The Dolsen Companies et al v. Qbe Insurance Company et al

MOTION for Partial Summary Judgment

E.D. Wash.June 29, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 1 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Michael A. Guadagno, WSBA #34633 E-mail: michael.guadagno@bullivant.com Holly Brauchli, WSBA #44814 E-mail: holly.brauchli@bullivant.com BULLIVANT HOUSER BAILEY PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Facsimile: 206.386.5130 Attorneys for Defendants Bedivere Insurance Company f/k/a OneBeacon and Armour Risk Management Inc. HON. THOMAS O. RICE IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON AT YAKIMA THE DOLSEN COMPANIES, a Washington corporation; COW PALACE, LLC, a Washington limited liability company; THREE D PROPERTIES, LLC, a Washington limited liability company, Plaintiffs, v. BEDIVERE INSURANCE COMPANY f/k/a ONEBEACON, a Pennsylvania corporation; ARMOUR RISK MANAGEMENT INC., a Pennsylvania corporation; QBE INSURANCE CORPORATION, a Pennsylvania corporation; UNIGARD INSURANCE COMPANY, a Washington corporation, Defendants. No.: 1:16-cv-3141 TOR MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. 09/06/2017 With Oral Argument: 11:00 a.m. Defendants Bedivere Insurance Company f/k/a OneBeacon and Armour Risk Management, Inc. (collectively, “Bedivere”) respectfully move this Court for an order granting partial summary judgment dismissing Plaintiffs’ claims for breach of contract and declaratory relief. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 2 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 This matter arises from a coverage dispute arising from a citizen-enforced environmental cleanup action initiated against Plaintiffs, who jointly own, operate and control various dairy farms in and around Granger, Washington. Throughout this motion Plaintiffs are collectively referred to as “Cow Palace.” Cow Palace tendered the claims for defense and indemnity. However, the insurance policies issued by Bedivere to Plaintiffs contain absolute pollution exclusions. As such, Bedivere owed no duty to defend or indemnify Plaintiffs for the subject claims, and Bedivere properly denied coverage. The undisputed evidence establishes that liability for the underlying claims against Plaintiffs are expressly excluded by the plain language of the absolute pollution exclusion, and, as a matter of law, Plaintiffs’ claims for breach of contract and declaratory relief should be dismissed with prejudice. I. FACTUAL SUMMARY A. THE CARE SUIT ALLEGED COW PALACE POLLUTED NITRATES, AMMONIA, AND MANURE INTO THE ENVIRONMENT, WHICH CONTAMINATED DRINKING WATER. On February 14, 2013, the Community Association for the Restoration of the Environment, Inc. (“CARE”) and the Center for Food Safety, Inc. (“CFS”) initiated an action against Cow Palace, LLC by filing a Complaint in this Court. The matter number was CV-13-03016-TOR. (Litigation in reference to CV-13- 03016-TOR will be referred to as the “CARE suit” or the “underlying action.”) The Complaint alleged violations of the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (“RCRA”), the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq. (“EPCRA”), and the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq. (“CERCLA”). The Complaint sought injunctive relief and Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 3 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 civil penalties. The allegations in the Complaint included:1 a. Cow Palace produced over 188,000 tons of manure annually.2 b. Cow Palace performed “open dumping of solid waste in violation of …RCRA.”3 c. Cow Palace contaminated drinking water through the release of “nitrates, phosphorous, and other pollutants, including hormones and antibiotics.”4 d. Cow Palace’s nine manure storage lagoons, which held over 40 million gallons of waste, had no artificial barrier, resulting in seepage of at least 720,000 gallons of manure, per year, into groundwater, endangering local populations.5 e. Cow Palace utilized manure to fertilize fields that had a high saturated hydraulic conductivity. The soils from the fields had elevated nitrogen and phosphorous levels, indicating an over- application of manure and resultant contamination. One state investigator documented that manure applied to frozen fields was at least 12 inches deep.6 f. Cow Palace released 1,574.4 pounds of ammonia into the atmosphere per day, well above the 100 pound per day 1 Declaration of Michael A. Guadagno (“Guadagno Decl.”), Ex. 1. 2 Complaint, ¶ 47. 33 Complaint, ¶ 4. 4 Complaint, ¶ 18a. 5 Complaint, ¶¶ 51-58. 6 Complaint, ¶¶ 62, 65-66, 72, 79-83. