Coffeyville Res. Ref. & Mktg., LLC v. Ill. Union Ins. Co.

• Decision Date: 25 October 2013
• Docket Number: Civil Action No. 08–1204.
• Citation: 979 F.Supp.2d 1199
• Court: U.S. District Court — District of Kansas
• Parties: COFFEYVILLE RESOURCES REFINING & MARKETING, LLC, Plaintiff, v. ILLINOIS UNION INSURANCE COMPANY; and National Union Fire Insurance Company of Pittsburgh, PA., Defendants.

979 F.Supp.2d 1199

COFFEYVILLE RESOURCES REFINING & MARKETING, LLC, Plaintiff,

v.ILLINOIS UNION INSURANCE COMPANY; and National Union Fire Insurance Company of Pittsburgh, PA., Defendants.

Civil Action No. 08–1204.

United States District Court,

D. Kansas.

Oct. 25, 2013.

Arthur E. Rhodes, Constance L. Shidler, Lee M. Smithyman, Smithyman & Zakoura, Chtd., Overland Park, KS, Douglas Y. Curran, Mark D. Hinderks, Scott C. Hecht, Stinson Morrison Hecker LLP, Kansas City, MO, Edmund S. Gross CVR Energy, Inc. Leawood, KS, Lynn D. Preheim Stinson Morrison Hecker LLP, Wichita, KS, Thomas E. Birsic, K & L Gates LLP, Pittsburgh, PA, for Plaintiff.

Bryan P. Vezey, Joseph A. Ziemianski, Peter B. Magnuson, Cozen & O'Connor, Houston, TX, Geron J. Bird, Scott R. Schillings, Hinkle Law Firm LLC, Corlin J. Pratt, Terry L. Unruh, Sherwood, Harper, Dakan, Unruh & Pratt LC, Wichita, KS, Colleen A. Beverly, Mark W. Zimmerman, Timothy F. Jacobs, Clausen Miller, PC, Chicago, IL, for Defendants.

MEMORANDUM AND ORDER

MONTI L. BELOT, District Judge.

Before the court are the following:

Coffeyville's Motion for Summary Judgment (Doc. 419,420); National's Response (Doc. 428); Illinois' Response (Doc. 425);

National's Motion for Reconsideration (Doc. 417); Illinois' Joinder in the Motion (Doc. 418); Coffeyville's Response (Doc. 421); National's Reply (Doc. 422); and

National's Motion to Strike (Doc. 430, 431); Illinois' Joinder in the Motion (Doc. 434); Coffeyville's Response (Doc. 436); National's Reply (Doc. 437);

I. Plaintiff's Motion for Summary Judgment (Doc. 419).

Plaintiff argues that Illinois breached a duty to defend it on the underlying claims and, as a result, forfeited any right to challenge plaintiff's settlements with third parties. It further argues that Illinois and National are precluded by waiver and estoppel from contesting plaintiff's settlements and claim resolution methods. Plaintiff contends the court should approve its remediation expenses in accordance with the coverage determinations made by Judge Brown and should proceed to allocate coverage between the two defendants.

A. Uncontroverted Facts.

The court finds the following facts to be uncontroverted for purposes of the motion for summary judgment.

On the evening of June 30, 2007, flooding from the Verdigris River reached plaintiff's oil refinery in Coffeyville, Kansas. On the following day, July 1, 2007, one of plaintiff's refinery tanks overflowed after plaintiff left a valve open and about 80,000 gallons of crude oil were released into the flood waters. The flood waters carried the oil into a portion of the town, causing widespread environmental contamination.

Plaintiff has incurred or will incur costs of over $58 million relating to the release. These include costs to investigate, contain, remove and remediate oil contamination, and to defend, adjust and resolve claims against plaintiff from the release.

At the time of the release, Plaintiff had insurance coverage under several policies, including the following. Liberty Surplus had in effect a policy which covered plaintiff for pollution legal liability, with an aggregate limit of $25 million. Illinois had in effect an excess policy covering plaintiff that followed form to the Liberty policy (with certain exceptions, including an exclusion for “clean up costs”), with an additional $25 million in pollution coverage. National had in effect a commercial umbrella liability policy, with general liability for certain types of pollution, providing $25 million of coverage per occurrence.

On July 5, 2007, Danny Dunham filed a putative class action in U.S. District Court for the District of Kansas (Case No. 07–1186–JTM), seeking damages from oil contamination on behalf of himself and a class of plaintiffs similarly situated. On July 6, 2007, Western Plains Alliance filed a putative class action in the district court of Montgomery County, Kansas, asserting claims on behalf of all persons who owned property and all businesses within the area contaminated by the oil release.

On July 10, 2007, plaintiff executed an Administrative Order on Consent (AOC) with the Environmental Protection Agency to govern plaintiff's governmentally-imposed contamination removal and recovery responsibilities.

