In re Tutu Water Wells Contamination Litig.

• Decision Date: 29 November 1999
• Docket Number: No. Civ.1996–54(B).,Civ.1996–54(B).
• Citation: 42 V.I. 299
• Parties: In re TUTU WATER WELLS CONTAMINATION LITIGATION. This Document relates to Texaco, Inc. and Texaco Caribbean, Inc. (“Texaco”), successor to Vernon Morgan
• Court: U.S. District Court — Virgin Islands

42 V.I. 299

In re TUTU WATER WELLS CONTAMINATION LITIGATION.

This Document relates to

Texaco, Inc. and Texaco Caribbean, Inc. (“Texaco”), successor to Vernon Morgan

No. Civ.1996–54(B).

District Court of the Virgin Islands, Division of St. Croix.

Nov. 29, 1999.

Oil company, as assignee of service station owner's claims, sued liability insurers for bad faith failure to defend and indemnify in connection with claims arising out of gasoline leaks. Insurers counterclaimed for reverse bad faith, and raised affirmative defenses of comparative bad faith and lack of notice. On cross-motions for summary judgment, the District Court, Stanley S. Brotman, J., sitting by designation, held that: (1) as a matter of first impression, insured did not have burden at time of coverage request to prove terms and conditions of policy as condition of obtaining defense; (2) issues of fact existed as to nature and intent of insurer's policy search, whether insured's representative had intentionally withheld part of policy from insurer, whether insurer's behavior constituted reckless indifference to insured, and whether release of insurer as to company applied to company's claims as assignee; (3) notice to broker acting as insurers' agent was imputable to insurers; and (4) as a matter of first impression, neither reverse bad faith nor comparative bad faith are recognized in the Virgin Islands.

Plaintiff's motions granted; defendant's motion denied. Addison J. Meyers, O'Connor & Meyers, P.A., Coral Gables, FL, for Third–Party plaintiffs.

Charles J. Curran, Tallahassee, FL, Treston E. Moore, St. Thomas, VI, Kimberly Boldt, The Boldt Law Firm, Miami, FL, for co–counsel third–party plaintiffs.

Wilfredo A. Geigel, Christiansted, St. Croix, VI, for General Accident Co. of Puerto Rico, Ltd.

Denise Francois, Hodge & Francois, St. Thomas, VI, Harry P. Cohen, Rosenman & Colin, LLP, New York City, Robert Reeder, Cozen & O'Connor, Philadelphia, PA, Thomas McKay, III, Cozen & O'Connor, Philadelphia, PA, for CIGNA Corporation, Fireman's Fund Insurance Company, as a former member of AFIA, AFIA, an unincorporated association, improperly designated as AFIA Worldwide Insurance, CIGNA International Corporation and Insurance Company of North America (“CIGNA”).

OPINION ON TEXACO'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT AGAINST CIGNA AND GENERAL ACCIDENT REGARDING REVERSE AND COMPARATIVE BAD FAITH AND ISSUES OF AGENCY AND NOTICE AND FIREMAN'S FUND AND CIGNA'S MOTIONS FOR SUMMARY JUDGMENT REGARDING BAD FAITH AND THE FOUR STAR AGREEMENT

STANLEY S. BROTMAN, District Judge (Sitting by Designation):

I INTRODUCTION AND BACKGROUND

This case arises out of an insurance coverage dispute between Third–Party Plaintiffs Texaco Inc. and Texaco Caribbean, Inc., (collectively hereinafter “Texaco”) as the Successor to Vernon Morgan, and several purported insurance carriers it claims have breached contracts to insure Vernon Morgan and have refused, in bad faith, to defend and indemnify him against numerous environmental actions. These actions resulted from Vernon Morgan's alleged negligence in allowing hazardous chemicals to be discharged from underground storage tanks at the Tutu Texaco Service Station (“Service Station”) into the Turpentine Run Aquifer in St. Thomas, United States Virgin Islands.

Beginning in 1972, Texaco Caribbean Inc., a subsidiary of Texaco Inc. leased property to Morgan from which Morgan operated the Tutu Texaco Service Station. Morgan is the owner, sole shareholder, and an employee of Tutu Texaco Service Station. In September 1976, Morgan discovered the loss of approximately 2,200 gallons of gasoline from a leaking pipe joint. In late 1977, Morgan discovered the loss of approximately 240 gallons of fuel due to a leak in a fuel delivery line. After both discoveries, Morgan apprised Texaco of the situation. In addition, on two occasions during the 1980's, one of three unlined underground storage tanks on the site were taken out of service due to a suspected leak.

In 1989, various claimants instituted litigation against Texaco and Morgan for damages caused by the aforementioned discharges of hazardous substances from the storage tanks and fuel delivery system located at the Site. ( See Texaco's Appendix to Omnibus Statement of Material Facts at Issue (“Omnibus Facts”) at Ex. 1.) Upon receipt of the complaints Morgan sent notification of the claims to the West Indies Insurance Agency, which had issued Morgan's insurance policies. ( See Texaco's Statement of Material Facts Not at Issue in Support of Motion for Partial Summary Judgment on General Agency and Notice at ¶¶ 2–6.)

