Charter Intern. Oil Co. v. Travelers Cas. and Sur.

• Court: U.S. District Court — District of Rhode Island
• Writing for the Court: William E. Smith
• Citation: Charter Intern. Oil Co. v. Travelers Cas. and Sur., 558 F.Supp.2d 209 (D. R.I. 2008)
• Decision Date: 09 June 2008
• Docket Number: C.A. No. 06-324 S.
• Parties: CHARTER INTERNATIONAL OIL COMPANY, Plaintiff, v. TRAVELERS CASUALTY AND SURETY COMPANY (f/k/a Aetna Casualty and Surety Company), Defendant.

558 F.Supp.2d 209

CHARTER INTERNATIONAL OIL COMPANY, Plaintiff, v. TRAVELERS CASUALTY AND SURETY COMPANY (f/k/a Aetna Casualty and Surety Company), Defendant.

C.A. No. 06-324 S.

United States District Court, D. Rhode Island.

June 9, 2008.

Anna M. Piazza, Gerald J. Petros, Robin-Lee Main, Hinckley Allen & Snyder, Providence, RI, Brian F. Saulnier, James R. Segerdahl, Neal R. Brendel, Kirkpatrick & Lockhart Nicholson Graham LLP, Pittsburgh, PA, for Plaintiff.

Christopher R. Blazejewski, John A. Nadas, Kathleen Burdette Shields, Choate, Hall & Stewart LLP, Boston, MA, Jason C. Preciphs, R. Kelly Sheridan, Jr., Roberts, Carroll, Feldstein & Peirce, Inc., Providence, RI, for Defendant.

DECISION AND ORDER

WILLIAM E. SMITH, District Judge.

This matter comes before the Court on the motion of Travelers Casualty and Surety Company ("Travelers") for summary judgment on the Complaint of Charter International Oil Company ("Charter") to obtain insurance coverage for the costs of cleaning up and redeveloping a parcel of land on the shore of the Sakonnet River in Tiverton, Rhode Island. After careful consideration, for the reasons set forth below, Travelers' motion will be denied.

I. Background and Facts

The facts engendering this dispute, or at least those facts necessary to the Court's disposition, are largely undisputed.¹

A. The Policies

Travelers, which was formerly known as The Aetna Casualty and Surety Company, issued primary, umbrella, and excess insurance policies to Northeast Equities, Inc. and Northeast Petroleum Industries, Inc. (collectively, "Northeast"), covering at least sixteen annual periods from July 1, 1965 to October 1, 1985 (collectively, "the Policies").² At the time each of the Policies was issued, Northeast was a Massachusetts corporation with its headquarters in Massachusetts. The stock of Northeast was purchased by Charter in 1983, and for the remainder of the time period during which the Policies were issued, Northeast was a wholly-owned subsidiary of Charter. Charter is a Texas corporation with its principal place of business in Pittsburgh, Pennsylvania. Charter claims rights under the Policies as the successor in interest by merger to Northeast.³

The Policies covered Charter for liability stemming from damage to property, unless a specific exclusion applied. Each of the Policies contained a so-called "no action clause," providing in the following or substantially similar words, that:

No action shall lie against [Travelers] unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.

B. The Site

From the mid-1960s until about 2002, Charter owned portions of a parcel of land adjacent to the Sakonnet River in Tiverton, Rhode Island (the "Site"). As others had for decades, Charter used the Site as an oil and gas storage and distribution terminal.

Sometime in 1985, Charter sought approval from the Rhode Island Department of Environmental Management ("RDEM") for plans to redevelop the Site for residential use. RIDEM required Charter to conduct environmental testing and remediation at the Site. Charter's subsequent testing revealed that the Site was contaminated with petroleum compounds and other substances. Charter hired GZA GeoEnvironmental, Inc. ("GZA"), an environmental consulting firm, to develop a plan for remediating the contamination. GZA's plan called for removal of tanks, pipes, and equipment, and "bioremediation" of the Site. The bioremediation, which would be accomplished by tilling the contaminated soil, thereby increasing its exposure to oxygen and bacteria, would promote the natural decomposition of petroleum compounds. The plan outlined four phases through which the Site would be decommissioned, divided the Site into areas of concern and, for each area, estimated the volume of contaminants that would be treated and the methods of bioremediation that would be used. GZA noted that it expected to encounter "presently uh-characterized areas of soil contamination" once the cleanup began. In 1991, Charter submitted GZA's workplan to RDEM.

