Carl v. Oregon Auto. Ins. Company/North Pacific Ins. Co.

• Decision Date: 19 June 1996
• Citation: 141 Or.App. 515,918 P.2d 861
• Parties: Robert W. CARL; Shirley Carl; Guy Carr; First Interstate Bank of Oregon, N.A., as Trustee of the Mildred Carr Trust; Tom Edwards; Dorothy Edwards; Carr Building Corporation, an Oregon corporation; Carr Chevrolet Co., Inc., an Oregon corporation, Appellants, v. OREGON AUTOMOBILE INSURANCE COMPANY/NORTH PACIFIC INSURANCE COMPANY; Providence Washington Insurance Company; Safeco Insurance Company of America, Respondents, and Fireman's Fund Insurance Company, Defendant. C931146CV; CA A87268.
• Court: Oregon Court of Appeals

Page 861

918 P.2d 861

141 Or.App. 515

Robert W. CARL; Shirley Carl; Guy Carr; First Interstate

Bank of Oregon, N.A., as Trustee of the Mildred Carr Trust;

Tom Edwards; Dorothy Edwards; Carr Building Corporation,

an Oregon corporation; Carr Chevrolet Co., Inc., an Oregon

corporation, Appellants, v. OREGON AUTOMOBILE INSURANCE COMPANY/NORTH PACIFIC INSURANCE

COMPANY; Providence Washington Insurance Company;

Safeco Insurance Company of America, Respondents,

and

Fireman's Fund Insurance Company, Defendant.

C931146CV; CA A87268.

Court of Appeals of Oregon.

Argued and Submitted April 17, 1996.

Decided June 19, 1996.

William H. Walters, Portland, argued the cause for appellants. With him on the briefs were Jerry B. Hodson, Steven F. Hill and Miller, Nash, Wiener, Hager & Carlsen.

I. Franklin Hunsaker, III, Portland, argued the cause for respondents Providence Washington Insurance Company. Michael A. Lehner, Portland, argued the cause for respondents Oregon Automobile Insurance Company/North Pacific Insurance Company. Thomas A. Gordon, Portland, argued the cause for respondent Safeco Insurance Company of America. With them on the brief were Ronald E. Bailey, Beth Skillern and Bullivant, Houser, Bailey, Pendergrass & Hoffman; Lehner, Mitchell, Rodrigues &amp Sears; and Angela M. Stewart and Gordon & Polscer.

Steven J. Dolmanisth and Anderson, Kill, Olick & Oshinsky, New York City, filed an amicus curiae brief for Reynolds Metals Company.

Bradford H. Lamb, Portland, filed an amended amicus curiae brief for Aetna Casualty and Surety Company.

Frank V. Langfitt, III and Ater, Wynne, Hewitt, Dodson & Skerritt, Portland, filed an amended amicus curiae brief for Insurance Environmental Litigation Association.

Before RICHARDSON, C.J., and LANDAU and LEESON, JJ.

LEESON, Judge.

Plaintiffs appeal from a judgment entered after the trial court granted defendants' motions for summary judgment. Because we conclude that there are no genuine issues of material fact and that defendants are entitled to judgment as a matter of law, ORCP 47 C, we affirm.

Plaintiffs brought this action against several defendant insurance companies ¹ to recover cleanup costs for environmental contamination resulting from a leaking underground storage tank (tank) located at an automobile dealership that plaintiffs owned and operated from 1956 to 1987. Three tanks were installed at the dealership in 1950. ² When the tanks were decommissioned and removed in October 1989, plaintiffs discovered that one of the tanks had a pencil-sized hole in it about one-third of the way down from the top, that gasoline had been discharged and that the site and subjacent groundwater were contaminated. Plaintiffs' subcontractor, Fullman, supervised the excavation of approximately 280 cubic yards of contaminated soil that was removed and disposed of at a county landfill. In addition, 884 cubic yards of contaminated soil were spread over the dealership's parking lot to reduce hydrocarbon levels through an aeration process.

Within a few days of their removal on October 5 and 6, the tanks and fuel lines were shipped to a company that dismantled and sold them. Fullman took various water and soil samples, which he had tested by Pacific Analytical Laboratories. A representative of the Oregon Department of Environmental Quality, the fire marshall and an environmental consultant visited and observed the site. Photographs were taken of the tanks and of the site and Fullman made an audio tape recording chronicling the removal process. On October 18, plaintiffs discontinued the excavation and the site was backfilled.

Fullman stated in an affidavit that the pencil-sized hole was the likely source of the soil contamination. The record also indicates that an expert would testify for plaintiffs that the tank wall probably was breached in the late 1960s or early 1970s, but no later than 1974 and that, subsequently, each time the tank was refilled (approximately every two weeks), a discharge occurred and continued until the level of gasoline in the tank dropped below the hole.

