Weyerhaeuser Co. v. Commercial Union Insurance

Madsen, J.

(dissenting) — The majority improperly concludes that Commercial Union’s excess liability insurance policy covers Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) liability resulting from pollution occurring before Weyerhaeuser disposed of any waste at the Mid-State and Pasco landfills. Neither the policy language nor our rules for construing insurance contracts supports the majority’s result. Accordingly, I must dissent on this issue. I also have signed Justice Talmadge’s dissenting opinion which correctly concludes that Commercial Union’s excess liability insurance policy contained an annual aggregate $1.5 million coverage limit for property damage and the Fireman’s Fund policy had a $500,000 aggregate annual property damage limit of liability.

Weyerhaeuser shipped waste to the Pasco site between July 1973 and November 1974, and to the Mid-State site beginning in early 1974. The Commercial Union policy expired before these shipments occurred. The majority *695holds that the insurer is nevertheless required to indemnify for CERCLA clean up costs associated with damages occurring before Weyerhaeuser had any connection with the damaged property.

While Weyerhaeuser is jointly and severably liable for clean up costs under CERCLA as a result of its shipments of wastes, statutorily imposed liability does not necessarily equate to insurance coverage. Coverage must be determined by examining each relevant term of the excess and primary policies. Unfortunately, the majority misreads the policy language in this case and relies upon unpublished and unpersuasive court orders.

Construction of the terms of an insurance policy is a question of law for the court. Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 575, 964 P.2d 1173 (1998); Queen City Farms, Inc. v. Cent. Nat’l Ins. Co., 126 Wn.2d 50, 65, 882 P.2d 703, 891 P.2d 718 (1994). Insurance policies are contracts, and the goal of the court is to determine the intent of the contracting parties. Eurick v. PEMCO Ins. Co., 108 Wn.2d 338, 340-41, 738 P.2d 251 (1987). Plain language susceptible to only one reasonable interpretation should be given effect to carry out the contracting parties’ intent, and thus the court’s initial undertaking is to examine the terms of the insurance contract to determine whether under its plain meaning there is coverage. See Kitsap County, 136 Wn.2d at 576. Also, the policy should be given a fair, reasonable, and sensible construction such as the average purchaser of insurance would give it. Kitsap County, 136 Wn.2d at 575; Queen City Farms, 126 Wn.2d at 65. The insurance contract must be viewed in its entirety. Allstate Ins. Co. v. Peasley, 131 Wn.2d 420, 424, 932 P.2d 1244 (1997).

The Commercial Union excess policy provided that the insurer would indemnify Weyerhaeuser for “all sums” which Weyerhaeuser was obligated to pay by reason of liability imposed by law caused by or arising out of an “occurrence.” Clerk’s Papers (CP) at 13975. “Occurrence” was defined in the Fireman’s Fund policy, the underlying *696primary policy, as “an event or continuous or repeated exposure to conditions, which unexpectedly causes injury during the policy period.” CP at 13980. The primary policy also provided that the insurer would pay

all sums which the insured shall become obligated to pay as damages by reason of the liability imposed upon the insured by law, or assumed by the insured under contract or agreement, because of injury to or destruction of corporeal property, including all loss resulting therefrom, arising out of the business operations of the insured.

CP at 13979 (emphasis added).

The majority reads this latter provision to require coverage where the liability arises out of the business operations of the insured, and reasons that Weyerhaeuser’s liability arises out of the business operations of the insured because the joint and several strict liability of Weyerhaeuser under CERCLA results from its shipment of wastes to the two sites.

I believe the majority misreads and misapplies the policy language. The provision states that the insurer will pay “all sums” which Weyerhaeuser has “to pay as damages by reason of the liability imposed upon” Weyerhaeuser by CERCLA “because of injury to or destruction of corporeal property . . . arising out of the business operations of the insured.” CP at 13979. In my view, the policy thus states that the injury to the property, which gives rise to the liability, must arise out of the business operations of the insured. Thus, reading the coverage provisions as a whole, for coverage to exist under the policies, liability imposed by law must be caused by or arise out of an occurrence, which, given the definition of “occurrence,” requires that injury to property during the policy period must occur. Further, coverage exists only where the property damage arises out of the business operations of the insured. Because Weyerhaeuser’s shipments of waste did not occur until after the policy period expired, no injury to property arose out of its business operations during that period and there is *697accordingly no coverage under the language of the policy.18

Not only is this construction in accord with the language used in the policies, it achieves the important goal of giving the contract a fair, reasonable, and sensible construction. In similar circumstances, where the insured claimed coverage for CERCLA clean-up costs resulting from pollution under a policy antedating any involvement by the insured with the damage sites, a California court declined to find coverage, reasoning that a complete factual predicate for liability subsequently imposed by law must exist during the policy period. FMC Corp. v. Plaisted & Cos., 61 Cal. App. 4th 1132, 1154, 72 Cal. Rptr. 2d 467, 479-80 (1998). In relevant part, FMC involved sites (called “A” sites by the court) where the insured had no involvement with the sites either directly or through a predecessor until after the policy period expired. The court reasoned:

[W]hile it is indeed appropriate to require that an insurer that writes, and accepts a substantial premium for, general liability insurance assume the risk of expansion in legal theories of liability applicable to facts which occurred in or before the policy period, it is neither reasonable nor consonant with the terms of the general liability policies before us to require such insurers to cover liabilities based on facts which did not occur until after the policy period. A general liability insurer can realistically be said to be in the business of understanding and taking into account the legislative and judicial dynamics that *698produce changes in legal theories, but cannot be required to be clairvoyant as to the infinite possible future permutations of facts, fundamental to the very existence of coverage but not in existence during the policy period, once the policy period has expired.

