Gopher Oil Co. v. American Hardware Mut. Ins. Co.

• Citation: 588 N.W.2d 756
• Decision Date: 02 February 1999
• Docket Number: No. C1-98-737,C1-98-737
• Parties: GOPHER OIL COMPANY, Respondent, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, Appellant.
• Court: Court of Appeals of Minnesota

Page 756

588 N.W.2d 756

GOPHER OIL COMPANY, Respondent, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, Appellant.

No. C1-98-737.

Court of Appeals of Minnesota.

Feb. 2, 1999.

Syllabus by the Court

A successor corporation is entitled to coverage under the terms of insurance policies purchased by a predecessor corporation if the successor corporation is liable for the predecessor's activities covered by the policies.

Keith J. Broady, Steven R. Hedges, Timothy C. Matson, Abdo & Abdo, P.A., Minneapolis, for respondent.

Robert S. Metcalf, Mark Scholle, Scholle, Beisel & Metcalf, Ltd., Minneapolis, for appellant.

Considered and decided by SHORT, Presiding Judge, LANSING, Judge, and RANDALL, Judge.

O P I N I O N

LANSING, Judge

A successor oil-distributing corporation, through a declaratory judgment action, seeks indemnification and defense from its predecessor's insurer for environmental liabilities stemming from the predecessor's activities at four sites. We conclude that the district court did not abuse its discretion or reversibly err in finding coverage, granting partial summary judgment excluding one site, directing a verdict that actual injury occurred at one site, instructing the jury, ruling on evidentiary objections, or ordering indemnification and defense costs. The district court's findings and the jury's verdict are supported by the evidence, and we affirm.

FACTS

Gopher Oil Company (Gopher) has been found liable and is potentially liable for environmental cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601-9675 (1994) (CERCLA), and the Minnesota Environmental Response and Liability Act, Minn.Stat. §§ 115B.01-.241 (1996) (MERLA), for the activities of its predecessor corporation, Gopher State Oil Company (Gopher State). Gopher State was a wholesale distributor of oil and lubricating products and, until June 1971, it re-refined used motor oil. A by-product of the re-refining process was oil sludge, which Gopher State disposed of at a number of dump sites. The four sites involved in this litigation are Arrowhead, Bellaire, Brooklyn Park, and Oak Grove.

From January 1954 through October 1973, Gopher State purchased commercial general liability (CGL) policies from American Hardware Insurance Company. In July 1972, Gopher State purchased a three-year CGL policy and a three-year commercial umbrella policy from American Hardware. American Hardware was aware that Gopher State re-refined waste oil as part of its operations. Beginning in July 1972, the CGL policy contained a pollution exclusion endorsement, the UL-21 endorsement, that limited coverage for property damage from pollution to sudden and accidental occurrences. The district court found the commercial umbrella policy also contained the UL-21 endorsement as of July 1972. The policies were renewed in July 1975 and cancelled by Gopher on January 1, 1976.

Charles Romness, one of the owners of Gopher State, was also an owner of Arrowhead Refining Company from 1961 to 1976. Arrowhead Refining, insured under a policy issued by a different insurer, disposed of oil sludge from its re-refining process on its property (the Arrowhead site) in a wetland referred to as the "sludge lagoon." The Minnesota Pollution Control Agency (MPCA) closed Arrowhead Refining at the end of 1976.

In October 1973, Bame Oil Corporation, owned by Fred Bame, purchased Gopher State. Subsequently, Bame Oil took Gopher as its corporate name. American Hardware's policies remained in effect, unaltered, throughout this period, despite its knowledge of the change in ownership. Gopher renewed its policies with American Hardware through the end of 1975. In 1981, eight years after his purchase of Gopher State, Bame and another corporation, Gopher Rubber Cote, purchased the Arrowhead site.

Beginning in 1991, Gopher received four claims that alleged it was liable for environmental contamination due to Gopher State's activities. The claims alleged Gopher State was a source of contaminants for, and operator of, the Arrowhead site, that Gopher State disposed of oil sludge in the 1950s and 1960s at the Bellaire and Brooklyn Park dump sites, and that Gopher was a source of contaminants disposed of at the Oak Grove dump site. American Hardware denied Gopher's tenders of defense on all four claims.

