Chartis Specialty Ins. Co. v. Tesoro Corp.

• Decision Date: 11 March 2013
• Docket Number: CV. Nos. SA–11–CV–00927–DAE, SA–12–CV–00256–DAE.
• Citation: 930 F.Supp.2d 653
• Parties: CHARTIS SPECIALTY INSURANCE COMPANY, Plaintiff, v. TESORO CORPORATION and Tesoro Refining and Marketing Company, Defendants.
• Court: U.S. District Court — Western District of Texas

930 F.Supp.2d 653

CHARTIS SPECIALTY INSURANCE COMPANY, Plaintiff,

v.TESORO CORPORATION and Tesoro Refining and Marketing Company, Defendants.

CV. Nos. SA–11–CV–00927–DAE, SA–12–CV–00256–DAE.

United States District Court,

W.D. Texas,

San Antonio Division.

March 11, 2013.

Matthew J. Schroeder, Scott L. Davis, David H. Timmins, Gardere Wynne Sewell, LLP, Dallas, TX, for Plaintiff.

Bernard P. Bell, Jones Day, Washington, DC, Joshua L. Fuchs, Jones Day, Houston, TX, for Defendants.

ORDER: (1) GRANTING IN PART AND DENYING IN PART CHARTIS'S RULE 12(b)(6) MOTION TO DISMISS COUNTERCLAIMS OF TESORO CORPORATION AND TESORO REFINING OR, IN THE ALTERNATIVE, RULE 12(e) MOTION FOR MORE DEFINITE STATEMENT; (2) GRANTING IN PART AND DENYING IN PART CHARTIS'S MOTION TO DISMISS CLAIMS IN FIRST AMENDED COMPLAINT PURSUANT TO RULE 12(b)(6) OR, IN THE ALTERNATIVE, FOR A MORE DEFINITE STATEMENT PURSUANT TO RULE 12(e); (3) DENYING CHARTIS'S OPPOSED MOTION TO BIFURCATE AND STAY EXTRACONTRACTUAL CLAIMS; AND (4) DENYING TESORO CORPORATION AND TESORO REFINING'S MOTION FOR ENTRY OF CASE MANAGEMENT ORDER

DAVID ALAN EZRA, Senior District Judge.

On March 5, 2013, the Court heard Chartis Specialty Insurance Company's Rule 12(b)(6) Motion to Dismiss Counterclaims of Tesoro Corporation and Tesoro Refining or, in the Alternative, Rule 12(e) Motion for More Definite Statement (“Motion to Dismiss Counterclaims”) (“MTD,” doc. # 34); ¹ Chartis Specialty Insurance Company's Motion to Dismiss Claims in First Amended Complaint Pursuant to Rule 12(b)(6) or, in the Alternative, Motion for a More Definite Statement Pursuant to Rule 12(e) (“Motion to Dismiss California Claims”) (Cv. No. SA–12–CV–00256–DAE, doc. # 29); Chartis Specialty Insurance Company's Motion to Bifurcate and Stay Extracontractual Claims (“Motion to Bifurcate”) (“Mot. to Bif.,” doc. # 32); and Tesoro Corporation and Tesoro Refining and Marketing Company's Motion for Entry of a Case Management Order (doc. # 43). David H. Timmins, Esq., and Scott L. Davis, Esq., appeared at the hearing on behalf of Chartis Specialty Insurance Company (“Chartis”); Bernard P. Bell, Esq., and Stoney Vining, Esq., appeared at the hearing on behalf of Tesoro Corporation (“Tesoro Corporation”) and Tesoro Refining and Marketing Company (“Tesoro Refining”) (collectively, “the Tesoro parties”). After reviewing the Motions and the supporting and opposing memoranda, the Court GRANTS IN PART and DENIES IN PART Chartis's Motion to Dismiss Counterclaims and Chartis's Motion to Dismiss California Claims, DENIES without prejudice Chartis's Motion to Bifurcate, and DENIES without prejudice the Tesoro parties' Motion for Entry of a Case Management Order.

