International Ins. Co. v. Rsr Corp.

• Decision Date: 19 September 2005
• Docket Number: No. 04-10311.,04-10311.
• Parties: INTERNATIONAL INSURANCE CO., Plaintiff-Counter Defendant-Appellant, v. RSR CORPORATION, et al., Defendants, RSR Corporation, Quemetco, Inc., Quemetco Metals Limited, Inc., formerly known as Murph Metals, Inc., Defendants-Counter Claimants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

426 F.3d 281

INTERNATIONAL INSURANCE CO., Plaintiff-Counter Defendant-Appellant, v. RSR CORPORATION, et al., Defendants, RSR Corporation, Quemetco, Inc., Quemetco Metals Limited, Inc., formerly known as Murph Metals, Inc., Defendants-Counter Claimants-Appellees.

No. 04-10311.

United States Court of Appeals, Fifth Circuit.

September 19, 2005.

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Richard Brent Cooper (argued), Gordon Kurt Wright, Michelle Elaine Robberson, Cooper & Scully, Dallas, TX, for Defendant-Appellant.

William A. Brewer, III, James Stephen Renard, Michael Joseph Collins (argued), Michael Scott Gardner, Bickel & Brewer, Dallas, TX, for Defendants-Counter Claimants-Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before WIENER, BARKSDALE and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

The principal issues in this case are whether the jury's finding that a claim was made under a claims-made Environmental Impairment Liability ("EIL") insurance policy was (1) properly guided by an instruction that defined a "claim" as "an assertion by a third party ... that the insured is liable to it for damages...."; and (2) supported by (a) undisputed facts and conclusions of law: the substantial lead pollution on Harbor Island near Seattle emanating from the insured's lead smelting establishment; the Environmental Protection Agency ("EPA")'s listing of Harbor Island on the National Priorities List; the liability of the insured under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 USCA § 9601, et seq., to the EPA for the cost of environmental remediation on Harbor Island; the virtual certainty of further investigative or enforcement actions by the EPA in respect to Harbor Island; and (b) the uncontested extrinsic evidence that, under the parties' interpretation of the insurance contract, a claim was made by the EPA against the insured and reported to the insurer during the policy period in respect to the lead pollution on Harbor Island.

The EIL insurer, International Insurance Company ("International"), appeals from a judgment based on the jury verdict in favor of its insureds, RSR CORPORATION; QUEMETCO, INC.; QUEMETCO METALS LIMITED, INC.; formerly known as MURPH METALS, INC.; BESTOLIFE CORPORATION; and REVERE SMELTING & REFINING CORPORATION OF NEW JERSEY (collectively, "RSR"), declaring that International is obliged under the EIL policy to indemnify RSR for any remediation costs and expenses RSR is obligated to pay to the EPA, with respect to the EPA's remediation of lead pollution at the Harbor Island site. Applying Texas law to this diversity case, we affirm, concluding that under the circumstances of this case the evidence is sufficient to support the jury's determination that a claim was made against RSR by the EPA within the EIL policy coverage period; and that the errors attributed to the district court in pre-trial rulings and jury instructions were either not proven or harmless because they could not have affected the outcome.