Morgan was represented by John Zebedee, Esq. in Total Vision, Four Winds, and Harthman (“underlying litigation”). Payment for Morgan's defense was originally provided by American Trust Insurance (“ATI”) after June 5, 1990. On or about May 1991, ATI refused to continue to provide Morgan a defense in the underlying litigation. ( See Cigna's Statement of Undisputed Material Facts in Support of Fireman's Fund's and Cigna's Motion for Summary Judgment: Third–Party Plaintiffs' Claims for Bad Faith as a Matter of Law (hereinafter “Undisputed Bad Faith Facts”) at ¶¶ 1–3.)

During this time period, Zebedee sought coverage for Morgan from defendant Cigna ¹ ( See Cigna's Undisputed Bad Faith Facts at ¶¶ 13–40.) After numerous correspondence between Zebedee and Cigna employees failed to provide complete details of the relevant policy's terms and conditions, see id., the insurer refused coverage via an October 28, 1991 letter which stated, in pertinent part, that:

Despite our best efforts ... we have been unable to produce, nor have you been able to produce, copies of the actual policies issued to Morgan and/or Tutu Texaco. Without more information, we are unable to confirm the existence and/or terms, conditions, limitations or endorsements of these policies. Accordingly, since we cannot determine what coverage may have been written, we are further unable to provide any defense or indemnity to Morgan and/or Tutu Texaco for these claims.

In the event you are able to locate additional information which might indicate that our further review of these claims is warranted or should you otherwise wish to discuss this matter, please feel free to contact me at the above number.

(Omnibus Facts at Ex. 66). It is important to note that just prior to its October 28, 1991 refusal letter, Zebedee had contacted Cigna and informed the defendant that Morgan was considering a proposal from Texaco which contemplated Texaco's assumption of Morgan's defense costs in exchange for an assignment of rights. ( See Ex. 13 of Cigna's Appendix to Cigna's Br.: Plaintiff's Claims for Bad Faith Fail as a Matter of Law.)

Meanwhile, as litigation continued in the Virgin Islands concerning environmental damage, Texaco on its own behalf filed an action against numerous insurers in the Superior Court of the State of California for the County of Los Angeles entitled Four Star Oil & Gas Company, et al. v. Allianz Insurance Company et al., Case No. BC 036944 (“California Litigation”). Included among Texaco's claims in the California Litigation were its incurred and anticipated liabilities arising at and from the Site. ( See Cigna's Statement of Undisputed Material Facts in Support of Fireman's Fund and Cigna's Motion for Partial Summary Judgment Based Upon the Four Star Agreement (hereinafter “Undisputed Four Star Facts”) at ¶¶ 7–11. Texaco ultimately agreed to a comprehensive release of environmental coverage claims against various insurance companies in the context of the California Litigation. Specifically, pursuant to an “Agreement of Settlement, Compromise and Release” dated May 10, 1993, Cigna agreed to pay Texaco $20,250,000.²See Fireman's Fund's and Cigna's Motion for Partial Summary Judgment Based Upon the Four Star Agreement at Ex. 1 (“Release Agreement”).) The Release Agreement provided that:

CIGNA shall have no further obligation under the Policies or otherwise to pay for, or to make indemnity or defense payments with respect to, Environmental Damage Claims other than the payments [of $20,250,000] specified in paragraph 3.2 hereof.

Release Agreement at ¶ 3.5

Pursuant to the Release Agreement, a “claim” was defined as:any past, present or future actual or potential claims, insurance claims, reinsurance claims, cross-complaints, third-party claims, rights, proceedings, demands, requests, suits, lawsuits, administrative proceedings, causes of actions, orders, actions, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, torts, controversies, judgments; executions, liabilities and obligations whatsoever whether in law or equity, including without limitation any and all claims for bad faith, alleged breach of the duty of good faith and fair dealing, claims for any other alleged misconduct or extracontractual claims.

Release Agreement at ¶ 2.3.

The agreement in ¶ 2.5 defined “Environmental Damage Claims” as:

All Claims, losses sustained or costs incurred in connection with Environmental Damage. Environmental Damage Claims include without limitation, any and all Past, existing, future or potential: (a) Claims brought by or behalf of any Person or any actions taken by Texaco (voluntarily or otherwise) in response to any such Claims because of losses sustained or involving, arising out of, or related in any way to Environmental Damage, including, without limitation, Claims to recover cleanup or remediation costs, to impose statutory fines or penalties, or to obtain injunctive or declaratory relief[.]

Id. at ¶ 2.5.

Finally, in ¶ 4.1, the Release Agreement states that:

In consideration of the promises contained in the Agreement, except as otherwise provided in paragraphs 2.5 and 2.6 herein, and except with regard to any obligation CIGNA may independently owe Texaco Canada, Texaco and HIL hereby release and discharge CIGNA from any liability, duty or obligation, known or...