American National Fire Insurance v. B&L Trucking & Construction Co.

Madsen, J.

(dissenting) — The majority requires the insurer in this case to provide insurance coverage it neither contracted to provide nor received insurance premiums for. In doing so, the majority nullifies the jury’s determination that respondents expected the environmental damage as of June 1982. Under the majority’s analysis, the jury’s finding, which should preclude coverage for damage occurring after that date, simply does not matter. The majority also relies upon Washington case law which does not apply to the facts in this case. I would uphold the trial court’s pro rata allocation of liability based upon time of the risk and, accordingly, dissent.

Northern Insurance did not contract to provide the coverage the majority requires it to provide. In his dissenting opinion, Court of Appeals Judge Pro Tempore Wiggins correctly analyzed the relevant insurance contract language. Northern agreed to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of. . . destruction of tangible property to which this insurance applies and is caused by an occurrence . . . .” Pet. for Review at 8. “[Occurrence” is defined in the policy as “an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the insured . . . .” Clerk’s Papers (CP) at 537. “[P]roperty damage” is defined as “physical injury to or destruction of tangible property which occurs during the policy period . . . .” Id. The policy thus plainly provides that Northern must pay for “all sums which the insured shall become legally obligated to pay as damages because of” “physical injury to or destruction of tangible property which occurs during the policy period,” which is “neither expected nor intended from the standpoint of the insured . . . .” Pet. for Review at 8; CP at 537.

*432Contrary to the majority’s analysis, it is not reasonable to construe the “all sums” language as meaning that the insurer has contracted for joint and several liability for the full amount of damages for the obvious reason “the sums the insurer is obligated to pay must be on account of property damage arising out of an occurrence during the policy period.” Outboard Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill. App. 3d 630, 642, 670 N.E.2d 740 (1996) (emphasis added).9 Because the language of the policy as a whole does not obligate the insurer to pay any and all sums regardless of when the property damage occurred and regardless of the relevant policy period, there is no ambiguity to be construed in favor of the insured and against Northern Insurance.

Further, the policy language plainly does not allow for coverage for property damage which is expected or intended by the insured. The jury determined that respondents expected such damage as of June 1982. Yet the majority’s imposition of “joint and several” liability requires Northern to provide coverage for years after that date, when property damage was expected by the insured. The majority ignores the policy language and nullifies the jury’s determination that respondents expected property damage as of June 1982.

Disregarding the jury’s finding does not merely violate the language of the policy. Pollution may result from disposal practices thought to be sound at the time wastes are deposited at a site. See Queen City Farms, Inc. v. Central National Ins. Co., 126 Wn.2d 50, 78-79, 882 P.2d 703, 891 P.2d 718 (1994). Environmental pollution may also occur when it is unknown at the time of disposal that the materials pose an environmental risk. In either case, there may be an unknown loss in progress during a policy period which will require insurance coverage under a comprehensive general liability policy. However, where a loss in prog*433ress is known, covering liability poses a risk of moral hazard, that is, “the tendency of an insured party to exercise less care to avoid insured losses than that party would exercise if the losses were uninsured.” Kenneth S. Abraham, Environmental Liability Insurance Law 21, 145 (1991). An insured who becomes aware of pollution damage has little incentive to respond and abate the condition if the insurer will be obliged to provide coverage for additional environmental damage occurring years after the policy period expires. The policy language precluding coverage where the damage is expected or intended serves to avoid this risk, and should be given effect.

To bolster its result the majority points to Gruol Constr. Co. v. Insurance Co. of N. Am., 11 Wn. App. 632, 524 P.2d 427 (1974), a case which simply does not apply under the facts presented here. In Gruol, dry rot in a residence caused by improper backfilling resulted in continuing damage during successive periods of time when the structure was covered under three separate insurance policies. There were no periods of time in Gruol where coverage did not exist prior to discovery of the damage. The Court of Appeals held in Gruol that the damage, though continuing over time, constituted a single injury for which each insurer had contracted to provide coverage. Gruol, 11 Wn. App. at 637-38. The court held that in such circumstances in a dispute between the insurance carriers and the insured, the liability of the insurers was joint and several and “the burden of apportionment is on the carriers.” Id. at 637. That holding makes sense because the insurers, collectively, were clearly liable for the total damage, and it was fair to require them to sort out which of them had to pay what proportion of the total rather than imposing that burden of proof on the insured.

Here, the period of liability for Mr. Fjetland and Eagle Trucking, Inc. is 1981 to April 29, 1987 (this time period is not challenged at this stage of the proceedings). In sharp contrast to Gruol where the undiscovered condition worsened over several policy periods, here there was no cover*434age after June 1982 because damage was expected as of that time. Quite unlike the situation in Gruol, in this case the insureds expected environmental damage for nearly five years of the relevant time period.

