Hutchinson Oil Co. v. Federated Service Ins. Co.

• Decision Date: 22 March 1994
• Docket Number: No. 93-CV-0154-J.,93-CV-0154-J.
• Citation: 851 F. Supp. 1546
• Parties: HUTCHINSON OIL COMPANY, Plaintiff, v. FEDERATED SERVICE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Wyoming

851 F. Supp. 1546

HUTCHINSON OIL COMPANY, Plaintiff, v. FEDERATED SERVICE INSURANCE COMPANY, Defendant.

No. 93-CV-0154-J.

United States District Court, D. Wyoming.

March 22, 1994.

Jon B. Huss, Craig Newman, Brown & Drew, Casper, WY, Glenn E. Smith, Glenn E. Smith & Associates, Cheyenne, WY, for plaintiff.

John A. Sundahl, George E. Powers, Jr., Theodore B. D'Arcy, Godfrey & Sundahl, Cheyenne, WY, Charles E. Spevacek, Elizabeth A. Foley, Meagher & Geer, Minneapolis, MN, for defendant.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

ALAN B. JOHNSON, Chief Judge.

The parties' cross motions for summary judgment came before the Court for consideration. Jon B. Huss of Casper, Wyoming and Glenn E. Smith of Cheyenne, Wyoming appeared for plaintiff Hutchinson Oil Company ("Hutchinson"); Theodore B. D'Arcy of Cheyenne, Wyoming and Charles E. Spevacek of Minneapolis, Minnesota appeared for defendant Federated Service Insurance Co. ("Federated"). Plaintiff filed a motion for partial summary judgment on the duty to defend, which was opposed by defendant; and defendant filed its Motion for Summary Judgment, opposed by plaintiff. At the hearing held March 4, 1994, defendant sought judgment in its favor on coverage or indemnity issues, and sought a determination that the policies of insurance at issue did not provide coverage for Hutchinson's potential CERCLA liability. Plaintiff advised the Court that the only issue concerned the defendant's duty to defend and that coverage or indemnity issues were not within the intended scope of the instant declaratory judgment action. Therefore, the Court determined that the pending motions shall be treated as cross motions for summary judgment on the duty to defend issues and that the coverage issues shall not be addressed at this point in the litigation. However, the Court has considered other issues raised by defendant Federated, including matters relating to plaintiff's claims asserting bad faith and for punitive damages and attorney's fees.

The Court, having considered the motions, the materials filed both in support of and in opposition to the motions, and being fully advised in the premises, FINDS and ORDERS as follows:

Background

The instant action was filed by Hutchinson against Federated, asserting that Federated breached its contracts of insurance with Hutchinson by refusing to defend Hutchinson and provide coverage relative to demands for payment asserted against Hutchinson in connection with an Environmental Protection Agency ("EPA") removal action concerning the Mountaineer Refinery Site (the "site") in LaBarge, Wyoming. The related EPA cleanup case, brought by the PRP Committee seeking recovery of response costs incurred in connection with releases or threatened releases of hazardous substances and concerning the Mountaineer Refining Company, is also pending before this Court.¹ In the related case, the defendants are the Mountaineer Refining Company and the owners and operators of the site, although the PRP Committee² also advised that it may pursue cost recovery actions against additional persons who arranged for the disposal or treatment of hazardous substances at, or who transported hazardous substances to, the site. In the related case, the PRP Committee, as plaintiff, seeks costs from the defendant as well as a declaration of strict joint and several liability against the defendants for future response costs.

In 1993, Hutchinson Oil Company was notified by the EPA that it was a potentially responsible party ("PRP") under CERCLA,³ with potential liability for the costs of cleaning up the Mountaineer Refinery site in LaBarge, Wyoming. Hutchinson's activities exposing it to potential liability under CERCLA arose by virtue of its collection and use of oil consigned and sent to the refinery site for recycling over a period of years. In its motion for partial summary judgment, Hutchinson seeks to have this Court determine whether Federated has a duty to defend Hutchinson (and if so, ultimately, provide coverage) relative to the hazardous waste site cleanup action mentioned above.

Hutchinson argues that, under Wyoming law, an insurer's duty to defend is triggered by the "potentiality" that coverage exists. It argues that the EPA's PRP Notice, and the allegations of the PRP Committee against Hutchinson, indicate that a potential for coverage exists under three of the policies issued to Hutchinson by Federated. Plaintiff also asserts that the EPA's PRP Notice constitutes a "suit" for purposes of triggering Federated's duty to defend.

