Goodstein v. Continental Cas. Co.

• Decision Date: 03 December 2007
• Docket Number: No. 05-35805.,05-35805.
• Citation: 509 F.3d 1042
• Parties: Robert I. GOODSTEIN, as court-appointed receiver for Sternco Industrial Properties Partnership and Sterno Renton Center Partnership, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant, and Industrial Indemnity Company; Industrial Indemnity Co. of the Northwest, also known as Fremont Industrial Indemnity; United States Fire Insurance Company; John Doe, 1-20; Zelman Renton LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

509 F.3d 1042

Robert I. GOODSTEIN, as court-appointed receiver for Sternco Industrial Properties Partnership and Sterno Renton Center Partnership, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant, and Industrial Indemnity Company; Industrial Indemnity Co. of the Northwest, also known as Fremont Industrial Indemnity; United States Fire Insurance Company; John Doe, 1-20; Zelman Renton LLC, Defendants-Appellees.

No. 05-35805.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 2007.

Filed December 3, 2007.

William F. Cronin, Corr Cronin Michelson Baumgardner & Preece LLP, and Colleen A. Christensen, The Christensen Firm, Seattle, WA, for the appellant.

David M. Schoeggl, Mills Meyers Swartling, Seattle, WA, for the appellees.

Appeal from the United States District Court for the Western District of Washington; Marsha J. Pechman, District Judge, Presiding. D.C. No. CV-02-01669-MJP.

Before: DIARMUID F. O'SCANNLAIN, A. WALLACE TASHIMA, and MARSHA S. BERZON, Circuit Judges.

BERZON, Circuit Judge:

At the heart of this insurance coverage dispute lie two properties, identified as contaminated by the State of Washington, that were sold in their polluted state rather than remediated. After the sale, Appellant Robert I. Goodstein, as receiver, tendered a $5.3 million claim to Appellee Industrial Indemnity Co. ("Industrial") under a comprehensive general liability ("CGL") policy, reflecting the difference between "the appraised value of the sites if uncontaminated less the sales price of the sites in their contaminated states." Industrial refused to pay, and Goodstein consequently brought this lawsuit,¹ seeking a declaration that Industrial owed a duty to indemnify and defend Goodstein under the policy and damages for breach of both duties. The district court granted summary judgment for Industrial on all claims, and Goodstein timely appealed.

We affirm the district court's holding that Goodstein's claim for the diminution in the sale value of the properties due to pollution was not covered under Industrial's policy, but reverse the district court's conclusion that Industrial is as a matter of law not liable for breaching its duty to defend Goodstein.

I.

A. The Properties

Members of the Sternoff family jointly owned, through partnerships, two industrial properties in Washington (collectively, "the properties") — one on Marginal Way in Seattle ("the Marginal property") and the other in Renton ("the Renton property"). At the Marginal property, the Sternoffs operated for 45 years a scrap metal salvage yard that caused ground pollution. At the Renton site, the Sternoffs recycled scrap metal and electrical equipment for approximately 20 years, resulting in hazardous waste byproducts containing high concentrations of soluble lead. The properties were identified by the Washington State Department of Ecology ("DOE") as environmentally contaminated in the late 1980s and early 1990s and were listed as hazardous sites under the Model Toxics Control Act of Washington.²

Starting in the mid-1980s, the Sternoff partners had a series of disagreements among themselves that resulted in litigation. On March 29, 1990, the King County Superior Court dissolved the partnerships and appointed Robert Goodstein as receiver to wind them up. The court indicated that Goodstein "may proceed with remediation of contaminated properties as necessary but may also consider sale without remediation."

Recognizing the Sternoffs' liability for remediating the polluted properties under state and federal law,³ Goodstein presented two options to the receivership court: (1) sell the properties "as is," with a discounted sales price accounting for the pollution, or (2) remediate the pollution and then sell the properties. The court approved of a plan to sell the two properties "as is."

In 1996 and 1998, respectively, the Receiver sold the Renton and Marginal properties. The Marginal property sold for $500,000 and the Renton property for $3,001,000. The sales agreements for both properties disclosed that the lands were polluted and required the purchasers to take over responsibility for any cleanup the government — or the practicalities of the real estate market — might in the future demand. The agreements did not, however, commit the purchasers to remediate the properties on their own. Both agreements also provided that "[n]o amendment, change or modification of [the agreements] shall be valid, unless in writing and signed by the parties hereto."

