L.A. Terminals, Inc. v. United Nat'l Ins. Co.
| Decision Date | 21 June 2022 |
| Docket Number | Case No 8:19-cv-00286-ODW (PVCx) |
| Citation | 608 F.Supp.3d 968 |
| Parties | L.A. TERMINALS, INC. and SOCO West, Inc., Plaintiffs, v. UNITED NATIONAL INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Central District of California |
Brook Blaine Roberts, James A. Tabb, Iryna Fedoseienko, Michael Lee Huggins, Steven B. Lesan, Latham and Watkins LLP, San Diego, CA, Kirsten Courtney Jackson, Latham and Watkins LLP, Los Angeles, CA, for Plaintiffs.
Daniel Nicholas Katibah, Stuart Edward Jones, James C. Nielsen, Nieslen Katibah LLP, San Rafael, CA, for Defendant.
ORDER GRANTING IN PART PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [79]
This is an insurance coverage dispute between insureds, Plaintiffs L.A. Terminals, Inc. ("LAT"), and SOCO West, Inc. ("Soco") (collectively, "Plaintiffs"), and their insurer, Defendant United National Insurance Company ("Defendant" or "United"). Plaintiffs claim United breached its duty to defend them and provide independent counsel in two environmental contamination lawsuits. (Second Am. Compl. ("SAC") ¶¶ 55–72, ECF No. 50.) Plaintiffs move for summary judgment. (Pls. Mot. Summ. J. ("PMSJ"), ECF No. 79.) For the reasons discussed below, the Court GRANTS IN PART Plaintiffs’ Motion.1
The following facts are undisputed unless otherwise noted.
From 1982 through 1985, United insured Plaintiffs under four primary comprehensive general liability policies (the "Policies"). (Pls. Statement of Uncontroverted Facts ("PSUF") 1, ECF No. 79-1.) The last three Policies also identify non-party the City of Los Angeles (the "City") as an additional insured. (Def. Statement Genuine Issues ("DSGI") & Additional Material Facts ("DAMF") 2, ECF No. 98-1.)
The Policies provide that United "shall have the right and duty to defend any suit against the insured seeking damages on account of ... property damage." (PSUF 3.) The Policies further provide that United "will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence." (PSUF 3.) The Policies define "occurrence," as "an accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured." (See, e.g. , Decl. James A. Tabb ISO PMSJ ("Tabb Decl.") Ex. B ("Oct. 1982 Policy") 46, ECF Nos. 80, 80-2.) However, the Policies exclude coverage for property damage that is caused by the "discharge, dispersal, release or escape" of "irritants, contaminants or pollutants" (the "Qualified Pollution Exclusion"). (PSUF 4.) This exclusion does not apply where the "discharge, dispersal, release, or escape is sudden and accidental." (PSUF 4.)
In March 2018, LAT was first served in an action the City filed against it in Los Angeles Superior Court (the "LASC Action"), alleging environmental contamination due to LAT's operations at a City-owned marine terminal and chemical storage facility (the "Site") during the policy periods. (PSUF 5–6; see Tabb Decl. Ex. E ("City LASC FAC") ¶ 11, ECF No. 80-5.) The City alleged the pollution had been ongoing for decades and was caused, in part, by hazardous materials that "leaked from storage tanks, pipes, spilled or were disposed of on the ground, into the soil and seeped into the groundwater." (City LASC FAC ¶¶ 18, 23.) The City further alleged that defendants "were negligent in ... their receiving, storing and handling of hazardous substances and chemicals on the Site premises." (Id. ¶ 26.)
In August 2018, LAT counter– and cross-claimed in the LASC Action against the City and others, contending that these parties were responsible for the alleged pollution at the Site. (PSUF 12.) LAT specifically alleged that the purported environmental contamination was "caused by various sudden and accidental releases, and other discharges and releases of [h]azardous [m]aterials." (PSUF 12.)
In November 2018, LAT initiated a separate action in the Central District of California against the City and others under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), involving the same alleged "sudden and accidental" environmental contamination at issue in the LASC Action (the "Federal Action"). (PSUF 13; Tabb Decl. ¶ 9.) Third-party defendant Occidental Chemical Corporation ("Occidental") countersued LAT and sued Soco as a third-party defendant in the Federal Action for the same environmental contamination, and specifically alleged a "sudden and accidental" release of pollutants. (PSUF 19–20.)