BACKGROUND

I. Factual Background

Chartis is an insurance company incorporated in Illinois with its principal place of business in New York, New York. (“FAC,” Doc. # 33 ¶ 1.) Tesoro Corporation is a San Antonio—based Delaware corporation, and Tesoro Refining is its wholly-owned subsidiary. (FAC ¶ 3; “Counterclaim,” Doc. # 37 pp. 11–36 ¶ 16.) This case involves a dispute over liability insurance coverage under a policy issued by Chartis. Two properties owned by Tesoro Refining were insured under the policy: the Golden Eagle Refinery (formerly the Avon Refinery) and Amorco Wharf. (“Policy,” MTD Ex. 1 at 3.)

A. Golden Eagle Refinery

Tesoro Refining has owned and operated the Golden Eagle Refinery (“the Refinery”) in Martinez, California since May 17, 2002. (Counterclaim ¶ 5.) The Refinery has had a series of owners since it began operations in 1913, including Texaco, Inc. (“Texaco”), Phillips Petroleum Company (“Phillips”), Tosco Corporation (“Tosco”), and Ultramar Diamond Shamrock Corporation (“Ultramar”). (FAC ¶ 15; Counterclaim ¶¶ 6–9.)

In July 1993, former Refinery owners Texaco and Phillips and then-owner Tosco entered into a Joint Investigation and Remediation Agreement (“Agreement”) to perform investigation and remediation work at the Refinery in response to administrative orders issued by the United States Environmental Protection Agency (“EPA”) and the California Regional Water Quality Control Board (“Water Board”). (Counterclaim ¶¶ 11–12.) Under the Agreement, Tosco was responsible for fifty percent of costs incurred as a result of investigation and remediation work, and Phillips and Texaco were each responsible for twenty-five percent of costs incurred. ( Id. ¶ 13.) The parties allege that, since 1993, Tosco has paid $16,300,000 in remediation costs. (FAC ¶ 56; “Answer,” Doc. # 37 pp. 1–11 ¶ 56.)

In August 2000, Tosco sold the Refinery to Ultramar. (Counterclaim ¶ 15.) In the Asset Purchase and Sale Agreement (“APSA”), Tosco indemnified Ultramar for up to $50,000,000 against losses resulting from certain environmental liabilities. (Counterclaim ¶¶ 16–17; FAC ¶ 33.) In May 2002, Ultramar sold the Refinery to Tesoro Refining. (Counterclaim ¶ 29.) With Tosco's consent, Ultramar assigned to Tesoro Refining certain of its rights and obligations under the APSA, including the provisions governing the indemnity agreement. (Counterclaim ¶ 30.)

B. The Policy

Chartis (then known as American International Specialty Lines Insurance Company) issued Pollution Legal Liability Select Policy No. PLS 6190132 (“Policy”) to Ultramar for a period beginning August 31, 2000 and ending August 31, 2010. ( See Policy at 1.) The Policy provided that Chartis would “pay Loss on behalf of the Insured that the Insured is legally obligated to pay as a result of Claims ... made against the Insured and reported to the Company, in writing, during the Policy Period.” ( Id. at 1.) Chartis agreed to pay for, among other things, on-site clean-up costs in excess of the $500,000 deductible. ( Id. at 1–2.) The Policy also provided for a separate self-insured retention (“SIR”) for specified known pollution conditions. ( Id. at End. 4.) If the Insured incurred clean-up costs or losses as a result of certain scheduled pollution conditions, the Policy would cover only costs and losses in excess of the $50,000,000 SIR. ( Id.) The Policy provided that the $50,000,000 SIR would be borne by the Insured. ( Id.) According to the Tesoro parties, the Chartis underwriter who sold the Policy to Ultramar issued a written policy coverage binder to the broker in which he stated: “It is our understanding that Tosco will be responsible for the $50,000,000 [SIR].” (Counterclaim ¶ 25.)