The Environmental Protection Agency (EPA) brought an enforcement action against Gopher, alleging it was jointly and severally liable for investigation and cleanup of the Arrowhead site. The estimated clean-up cost for the site was in excess of $38 million. In April 1994, Gopher agreed to pay $1,225,000 to settle the Arrowhead claim. The settlement also covered the United States' claims against Bame and Gopher Rubber Cote. American Hardware refused to participate in In the Bellaire claim, the MPCA ordered Bellaire Sanitation to remove soil contaminated by oil sludge from the site. The clean-up cost was $330,421.72. Bellaire Sanitation sued Gopher, alleging Gopher State disposed of oil sludge at the site in 1966 and 1967. Gopher defended itself against the claim, and a jury found it liable for one-half of the cleanup costs.

the settlement negotiations on behalf of Gopher.

In the Brooklyn Park claim, the EPA made a demand on Gopher to pay for cleanup costs at the site. The claim alleged Gopher State had disposed of oil sludge at the site in the 1950s and 1960s and that Gopher's share of the cleanup cost was in excess of $1.3 million. Gopher disputed the claim, and the record does not indicate that the litigation has been concluded. The EPA also made a demand on Gopher to pay for cleanup costs at the Oak Grove site.

In October 1994, Gopher brought this declaratory action against American Hardware. The district court held that American Hardware had a duty to defend Gopher based on its predecessor's policies. This court dismissed American Hardware's appeals from the district court's ruling as premature, Gopher Oil Co. v. American Hardware Mut. Ins. Co., Nos. C5-96-1658, C5-96-1689 (Minn.App. Aug. 27, 1996) (order opinion); Gopher Oil Co. v. American Hardware Mut. Ins. Co., No. C9-96-2022 (Minn.App. Oct. 29, 1996) (order opinion), and the supreme court denied review. The district court subsequently granted American Hardware's motion for summary judgment on the Oak Grove claim. It determined that the activities at Oak Grove occurred in 1973 and later, when the policies contained the UL-21 endorsement.

The remaining factual issues were tried, and the jury determined: (1) Gopher did not expect or intend the actual injury at the Arrowhead site; (2) the disposal of oil sludge caused actual injury at the Bellaire site; (3) Gopher did not expect or intend the actual injury at the Bellaire site; (4) the disposal of oil sludge caused actual injury at the Brooklyn Park site; (5) the actual injury occurred from 1954 to 1966; and (6) Gopher did not expect or intend the actual injury at the Brooklyn Park site. The court conducted an additional three-day bench trial on nonjury issues and issued its final order on December 31, 1997, amended January 28, 1998. American Hardware and Gopher appeal from the pretrial, trial, and final orders, claiming a total of 18 separate grounds for reversal.

ISSUES

I. Did the district court err in holding that insurance policies purchased by a predecessor corporation provide coverage to a successor corporation?

II. Did the district court err in granting summary judgment to American Hardware on the Oak Grove claim?

III. Did the district court err in its jury instructions?

IV. Does the evidence reasonably support the jury's findings of fact?

V. Did the district court err in its other evidentiary and procedural rulings or in its substantive findings?

VI. Did the district court err in its award, denial, or allocation of defense and indemnification costs?

ANALYSIS

I

Interpretation of an insurance policy's coverage and the application of that determination to undisputed facts present questions of law, which are reviewed de novo. Vue v. State Farm Ins. Cos., 582 N.W.2d 264, 265 (Minn.1998). Unambiguous and undefined terms in a policy must be given their plain, ordinary, or popular meaning. Jenoff, Inc. v. New Hampshire Ins. Co., 558 N.W.2d 260, 262 (Minn.1997). Ambiguous terms are to be resolved against the insurer and in accordance with the reasonable expectations of the insured. Id. (citing Columbia Heights Motors, Inc. v. Allstate Ins. Co., 275 N.W.2d 32, 36 (Minn.1979)). The guiding principle for judicial interpretation of coverage provisions is to give effect to the intentions of the parties as reflected in the terms of the insuring American Hardware challenges the district court's ruling that Gopher is covered under the policies issued to Gopher State because the policies included a provision that American Hardware was not bound by an assignment of interest under the policy without its consent. It is undisputed that neither Gopher State nor Gopher obtained American Hardware's express consent to the assignment of interest under the policy. In ruling that Gopher was covered by the policy irrespective of American Hardware's consent, the district court distinguished between the assignment of a risk, which changes the policy's covered activities, and the assignment of a loss, which assigns a claim arising from a covered activity during the policy period. See Ocean Accident & Guar. Corp. v. Southwestern Bell Tel. Co., 100 F.2d 441, 444 (8th Cir.1939) (making same distinction); Windey v. North Star Farmers Mut. Ins. Co., 231 Minn. 279, 283, 43 N.W.2d 99, 102 (1950) ("Assignment, after loss, * * * does not constitute an assignment of the policy, but only of a claim or right of action on the policy. Such an assignment does not void the policy under a provision that if it is assigned without the insurer's consent it shall become void.").

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