647 F.Supp. 1064 (D.Idaho 1986), Civ. 83-3161, State of Idaho v. Bunker Hill Co.

Docket Nº:Civ. 83-3161
Citation:647 F.Supp. 1064
Party Name:State of Idaho v. Bunker Hill Co.
Case Date:September 02, 1986
Court:United States District Courts, 9th Circuit, District of Idaho
 
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Page 1064

647 F.Supp. 1064 (D.Idaho 1986)

The STATE OF IDAHO, Plaintiff,

v.

The BUNKER HILL COMPANY, a Delaware corporation; Pintlar Corporation, a Delaware corporation; Gulf Resources & Chemical Corporation, a Delaware corporation; and John Does 1 to 500, Defendants.

GULF RESOURCES & CHEMICAL CORPORATION, Third-Party Plaintiff,

v.

The AETNA CASUALTY AND SURETY COMPANY and the Home Indemnity Company, Third-Party Defendants.

GULF RESOURCES & CHEMICAL CORPORATION, and Pintlar Corporation, Third-Party Plaintiffs,

v.

The FIDELITY AND CASUALTY COMPANY OF NEW YORK; Pacific Insurance Company; Continental Re-Insurance Corporation; First State Insurance Company; Northwestern National Insurance Company, Northwestern National Casualty Company; Admiral Insurance Company; The Insurance Company of the State of Pennsylvania; and Pacific Indemnity Company (Chubb), Third-Party Defendants.

PINTLAR CORPORATION, Third-Party Plaintiff,

v.

UNDERWRITERS AT LLOYD'S, LONDON, Third-Party Defendant.

AETNA CASUALTY AND SURETY COMPANY, Third-Party Plaintiff,

v.

FIRST STATE INSURANCE COMPANY, Northwestern National Insurance Company, and Northwestern National Casualty Company, Third-Party Defendants.

CONTINENTAL RE-INSURANCE CORPORATION, a California corporation; Pacific Insurance Company, a California corporation; and Fidelity & Casualty Company of New York, a New York corporation, Third-Party Plaintiffs,

v.

FIRST STATE INSURANCE COMPANY, Northwestern National Insurance Company, and Northwestern National Casualty Company, Third-Party Defendants.

PINTLAR CORPORATION, Third-Party Plaintiff,

v.

INSURANCE COMPANY OF NORTH AMERICA, Third-Party Defendant.

Civ. No. 83-3161.

United States District Court, D. Idaho.

Sept. 2, 1986

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        Jim Jones, Atty. Gen., State of Idaho, P. Mark Thompson, Deputy Atty. Gen. Chief, Administrative Law & Litigation Division, Boise, Idaho, Sheila Glusco Bush, Deputy Atty. Gen. Administrative Law & Litigation Division, for plaintiff State of Idaho.

        William F. Boyd, Fred M. Gibler, Charles L.A. Cox, Evans Keane Koontz Boyd &

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Ripley, Kellogg, Idaho, James P. Keane, Evans Keane Koontz Boyd & Ripley, Coeur d'Alene, Idaho, for defendants and third-party plaintiffs Bunker Hill; Pintlar; Gulf Resources.

        R.B. Rock, Robert B. Luce, Kristi Emig-Mark, Moffatt Thomas Barrett & Blanton, Boise, Idaho, for Home Indemnity Company.

        John P. Howard, Marc A. Lyons, Quane Smith Howard & Hull, Boise, Idaho, for Fidelity & Casualty; Pacific Ins.; Continental Re-Insurance; Northbrook Ins.

        Richard C. Mellon, Jr., D. Alan Kofoed, Elam Burke & Boyd, Boise, Idaho, for First State Ins.; Northwestern Nat'l Ins.; Northwestern Nat'l Casualty.

        Howard Humphrey, Clemons Cosho & Humphrey, Boise, Idaho, Frank R. Morrison, Jr., Bassett & Morrison, Seattle, Wash., for The Insurance Co. of Pennsylvania.

        James B. Lynch, Scott W. Marotz, Charles R. Clark, Imhoff & Lynch, Boise, Idaho, for Admiral Insurance.

        James P. Barber, Ray L. Wong, William J. Casey, Hancock Rothert & Bunshoft, San Francisco, Cal., Gardner W. Skinner, Jr., Robert D. Lewis, Cantrill Skinner Sullivan & King, Boise, Idaho, for Underwriters at Lloyd's, London--Jervois.

        R.B. Kading, Jr., Scott D. Hess, Warren Jones, Eberle Berlin Kading Turnbow & Gillespie, Boise, Idaho, for Pacific Indemnity; Aetna Casualty.

        MEMORANDUM OPINION AND ORDER

        RYAN, District Judge.

        On June 13, 1986, this court held a hearing on all pending motions in this matter to decide motions which raise insurance defense issues. These motions will be addressed individually below.