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 4 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 reporting limit under CERCLA, polluting the air and affecting public health.7 The suit quickly became entangled (if not entangled from the start) with a separate enforcement action by the Environmental Protection Agency (“EPA”). The primary basis for the EPA action was the Safe Drinking Water Act (“SWDA”).8 On March 5, 2013, an Administrative Order on Consent was executed and included the following stipulated findings:9 a. Dairy cows produce a considerable amount of manure which contains nitrogen in organic and inorganic forms, which in turn contaminate air, surface runoff, and percolating groundwater. b. Percolating water and leachate from leaky lagoon and other animal waste storage facilities may transport nitrate to groundwater. c. Liquid manure from the dairy farms at issue is sprayed onto farm fields to grow crops. That manure ultimately results in the release of highly mobile nitrates which may migrate to the water table. d. The subject dairy farms were in an area resting on fine and coarse grained sediments overlying a sequence of three major basalt flows. Two aquifer types were within the vicinity. The conditions of sediments were such that the aquifers were subject to contamination by diary-farm sourced nitrates. e. Wells within a mile of the Dairy facilities were tested in February 7 Complaint, ¶ 101, 103. Allegations relating to air pollution and violations of CERLCA and EPCRA were dropped by the time the CARE plaintiffs filed the First Amended Complaint. 8 42 U.S.C. § 330f et seq. 9 Guadagno Decl., Ex. 2 (at 5-6) Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 5 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 and April of 2010, as well as December of 2011. On all of those dates, several households within a mile downgradient of the subject Dairy Farms had nitrate levels above the maximum as defined by 40 C.F.R. § 141.62. f. These levels of nitrate presented a health threat to people relying on that water for drinking water. g. The Order also created a remediation plan which included interim provision of safe drinking water to affected residents, actions to control potential nitrogen sources, the installation of monitoring mechanisms, and proper nutrient management in the farming practices. On April 9, 2013, the CARE plaintiffs filed their First Amended Complaint.10 It contained only claims under RCRA. It did not request civil penalties. Important to this motion, the Amended Complaint referenced the Order on Consent and integrated many of its findings.11 On February 4, 2014, a Second Amended Complaint was filed in the CARE suit12. On October 10, 2014, a Third Amended Complaint was filed.13 This Complaint added defendants Dolsen Companies and Three D Properties, widened the scope of alleged pollution to include “other contaminants”, and added scienter elements to the nature of the Dairy Farms’ actions. On January 14, 2015, this Court entered an order in the Action finding that 10 Guadagno Decl., Ex. 3. 11 Compare Guadagno Decl., Ex. 3 and 4. 12 Guadagno Decl., Ex. 4. 13 Guadagno Decl., Ex. 5. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 6 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Cow Palace, LLC; the Dolsen Companies; and Three D Properties, LLC were in violation of RCRA.14 On May 19, 2015, a Consent Decree was entered with the specific intent of the Parties that it be integrated into the Order. The Consent Decree required, among other things:15 a. Compliance with RCRA. b. Regular inspections by the EPA and agents of the Plaintiffs. c. Remediation efforts regarding different Lagoons on the subject property. d. Installation of a safety debris basin. e. Maintenance of a recently installed centrifuge manure separator. f. Installation of concrete aprons to redirect wastewater. g. Implementation of an Aerated Pile Pilot Project Adjustment and monitoring of methods regarding field fertilization. h. Provision of bottled water or reverse osmosis systems to residences within the vicinity of the subject Diary Farms. i. $300,000 in fees and costs paid by the Dairy Farms to the Plaintiffs to the underlying action. j. Continuing annual attorney’s fees for monitoring compliance with the Consent decree. B. THE BEDIVERE POLICIES CONTAIN AN ABSOLUTE POLLUTION EXCLUSION. Bedivere is responsible for the following insurance policies (the “Bedivere Policies”) issued to Cow Palace by OneBeacon: 14 Guadagno Decl., Ex. 6. 15 Guadagno Decl., Ex. 7 (at 7-24). Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 7 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Period Policy Number Issuing Insurer 4/1/05 – 4/1/06 QG QF59991-00 OneBeacon 4/1/06 – 4/1/07 QG QF59991-01 OneBeacon OneBeacon issued Policy No. QG QF59991-00 and Policy No. QG QF59991-01 to Cow Palace, effective April 1, 2005- April 1, 2006 and April 1, 2006- April 1, 2007 respectively.16 The policies include property, liability, and umbrella coverage. At issue under the Lawsuit and the Consent Decree are the FARM LIABILITY COVERAGE FORM and the AGRI-UMBRELLA LIABILITY COVERAGE FORM. The FARM LIABILITY COVERAGE FORM and the AGRI-UMBRELLA LIABILITY COVERAGE FORM under the two policy periods mirror one another. The FARM LIABILITY COVERAGE FORM provides as follows: This insurance does not apply to Pollution: (1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants: (a) At or from premises which are or were or at any time owned or occupied by, or rented or loaned to, any “Insured”; * * * (b) at or from any site or location used by or for you or others for the handling, storage, disposal, processing, or treatment of waste; 16 These policies were later transferred to Bedivere Insurance Company. Armour Risk Management, Inc., is Bedivere’s current claims administrator. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 8 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 (c) which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for you or any person or organization for whom you may be legally responsible; or * * * (2) Any request, demand or order that any “insured” or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants”. This includes demands, directives, complaints, “suits”, orders or requests brought by any governmental entity or by any person or group of persons. * * * This exclusion will apply to any liability, costs, charges, or expenses, or any judgments or settlements, arising directly or indirectly out of pollution whether or not the pollution was sudden, accidental, gradual, intended, expected, unexpected, preventable or not preventable. Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.17 The AGRI-UMBRELLA LIABILITY COVERAGE FORM contains mirroring language.18 Specifically, it provides: We will pay on behalf of the “Insured” those sums in excess of the “Retained Limit” that the “Insured” becomes legally obligated to pay by reason of liability imposed by law or assumed by the Insured under an “Insured Contract” because of “Bodily Injury”, “Property Damage”, “Personal Injury”, or “Advertising Injury” that 17 Guadagno Decl., Ex. 8 (at ONEBEACON 737); Ex. 9 (at ONEBEACON 1262). 18 Guadagno Decl., Ex. 8 (at ONEBEACON 758 – 761); Ex. 9 (at ONEBEACON 1283 – 1286). Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 9 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 takes place during the “policy period” and is caused by an “Occurrence” happening anywhere. * * * D. Exclusions This insurance does not apply to: 12. Pollution Any liability, including but not limited to settlements, judgments, costs, charges, expenses, costs or investigations, or the fees of attorneys, experts, or consultants, arising out of or in any way related to: a. The actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”: (1) at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any “insured”; * * * (2) at or from any premises, site or location which is or was at any time used by or for any “insured” or others for handling storage, disposal, processing or treatment of waste; (3) which are or were at any time transported handled, stored, treated, disposed of, or processed as waste by or for any “Insured” or any person or organization for whom you may be legally responsible. * * * This exclusion will apply to any liability, costs, charges, or expenses, or any judgments or settlements, arising directly or indirectly out of pollution which or not the pollution was sudden, accidental, gradual, intended, expected, unexpected, preventable or not preventable. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 10 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 As used in this exclusion “pollutants” means any solid, liquid, gaseous, or thermal irritant or contaminant, including, but not limited to smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste material. Waste material includes materials which are intended or may have been recycled, reconditioned or reclaimed.19 C. COVERAGE WAS PROPERLY DENIED FOR THE UNDERLYING ACTION PURSUANT TO THE POLICIES’ ABSOLUTE POLLUTION EXCLUSION. On February 27, 2013, Cow Palace tendered defense of the underlying action to QBE Insurance Company via their insurance agent Linda Koreski of Wells Fargo Insurance Services USA, Inc.20 On June 18, 2013, OneBeacon Insurance denied coverage pursuant to, among other things, the above-quoted pollution exclusionary language.21 