Chartis Specialty Ins. Co. v. Tesoro Corp.
| Decision Date | 10 July 2015 |
| Docket Number | 5:12–CV–256–DAE.,CV. Nos. 5:11–CV–927–DAE |
| Citation | 113 F.Supp.3d 924 |
| Parties | CHARTIS SPECIALTY INSURANCE COMPANY, Plaintiff/Counter–Defendant, v. TESORO CORPORATION and Tesoro Refining and Marketing Company, Defendants/Counter–Plaintiffs. |
| Court | U.S. District Court — Western District of Texas |
Jason B. Heep, Matthew J. Schroeder, Scott L. Davis, David H. Timmins, Gardere Wynne Sewell, L.L.P., Dallas, TX, for Plaintiffs.
Bernard P. Bell, Daniella Einik, Joshua L. Fuchs, Jones Day, Houston, TX, for Defendants.
ORDER: (1) GRANTING IN PART AND DENYING IN PART MOTION TO STRIKE; (2) GRANTING CHARTIS'S PHASE I MOTION FOR SUMMARY JUDGMENT; (3) DENYING TESORO REFINING'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON THIRD–PARTY BENEFICIARY ISSUE; (4) DENYING TESORO COMPANY AND TESORO REFINING'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE REFORMATION AND STATUTE OF LIMITATIONS ISSUES
On March 31, 2015, the Court heard Chartis Specialty Insurance Company's1 Phase I Motion for Summary Judgment ("Chartis MSJ," Dkt. # 702 ); Tesoro Refining and Marketing Company's Motion for Partial Summary Judgment on the Third–Party Beneficiary Issue ("Tesoro MSJ I," Dkt. # 71); and Tesoro Corporation and Tesoro Refining and Marketing Company's Motion for Partial Summary Judgment on the Reformation and Statute of Limitations Issues ("Tesoro MSJ II," Dkt. # 72). At the hearing, Scott L. Davis, David H. Timmins, and Jason B. Heep, Esqs., represented Plaintiff Chartis Specialty Insurance Company ("Chartis"); Bernard P. Bell and Daniella Einik, Esqs., represented Defendant Tesoro Corporation ("Tesoro Corporation") and Tesoro Refining and Marketing Company ("Tesoro Refining") (collectively, the "Tesoro parties").
Upon careful consideration of the arguments asserted in the supporting and opposing memoranda, as well as the arguments presented at the hearing, the Court GRANTS Chartis's Motion for Summary Judgment (Dkt. # 70), DENIES the Tesoro Refining's Motion for Partial Summary Judgment on the Third–Party Beneficiary Issue (Dkt. # 71), and DENIES the Tesoro Parties' Motion for Partial Summary Judgment on the Reformation and Statute of Limitations Issues (Dkt. # 72). In conjunction with this ruling, the Court also GRANTS IN PART AND DENIES IN PART Chartis's Motion to Strike (Dkt. # 75).
Chartis is an insurance company incorporated in Illinois with its principal place of business in New York, New York. ("FAC," Dkt. # 33 ¶ 1.) Tesoro Corporation is a San Antonio-based Delaware corporation, and Tesoro Refining is its wholly-owned subsidiary. (FAC ¶ 3; "Counterclaim," Dkt. # 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) (the "Refinery") and Amorco Wharf3 (the "Wharf"). ("Policy," Chartis MSJ, Ex. 3 at App. 34.)
The Refinery began operations in 1913 and has since witnessed a series of owners, including Texaco, Inc. ("Texaco"), Phillips Petroleum Company ("Phillips"), and Tosco Corporation ("Tosco").4 (FAC ¶ 15; Counterclaim ¶¶ 6–9.) Between 1989 and 1999, the Environmental Protection Agency (the "EPA") and the California Regional Water Quality Control Board for the San Francisco Bay Region (the "Water Board") issued five separate remediation orders regarding contamination at the Refinery and the Wharf. (Counterclaim at 13.) In July 1993, Tosco and prior owners Phillips and Texaco entered into a Joint Environmental Investigation and Remediation Agreement, which allocated costs of remediation and formed a committee called the Joint Environmental Investigation and Remediation Committee ("JEIRC"). (FAC at 9.) Pursuant to the JEIRC agreement, Tosco was liable for 50% of the JEIRC costs and Phillips and Texaco were each liable for 25% of the JEIRC costs. (Counterclaim at 13.) Under the JEIRC agreement, Tosco paid $16.3 million in remediation costs. (FAC at 9.)
In August 2000, Tosco sold the Refinery to Ultramar Diamond Shamrock Corporation ("Ultramar"). ("Ultramar PA," Chartis MSJ, Ex. 1 at App. 6.) Because the purchase agreement expressly allocated environmental liability for any condition arising after the date of sale to Ultramar, Ultramar secured a Specialty Pollution Legal Liability insurance policy from Chartis to cover certain environmental remediation costs.5 (Policy at 1.) That policy generally covered clean-up costs up to $100 million, contingent on a $500,000 deductible. (FAC ¶ 24; Chartis MSJ, Ex. 5.) However, the policy had a separate $50 million self-insured retention ("SIR") for pre-existing environmental conditions, which provided that Chartis would only pay clean-up costs for pre-existing environmental conditions in excess of $50 million. (FAC ¶ 25; Chartis MSJ, Ex. 5.) As part of the purchase and sale agreement between Tosco and Ultramar, Tosco indemnified Ultramar for up to $50 million of environmental liability. (FAC ¶ 33.)