B. The Insurance Policies

Industrial issued primary and excess insurance policies to the Sternoffs between 1980 and 1986. In relevant part, the policies⁴ provide: "[Industrial] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of [property damage]. . . ." Under the policies, Industrial also assumed "the right and duty to defend any suit against the insured seeking damages on account of such . . . property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient. . . ." The policies do not define "damages," "claim," or "suit." "Occurrence" is defined to mean "an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the insured[.]"

In a provision entitled "Insured's Duties in the Event of Occurrence, Claim or Suit," the policies required the Sternoffs to provide written notice of an "occurrence" to Industrial "as soon as practicable," and, in the event a claim or suit is asserted against the Sternoffs, to "immediately forward" to Industrial all "demand, notice, summons or other process" received by the Sternoffs. In the same provision, the Sternoffs agreed not to "voluntarily make any payment, assume any obligation or incur any expense" related to any such claim.

C. Communication Between the Receiver and Industrial

1. Pre-Sale Communication

On September 28, 1990, Goodstein wrote to Industrial, indicating that the Washington DOE had identified the Marginal and Renton sites as contaminated and stating that Goodstein had initiated a study to assess the damage and cost of cleaning up the land. The letter also stated: "We write to notify you that Sternoff may make a claim for cleanup and related costs under the insurance policies you issued in favor of Sternoff." (Emphasis added). Copies of the relevant policies were requested, and in closing, the letter stated, "After we have had an opportunity to review the policies, we may make a more formal claim for coverage of the cleanup costs." (Emphasis added).

Internal documents indicate that Industrial understood the September 28, 1990 letter to be asserting a claim for the cleanup and other related costs. Industrial wrote a letter to Goodstein on October 19, 1990 "acknowled[ing] receipt of the captioned claim," and indicating that it was attempting to find the Sternoffs' policies, as requested.

In a reply letter dated October 22, 1990, Goodstein acknowledged receipt of Industrial's October 19, 1990 letter, but stated: "Please note, however, in case there is any confusion, we are not presently making any claims under th[e]se policies. At present, we are simply asking to obtain copies of any policies, applications, etc. relating to insurance provided by Industrial Indemnity to Sternoff." (Emphasis added).

Industrial heard nothing more about the Sternoff policies thereafter, and in December 1992 closed the file for lack of activity. Before the file was closed, a summary of what was known regarding a possible claim, and a list of possible defenses, was prepared. The summary document indicated that no coverage position letter had been issued because no claim had been filed.

2. Post-Sale Communication

On September 25, 1998, eight years after Goodstein told Industrial that he was "not presently making any claims" under the Sternoff policies, Goodstein sent a letter to Industrial indicating that the Renton and Marginal properties had been sold. Goodstein stated:

Previous correspondence on my behalf had notified . . . Industrial Indemnity, as an insurer of Sternoff, of potential claims arising out of the environmental contamination of properties owned and/or operated by Sternoff. The extent of the contamination has now been more fully investigated, and the properties have now been sold. I am, therefore, now in a position to fully present and settle the environmental claims related to those properties.

In that letter, Goodstein also stated:

I hereby demand payment of $473,000 for the loss on the Marginal Way property, and $4.839 million for the loss on the Renton properties. These amounts are calculated based on the appraised value of the sites if uncontaminated less the sales price of the sites in their contaminated condition.

Industrial responded a month later with a letter disclaiming any coverage for the losses claimed by Goodstein on behalf of the Sternoffs.

D. Procedural History

Four years later, in 2002, Goodstein filed this lawsuit. The second amended complaint — the operative pleading for the purposes of this appeal — sought, in relevant part, a declaratory judgment that Industrial owed a duty to defend and to indemnify Goodstein under the CGL policies and asserted a claim for breach of contract based on Industrial's failure to fulfill those duties.

Industrial thereafter moved for summary judgment on the grounds that Goodstein's claimed losses due to the allegedly reduced proceeds⁵ from the property sales were not covered by the policies and that Goodstein had never invoked the duty to defend.

In opposing the summary judgment motion, Goodstein offered evidence that he and the purchaser of the Renton property, Zelman Renton LLC ("Zelman"), had entered into an oral agreement "to ensure that all rights to insurance coverage...