        I. CONTINENTAL RE-INSURANCE CORPORATION

        Gulf Resources & Chemical Corporation/Pintlar Corporation (Gulf/Pintlar), and Continental Re-Insurance Corporation, The Fidelity and Casualty Company of New York, and Pacific Insurance Company (Continental) have brought cross-motions on the issue of the duty to defend. Continental's motion for summary judgment also requests a ruling from this court on the issue of indemnity. The summary of the law regarding the duty to defend outlined below will be applicable, and not repeated, to motions addressed later in this memorandum opinion.

        Three recent Idaho cases have addressed the duty to defend issue under Idaho law. In Hirst v. St. Paul Fire & Marine Insurance Co., 106 Idaho 792, 683 P.2d 440 (Ct.App.1984), the court held:

        As a general rule, an insurer must defend a suit against the insured where the complaint alleges facts which, if true, would bring the case within the policy coverage....

        ....

        The rationale for placing the burden on an insurer to defend a complaint which presents a potential liability of the insured was discussed in Solo Cup Co. v. Federal Ins. Co., 619 F.2d 1178 (7th Cir. 1980). There the court said:

While it is true that an insurance company's obligation to defend depends upon the underlying complaint against its insured, this obligation, as noted previously, is present whenever there appears to be a potential for coverage under the policy.... Especially since the advent of notice pleading, in a case where there is doubt as to whether a theory of recovery within the policy coverage has been pleaded in the underlying complaint, the insurer must defend, and its defense obligations will continue until such time as the claim against the insured is confined to a recovery that the policy does not cover....

To hold otherwise would be to place upon the insured the burden of demonstrating in advance of the underlying litigation which of the competing theories of recovery against it was applicable

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for purposes of insurance, thereby frustrating one of the basic purposes of such a clause in the insurance contract--protection of the insured from the expenses of litigation....

Id. at 1185.

        Although the allegations in the plaintiff's complaint frame an insurer's duty to defend, those pleadings are not to be read narrowly. Rather, a court must look at the full breadth of the plaintiff's claim....

        ....

        It is also well established that the duty of an insurer to defend, for the protection of the insured, is a separate, unrelated and broader obligation than a duty to pay for damages under the insurance policy.

Id. at 797-98, 683 P.2d 440 (citations omitted) (emphasis in original). In accord, Standlee v. St. Paul Fire & Marine Insurance Co., 107 Idaho 899, 693 P.2d 1101 (Ct.App.1984); Maxson v. Farmers Insurance of Idaho, Inc., 107 Idaho 1043, 695 P.2d 428 (Ct.App.1985).

         The duty to defend arises upon the filing of a complaint whose allegations, in whole or in part, read broadly, reveal a potential for liability that would be covered by the insured's policy. The problem which faces the insurers when a claim is made is determining if there is a potential for liability. However, as noted by the Hirst case, since the advent of notice pleading there will likely be broad ambiguous claims made against the insured making it more difficult for the insurer to determine whether the insurance policy covers the claims. But as the court noted, where there is doubt as to whether a theory of recovery within the policy coverage has been pleaded in the underlying complaint, or which is potentially included in the underlying complaint, the insurer must defend regardless of potential defenses arising under the policy or potential defenses arising under the substantive law under which the claim is brought against the insured.

         It appears from the fact that some of the insurers in this action have failed to recognize a duty to defend and have, instead, filed declaratory judgment actions, that there is confusion as to how to proceed in a situation similar to the one at hand. In Maxson, the court approved the use of a declaratory action to determine coverage. It is a misconception of the duty to defend, however, if the insurer refuses to defend and seeks a determination of the duty while the underlying case progresses against the insured, and then if found obligated under its duty, the insurer merely steps in and defends and pays defense fees that have accumulated. The proper procedure for the insurer to take is to evaluate the claims and determine whether an arguable potential exists for a claim covered by the policy; if so, then the insurer must immediately step in and defend the suit. At the same time, if the insurer believes that the policy itself provides a basis, i.e., an exclusion, for noncoverage, it may seek declaratory relief. However, this does not abrogate the necessity of defending the lawsuit until a determination of noncoverage is made. The insurer should not be allowed to "guess wrong" as to the potential for coverage. "[T]he provision for defense of suits is useless and meaningless unless it is offered when the suit arises." 7C J. Applemen, Insurance Law and Practice § 4684 at 83 (Berdal ed. 1979).

        Once it is concluded that an insurer owes its insured a duty to defend, the duty to defend and pay defense costs continues until such time as the insurer can show that the claim against the insured cannot be said to fall within the policy's scope of coverage. As stated in C. Raymond Davis & Sons, Inc. v. Liberty Mutual Insurance Co., 467 F.Supp. 17 (E.D.PA. 1979): "However, if coverage (indemnification) depends upon the existence or nonexistence of facts outside of the complaint that have yet to be determined, the insurer must provide a defense until such time as those facts are determined, and the claim is narrowed to one patently outside the coverage." Id. at 19 (citations omitted).

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         Continental insured Gulf for...

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