When Ultramar sold the Refinery to Tesoro Refining in May 2002, Chartis substituted Tesoro Corporation for Ultramar as the Named Insured on the Policy. (FAC ¶ 9; Counterclaim ¶¶ 29, 34.) All parties agree that Tesoro Corporation, not Tesoro Refining, was substituted as the Named Insured. (Answer ¶ 9; FAC ¶ 9.) Chartis claims that this was at the express request of Tesoro Corporation's insurance broker, Marsh USA Inc. (FAC ¶ 40.)

C. The Settlement

In November 2003, Tesoro Refining filed suit in state court against Tosco alleging that Tosco had fraudulently concealed and failed to disclose certain environmental conditions at the Refinery. (FAC ¶ 63; Counterclaim ¶ 42.) In December 2003, Tesoro Refining initiated arbitration proceedings against Tosco, “seeking a determination that Tosco was responsible for ... environmental liabilities arising from pre–2000 operations at the [R]efinery.” (Counterclaim ¶ 43.) Tosco counterclaimed, arguing that Tesoro Refining was responsible for the environmental liabilities and seeking a declaration that the $50,000,000 limit on Tosco's indemnity obligation applied to any liability of Phillips, which operated the Refinery before Tosco. (FAC ¶ 66; Counterclaim ¶ 47.) During the pendency of the lawsuit and arbitration, ConocoPhillips, as the legal successor to both Tosco and Phillips, was substituted as the Respondent and Counterclaimant in the arbitration. (FAC ¶ 68.)

In March 2007, Tesoro Refining and ConocoPhillips settled their dispute. (Counterclaim ¶ 54; FAC ¶ 70.) Tesoro Refining received $58,500,000, in exchange assuming responsibility for certain environmental liabilities and releasing ConocoPhillips from any claims arising from Tosco's or Phillips's prior ownership of the Refinery. (Counterclaim ¶ 54; FAC ¶ 70.)

On February 13, 2007, Tesoro Corporation sent Chartis notice of the lawsuit, arbitration, and Tesoro Corporation's potential liability arising from activities at the Refinery prior to the year 2000. (FAC ¶ 73; Counterclaim ¶ 67.) On July 18, 2007, Chartis issued a reservation of rights letter to Tesoro Corporation, reserving its rights under the Policy. (FAC ¶ 77; Counterclaim ¶ 68.) According to Chartis, its claim analyst attempted to call Tesoro Corporation on July 10, 2007 and again in February 2008, April 2008, and June 2008 to determine the status of the arbitration, with no success. (FAC ¶ 80.)

D. The Amorco Wharf

In July 2004 the Water Board issued an Order requiring Tesoro Refining, ConocoPhillips, and Texaco to undertake investigations at the Amorco Wharf, which revealed the presence of methyl tertiary-butyl ether (“MBTE”) in groundwater at the Amorco Wharf. (Counterclaim ¶¶ 58–59; FAC ¶ 59.) In January 2007 the Water Board issued an Order requiring Tesoro Refining and ConocoPhillips to submit remedial investigation work plans to determine the extent of MBTE pollution at the Amorco Wharf and to implement recommended remedial actions. (Counterclaim ¶ 62; FAC ¶ 62.)

Pursuant to the March 2007 settlement with ConocoPhillips, Tesoro Refining assumed full responsibility for remediation at Amorco Wharf. (Counterclaim ¶ 63.) Tesoro Refining claims that it has spent at least $10,000,000 in clean-up costs on the Amorco Wharf, and alleges that, because the conditions there are not scheduled pollution conditions under the Policy, Chartis must pay all costs in excess of the Policy's general $500,000 deductible. (Counterclaim ¶¶ 64–65.)

E. Tesoro Corporation's Coverage Demand

On October 8, 2009, Tesoro Corporation sent Chartis a letter notifying Chartis of the terms of the settlement and...