Moreover, the injury in Gruol was a single injury which worsened over several policy periods. Washington case law recognizes that the time of an occurrence for insurance coverage purposes is determined by when damage or injuries took place, as discussed in Transcontinental Ins. Co. v. Washington Pub. Utils. Dists.’ Util. Sys., 111 Wn.2d 452, 465-70, 760 P.2d 337 (1988) (citing cases). In that case, the court also recognized that the number of events triggering coverage may depend upon the number of causes underlying the alleged damage and resulting liability. Id. at 467. Where environmental damage results from disposal of materials, property damage may result immediately, as, for example, where toxic materials are dumped into a lake or bay. Materials may also be disposed of in a sanitary landfill or waste disposal pit which was believed would contain or safely filter the material. In such a case, the escape of the materials from the place of containment may be the polluting event resulting in damage which is covered under a general comprehensive liability policy. See Queen City Farms, 126 Wn.2d at 76-79. Because seepage from a disposal site may not occur until well after material is deposited, and then may occur on an ongoing basis, conceptually there may be innumerable polluting events causing property damage through many policy periods. Rather than a single worsening injury, as in Gruol, the property damage in an environmental pollution case may be the result of continuous multiple polluting events as materials escape from a landfill into the environment over years.

In addition, there is no record of insurance provided by any carrier after 1986. As Judge Pro Tempore Wiggins noted, this fact, too, distinguishes Gruol, where the insured maintained coverage throughout the period of the damage. Although in Gruol it made some sense to analogize to the *435tort concept of joint and several liability, the joint and several liability rule of Gruol should not be applied where environmental damage occurs through both insured and noninsured periods. An insured should not be able to shift its responsibility for uninsured years to a carrier which did not contract to provide coverage for that period of time. Outboard Marine Corp., 670 N.E.2d at 748. Many courts faced with circumstances like those presented here have held that loss should be allocated to uninsured periods. E. g., Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995); Northern States Power Co. v. Fidelity & Cas. Co. of N.Y., 523 N.W.2d 657 (Minn. 1994); Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974 (1994); Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127 (Utah 1997). The same principle has been applied where insurers’ responsibility for defense costs has been at issue. E.g., Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980); Gulf Chem. & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365 (5th Cir. 1993); Fireman’s Fund Ins. Cos. v. Ex-Cell-0 Corp., 685 F. Supp. 621 (E.D. Mich. 1987).

As one court put it, if loss were to be allocated to periods of no insurance coverage, an insured “which had insurance coverage for only one year out of 20 would be entitled to [coverage] . . . the same as [an insured] which had coverage for 20 years out of 20.” Forty-Eight Insulations, 633 F. 2d at 1225.10 This court should align itself with those courts which have rejected this unfair result.

The “joint and several” liability rule of Gruol should not be applied in the circumstances of this case.

Courts have employed several methods of allocating loss occurring under multiple policies over multiple policy *436periods.11 Here, the trial court allocated liability using a pro rata method based upon the years the insurer was on the risk. This method has been employed by other courts faced with a similar apportionment issue. E.g., Outboard Marine Corp., 670 N.E.2d 740; Stonewall Ins. Co., 73 F.3d 1178; Insurance Company of N. Am., 633 F.2d 1212; Northern States Power Co., 523 N.W.2d 657. The years-on-the-risk apportionment method is a reasonable method of allocation under the circumstances of this case for at least three reasons. First, the insurer contracted to provide for coverage for damage during the policy period and not for periods where another insurer provided coverage or where no coverage existed. Second, while insurers must be held to the obligations they undertake, it is unfair to require that they provide insurance for periods for which they have not contracted to provide coverage and for which they have received no premiums. Third, where the jury found that damage was expected as of June 1982, the years-on-the-risk method accounts for the fact that while environmental damage occurred after that date, the insured expected the damage.

Finally, the majority says that any unfairness in its result is Northern’s fault, since it wrote the insurance policy at issue. I disagree. The unfairness resulting from the majority opinion results because the majority has rewritten the policy and misapplied Gruol, 11 Wn. App. 632.

I dissent. The trial court should be affirmed.

Durham, C.J., and Alexander and Sanders, JJ., concur with Madsen, J.

Reconsideration denied June 12, 1998.

The fact that the insured’s liability for clean-up costs under CERCLA is joint and several does not require joint and several habihty for coverage by successive insurers, because insurance coverage disputes are governed by contract law and require construction of the insurance policy at issue.

While some courts distinguish those cases where the insured has affirmatively elected self-insurance (going bare) from those where, for example, coverage is not available, in either case, the insurer which has contracted to provide coverage for insured periods has not contracted to provide coverage for damage outside the policy period.

Of course, as Judge Pro Tempore Wiggins recognized in this case, no “rule” of apportionment may be needed where competent evidence provides a basis for the trier of fact to apportion damage among carriers and the insured where both insured and uninsured periods are involved.