In October 1990, approximately one year after they had discovered the contamination, removed and disposed of the tanks and removed the contaminated soil, plaintiffs notified defendants Providence and Oregon Auto of a possible claim. Plaintiffs notified defendant Safeco of a possible claim in December 1992, when one of the other insurers brought to plaintiffs' attention the possibility of Safeco coverage.

Each of defendants' liability policies with plaintiffs contained the following condition:

"You must promptly notify us or our agent of any accident or loss. You must tell us how, when and where the accident and loss happened."

Based in part on this policy provision, all three defendants refused to reimburse plaintiffs for the cost of investigating and cleaning up the environmental contamination, which plaintiffs estimated to be about $100,000 as of August 1990. Plaintiffs then brought this action to recover those costs. The trial court granted defendants' motions for summary judgment on the ground that plaintiffs' notice was late, prejudicial and unexcused. It reasoned:

"It is clear that the insurance compan[ies] * * * were prejudiced. There is no question about that. To suggest that an expert in ground water and some pictures and some narrative testimony is all that's needed is just incorrect. They need--obviously, the more information they can get the better they are. And so there is some way to investigate by using experts and people who come from the insured and not the insurer."

Plaintiffs assign error to that ruling. They argue that there are genuine issues of material fact about whether the delayed notice was prejudicial and whether plaintiffs acted reasonably in not giving earlier notice. They contend that defendants provided no evidence of actual prejudice resulting from the late notice. Defendants respond that plaintiffs, without excuse, failed to provide timely notice of their claim as required by the insurance policies, and that defendants were prejudiced by plaintiffs' destruction of the tanks and the removal of the contaminated soil, because those acts made it impossible for defendants to conduct any meaningful investigation.

Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. ORCP 47 C. The determination of whether there is a genuine issue of material fact is made on the evidence submitted by both parties. Jones v. General Motors Corp., 139 Or.App. 244, 256, 911 P.2d 1243 (1996). We review the record in the light most favorable to the nonmoving party, here, plaintiffs. Seeborg v. General Motors Corporation, 284 Or. 695, 699, 588 P.2d 1100 (1978). Defendants, who have the burden of persuasion at trial, must make a prima facie showing that they are entitled to summary judgment, using credible evidence that would entitle them to a directed verdict if uncontroverted at trial. Jones, 139 Or.App. at 253-54, 911 P.2d 1243 (citing with approval Celotex Corp. v. Catrett, 477 U.S. 317, 330-31, 106 S.Ct. 2548, 2556-57, 91 L.Ed.2d 265 (1986) (Brennan, J., dissenting)). If defendants satisfy that burden of production, the burden shifts to plaintiffs, who must produce evidentiary materials that include specific facts showing there is a genuine issue for trial. Id. at 252-53, 911 P.2d 1243 (citing Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986)).

In this case, the first issue is the significance of plaintiffs' late notice. If an insured fails to give immediate notice to its insurer of a possible claim, the viability of the insurer's policy obligation turns on a two-part inquiry: (1) whether the insurer has been prejudiced by that late notice because notice was not received in time for the insurer to make a reasonable investigation and adequately to protect its interest and that of the insured; and (2) if the insurer was prejudiced because it could not adequately investigate, whether the insured acted reasonably in failing to give notice at an earlier time. Lusch v. Aetna Cas. & Surety Co., 272 Or. 593, 597-600, 538 P.2d 902 (1975), North Pacific Ins. Co. v. United Chrome Products, 122 Or.App. 77, 81, 857 P.2d 158, mod. 123 Or.App. 536, 858 P.2d 1361, rev. den. 318 Or. 171, 867 P.2d 1385 (1993). The insurer has the burden of showing prejudice. Halsey v. Fireman's Fund Ins. Co., 68 Or.App. 349, 354, 681 P.2d 168, rev. den. 297 Or. 601, 687 P.2d 795 (1984).

It is uncontested that plaintiffs removed the tanks and fuel lines on October 5 and 6, 1989. A few days later, plaintiffs transported the tanks and fuel lines to another location, where they were dismantled and sold. Within 14 days of decommissioning and removing the tanks, plaintiffs removed several hundred cubic yards of soil, spread out several hundred more yards for aeration and backfilled the site. Carter, a senior claims supervisor for one of the defendants, stated in an affidavit that by the time the claim was first reported, all physical evidence of the conditions that might have caused or contributed to the contamination had been destroyed or altered to such an extent that it was impossible for defendants to conduct an investigation. Defendants met their initial burden of establishing the nonexistence of a genuine issue of material fact with respect to their ability to investigate. Jones, 139 Or.App. at 254, 911 P.2d 1243.

Because defendants met their initial burden, plaintiffs had the burden of producing evidence to demonstrate a genuine factual issue for trial regarding defendants' ability to conduct a meaningful investigation. Id. at 255, 911 P.2d 1243. Plaintiffs offered information from the following sources: witnesses present at the time of the excavation; test results from the water and soil samples; photographs of the tanks and the site; and Fullman's audio tape...