On April 13, 2016, Plaintiffs re-tendered the underlying claims to OneBeacon insurance. On June 8, 2016, OneBeacon again denied coverage, again in part, pursuant to the Bedivere Policies’ absolute pollution exclusion.22 On July 18, 2016, Plaintiffs filed the present action in Yakima Superior Court23. This 19 Id. 20 See Guadagno Decl., Ex. 10. Plaintiffs did not tender suit to OneBeacon. Under Washington law, a court will enforce an insurer’s denial of coverage based on noncompliance with a notice provision if an insurer can establish actual prejudice resulting from delayed notice. Canron, Inc. v. Fed. Ins. Co., 82 Wn. App. 480, 491-92, 918 P.2d 937 (1996). Here, Bedivere suffered actual prejudice as a result of Plaintiffs’ failure to timely tender to / notify Bedivere and OneBeacon, because Bedivere and/or OneBeacon cannot obtain soil tests, or other evidence, that the contamination occurred outside of the policy period. Nonetheless, Bedivere and Armour reserve their right to pursue this argument in a subsequent and independent dispositive motion. 21 Guadagno Decl., Ex. 10. 22 Guadagno Decl., Ex 11. 23 Dkt. 1. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 11 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 matter was removed to this venue shortly thereafter.24 II. EVIDENCE RELIED UPON This motion relies upon the Declaration of Michael A. Guadagno with attached exhibits, the Separate Statement of Specific Facts as prescribed by Local Rule 56.1, and the filings and pleadings herein. III. ISSUE PRESENTED Whether an absolute pollution exclusion precludes defense and indemnity of an underlying suit alleging contamination of groundwater with nitrate, ammonia, and pharmaceutical containing cattle manure and urine. IV. AUTHORITY AND ARGUMENT A. SUMMARY JUDGMENT IS APPROPRIATE WHERE, AS HERE, EVIDENCE THAT IS NOT MATERIALLY CONTESTED PRECLUDES A CLAIM. Summary judgment is warranted when a party fails to establish an essential element of his claim because there are no genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Fed. R. Ci v. P. 56(a). The purpose of summary judgment is to dispose of factually unsupported claims or defenses. Celotex, 477 U.S. at 323-24. While justifiable inferences are to be drawn in favor of the nonmoving party, the non-moving party cannot rely on mere allegations contained in the pleadings, or by “simply show[ing] that there is some metaphysical doubt in the material facts.” Anderson, 477 U.S. at 255; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Rather, he must present affirmative evidence of specific facts demonstrating genuine issues for trial. 24 Dkt. 1. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 12 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Anderson, 477 U.S. at 256-57. “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson, 477 U.S. at 247-48. Evidence that is “merely colorable” or is “not significantly probative” cannot defeat summary judgment. Anderson, 477 U.S. at 249-50. B. INSURANCE POLICIES ARE CONTRACTS SUBJECT TO LEGAL INTERPRETATION. The interpretation of an insurance contract in Washington is a question of law. Overton v. Consolidated Ins. Co., 145 Wn.2d 417, 424, 38 P.3d 322 (2002); Queen City Farms v. Central Nat’l Ins. Co., 126 Wn.2d 50, 65, 802 P.2d 703 (1994). An insured is not entitled to what was not contracted for. Id. An insurer has no duty to defend claims which are clearly outside the policy’s coverage. Holly Mt. Resources v. Westport Ins. Group, 130 Wn. App. 635, 647, 104 P.3d 725 (2005). Similarly, the duty to indemnify “hinges” on the insured’s ability to demonstrate coverage within the scope of the contract (and the subsequent proven liability of the insured). Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 64, 1 P.3d 1167 (2000). Courts construe the policy as a whole, giving it a fair and sensible construction that would be understood by the average person. American Star Ins. Co. v. Grice, 121 Wn.2d 869, 874, 854 P2d 622 (1993), supp’d. 123 Wn.2d 131 (1994). Terms defined in a policy are interpreted in accordance with their definition. Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 576, 964 P2d 1173 (1998). An undefined term is given its plain and ordinary meaning. Id. The court will not give a forced or strain construction that creates nonsense, absurdity, or an ineffective clause. Wash. Pub. Util. Dists. Utils. Sys. V. Pub. Util. Dist. No. 1, 112 Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 13 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Wn.2d 1, 11, 771 P.2d 701 (1989). The court will not create ambiguity where none exists, or modify unambiguous language as “construction.” Transcontinental Ins. Co. v. Wash. Util. Dist’s Util. Sys., 111 Wn.2d 452, 456, 760 P.2d 337 (1988); Britton v. Safeco Ins. Co. of Amr., 104 Wn.2d 518, 528, 707 P.2d 125 (1985). Thus, if the plain language of an insurance policy does not provide coverage, the Court will not rewrite the policy to do so. Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 99, 776 P.2d 123 (1999). C. THERE IS NO COVERAGE UNDER THE BEDIVERE POLICIES FOR POLLUTION ENVIRONMENTAL CONTAMINATION. The plain language of the Bedivere Policies’ absolute pollution exclusion precludes Plaintiffs’ claims for contract damages and declaratory relief regarding defense and indemnification. The Farm Liability Coverage Form precludes coverage for, among other things, (1) bodily injury or property damage arising from actual or threatened “discharge, dispersal, seepage, migration, release, or escape” of pollutants from the insured’s premises; or (2) any request, demand, or enforcement action to “test for, monitor, clean up, remove, contain, treat, detoxify or neutralize… ‘pollutants.’” 25 The umbrellas policies hold similar clauses. An absolute pollution exclusion contains no exceptions to the general exclusion. See Quadrant Corp. v. Amr. States Ins. Co., 154 Wn.2d 165, 110 P.3d 733 (2005). Washington courts have consistently upheld the viability of absolute pollution exclusions. Id. (pollution exclusion barred coverage of claim relating to noxious fumes due to weatherproofing); City of Bremerton v. Harbor Ins. Co., 92 Wn. App. 17, 963 P.2d 194 (1998) (absolute pollution exclusion barred coverage relating to noxious smell from sewage plant); Cook v. Evanson, 83 Wn. App. 149, 25 Guadagno Decl., Ex. 8. (ONEBEACON 737); Ex. 9 (ONEBEACON 1262). Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 14 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 920 P.2d 1223 (1996) (absolute pollution exclusion barred coverage for noxious sealant.) Washington courts have specifically held that the absolute pollution exclusion applies when “traditional environmental harms” occur from a pollutant acting “as a pollutant.” Kent Farms, Inc. v. Zurich Ins. Co., 140 Wn.2d 396, 402, 998 P.2d 292 (2000). It is difficult to fathom a more classic case of “traditional environmental harm” than the alleged contamination of water by a food production company that endangered human health.26 However, Plaintiffs have indicated in correspondence prior to this suit that they feel the CARE action did not involve “pollution” because cow urine and manure is organic27 and anticipated in the running of a dairy farm. However, Washington courts have found that an absolute pollution exclusion will bar coverage even when the pollutant is being used for its intended use. Quadrant Corp., 154 Wn.2d at 165. Similarly, noxious organic solid waste, even if being recycled, is a pollutant subject to the exclusion. In City of Spokane v. United National Insurance Company, 190 F.Supp.2d 1209 (E.D. Wa. 2002). The definition of pollutant is found in the Bedivere Policies. “Pollutants” include “any solid, liquid, gaseous or thermal irritant or contaminant, including…waste.”28 In parallel, the Administrative Order on Consent, which was progressively integrated into several portions of the CARE plaintiffs’ multiple amended complaints, concerned the SWDA, which is particularly concerned with 26 See e.g., Harr, Jonathan, A CIVIL ACTION, Random House, First Vintage Book Edition, Sept. 1996. 27 This is factually grey, as the EPA faulted the Dairy Farms for the inorganic pharmaceuticals found in the excrement. However, the grey need not be clarified because a substance can be organic and still be a pollutant. 28 Guadagno Decl., Ex. 8 (ONEBEACON 716); Ex. 9 (ONEBEACON 1235). Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 15 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 the contamination of water.29 More importantly, the original and first amended CARE complaints repeated the word “contamination” or a derivative thereof numerous times. Both complaints discuss the ability for nitrates to “migrate.” The parallels between the CARE plaintiffs’ complaint language and the pollution exclusion clause continue from there. The CARE allegations discuss “significant contamination of the soil and groundwater…”30 The CARE plaintiffs complained that their drinking water had been “contaminated with nitrates, phosphorous, and other pollutants, including hormones and antibiotics, by Cow Palace Dairy’s improper handling, storage, treatment, transportation, and disposal of solid and hazardous waste.”31 The CARE plaintiffs were concerned to breathe noxious “hazardous pollutants, including but not limited to ammonia.”32 The CARE suit was about pollution. Coverage was precluded by the absolute pollution exclusion clause. D. CASE LAW FROM THIS JURISDICTION AND OTHERS CONFIRM THAT MANURE IS A POLLUTANT. Case law from this jurisdiction and others confirms the common sense position that 780,000 gallons of manure seeping into groundwater constitutes a “pollutant” within the meaning of the Bedivere Policies’ exclusionary language. In City of Spokane v. United National Insurance Company, 190 F.Supp.2d 1209 (E.D. Wa. 2002), the Court addressed whether various pollution exclusions precluded coverage of claims relating to the odors emitted by the City’s compost 29 42 U.S.C. § 330f et seq. 30 CARE Complaint, ¶ 17. 