Healy Tibbitts Const. Co. v. Foremost Ins. Co.

• Decision Date: 31 May 1979
• Docket Number: No. C78-1897 SAW.,C78-1897 SAW.
• Citation: 482 F. Supp. 830
• Parties: HEALY TIBBITTS CONSTRUCTION COMPANY, a corporation, Plaintiff, v. FOREMOST INSURANCE COMPANY, a corporation, Defendant.
• Court: U.S. District Court — Northern District of California

482 F. Supp. 830

HEALY TIBBITTS CONSTRUCTION COMPANY, a corporation, Plaintiff, v. FOREMOST INSURANCE COMPANY, a corporation, Defendant.

No. C78-1897 SAW.

United States District Court, N. D. California.

May 31, 1979.

COPYRIGHT MATERIAL OMITTED

John E. Droeger, Hall, Henry, Oliver & McReavy, San Francisco, Cal., for plaintiff.

Alf R. Brandin, Lillick, McHose & Charles, San Francisco, Cal., for defendant.

MEMORANDUM OPINION AND JUDGMENT

WEIGEL, District Judge.

On August 21, 1978, plaintiff Healy Tibbitts Construction Company (hereafter "HTC") filed this action for declaratory relief against Foremost Insurance Company (hereafter "FIC"). HTC seeks a declaration that under a certain protection and indemnity insurance policy No. 741273 (hereafter "policy") FIC was and is under a duty to defend HTC in another case pending in this court, United States v. Claus von Wendel, No. C77-1698 SW, and to indemnify HTC in the event that HTC is held liable to the United States in said action. The court has concluded that the declaration sought by HTC should be denied.

HTC, with headquarters in San Francisco, is a building and construction company which maintains and uses floating equipment. FIC is an insurance company with headquarters in Michigan. Jurisdiction is established under 28 U.S.C. § 1332.

Carl Hoag was HTC's insurance broker at all times relevant to this litigation. On November 19, 1974, he procured from James E. Moore & Co. the policy naming FIC as the insurer and HTC as the assured. The policy extended coverage to several vessels owned by HTC, including a crane barge known as the HT-4. The parties have stipulated that the policy was valid and in effect at all relevant times. The policy provides, in pertinent part:

"The Assurer hereby undertakes to make good to the Assured . . . all such loss and/or damage and/or expense as the Assured shall as owners of the vessel named herein have become liable to pay and shall pay on account of the liabilities, risks, events and/or happenings herein set forth:

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(6) Liability for damage to any . . property whatsoever, except another vessel or craft, . . .

(7) Liability for cost or expenses of, or incidental to, the removal of the wreck of the vessel named herein when such removal is compulsory by law, provided, however, that:

(a) There shall be deducted from such claim for cost or expenses, the value of any salvage from . . . the wreck, inuring, or which might have inured, the benefit of the Assured.

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(14) Costs, charges, and expenses, reasonably incurred and paid by the Assured in defense against any liabilities insured against hereunder in respect of the vessel named herein, subject to the agreed deductibles applicable, and subject further to the conditions and limitations hereinafter provided.

GENERAL CONDITIONS AND/OR LIMITATIONS

Warranted that in the event of any occurrence which may result in loss, damage and/or expense for which this Assurer is or may become liable, the Assured will use due diligence to give prompt notice thereof and forward to the Assurer as soon as practicable after receipt thereof, all communications, processes, pleadings and other legal papers or documents relating to such occurrences.

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Whenever required by the Assurer the Assured shall aid in securing information and evidence and in obtaining witnesses and shall cooperate with the Assurer in the defense of any claim or suit . . . in respect of any occurrence as hereinbefore provided.

The Assured shall not be liable for the cost or expense of . . . defending any claim or suit unless the same shall have been incurred with the written consent of the Assurer, or the Assurer shall be satisfied that such approval could not have been obtained under the circumstances without unreasonable delay, or that such costs and charges were reasonably and properly incurred, such cost or expense being subject to the deductible.

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The Assurer shall be liable for the excess where the amount deductible under this policy is exceeded by (A) the cost of investigating and/or successfully defending any claim or suit against the Assured based on a liability or an alleged liability of the Assured covered by this insurance, or (B) the amount paid by the Assured either under a judgment or an agreed settlement based on the liability covered herein including all costs, expenses of defense and taxable disbursements.

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PROTECTION & INDEMNITY POLLUTION EXCLUSION CLAUSE

NOTWITHSTANDING anything to the contrary contained in this Policy, no liability attaches to the Assurers for any loss, damage, cost, liability, expense, fine or penalty, of any kind or nature whatsoever, whether statutory or otherwise, imposed upon the Assured arising directly or indirectly in consequence of the actual or potential discharge, spillage or leakage of oil, fuel, cargo, petroleum products, chemicals or other substances of any kind or description."

