995 F.2d 600, 604 (5th Cir. 1993)). The Court defined a claim as "a demand which necessarily results in a loss — i.e., a legal obligation to pay — on behalf of the directors." Id. at 1331.
The policy in this Court's case does not mention loss. The policy offers no clear guidance as to how to define a claim. The meaning of "claim" must be considered as contemplated by the insurance policy and as applied in the context of environmental litigation. See Dico, Inc. v. Employers Ins. of Wausau, 581 N.W.2d 607, 613-14 (Iowa 1998) (declining to adopt the CERCLA definition of a "claim" as "a demand in writing for a sum certain"). Finding no law directly answering the question before the Court, the Court will defer its decision as to what constitutes a claim until it receives further briefing from the parties.
Guided by the directive in Mijalis that in a claims-made policy, "the determination of whether a given demand is a `claim' within the meaning of a claims made policy requires a fact-specific analysis to be conducted on a case-by-case basis" the court finds that the evidence creates a genuine issue of material fact as to whether a claim was made. The EPA on December 20, 1982 gave notice to RSR that Harbor Island was on the EPA's National Priorities List and thus that RSR's smelter facility was a probable source of pollution at the site. Evidence that the parties considered there to be a North River claim is probative of the definition of claim contemplated by the parties. Clarice Davis, who represented RSR, asserts that "the Harbor Island claim" was discussed on January 5, 1983 with representatives of the North River insurance company, including its counsel John Morrison. RSR explained that its affiliate Quemetco had operated a lead smelter on Harbor Island and that such lead was reported to be the reason the United States put Harbor Island on the Superfund list. By her account, the Dallas Pollution Claim (which is indisputably a claim) as well as several Superfund sites including Harbor Island were discussed as claims. John Morrison stated in his declaration, "RSR reported other claims and incidents to North River. These included the Harbor Island Superfund site. . . ." He also stated, "I recall that neither the Dallas Pollution Claim nor the Harbor Island claim made by RSR was resolved at that time."
See Pl's App. at 196-203; Pl's Brief at 16 ¶ 96 ("undisputed facts"); Defs' Response . . . and Counter-statement of Disputed Facts art 31-32 ¶ 96.
Def's App. at 652 (aff. of Clarice Davis).
Def's App. at 652.
Def's App. at 652-53.
Def's App. at 655 (decl. of John Morrison).
Def's App. at 656.
There is evidence that the EPA's actions would lead to liability for RSR. Clarice Davis asserts that Harbor Island was discussed with North River as a claim because "one could objectively anticipate the imposition of CERCLA joint and several liability on RSR . . . from the placement of Harbor Island on the Superfund list in December 1982. In reference to a letter from Gerald Dumas that EPA had been put on the Harbor Island list and that the EIL carrier should be informed, International's claims handler Scott Carey offered his understanding of being placed on the Superfund list: "a list of government designated sites that would be cleaned up pursuant to the Superfund legislation and in turn would more likely than not form the basis of the government pursuing remedial cost from potentially responsible parties. . . ." RSR's Gerald Dumas testified that when a company is placed on the Superfund list, it means the EPA intends to take some action against the company for some type of environmental damage. When asked whether the EPA always follows through and take action if a company is listed, he responded, "Well, I can — in relating to cases that we've been involved with, I would say yes." Thus, there is evidence to support the position that being placed on the Superfund list constituted a demand which necessarily would result in a legal obligation to pay.
Def's App. at 653.
Def's App. at 532.
Def's App. at 545 (depos. of Gerald Dumas).
Def's App. at 545.
The Court next considers whether RSR waived coverage or is estopped from asserting it. Both assertions fail. Plaintiff points to letters of RSR counsel Myers on February 23, 1994 indicating that RSR did not intend to expand coverage outside of the Dallas Smelters, and February 3, 1995 indicating that the notices they sent to North River were routine matters. The letters are at best ambiguous, in which case the other evidence offered by Defendants should be heard by a jury. Neither letter mentions Harbor Island. The first letter could easily mean RSR did not mean to expand coverage (such as by some sort of novation); the second by its terms was sent out of an abundance of caution, and was intended to give Plaintiff notice. Plaintiff's citation to RSR's General Counsel and Secretary Howard B. Meyers' October 2000 letter to International stating that the government's lawsuit regarding Harbor Island was "unanticipated and unexpected in 1994, but a fact in 2000." is not dispositive since it occurred once the litigation had commenced and thus could not have intentionally released any insurance claims or led International to rely on Defendants' decision not to pursue a claim. Plaintiff's showing of prejudice is too weak to sustain summary judgment since there is no showing it could not still litigate the claims at issue.