31 CARE Complaint, ¶ 18a. 32 CARE Complaint, ¶ 18c. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 16 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 facility, where it recycled organic solid waste into useable compostable materials. The Court held that the exclusions unambiguously eliminated coverage related to claims of odors emanating from the compost. Thus, the nature of manure as organic, or capable of being recycled as fertilizer, does not morph toxic contaminants into non-pollutants. Moreover, other courts have specifically found that pollution exclusions apply to manure cases. In Space II v. Farm Family Mutual Insurance Co., 652 N.Y.S.2d 357, 235 A.D.2d 797 (1997), the New York Appellate Court considered the application of a similar exclusion under a special farm package policy. There, the claimants alleged that the insureds polluted their well by use of liquefied cow manure as fertilizer on the insured’s property. The insured argued that a natural, organic fertilizer could not be characterized as a pollutant under a farm policy. The court disagreed, concluding that liquid manure fit within the language of the exclusion. In our view, liquid manure is properly classified as a ‘waste material’, ‘pollutant’ or ‘contaminant’ when, as is alleged in the underlying action, the substance has leached into the groundwater and contaminated a well on adjoining property. 652 N.Y.S.2d at 358 (citations omitted). In Weber v. IMT Insurance Company, 462 N.W.2d 283 (Iowa 1990), the Supreme Court of Iowa considered whether hog manure spilled on a roadway could be characterized as “waste material” within the meaning of a pollution exclusion under a farm liability policy. There, the insured’s farming operation involved the transport of hog manure by truck to fertilize other fields away from the hogs. The trucks would spill manure on the public road during transport and then would run over the manure, spreading it on the road. The claimant alleged that the odor from the manure contaminated his sweet corn crop and made the corn Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 17 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 unmarketable. The court concluded that, as used in the pollution exclusion of the policy, the hog manure was a “waste material,” and damages arising therefrom were not covered by the liability coverage of the farm policy. 462 N.W.2d at 286. Finally, Washington has recognized that Concentrated Animal Feeding Operations like Cow Palace, require pollution discharge permits because they apply animal manure containing nitrogen to crops. Cmty. Ass'n for Restoration of Env't v. State, Dep't of Ecology, 149 Wn. App. 830, 835-36, 205 P.3d 950, 953-54 (2009). Washington has already acknowledged the pollutant nature of bovine excrement. The CARE case alleged dairy farms were polluting the region and causing harm because of the pollution. Any interpretation that does not find the pollution exclusion cause applies to a suit about pollution would improperly render that clause ineffective, and would be unreasonable. E. THE RECENT PROBUILDERS CASE DOES NOT MUDDY THE WATERS. Plaintiffs will likely argue that the recent Washington Supreme Court decision, Xia v. ProBuilders Specialty Ins. Co. RRG, ___ Wn.2d ___, 393 P.3d 748 (April 17, 2017), (motion for reconsid. pending), applies because it holds that an absolute pollution exclusion does not preclude coverage when the cause of the loss was a covered occurrence under a different provision. Id. at *2. However, two key distinctions separate this case squarely from the ProBuilders, and Bedivere is still entitled to summary judgment. First, the language in the ProBuilders case is different from the language in this matter. In the ProBuilders case, the policy language excluded: Bodily injury, property damage, or personal injury caused by, resulting from, attributable to, contributed to, or aggravated by the actual, alleged, or threatened discharged, dispersal, [etc…of pollution]…This