In the meantime, in 1987 and 1988, Charter had attempted to negotiate a consent agreement with RIDEM under which it would agree to clean up the Site. The initial negotiations were unsuccessful, but in 1992, Charter did enter into an agreement with RIDEM. The consent agreement stated, in its "findings of fact," that the Site had "petroleum and/or petroleum products in the soil and groundwater subjacent thereto," and that RIDEM had "reviewed and approved the conceptual GZA Plan, with the condition that all pollutant concentrations at the Site be reduced to the levels specified in `Exhibit A.'" Under the agreement, which was executed "in lieu of [RIDEM] issuing a Notice of Violation," RIDEM approved the GZA Plan, and Charter "agree[d] to implement the GZA Plan pursuant to the terms and requirements of the schedule of activities attached hereto ... and subject to the terms of this Agreement and any amendments thereto." Charter also agreed to study and remediate any off-site contamination that was discovered.

Additionally, the consent agreement provided that, if RIDEM issued new cleanup standards, those new standards would apply to the Site cleanup "where appropriate for and applicable to the remediation of the Site." The agreement also specified that, while RIDEM was not completely precluded from taking other enforcement actions against Charter, the agreement "shall have all the force and effect of a final administrative decision and order under the Administrative Procedures Act [ ] from which no appeal has been taken" and would be fully enforceable in court. Charter was given 60 months after the execution of the agreement to complete its remediation obligations, although it could seek extensions of time in some circumstances.

Subsequent changes made to the remediation protocol apparently extended the remediation horizon, and Charter continued to undertake remediation activities as late as 2002. In May 2002, RIDEM issued a letter certifying that Charter's cleanup of the Site was complete.

Charter incurred several million dollars in expenses related to remediation of the Site, including legal expenses for hiring its own lawyers between 1985 and 1990 to represent it in connection with the environmental matters at the Site. Charter also incurred several thousand dollars in additional legal expenses in 1999 and 2000 to investigate potential claims for recovery against Travelers.

C. Charter's Claim

In 1986, Charter provided formal notice to Travelers of its discussions with RIDEM about the Site. In December 1991, Travelers sent Charter a letter stating that Travelers was "denying coverage for this loss." After receiving Travelers' denial of coverage, Charter elected to remediate the Site on its own. It did not, apparently, respond to Travelers' denial of coverage.

On or about June 15, 2006, more than fourteen years after it received Travelers' denial of coverage (but only four years after RIDEM certified the cleanup), Charter filed suit against Travelers in Providence Superior Court, claiming that Travelers breached the Policies by failing to defend or indemnify Charter with respect to the environmental remediation at the Site. Travelers removed the Complaint to this Court on July 17, 2006, and subsequently moved for summary judgment on the ground that Charter's claims are barred by the applicable statute of limitations.

II. Legal Standard

Summary judgment is appropriately granted where there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). An issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and a fact is material if it has the "potential to affect the outcome of the suit." Velazquez-Garcia v. Horizon Lines of Puerto Rico, Inc., 473 F.3d 11, 15 (1st Cir.2007) (citations omitted).

Once the movant has made the requisite showing, the nonmoving party "may not rely merely on allegations or denials of its own pleading, rather, its response must ... set out specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e). The court views all facts and draws all reasonable inferences in the light most favorable to the nonmoving party. Torrech-Hernandez v. Gen. Elec. Co., 519 F.3d 41, 46 (1st Cir.2008).

III. Discussion

By Charter's own admission, what presently is before the Court is an indemnity claim.⁴ Under a typical insurance contract, an insurer has two distinct obligations: (1) a duty to defend, and (2) a duty to indemnify. See Emhart Indus., Inc. v. Home Ins. Co., 515 F.Supp.2d 228, 236-37 (D.R.I.2007). The duty to defend is dependent upon commencement of a lawsuit, see, e.g., Hall v. Allstate Ins. Co., 880 F.2d 394, 399 (11th Cir.1989) ("duty to defend was conditioned upon commencement of a suit against [the insured]"), and "is measured by the allegations of the underlying complaint." Travelers Ins. Co. v. Waltham Indus. Labs. Corp., 883 F.2d 1092, 1099 (1st Cir.1989). The duty to indemnify, in contrast, generally is dependent upon the entry of a final judgment, settlement, or other final resolution. See, e.g., Bankwest v. Fidelity & Deposit Co. of Maryland, 63 F.3d 974, 978 (10th Cir.1995) (citing Travelers Ins., 883 F.2d at 1099). The duty to indemnify is narrower in scope and distinct from the duty to defend. Travelers Ins., 883 F.2d at 1099 (citation omitted). The reason for this narrowing is that an insurer's obligation to defend is measured by the allegations of the underlying complaint while the duty to indemnify is determined by the facts, which are usually, but not always, established at trial. Id. (citation...