Over a period of years, Hutchinson had three policies with Federated. These included:

1) Special Multi-Peril Policy 721251 (SMP 721251) (January 1985 to January 1987)

2) Business Auto Policy (BAP 721252) (January 1985 to January 1993)

3) Commercial Umbrella Policy (CU 721253) (January 1985 to January 1987).

While these various policies were in effect, used motor oil from Hutchinson's vehicles, along with that from other businesses in the Evanston area, was deposited in a tank at Hutchinson's facility and was picked up for recycling by the operator of the Mountaineer Refinery. Eventually, in 1993, the EPA sent Hutchinson the PRP Notice, designating it as a potentially responsible party with respect to the cleanup costs of the Mountaineer Refinery site contamination.⁴

Hutchinson notified Federated in writing in December 1992 of the claims of the EPA and PRP Committee against Hutchinson.⁵ In that letter, Hutchinson tendered the defense of the cleanup action to Federated under the above-referenced policies and also made demand for coverage. Federated subsequently denied coverage and refused to defend Hutchinson.⁶

Hutchinson contends that through at least January 19, 1987, the SMP 721251 policy provided liability coverage for pollution, subject to the terms and conditions of the policy. Hutchinson was also insured under the Commercial Umbrella policy between January 19, 1985 and January 19, 1993. Hutchinson claims that under these two policies, the insurer's duty to defend the EPA's CERCLA claim arises. After January 19, 1987, Federated adopted an "absolute" pollution exclusion and began providing pollution coverage against third-party claims by issuing a separate policy of insurance on a claims-made basis. Hutchinson purchased the separate pollution liability policy from January 19, 1987 to January 19, 1990. Hutchinson contends that coverage existed under the SMP policy in force from January 19, 1985 through January 19, 1987.

The Business Auto Policy, during the period January 1985 to January 1991, provided pollution coverage "at least where the discharge or escape of contaminants was `sudden and accidental' and arose from the use, operation or maintenance of a motor vehicle." Hutchinson argues that because part of the pollutants may have been released because of the ownership, maintenance or use of a covered vehicle by Hutchinson, the insurer's duty to defend also arises under these policies.

Hutchinson argues that Wyoming law allows an insurer to refuse to defend an action only when a comparison of the policy with the underlying complaint shows on its face that there is no potential for coverage. Any doubt as to the existence of a duty to defend must be resolved in the insured's favor. The insurer has the burden of showing that there is no duty to defend and that the claim clearly falls outside of the policy coverage. Hutchinson cites caselaw determining that PRP Notices with allegations similar to those seen in this case are sufficient to trigger an insurer's duty to defend.

Federated, the insurer, declined to defend for two reasons. Federated argues that the EPA's CERCLA Notice does not allege an occurrence under either policy. Federated also argues that there is no coverage under any of the policies because the spillage or leakage of waste products was not "sudden and accidental" and therefore, the pollution exclusion eliminates the coverage that Hutchinson would otherwise have had under the SMP 721251 policy.

Federated responded to Hutchinson's Motion for Partial Summary Judgment by stating that Hutchinson has identified correctly the nature of the case and the appropriate legal standards under Wyoming law. Federated, however, disputes the contentions that under those standards, and argues that in light of the facts of this case, it is entitled to summary judgment on the duty to defend issue. Federated argues it has no duty to defend under the policies of insurance as the allegations in the EPA's PRP Notice do not indicate that any potential for coverage exists under the Federated policies. This is so because, Federated argues, the allegations raised in the PRP Notice to Hutchinson establish that the claim is not one where the insured is legally obligated to pay damages because of property damage during the policy period. Federated cites caselaw holding damages coverage for governmental-compelled cleanup expenses does not include coverage for preventative expenditures, and argues that the EPA's correspondence concerning the LaBarge site indicates that prevention of releases of pollutants offsite is the primary goal of the PRP Notice, rather than remediation.

Federated also asserts that the allegations do not establish the potential that property damage occurred during the policy periods. As to the business auto policies, Federated claims that the allegations establish that the property damage did not arise out of the ownership, maintenance or use of a covered auto. Federated argues that the disposal of oil consigned by Hutchinson and others to the site, which may have included motor oil taken from Hutchinson's covered autos, is too remote to establish a causal connection or relation between the claim and the ownership, maintenance or use of the insured vehicle. Federated asserts that while the allegations of the PRP Notice may establish that the property damage falls within the policies' qualified pollution exclusions,...