On July 16, 2007, plaintiff posted formal notices and made demand upon the insurers.

Illinois provided reservation-of-rights letters to plaintiff on July 24, 2007 (Doc. 371–7), July 24, 2007 (Doc. 371–8), and August 10, 2007 (Doc. 371–10). Among other things, Illinois asserted: that only Coffeyville Acquisition LLC was an insured under the policy; that plaintiff's planned purchase of residences was in lieu of non-covered “clean-up costs” that would otherwise be required and was therefore not “property damage” covered by the policy; that plaintiff's home purchase plan did not differentiate between uncovered flood damage and covered oil damage; that the extent “if any” to which the purchases may also constitute payments for property damage “has not been established”; and the Illinois policy could not be implicated until Liberty's $25 limit and plaintiff's $1 million self insured retention (SIR) had been paid.

On August 1, 2007, plaintiff responded to Illinois that the purchase plan payments were not for flood damage because the purchase plan was substantially cheaper and more effective (e.g., by reducing additional property claims, bodily injury claims, and defense expenses) than would be a standard oil remediation of each property. In an August 10, 2007 response, Illinois noted plaintiff's request for immediate action but said it had not had sufficient time to assess the propriety of the plan. It also said it had not disclaimed coverage, but only retained its rights, and that it intended to work toward a prompt resolution of those claims that implicate the Illinois policy.

National issued reservation-of-rights letters on August 7, 2007 (Doc. 371–11), November 7, 2007 (Doc. 371–12), December 4, 2007 (Doc. 371–13), February 1, 2008 [to Liberty] (Doc. 371–14), and May 27, 2008 (Doc. 371–15). Among other things, National asserted: that it had no obligation to cover any clean-up costs incurred by plaintiff pursuant to the EPA Consent Order; that it had no obligation to provide coverage until the limits of both the Liberty and Illinois policies were exhausted; that National had no obligation to cover any payments made by plaintiff for claims of strict liability under K.S.A. § 65–6203 because such payments are excluded clean-up costs; that any payments by Liberty or Illinois would not reduce the $5 million SIR of the National policy; and that no payments for clean-up costs reduce the SIR under any circumstances.

On July 10, 2008, plaintiff filed its complaint in this action on July 10, 2008, claiming the defendants breached their contracts of insurance by refusing to indemnify plaintiff.

On August 21, 2008, the first Oil Pollution Act (OPA) case was filed against plaintiff. Over the next several years, a number of OPA and other cases were filed against plaintiff. Plaintiff settled a number of these cases.

On September 23, 2008, plaintiff settled its claim against Liberty. Pursuant to the settlement Liberty paid plaintiff a total of $25 million, the aggregate limit of its policy.

The Illinois policy continued in force as the primary coverage once the Liberty policy was exhausted. Illinois did not defend any claims brought against plaintiff and did not indemnify plaintiff in any manner.

On April 28, 2010, Judge Brown issued a Memorandum and Order on the parties' motions for summary judgment (Doc. 299). His findings included the following:

• The Illinois policy was triggered by exhaustion of the Liberty policy, with exhaustion occurring upon payment of the Liberty policy limits. The Illinois policy is now primary coverage with respect to the refinery release.

• With respect to property damage claims within the coverage of both the Illinois and National policies, the National policy is excess and is not triggered until all applicable coverage under the Illinois policy has been exhausted;

• The Illinois policy covers plaintiff's defense and claims resolution costs associated with covered property damage claims.

• The Illinois exclusion of “clean-up costs” applies only to costs resulting solely from obligations under environmental laws. To the extent the cost to restore property is an allowable measure of property damages, the Illinois policy covers settlement of such claims, even if the restoration costs overlap or are co-extensive with clean-up cost obligations under environmental laws. Restoration costs are ordinarily allowed as property damages if they do not exceed the (pre-injury) fair market value of the property. As to residential property, restoration costs may exceed fair market value so long as they are not wholly disproportionate to the value of the property.

• Illinois' property damage coverage includes payments by plaintiff to settle claims of liability under K.S.A. § 65–6203(a)(1) for actual damage to property.

• The release of oil was “abrupt and neither expected nor intended by the Insured” within the meaning of the National policy.

• The treatment of “clean-up costs” under the National policy is ambiguous. It will therefore be construed to provide coverage to plaintiff for the cost of cleaning up third party property even if plaintiff's obligation to do so was based solely on a governmental order or requirement.

• With respect to clean-up costs covered by National but excluded by Illinois, National's coverage is excess only of a $5 million SIR. The $5 million SIR has now been satisfied, meaning National is obligated to drop down and cover any such clean-up costs incurred by plaintiff that are not covered by the Illinois policy.¹

• National does not have a duty to defend plaintiff and its policy does not promise indemnification of plaintiff's defense and investigative expenses.

• Summary judgment on the current record...