Great Northern Ins. v. Benjamin Franklin Fed. S & L
| Decision Date | 12 March 1990 |
| Docket Number | CV No. 89-213-PA. |
| Citation | 793 F. Supp. 259 |
| Parties | GREAT NORTHERN INSURANCE COMPANY, a Minnesota corporation, Plaintiff, v. THE BENJAMIN FRANKLIN FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant. |
| Court | U.S. District Court — District of Oregon |
Kenneth E. Roberts, Jay T. Waldron, David E. Prange, Schwabe, Williamson & Wyatt, Portland, Or., for plaintiff.
Gordon L. Osaka, Portland, Or., for defendant.
Plaintiff, Great Northern Insurance Co. (Great Northern), brings this declaratory judgment action against defendant Benjamin Franklin Federal Savings & Loan Association (Benjamin Franklin). The dispute centers on whether the property and liability insurance policies that Great Northern issued to Benjamin Franklin cover costs related to asbestos removal and lost rental income from Benjamin Franklin's commercial building.
The parties filed cross-motions for summary judgment. At oral argument, they agreed there are no material facts in dispute and that I can resolve the case finally based on stipulations and briefs.
After the summary judgment motions were filed, Benjamin Franklin moved for leave to file an amended counterclaim for fraud. I denied that motion for two reasons. First, the proposed counterclaim failed to meet the standards of particularity for pleading fraud under Fed.R.Civ.P. 9(b). Second, the alleged fraud concerned Great Northern's representations to Benjamin Franklin that the insurance policies in dispute were "all risk" rather than "named peril" policies. I found that even if Benjamin Franklin could prove the alleged misrepresentations took place, that fact is not sufficient to state a claim for fraud. The language of the insurance policies controlled, not the labels attached to them.
Benjamin Franklin filed a second motion for leave to file an amended counterclaim. The second proposed counterclaim was much more specific and detailed than the first, but still failed to allege anything more substantive than the first proposed amended counterclaim. I denied the motion.
This opinion constitutes my findings of fact and conclusions of law as required under Fed.R.Civ.P. 52(a). I grant judgment for Great Northern.
In 1962, Equitable Savings and Loan built an office building (Willamette Building) in Eugene, Oregon. Insulating material specified for and put into the building during construction contained asbestos.
In 1982, Benjamin Franklin bought the Willamette Building. In March, 1987, Benjamin Franklin leased the building to Centennial Mortgage Company (Centennial) for a five-year term. The lease required Centennial to maintain all-risk insurance on the building and name Benjamin Franklin as an additional insured. Centennial did not obtain this insurance. Centennial occupied the building in April, 1987.
During remodelling, Centennial discovered the asbestos and demanded that Benjamin Franklin immediately remove it. Centennial notified Benjamin Franklin that it would vacate the building unless the asbestos were removed. Centennial demanded a refund of prepaid rent and property taxes, and reliance damages. After Centennial and Benjamin Franklin were unable to agree about the asbestos removal and payment of damages, Centennial vacated the building in March, 1988. Centennial demanded damages of $36,714.
Benjamin Franklin had a property and liability insurance policy on the Willamette Building, issued by Great Northern. The policy was in effect from December 31, 1985 until December 31, 1987. On April 27, 1988, Benjamin Franklin sent Great Northern a proof of loss under the property insurance policy for anticipated removal of the asbestos, loss of use, and related expenses. Benjamin Franklin also tendered defense of Centennial's claim for damages to Great Northern.
On August 12, 1988, Benjamin Franklin and Centennial settled their dispute by agreeing to a payment of $6,250 to Centennial, rescission of the lease, and a mutual release of claims. On August 29, 1988, the Lane County Oregon Board of Equalization reduced the fair market value of the Willamette Building from $526,470 to $321,470. On February 24, 1989, Great Northern denied Benjamin Franklin's claim, contending that there was no coverage. Great Northern filed this action for a declaratory judgment the following week.
The property insurance policy on the Willamette Building includes a number of provisions at issue. First, the general coverage provision says in pertinent part:
We will pay for loss you incur.... The loss must ... result from a direct physical loss or damage by a Covered Cause of Loss. (emphasis supplied).
"Covered cause of loss" is "direct physical loss or damage ... except as stated in Limitations or Exclusions." The exclusions provision expressly lists "Contaminants or Pollutants" as follows:
Release, discharge or dispersal of pollutants unless the release discharge or dispersal is itself caused by any of the named causes of loss (emphasis supplied).
"Pollutants" means "any solid, liquid, gaseous or thermal irritant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." "Waste" includes "materials to be recycled, reconditioned or reclaimed."
"Named causes of loss" are: "aircraft or self-propelled missiles, explosion, fire or lightning, sprinkler leakage, mine subsistence; riot or civil commotion; sinkhole; collapse; smoke; vandalism; vehicles; volcanic action; or wind or hail."
The policy includes a provision for debris removal:
Debris removed coverage means your expense to remove debris of covered property from the premises stated in the declarations caused by or resulting from a covered cause of loss that occurs during the policy.
The policy excludes coverage for loss from the following governmental actions:
Benjamin Franklin also had a liability insurance policy issued by Great Northern. The general coverage provision says in pertinent part:
The exclusions provision includes "pollution" as follows: This insurance does not apply to:
Also excluded is damage to property that the insured owns.
Oregon principles of insurance policy construction apply in this case. Okada v. MGIC Indemnity Corp., 823 F.2d 276, 280 (9th Cir.1986). Insurance policies are construed as ordinary business contracts. Perez v. State Farm Ins. Co., 289 Or. 295, 299, 613 P.2d 32 (1980). If an insurance policy is ambiguous, it is construed most favorably to the insured. State Farm Mutual Automobile Ins. Co. v. White et al., 60 Or.App. 666, 672, 655 P.2d 599 (1982), rev. denied, 294 Or. 569, 660 P.2d 683 (1983).
Construction of an insurance contract is a matter of law for the court. May v. Chicago Insurance Co., 260 Or. 285, 292, 490 P.2d 150 (1971) (citations omitted). However, if the contract language is ambiguous, or if technical words, terms of art or local phrases must be interpreted, there is a question of fact for the jury to determine the intention of the parties. Id. at 293, 490 P.2d 150 (citations omitted).
Both parties take a shotgun approach to the case. The volume of their briefs alone suggest the matter is extremely complex. To the contrary, the dispute is straightforward matter of contract interpretation, that hinges on whether asbestos is a "pollutant" under the insurance policies.
The threshold question is whether the Willamette Building sustained a "direct physical loss" within the terms of the property insurance policy. The policy itself contains no express definition of "direct physical loss". The most helpful case in defining "direct physical loss" is Wyoming Sawmills v. Transportation Insurance Company, 282 Or. 401, 578 P.2d 1253 (1978). In Wyoming Sawmills, a lumber manufacturer brought an action against its insurer under a general liability policy to recover labor expenses for removing and replacing defective 2" × 4" studs it had manufactured, which were used in a building.
The liability policy in Wyoming Sawmills used the term "physical injury" to describe coverage. At issue was whether this language was intended to include "consequential or intangible damages such as depreciation in value, within the terms property damage." The court answered "no". Id. at 406, 578 P.2d 1253. It reasoned that use of the word "physical" could only have been intended to exclude such coverage. Id.
Benjamin Franklin attempts to distinguish ...
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