FMC Corp., 61 Cal. App. 4th at 1154-55, 72 Cal. Rptr. 2d at 480.

The majority suggests, though, that California courts are split on this issue, citing Garriott Crop Dusting Co. v. Superior Court, 221 Cal. App. 3d 783, 791-92, 270 Cal. Rptr. 678, 682-83 (1990) as reaching the opposite conclusion. Majority at 679-80. The majority is mistaken. On the question presented by this case, there is no split of authority represented by FMC and Garriott.

In Garriott the insurer, United States Aviation Underwriters, Inc. (USAU), issued successive policies which covered property damage. The insured used its property as a disposal site, and the policy period of at least one of the policies coincided with the disposal of wastes. Eventually, the adjacent property owner, the City of Bakersfield, learned its property had been contaminated and brought suit against the insured. The city had acquired the adjacent property 15 years after the last USAU policy period expired. The insurance company covering the insured at the time of the suit filed a declaratory judgment action against numerous insurance companies, including USAU, alleging they had provided liability coverage during the relevant period. USAU filed a cross-complaint, arguing that no coverage existed because the claimant city was not damaged during the USAU policy periods.

The court examined the policies’ language, noting that the policies provided that the event triggering coverage “is one that causes ‘physical injury to or destruction of tangible property^ during the policy period [] [but, the court said, njowhere do the policies say to whom that property must belong, save that it must not belong to the insured. In other words, the policies themselves do not expressly require that the eventual claimant own the property at the time the property is damaged for coverage to ensue.. ..” Garriott, *699221 Cal. App. 3d at 791. Accordingly, the issue was not when the city was damaged, but rather when the property owned by the city was damaged. Id.

Unlike Garriott, alleged CERCLA liability concerning the “A” sites in FMC Corp. did not involve a question of liability to a subsequent owner of property which was allegedly damaged prior to acquisition as a result of the acts of the insured during the policy period. Moreover, the issue in Garriott is not like the question before this court. Here, like the “A” sites in FMC, the question involves liability of the insured resulting from damage to property caused by third parties occurring before there was ever any connection with or involvement with the property by the insured. Garriott is clearly distinguishable.

The majority also states that during the pendency of this litigation the Ninth Circuit resolved the apparent “conflict” between Garriott and FMC in favor of coverage. Majority at 679-80. The majority states that the Ninth Circuit’s holding in In re KF Dairies, Inc. & Affiliates, 224 F.3d 922 (9th Cir. 2000) is “directly on point” and “persuasive.” Majority at 681. I must disagree. Nowhere in the Ninth Circuit’s opinion is there any discussion whatsoever of the policy language at issue in this case—the obligation to pay “all sums” which Weyerhaeuser has “to pay as damages by reason of the liability imposed upon” Weyerhaeuser by CERCLA “because of injury to or destruction of corporeal property . . . arising out of the business operations of the insured.” CP at 13979. The majority’s statement of a rule of law from In re KF Dairies is meaningless since the relevant policy language at issue here was not at issue there.

Insofar as In re KF Dairies disagrees with FMC, FMC is the better reasoned decision.

The parties here could, of course, have contracted for coverage under the circumstances presented. However, for the reasons offered by the court in FMC, absent language to that effect, it is neither sensible nor reasonable to read the policy provisions in this case to require coverage where the factual predicate for liability, Weyerhaeuser’s shipment of *700wastes, did not occur until after the policy period expired.

The average commercial purchaser of insurance would read this policy language to mean that while statutorily imposed liability for damages might well be retroactively imposed and lead to coverage under the policy, it would be because of an occurrence involving the insured’s business during the policy period, not because of factual events completely unrelated to the insured during the policy periods.

Other courts have similarly declined to find coverage under circumstances like those in this case. In Arco Industrial Corp. v. Travelers Insurance Co., 730 F. Supp. 59 (W.D. Mich. 1989), the court examined coverage issues under an occurrence-based policy. The insured had contracted with another company, Thermo Chem, to remove hazardous wastes from the insured’s manufacturing plant to Thermo Chem’s processing facility. The insured made two shipments of waste under this contract which led to its alleged liability under CERCLA for clean up of the Thermo Chem site. However, just as in the case before this court, the policy periods of the insurance policies at issue in Arco expired before the two shipments were made.19 The court focused on the policy language, noting the definition of an “occurrence” as being “ ‘an accident. . . which results, during the policy period, in bodily injury or property damage[.]’ ” Arco, 730 F. Supp. at 63 (quoting policy). The court concluded that “[w]hether one defines an occurrence by the date of shipment, the date of damage to the environment, or the date the damage is discovered, it is obvious that an occurrence cannot happen before the earliest of these dates—the date [the insured] shipped its [wastes] to Thermo Chem.” Id.