In May 2019, the City amended its complaint in the LASC Action and added Soco as a defendant. (PSUF 33.) The City's LASC Second Amended Complaint ("SAC") also now specified that LAT and Soco's alleged contamination occurred "suddenly and accidentally, and over long periods of time." (PSUF 33; Tabb Decl. Ex. Z ("City LASC SAC") ¶ 41, ECF No. 80-26.)2
In May 2018, LAT first tendered the City's LASC First Amended Complaint to United for a defense under the policies. (PSUF 8.) In a letter dated August 6, 2018, United, relying on the Qualified Pollution Exclusion, "disclaim[ed] any duty to defend or indemnify [LAT]" because, at the time, the City had not expressly alleged a "sudden and accidental" release of pollutants. (Tabb Decl. Ex. M ("United-LAT 2018 Disclaim Letter") at 252–53, ECF No. 80-13.) United invited LAT to provide any additional facts or evidence supporting covered liability. (Id. at 253.)
The City, as an additional insured, also tendered its defense of LAT's claims in the LASC and Federal Actions to United under the policies. In September 2018, United agreed to defend the City under a reservation of rights. (DSGI 18; see Tabb Decl. Exs. P & Q ("United-City 2018 Coverage Letters") at 274 (P) & 285 (Q), ECF Nos. 80-16, 80-17.) United stated it agreed to defend the City against LAT's claims because LAT's pleadings specifically alleged a "sudden and accidental" release of hazardous materials. (United-City 2018 Coverage Letters at 280 (P) & 291 (Q).)
In February 2019, LAT and Soco jointly tendered the defense of the LASC and Federal Actions to United. (PSUF 21.) In April 2019, United agreed to defend LAT and Soco in both actions, pursuant to a reservation of rights. (PSUF 22.) Until this time, United had maintained a unified claim file for Plaintiffs and the City, with a single claim handler, Randi Hoffman, managing the claims of each insured against the other. (PSUF 30–31.) After United accepted Plaintiffs’ defense, it split the claim file. (DAMF 56.)
In its letter accepting Plaintiffs’ defense, United agreed to defend Plaintiffs in the Federal Action because Occidental's counterclaim alleged "sudden and accidental" release of hazardous materials, and although the City's counterclaim did not use this language, it was "premised on the same events and alleged pollution." (Tabb Decl. Ex. U ("United-LAT 2019 Coverage Letter") at 356, ECF No. 80-21.) Similarly, United agreed to defend Plaintiffs in the LASC Action because the claims and issues in the LASC Action were "the same claims and issues being contested in" the Federal Action, though those pleadings also lacked explicit allegations of "sudden and accidental" releases. (Id. at 357.) United reserved the right to withdraw the defense if no "sudden and accidental" releases occurred. (Id. )
When LAT was first served with the LASC Action, it retained the law firm of Rutan & Tucker for its defense; Rutan & Tucker continues to defend LAT and Soco in both Underlying Actions. (PSUF 9; Decl. Raj Mehta ISO PMSJ ("Mehta Decl.") ¶ 4, ECF No. 79-2.) United did not pay for the defense fees and costs LAT and Soco had incurred, (PSUF 23), and offered to appoint John Brydon of Demler Armstrong & Rowland LLP as Plaintiffs’ defense counsel, (PSUF 24). Plaintiffs argued they were entitled to continued representation through Rutan & Tucker, as independent counsel. (PSUF 26.) United refused Plaintiffs’ demand for independent counsel and has not paid any amount of Plaintiffs’ defense costs. (PSUF 27, 29.)
Plaintiffs assert three causes of action against United: (1) declaratory relief—duty to defend upon tender of the LASC Action; (2) declaratory relief—right to independent counsel; (3) breach of the duty to defend.3 (SAC ¶¶ 55–72.)
On September 30, 2020, the Court denied United's Motion to Dismiss Plaintiffs’ SAC. (Order Den. Mot. Dismiss, ECF No. 59.) Notably, the Court found that, under the facts as alleged by LAT and Soco, United owed a duty to defend in the LASC Action as soon as LAT tendered the City's First Amended Complaint. (Id. at 10.) The Court also found that Plaintiffs had stated a plausible claim for independent counsel, based primarily on the conflict presented by United providing a defense to direct litigation adversaries. (Id. at 14.)
Plaintiffs now move for summary judgment on all three claims. (PMSJ 1–4.) The Motion is fully briefed, including a surresponse from United filed with the Court's permission. (Def. Opp'n MSJ ("Opp'n"), ECF No. 98; Pls. Reply ("Reply"), ECF No. 106; Def. Surresp., ECF No. 114.)
A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The burden of establishing the absence of a genuine issue of material fact lies with the moving party, see Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), and the court must view the facts and draw reasonable inferences in the light most favorable to the nonmoving party, Scott v. Harris , 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) ; Addisu v. Fred Meyer, Inc. , 198 F.3d 1130, 1134 (9th Cir. 2000). A disputed fact is "material" where the resolution of that...
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