Exclusion applies regardless of the cause of the pollution… Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 18 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 In contrast, the policy language at issue here is more expansive. There is exclusion of: Any liability, including but not limited to settlements, judgments, costs, charges, expenses, costs or investigations, or the fees of attorneys, experts, or consultants, arising out of or in any way related to [pollution]. Unlike the ProBuilders policy, the exclusion at issue here limits all liability arising out of pollution. This difference of language is significant. In Washington, the phrase “arising out of” is unambiguous and has a broader meaning than “caused by” or “resulted from.” Fidelity and Deposit Co. of Maryland v. Dally, 148 Wn. App. 739, 744, 201 P.3d 1040 (2009) (citing State Farm Mut. Auto. Ins. Co. v. Centennial Ins. Co., 14 Wn. App. 541, 543, 543 P.2d 645 (1975), review denied, 87 Wn.2d 1003 (1976)). It is ordinarily understood to mean “originating from”, “having its origin in”, “growing out of”, or “flowing from”. Id. (citing Avemco Ins. Co. v. Mock, 44 Wn. App. 327, 329, 721 P.2d 34 (1986)). ProBuilders comports with this history. In that case the policy language started with identifying an injury and then traced steps back to what caused the injury. Whereas, with the policy language at issue, the analysis starts with the polluting event and moves forward, considering what arises from it. This mirrors the allegations that were leveled against Cow Palace – they all started with the release of the pollutants and moved forward. The release of the pollutants – not a resultant injury – is the basis of this suit. A closely related and second distinction is the predominance of the efficient proximate cause rule in the ProBuilders decision. When viewing the policy language of that case, the Supreme Court even described the policy language as an “attempt to circumvent” that rule. Id. at 16. This was because in that case, there Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 19 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 was a “covered peril [that set] in motion a causal chain, the last link of which is a covered peril.” Id. at 13. The exhaust vent to a hot water heater was incorrectly installed. As a causal result of this incorrect installation, carbon monoxide was discharged into the basement when hot water was utilized. As the Supreme Court noted, “The polluting occurrence here happened only after an initial covered occurrence, which was the negligent installation of the hot water heater that typically does not pollute when used as intended.” Id. at 17. In contrast, here, the allegations address policy-defined pollution, and not some other act, as the source of liability. There is not a preceding covered occurrence that Cow Palace can point back to. Instead, pollution (manure, nitrates, ammonia, etc.) was the specifically-excluded risk, and the specifically-excluded damage. Moreover, the allegations of water table pollution arise from that risk and damage. This is a case about pollution, so the pollution exclusion applies. V. CONCLUSION The absolute pollution exclusion precludes indemnity or defense under the subject policies. Accordingly, Bedivere requests summary judgment on this issue, and requests that all claims reliant on an indemnity or defense obligation be dismissed. DATED: June 29, 2017 BULLIVANT HOUSER BAILEY PC By /s/ Michael Guadagno Michael A. Guadagno, WSBA #34633 E-mail: michael.guadagno@bullivant.com Holly Brauchli, WSBA #44814 E-mail: holly.brauchli@bullivant.com Attorneys for Defendants Bedivere Insurance Company f/k/a OneBeacon and Armour Risk Management Inc. Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MOTION FOR PARTIAL SUMMARY JUDGMENT BY DEFENDANTS BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC. PAGE 20 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 CERTIFICATE OF SERVICE I certify that on the 29th day of June, 2017, I electronically filed the foregoing document with the Clerk of The Court using the CM/ECF Electronic Filing System which will send notification of such filing to the following: Bradford Axel Sarah L. Wixson Krista L. Nelson Erika N. Hartliep Stokes Lawrence Velikanje Moore & Shore 120 N. Naches Avenue Yakima, WA 98901-2757 sarah.wixson@stokeslawcom bradford.axel@stokeslaw.com krista.nelson@stokeslaw.com yu-shan.sheard@stokeslaw.com enh@stokeslaw.com Attorneys for Plaintiffs Karen Southworth Weaver Misty Edmundson Soha & Lang, P.S. 1325 Fourth Avenue, Suite 2000 Seattle, WA 98101-2570 weaver@sohalang.com edmundson@sohalang.com murray@sohalang.com Attorneys for Defendant