HTC chartered the HT-4 to Claus von Wendel on a hire purchase basis. On October 15, 1975, while being operated by von Wendel to remove piling and debris at the U.S. Naval Supply Center, Oakland, pursuant to a contract between von Wendel and the Navy, the barge began listing as water entered through a hole in the hull. von Wendel and his crew moved the HT-4 into shallow water, where it came to rest, partially submerged, still within the area of the Naval Supply Center. As the barge submerged, oil escaped into the water through an open vent in the fuel tank which supplied the boiler for the barge's steam crane. FIC agrees, as it must, that the sinking of the HT-4 was the proximate cause of the escape of oil. There was no evidence to suggest that the leakage would have occurred but for the sinking of the HT-4.

The Navy began the cleanup of the oil on the afternoon of the sinking. The cleanup operation took several days. Five days after the sinking, on October 20, 1975, Hoag sent a letter to James E. Moore & Co., reporting the sinking of the HT-4 and suggesting the possibility that some liability might be imputed to HTC, as owner of the barge.

The Navy sought removal of the submerged HT-4 from the Naval Supply Center. On January 29, 1976 Colonel Flertzheim, of the San Francisco District Corps of Engineers, wrote to HTC stating that if it did not provide a written guarantee of a plan for removal of the HT-4 proposed by von Wendel, "the Corps of Engineers will prosecute the removal of the vessel and will attempt to recover costs of such operation from any and all responsible parties." In response, HTC gave the requested guarantee. On March 25, 1976, von Wendel refloated the barge and received title to it pursuant to an agreement with HTC.

In May, 1976, HTC received notice of a Coast Guard hearing to be held concerning the HT-4. HTC was informed that all interested parties parties must be notified and given an opportunity to be heard. Jarvis Gates, Vice President of HTC, asked in his letter of reply: "have you notified the U.S. Navy Supply Center in Oakland, Mr. Claus von Wendel, and First International Assurance, Ltd.?" FIC was not mentioned as a party to be notified. The outcome of the HT-4 hearing was the assessment of a $1500.00 fine on HTC.

On August 4, 1977, the United States brought the aforementioned action (United States v. Claus von Wendel, No. C77-1698 SW) against Claus von Wendel, HTC, HT-4, Unnamed House and Equipment Barge and Unnamed Floating Drydock Located at Naval Supply Center, Oakland, California. The three causes of action in said suit naming HTC as a defendant, charged that HTC and von Wendel were liable for the $55,028.44 cost of removing from the water the oil which escaped from the HT-4.

In the early part of 1978, HTC and FIC engaged in correspondence concerning the United States suit. In a letter of March 15, 1978, John Hysong, liability claims supervisor for FIC, informed John E. Droeger, counsel for HTC, that FIC believed that the insurance policy did not cover the costs of cleaning up the oil and that FIC would not indemnify HTC for any judgment resulting from the portion of the United States suit dealing with that matter. Hysong added that FIC was prepared to consider whether the wreck removal clause § (7) of the policy was applicable, and asked for further documentation. Droeger replied by letter one week later, stating inter alia: that the matter on which HTC was sued by the United States "arises from a peril clearly covered by the policy"; that HTC would accept a defense under a reservation of rights; that an insurer who refuses to defend does so at very great peril; and that the Pollution Exclusion Clause "does not purport to apply to the duty to defend." On March 29, 1978, Hysong wrote to tell HTC that FIC had forwarded a copy of HTC's claim file to the law firm of Lillick McHose & Charles (hereafter "Lillick") and that FIC had asked said firm to "look after the defense of the lawsuit brought against you by the United States." On the same day, Hysong wrote the law firm requesting that it "enter an appearance and answer on behalf of" HTC in the suit brought by the United States. Both of the letters noted that FIC was acting under a reservation of rights.

Upon receipt of Hysong's March 29th letter, HTC instructed Droeger to provide Lillick with a substitution of attorneys and HTC's files in No. C77-1698 SW. On April 3rd, Droeger wrote to Hoag that Droeger's law firm would look to Hoag's firm for indemnity in the event that FIC denied coverage, and was held to have properly denied it and/or refused to pay for legal services performed so far. On April 4th, Droeger contacted Alf R. Brandin of Lillick to arrange for the delivery of HTC's files and for a substitution of attorneys. Brandin informed Droeger that Lillick had not be retained by FIC to defend HTC in No. C77-1698 SW; instead Lillick had been asked to determine whether FIC might be responsible for indemnifying HTC pursuant to the wreck removal clause of the policy....