In late 2001, Valero Energy Corporation ("Valero") acquired Ultramar.6 (Chartis MSJ, Ex. 7 at App. 93.) Pursuant to consent decrees with the United States Federal Trade Commission, Ultramar agreed to divest certain assets, including the Refinery. (Id. ) Accordingly, on February 4, 2002, Ultramar executed an agreement selling the Refinery to Tesoro Refining, a wholly-owned subsidiary separate from Tesoro Corporation (the "Agreement"). (Id. )
Given the seriousness of the known environmental liabilities, both parties understood that the Agreement would include an assignment of Ultramar's insurance policy with Chartis and the partial indemnification promised by Tosco to Ultramar. (Chartis MSJ, Ex. 7 at App. 123; "Hubbard Decl.," Tesoro MSJ I, Bell Decl., Ex. 20 at 19:5–22; Tesoro MSJ I, Doerr Decl. ¶ 3.) Chartis and the Tesoro parties disagree as to whether Tesoro Corporation or Tesoro Refinery was the intended assignee of that benefit. Ultimately, after a series of written communications between representatives from Chartis, the Tesoro Parties, Ultramar, and Marsh USA Inc. ("Marsh"),7 Chartis issued an Endorsement to the Policy on May 17, 2002, naming Tesoro Corporation—not Tesoro Refining—as the insured. (Chartis MSJ, Ex. 20.)
In 2003, Tesoro Refining filed suit against Tosco, alleging that Tosco had fraudulently concealed environmental conditions at the Refinery, which caused Tesoro Refining to face substantial obligations and liabilities for undisclosed conditions. (FAC ¶ 63.) Sometime thereafter, ConocoPhillips acquired Tosco and was substituted for Tosco in the action. (Id. ¶ 68.) In March 2007, Tesoro Refining and ConocoPhillips settled the suit in arbitration. (Id. ¶ 70.) Pursuant to the settlement agreement, Tesoro Refining received $58.5 million in exchange for Tesoro Refining's release of ConocoPhillips, Tosco, and Phillips, and agreed to assume liability for the environmental liabilities of Tosco and Phillips at the Refinery and the Wharf. (Id. )
Meanwhile, in 2004, the Water Board issued an order to Tesoro Refining, ConocoPhillips, and Texaco regarding the Refinery and the Wharf, which resulted in the detection of a contaminant in the groundwater at the Wharf and a request for remediation. (FAC ¶¶ 59–60.) In January 2007, the Water Board issued a second order to Tesoro Refining and ConocoPhillips regarding remediation at the Wharf. (Id. ¶ 62.)
In February 2007, Tesoro Corporation provided its first notice to Chartis regarding the lawsuit with Tosco regarding the pre–2000 environmental liabilities. (FAC ¶ 73.) In July 2007, Chartis sent Tesoro Corporation a reservation of its rights under the Policy. (Counterclaim ¶ 68.) In October 2009, Tesoro Corporation sent Chartis a letter demanding coverage and stating that its environmental liabilities had exceeded the applicable deductibles and/or the SIR. (Id. ¶ 69.) Tesoro Corporation followed up with Chartis in July 2010, demanding coverage and adding additional costs incurred at the Wharf in excess of the $500,000 deductible. (Id. ¶ 71.) Tesoro Corporation sent another letter to Chartis in August 2010, supplementing its demand with specific costs incurred at the Refinery in the amount of $69 million. (Id. ¶ 72.) In October 2010, Tesoro Corporation supplemented its demand with documentation of costs in the amount of $70 million. (Id. ¶ 74.) Following several meetings and exchanges of technical documentation of remediation between late 2010 and late 2011, Chartis filed the instant suit in November 2011. (Id. ¶¶ 75–91.)
The Tesoro parties contend that the amounts paid to Tesoro Refining in the ConocoPhillips settlement satisfy the SIR and that remediation costs incurred by Tosco since 1993 also apply to the SIR. (FAC ¶ 105.) Chartis contends that remediation costs paid by Tesoro Refining do not erode the SIR because it is not the Named Insured. (Id. ¶ 107.) It also contends that the amounts paid by the Tosco settlement do not satisfy the SIR because the SIR must be borne by the "Insured," and that, pursuant to Condition B of the Policy, the settlement proceeds from ConocoPhillips must first be applied to any payments made under the Policy before the monies can satisfy the SIR. (Id. ¶¶ 107–109.)
Chartis's original Complaint in the instant action, filed November 7, 2011, named only Tesoro Corporation as a defendant and sought the following declarations: that Tesoro Corporation has not yet satisfied the Policy's SIR; that remediation costs not otherwise covered by the Policy do not satisfy the SIR; that amounts Tesoro Corporation received from ConocoPhillips in the 2007 settlement do not satisfy the SIR; that remediation costs paid by Tosco or ConocoPhillips under their Joint Investigation and Remediation Agreement do not satisfy the SIR; and that Chartis has no obligation to pay until Tesoro Corporation has satisfied the SIR separate and apart from the amounts recovered from ConocoPhillips. (...
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