The court in Arco clearly required that the “occurrence” giving rise to liability, which had to cause injury during the policy period, be connected to the insured’s act resulting in *701CERCLA liability. In the case before this court, the policy language, like that in Arco, requires that the injury to property occur during the policy period. As the court did in Arco, this court should find that because there is no event connected to Weyerhaeuser which constitutes an occurrence, there is no coverage.20

In Avondale Industries, Inc. v. Travelers Indemnity Co., 774 F. Supp. 1416 (S.D.N.Y. 1991), the insured also shipped wastes to a site after expiration of the policy periods. The court determined that the insurers had no duty to defend underlying actions arising out of the escape of pollution from the waste oil dump and reclamation facility because as a matter of law the insurers had no duty to indemnify under the policies. The court aptly explained that when the insured shipped the wastes was irrelevant to the statutory clean up and private actions, “both of which sound, entirely or in part, in strict liability and will likely focus on issues of causation and damages.” Avondale, 774 F. Supp. at 1426. However, the timing of the shipments was relevant to the court’s decision whether there was a duty to defend. The court concluded as a matter of law, in light of extensive discovery which had occurred, that the party demanding coverage would be unable to prove that any waste was shipped during the coverage periods of the policies at issue and therefore the insurers had no duty to indemnify, and accordingly no duty to defend. Id. at 1427.

The majority’s reliance on two unpublished federal district court rulings as providing persuasive reasoning on this *702issue is misplaced. First, although the majority gives lip service to the principle that unpublished opinions are nonbinding and have no precedential value, it nevertheless says the two orders’ reasoning is compelling. This circuitous route leads to the same place: use of the unpublished orders as persuasive authority. Under the majority’s approach, unpublished opinions could always be used to support a result, despite the long-standing principles disfavoring such reliance.

Second, the ultimate outcome of this issue should not depend upon whether there is statutory liability, but upon whether the insurance policies provide coverage when read in a fair, reasonable, and sensible way.

Third, the better-reasoned and majority of cases at this point go the other way.

Finally, the policy language in the Boeing order is different enough that reliance on that unpublished order is even less convincing.

I believe the majority finds coverage for which the parties did not contract. I would hold that the policies at issue provide no coverage for retroactive liability under CERCLA where the insured had no involvement with the damaged site during the policy period. For the reasons stated in this opinion and in the dissenting opinion of Justice Talmadge, I dissent.

Talmadge and Bridge, JJ., concur with Madsen, J.

The majority, at 682, quotes the Court of Appeals decision in Queen City Farms, Inc. v. Cent. Nat’l Ins. Co., 64 Wn. App. 838, 888, 827 P.2d 1024 (1992), aff’d, 126 Wn.2d 50, 882 P.2d 703, 891 P.2d 718 (1994) for the proposition that this court has rejected public policy arguments against insurers being obligated to indemnify for retroactive liability under CERCLA. The majority’s selective quotation suggests that this case, like other Washington cases, involves the insurers’ lack of advance knowledge of potential liability under the later enacted CERCLA, but this circumstance has no bearing on the insurers’ duty to indemnify.

Neither Queen City Farms nor Boeing Co. v. Aetna Casualty & Surety Co., 113 Wn.2d 869, 784 P.2d 507 (1990), cited in the quotation, involved CERCLA liability based upon the insured’s acts antedating relevant insurance policy periods. In each of those cases, the factual allegations were that the insured’s polluting acts occurred during the policy periods. The case now before the court does not concern retroactive statutory liability where the acts of the insured giving rise to the liability occurred during the relevant policy period.

The quoted material is meaningless in the factual circumstances of this case.

The complaint alleged other shipments may have occurred, but the insured failed to produce evidence that any shipments occurred during the policy period.

In footnote 12, majority at 679, the majority seems to suggest that the fact that an occurrence-based policy is involved favors the majority’s result. While the footnote notes the distinction between a claims-made and an occurrence-based policy, the fact occurrence-based policies are at issue here does not favor the majority’s result. Occurrence-based policies require an event which causes injury within the policy period. Later-enacted statutes may result in the insured’s liability for some occurrences when there was no statutory liability for them at the time the parties contracted for insurance coverage. An occurrence-based policy may thus be “open-ended” to the extent it may require indemnification in such circumstances. However, in the end, footnote 12 does not say anything meaningful in the context of this case, because this case does not involve merely a later change in the law giving rise to the insured’s liability. Instead, the issue concerns later-enacted statutory liability arising from the insured’s acts occurring after the policy expired.