Down East Energy Corp. v. Niagara Fire Ins. Co., s. 98-1966

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Citation176 F.3d 7
Docket NumberNos. 98-1966,98-1967,s. 98-1966
PartiesDOWN EAST ENERGY CORP., Plaintiff, Appellee, v. NIAGARA FIRE INSURANCE CO., Defendant, Appellant. Down East Energy Corp., Plaintiff, Appellant, v. Niagara Fire Insurance Co., et al., Defendants, Appellees. . Heard
Decision Date02 February 1999

Robert M. Kaplan, with whom Miller Christerson McNaboe & Cortner, was on brief, for appellant Niagara Fire Insurance Co.

John M.R. Paterson, with whom James A. Clifford and Bernstein, Shur, Sawyer & Nelson, were on brief, for appellee Down East Energy Corp.

Before TORRUELLA, Chief Judge, BOWNES, Senior Circuit Judge, and LYNCH, Circuit Judge.

TORRUELLA, Chief Judge.

The underlying dispute in this case arises out of a series of pollution liability insurance policies issued to plaintiff-appellee Down East Energy Corporation ("Down East") by defendant-appellant Niagara Fire Insurance Company ("Niagara").

Down East and its sister company, Brunswick Coal & Lumber ("BC & L"), were in the business of selling gasoline and home heating oil. As part of this business, Down East owned the Jordan Bay Mobil gas station located in Raymond, Maine. In 1983, Down East and BC & L each purchased a comprehensive insurance policy for their various businesses through the Morse, Payson & Noyes Insurance Agency. Although the policies were issued by The Continental Insurance Company, both contained a contemporaneous amendment naming Niagara as the actual insuring company. Both policies included insurance against pollution liability. Specifically, the policies provided $500,000 of pollution liability coverage for: (1) third-party damage claims, and (2) government ordered cleanups of leaks and spills from gasoline stations. The 1983 policies became effective on June 15, 1983 and terminated on June 15, 1986.

In 1985, while the 1983 policies were still in effect, Niagara issued a new single policy to BC & L to replace the two 1983 policies. Although the 1985 policy was issued to BC & L, Down East was named as an additional insured and thus was covered by that policy. The 1985 policy continued to provide $500,000 of pollution liability coverage for third-party damage claims and government ordered cleanups. The 1985 policy became effective June 15, 1985 and terminated on June 15, 1986.

In 1986, Down East renewed the 1985 policy to run through June 15, 1987. Again, the renewal policy provided $500,000 of pollution liability coverage for third-party damage claims and government ordered cleanups.

In late 1986, while the policy was still in effect, new governmental regulations increased the required amount of pollution liability coverage to $1,000,000. Because the 1986 policy only provided $500,000 of coverage, Down East needed to find additional coverage. On October 9, 1986, Alan Quinlan, an insurance agent for Morse, Payson & Noyes, submitted a written proposal to Down East outlining Down East's various options. Quinlan proposed two basic options: (1) purchasing an additional policy for $500,000, or (2) canceling the 1986 policy issued by Niagara and purchasing an entirely new policy for $1,000,000. 1 1 Based on Quinlan's recommendation, Down East selected the latter option, purchasing a new $1,000,000 policy from International Surplus Lines Insurance Company ("ISLIC"), and canceling its 1986 Niagara policy.

Down East's 1986 Niagara policy was canceled effective December 23, 1986. Its new ISLIC coverage became effective on the same date. Under both of these policies, Down East was covered for claims made during the policy period as a result of pollution incidents which also occurred during the policy period. Therefore, if a claim was made on December 24, 1986 against Down East for a pollution incident that occurred on December 22, 1986, Down East would have no insurance coverage. The 1986 Niagara policy would not provide coverage because the claim was made after cancellation of the Niagara policy, and the ISLIC policy would not provide coverage because the pollution incident occurred before the effective date of the ISLIC policy. To avoid this gap in coverage, Quinlan recommended that Down East purchase an "Extended Reporting Period Endorsement" from Niagara to extend the reporting period for claims made against Down East for any pollution incidents that may have occurred during the original Niagara policy period. In recommending the purchase of the endorsement to Down East, Quinlan wrote in a letter dated October 9, 1986:

This option, at a cost of 50% of the annual premium, will cause the [Niagara] policy to respond to claims which are made within the next twelve months, provided that the incident which led to the claim occurred during the policy period. This option, if exercised, allows for a transition from one claims-made policy to another with no gap in coverage, provided that all claims for past pollution incidents are brought within one year. (Emphasis added).