Pl's App. at 272.
Pl's App. at 277.
Pl's App. at 704. See also Pl's App. at 268-69 (deposition of Meyers).
E. Defendants' Texas Insurance Code Counterclaims
Defendants allege that Plaintiff violated Article 2.21 of the Texas Insurance Code, which provides for damages for "[m]isrepresenting an insurance policy by: (a) making an untrue statement of material fact." Tex. Ins. Code Art. 21.21 4(11)(a) (West 2001). Having granted summary judgment in favor of Plaintiff on the coverage issues, the Court is highly skeptical of Plaintiff's claim but has not been cited to law that Plaintiff's therefore can have no legal merit. Plaintiff's claim centers around the novation of the insurance agreement RSR seems to argue that it suffered because International did not inform it that it was a "runoff company," which information would dissuaded RSR from signing the novation or prompted them to file a declaratory judgment action immediately. The parties agree that a runoff company does not create new insurance policies. Defendants contend that a runoff company is less motivated to properly pay out claims because its goal is to go out of business. While their witness acknowledged that such companies do not have the same market incentives, he contested the proposition that runoff companies do not care about their insureds, and did not state that such a company's goal is to go out of business. RSR's facts in support of their claim do not show materiality. The allegation that International and North River benefited from the novation is immaterial, though the Court is curious why RSR thought it would gain by agreeing to the novation at all. The Court cannot find any materiality in whether International is a runoff company. Indeed, the Court has no evidence that RSR asked International whether it was a runoff company. The Meyers testimony that contends International did not tell RSR that International would press for a policy buyout or raise coverage defenses in the North River policies is not alone a misrepresentation, for these would seem to be options open to North River as well as International. The letter from Plaintiff's Sandra Young indicates that the novation would not affect any "side agreements" "entered into between North River and RSR that are separate and apart from the policy." The section of Defendants' brief defending its Texas Insurance Code Claim does not indicate what side agreement independent from the policy that RSR believes was misrepresented. Since RSR can show no genuine issue of material fact that would permit a reasonable jury to return a verdict in its favor, the Court must grant summary judgment against RSR.
Defs' App. at 561, 575 (Martin deposition).
Def's App. at 287.
Defendants' case, cited for the proposition that whether a particular statement is a misrepresentation is usually an issue of material fact for the jury, does not directly support Defendants' contention, but merely offers an instance in which the issue was submitted to the jury so it could weigh a witness's testimony. Stewart Title Guarantee Co. v. Sterling, 72 S.W.2d 242, 245 (Tex.App. 1989), rev'd on other grounds, 822 S.W.2d 1 (Tex. 1991).
Defendants also allege that Plaintiff acted in violation of law when by "failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear." Tex Ins. Code Art. 21.21 4(10)(a)(ii). The Court will assume arguendo that Plaintiff's declaratory judgment suit constitutes a denial of coverage. Defendants must show an absence of a reasonable basis for denying or delaying payment of benefits. Republic Ins. Co. v. Stokes, 903 S.W.2d 338, 341 (Tex. 1995). Defendants have alleged no facts that would indicate that Plaintiff acted on any information other than the information before the Court. The Court finds as a matter of law that Plaintiff raised legitimate coverage defenses and had a reasonable basis for filing its declaratory judgment action. Hence, plaintiff is entitled to judgment as a matter of law on RSR's bad faith claim.
III. MOTION TO STRIKE PARAGRAPH 53 OF DEFENDANTS' FOURTH AMENDED ANSWER
Plaintiff moves to strike paragraph 53 of Defendants' Fourth Amended Answer, which asserts that portions of the insurance contract are ambiguous. Plaintiff contends that ambiguity is an affirmative defense that Defendants should have pled long ago. Since the Court did not find any portion of the insurance contract to be ambiguous, the Court need not consider Plaintiff's objection. Plaintiff's motion is DENIED AS MOOT.
IV. CONCLUSION
For the reasons stated above, the Court DENIES Plaintiff's summary judgment motion as to the Escrow Agreement and the West Dallas Pollution Facility section OU1; GRANTS summary judgment as to the West Dallas Pollution Facility section OU2, OU3, OU4, OU5; DENIES in part, and DENIES AS MOOT in part Plaintiff's Motion to Strike and Objections to Defendants' Summary Judgment Evidence; and DENIES AS MOOT Plaintiff's Motion to Strike Paragraph 53 of Defendants' Fourth Amended Answer.