I. BACKGROUND

International Insurance Company is the successor-in-interest of North River Insurance Company ("North River"), which issued the EIL policy to RSR and other related entities in 1981. The EIL policy had a policy period of September 4, 1981 to November 4, 1982, with an extended reporting period until November 4, 1983. In December 1982 the EPA announced in a press release that Harbor Island would be placed on its proposed National Priorities List ("NPL"). RSR notified North River orally and in writing of the EPA's placement of Harbor Island on the proposed NPL. On or about January 6, 1983, RSR forwarded by way of its insurance broker, to North River, a copy of the press release issued by the EPA dated December 20, 1982. In the mid-to-late 1980's, North River's counsel requested from Clarice Davis, RSR's counsel, the status of the Harbor Island EPA matters to which RSR had given North River notice under the EIL policy. RSR's counsel complied with the request by sending North River's counsel status reports regarding EPA activity relating to Harbor Island. On September 8, 1983 the EPA placed the Harbor Island site on its final NPL. In the listing, the EPA explained that "[p]ublication of sites on the final NPL will serve as notice to any potentially responsible party (`PRP') that the Agency may initiate Fund-financed response actions." 48 Fed.Reg. 40658-40673. In late 1983, RSR sold the Harbor Island lead smeltery to Bergsoe Metals, which was owned by East Asiatic. On July 31, 1986 the EPA determined that Quemetco Realty, Inc., one of the RSR entities, was a potentially responsible party with respect to the environmental impairment of Harbor Island. The EPA requested information from Quemetco as to the ownership of the site and the activities being performed there along with other salient facts. The letter stated that as a potentially responsible party, Quemetco may be liable for all monies expended for corrective actions at the site. On May 22, 2000 the EPA filed a CERCLA action against RSR in federal district court for the Western District of Washington, seeking recovery from RSR for response costs that the EPA expended in remedial action at Harbor Island, as well as for any future costs it expends at Harbor Island. The EPA seeks in excess of $8 million in recovery of its response costs at Harbor Island. The complaint was not served on RSR until the summer of 2000. At certain points in time, RSR believed that the EPA would not hold it liable for the Harbor Island response costs, because Bergsoe Metals, in purchasing the lead smelting facility, had agreed to indemnify and reimburse RSR for such costs; and RSR believed that a jury had found that East Asiatic was the alter ego of Bergsoe Metals.

International filed this action in the federal district court in the Northern District of Texas on February 2, 2000, seeking a declaratory judgment that International was not obliged to indemnify or reimburse RSR for CERCLA remediation costs at West Dallas; RSR filed a counterclaim against International for a declaratory judgment that it was entitled to coverage for the EPA's costs of environmental remediation of both West Dallas and Harbor Island; and International amended its petition to request a declaratory judgment that it was not required to afford coverage to RSR for the EPA's remediation costs at either West Dallas or Harbor Island.¹ International moved for summary judgment contending that it was not obligated to indemnify RSR for such remediation costs. The district court denied International's motion because issues of material fact existed regarding whether the EPA had made a "claim" against RSR in connection with the Harbor Island site during the policy period and whether RSR had waived its right to coverage for the site.

At trial, two issues were submitted to the jury to decide in answer to interrogatories; all other issues were reserved for decision by the court. After the close of evidence, the jury returned its verdict finding that the EPA made a claim upon RSR for environmental response costs during the EIL policy coverage period; and that International had not proved that RSR waived its right to coverage under the EIL policy. Based on these findings and the evidence introduced at trial the district court rendered a declaratory judgment decreeing that International was contractually obligated to indemnify RSR against its liability to the EPA for the costs of remediation under CERCLA of the environmental impairment at Harbor Island. The district court denied International's motions for judgment as a matter of law and for a new trial. International timely appealed.

II. ISSUES ON APPEAL

International raises six issues on appeal, contending that: (1) The definition of "claim" in the district court's jury charge was legally erroneous because it did not require that the jury find, in addition to an assertion by the EPA of RSR's liability to it, that the EPA demanded money or action from RSR; (2) the supplemental jury instruction misled and confused the jury because it conflicted with the definition of "claim" in the jury charge; (3) the evidence was insufficient to support a jury finding that the EPA asserted that RSR was liable to it for damages within the risks covered by the EIL policy; (4) the district court abused its discretion in admitting the testimony of John Morrison because it contained privileged attorney-client communications; (5) the district court abused its discretion in excluding an excerpt from the deposition of Donald Brayer as evidence of his expert opinion; (6) the jury's finding that RSR did not waive its right to coverage under the EIL policy was contrary to the great weight and preponderance of the evidence.

III. ANALYSIS

A. The EIL Policy

The EIL policy provides two types of coverage relevant to this case: (1) indemnification of the insured against liability for environmental impairment damages; and (2) reimbursement of the insured for costs and expenses of its voluntary cleanup operations performed with the insurer's consent.

First, in Insuring Agreement 1, the insurer agrees to indemnify the insured against all sums that the insured shall be obligated to pay for damages by reason of liability imposed on the insured by law on account of:

(a) Personal injury;

(b) Property damage;

(c) Impairment or diminution or other interference with any other environmental right or amenity protected by law;

arising within the Territorial limits designated in the Declarations [here, the United States] and caused by Environmental impairment in connection with the Business of the insured at the locations designated in the Declarations in respect to which a claim has been made against or other due notice has been received by the insured during the Policy Period.

Second, in Insuring Agreement 3, the insurer promises to

reimburse the insured for costs...