At the time, Down East understood that coverage under the endorsement would be co-extensive with coverage under the original Niagara policy. In other words, Down East understood that the endorsement extended the reporting period for both third-party damage claims and government ordered cleanups. By its terms, however, the endorsement only extended the reporting period for claims made for property damage and bodily injury, and did not extend the reporting period for claims made as a result of government ordered cleanups.

In September 1987, after the 1986 Niagara policy was canceled but while the extended reporting endorsement was still in effect, Down East received notice from the Maine Department of Environmental Protection ("DEP") that a third-party damage claim had been filed against Down East. The claim alleged that a gasoline leak from the Jordan Bay gas station had contaminated a neighboring well. 2 Immediately upon receipt of the DEP notice, Down East informed Morse, Payson & Noyes of the damage claim. However, Morse, Payson & Noyes did not inform Niagara of the claim until March 1988, after the extended reporting endorsement had expired.

On March 29, 1989, Niagara denied coverage for the third-party damage claim on the ground that the loss was not reported to Niagara until March 2, 1988--after the expiration of all the policies issued to Down East by Niagara. Notwithstanding this denial, in the fall of 1989, Down East initiated a comprehensive cleanup program to remove gasoline from the ground and groundwater on the neighboring property. The total amount spent on the cleanup exceeded $500,000.

In December 1989, despite its original denial of coverage, Niagara began to reimburse Down East for the costs incurred in the cleanup. In a January 17, 1992 letter, Niagara reversed its earlier position that Down East's claim was not timely reported to Niagara, and concluded that the costs incurred by Down East as a result of environmental damage to the neighboring property were covered. Despite this acknowledgment of coverage, Niagara stopped making reimbursement payments to Down East in December 1992. Nevertheless, Down East continued its remediation efforts.

In December 1995, Niagara again denied coverage. In its denial letter, Niagara reasserted its defense that Down East's claim was untimely in that it was presented to Niagara after the expiration of the extended reporting endorsement. Niagara also raised several other grounds for denial which are not relevant to this appeal. In May 1997, Down East filed this suit.

Down East's amended complaint asserted the following grounds for relief: (1) breach of contract; (2) estoppel to deny coverage; (3) breach of the implied covenant of good faith and fair dealing; (4) failure to comply with various state statutory obligations to pay or deny insurance claims in a timely manner; and (5) estoppel by agency, based on the representations made by Morse, Payson & Noyes.

On November 5, 1997, Niagara moved for summary judgment, which Down East opposed. In its summary judgment motion, Niagara, for the first time, asserted a new ground for denial of Down East's claim, namely, that the extended reporting endorsement did not extend the reporting deadline for initiation of government action.

On December 19, 1997, a magistrate judge recommended summary judgment with respect to Down East's claims of breach of contract, estoppel to deny coverage based on defendants' own conduct, and breach of an implied covenant of good faith and fair dealing. On February 20, 1998, the district court adopted the recommendation of the magistrate, leaving only two causes of action open for trial: (1) estoppel based on agency, and (2) failure to comply with various state insurance statutes.

Trial commenced on July 7, 1998. After the jury retired to deliberate, but before it reached its verdict, Down East voluntarily dismissed its state statutory causes of action. On July 8, the jury returned a verdict in favor of Down East on its estoppel based on agency claim in the amount of $362,996, the policy limit less the amount Niagara actually paid. Judgment was entered in favor of Down East on July 15, 1998. This appeal followed.

Niagara raises three issues on appeal. 3 First, Niagara argues that the district court abused its discretion by denying Niagara's request to reopen discovery less than three weeks before the trial date and nearly eight months after the close of discovery. 4 Next, Niagara contends that Down East's estoppel claim is time-barred. Finally, Niagara challenges the sufficiency of the evidence. We address each of Niagara's contentions in turn.

I. Discussion
A. Denial of Discovery

Niagara first contends that the district court abused its discretion in allowing Down East to amend its theory of the case on the eve of trial without also allowing Niagara to conduct additional discovery. We disagree.

First, we agree with the district judge that there was no "last-minute amendment" of Down East's theory of...

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