QBE Insurance Company and Unigard Insurance Company Dated: June 29, 2017. /s/ Kristin Anderson Kristin Anderson, Legal Assistant 4819-1252-7431.2 Case 1:16-cv-03141-TOR Document 38 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 PROPOSED ORDER GRANTING DEF BEDIVERE AND ARMOUR'S MOTION FOR PARTIAL SUMMARY JUDGMENT PAGE 1 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Michael A. Guadagno, WSBA #34633 E-mail: michael.guadagno@bullivant.com Holly D. Brauchli, WSBA #44814 E-mail: holly.brauchli@bullivant.com BULLIVANT HOUSER BAILEY PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Facsimile: 206.386.5130 Attorneys for Defendants Bedivere Insurance Company f/k/a OneBeacon and Armour Risk Management Inc. HON. THOMAS O. RICE IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON AT YAKIMA THE DOLSEN COMPANIES, a Washington corporation; COW PALACE, LLC, a Washington limited liability company; THREE D PROPERTIES, LLC, a Washington limited liability company, Plaintiffs, v. BEDIVERE INSURANCE COMPANY f/k/a ONEBEACON, a Pennsylvania corporation; ARMOUR RISK MANAGEMENT INC., a Pennsylvania corporation; QBE INSURANCE CORPORATION, a Pennsylvania corporation; UNIGARD INSURANCE COMPANY, a Washington corporation, Defendants. No.: 1:16-cv-3141 TOR PROPOSED ORDER GRANTING DEFENDANT BEDIVERE INSURANCE COMPANY AND ARMOUR RISK MANAGEMENT, INC.'S MOTION FOR PARTIAL SUMMARY JUDGMENT 09/06/2017 With Oral Argument: 11:00 a.m. This matter came before the Court on Defendants Bedivere Insurance Company and Armour Risk Management Inc.’s (“Bedivere and Armour”) motion for partial summary judgment. Having considered the briefing and evidence submitted by the parties both in support of and in opposition to Bedivere and Case 1:16-cv-03141-TOR Document 38-1 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 PROPOSED ORDER GRANTING DEF BEDIVERE AND ARMOUR'S MOTION FOR PARTIAL SUMMARY JUDGMENT PAGE 2 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 Armour’s motion, and being fully advised in the premises, this Court now rules as follows. Bedivere and Armour’s motion for partial summary judgment is granted for the reasons set forth in Bedivere and Armour’s motion. Specifically, the Court issues summary declaratory judgment as follows: 1. The pollution exclusions in the OneBeacon Policies (No. QG QF59991-00, effective 4-1-05 to 4-1-06; and No. QG QF59991-01, effective 4-1- 06 to 4-1-07) are unambiguous and must be enforced as written. Washington Public Util. Dists. Utils. System v. Public Utility Dist. No. 1, 112 Wn.2d 1, 10, 771 P.2d 701 (1989). 2. The pollution exclusions in the OneBeacon Policies exclude from coverage damages because of property damage and/or bodily injury arising out of actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants.” 3. The claims alleged in the underlying liability lawsuit, Community Association for Restoration of the Environment, et al. v. Cow Palace, LLC, Cause No. 2:13-cv-3016 TOR (the “CARE Litigation”) and Environmental Protection Agency (“EPA”) enforcement action are claims arising out of actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants.” 4. The CARE litigation and the EPA enforcement action allege claims for traditional environmental harm from a pollutant acting as a pollutant. Kent Farms, Inc. v. Zurich Ins. Co., 140 Wn.2d 396, 402, 998 P.2d 292, 296 (2000). 5. Under the facts of this case, the pollution exclusions contained in the OneBeacon Policies unambiguously exclude coverage for such claims. 6. Accordingly, there is no coverage under the OneBeacon Policies for Case 1:16-cv-03141-TOR Document 38-1 Filed 06/29/17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 PROPOSED ORDER GRANTING DEF BEDIVERE AND ARMOUR'S MOTION FOR PARTIAL SUMMARY JUDGMENT PAGE 3 Bullivant|Houser|Bailey PC 1700 Seventh Avenue, Suite 1810 Seattle, Washington 98101-1397 Telephone: 206.292.8930 the claims made in the CARE Litigation and/or the EPA enforcement action. 7. Bedivere and Armour, through OneBeacon, thus had no duty to defend Plaintiffs under any of the following OneBeacon Policies for the claims alleged in the CARE Litigation and/or the EPA enforcement action: Period Policy Number Issuing Insurer 4/1/05 – 4/1/06 QG QF59991-00 OneBeacon 4/1/06 – 4/1/07 QG QF59991-01 OneBeacon 8. Bedivere and Armour have no duty to indemnify Plaintiffs under any of the policies referenced in paragraph 7 above in connection with any settlement entered into or judgment and/or order entered with respect to the claims alleged in the CARE Litigation and/or the EPA enforcement action. ORDER ENTERED this day of ,2017. Hon. Thomas O. Rice 4842-7101-7803.1 Case 1:16-cv-03141-TOR Document 38-1 Filed 06/29/17