Montana Pet. Tank Comp. Bd. v. Crumleys

• Decision Date: 03 January 2008
• Docket Number: No. DA 06-0505.,DA 06-0505.
• Citation: 174 P.3d 948,2008 MT 2
• Parties: MONTANA PETROLEUM TANK RELEASE COMPENSATION BOARD, Plaintiff, Appellee and Cross-Appellant, v. CRUMLEYS, INC., d/b/a Keneco Petroleum Equipment; Norman Excavating, Inc.; D & L Services, a General Partnership and Its General Partners, Doug Dandro and Leonard Wallis; and Does 1-25, Defendants, Federated Service Insurance Company, Defendant and Appellant. Federated Service Insurance Company, Cross-Claimants, v. Crumleys, Inc., d/b/a Keneco Petroleum Equipment; Norman Excavating, Inc., D & L Services, a General Partnership and Its General Partners, Doug Dandro and Leonard Wallis, Cross-Defendants.
• Court: Montana Supreme Court

174 P.3d 948

2008 MT 2

MONTANA PETROLEUM TANK RELEASE COMPENSATION BOARD, Plaintiff, Appellee and Cross-Appellant, v. CRUMLEYS, INC., d/b/a Keneco Petroleum Equipment; Norman Excavating, Inc.; D & L Services, a General Partnership and Its General Partners, Doug Dandro and Leonard Wallis; and Does 1-25, Defendants, Federated Service Insurance Company, Defendant and Appellant.

Federated Service Insurance Company, Cross-Claimants, v. Crumleys, Inc., d/b/a Keneco Petroleum Equipment; Norman Excavating, Inc., D & L Services, a General Partnership and Its General Partners, Doug Dandro and Leonard Wallis, Cross-Defendants.

No. DA 06-0505.

Supreme Court of Montana.

Submitted on Briefs July 25, 2007.

Decided January 3, 2008.

For Appellant: Christian T. Nygren and Michael J. Milodragovich, Milodragovich, Dale, Steinbrenner & Nygren, P.C., Missoula, Montana. Laura J. Hanson, Meagher & Geer, PLLP, Minneapolis, Minnesota.

For Appellee: R. Allan Payne, Doney Crowley Bloomquist Payne Uda P.C., Helena, Montana.

Justice W. WILLIAM LEAPHARTdelivered the Opinion of the Court.

¶ 1 The Montana Petroleum Tank Release Compensation Board ("the Board") brought suit in the First Judicial District Court against Federated Service Insurance Company ("Federated"), seeking to recover the costs of cleaning up a leak from an underground diesel tank owned and operated by Visocan Petroleum Company ("Visocan"), Federated's insured. The District Court granted partial summary judgment to the Board, and found that the Board, as Visocan's subrogee, had the authority to assert Visocan's rights and claims against Federated. The District Court held that the leak was partially covered under a portion of the insurance policy, and that Federated had breached its duty to indemnify Visocan. The District Court also held that the Board could recover any other damages that arose from Federated's breach. A jury awarded the Board $25,317.50 in administrative costs as consequential damages. Federated appeals from both the District Court's grant of partial summary judgment, and the jury's award of consequential damages. We affirm.

¶ 2 We restate the issues as follows:

¶ 3 I. Is the Board authorized to enter into subrogation agreements with owner/operators for the purpose of seeking reimbursement from insurers and other liable third parties?

¶ 4 II. Did the District Court err in concluding that diesel fuel was a pollutant as defined in the policy?

¶ 5 III. Did the District Court err in partially granting the Board's motion for summary judgment, and finding that the 120-hour notice provision did not bar coverage for the leak?

¶ 6 IV. Did the District Court err in deciding that the Board, as a subrogee of Visocan's breach of contract claim, could recover its administrative costs as consequential damages of Federated's breach?

¶ 7 V. Was the evidence proffered by the Board at trial admissible and sufficient to support the jury's award of consequential damages?

¶ 8 VI. Did the District Court err in failing to award the Board, as the prevailing party, its costs, attorneys' fees, and pre- and post-judgment interest?

BACKGROUND

¶ 9 Visocan Petroleum Company owned and operated the Conoco Pop-Inn, a service station located in Helena, Montana. In the fall of 1998, Visocan installed a new 4,000 gallon diesel fuel tank as part of an upgrade of the Pop-Inn station. The new system was equipped with a leak detection monitor.

¶ 10 Roughly one week later, Visocan first noted discrepancies between the fuel levels registered by the system's leak detection equipment and the corresponding inventory and sales records. Visocan contacted the tank's installer, D & L Services, multiple times over the next few months to report the ongoing discrepancies. D & L visited the site to check the system several times. They concluded that there was no fuel leak, and that a calibration error was responsible for the discrepancies.

¶ 11 The discrepancies between the fuel levels and the inventory records persisted. On February 12, 1999, Keneco (a subsequent purchaser of D & L) performed an on-site "stick test." The test determined that the tank had lost 500 gallons of fuel in two hours. Visocan took the tank out of service the same day. On February 25, 1999, Steve Visocan, the president of Visocan, received a letter from the DEQ demanding a response to the diesel leak. The record does not reflect who reported the leak to the DEQ.

¶ 12 On March 3, 1999, Keneco dug up the storage tank. After entering the tank, an investigator observed a twenty-two inch crack on the south cap of the tank. The crack was the apparent source of the leak, but it was not conclusively determined what caused the crack. Visocan speculated that the damage was done by a backhoe during the tank's installation in the fall of 1998. On March 8, 1999, Steve Visocan reported the leak to Pat McCutcheon, Federated's local agent.

¶ 13 Under Montana's Comprehensive Environmental Cleanup and Responsibility Act, §§ 75-10-705-75-10-729, MCA, Visocan was responsible for the payment of the cleanup costs of the spill. Pursuant to the Petroleum Storage Tank Cleanup Act, §§ 75-11-301-75-11-321, MCA, and the Montana Underground Storage Tank Act, §§ 75-11-501-75-11-526, MCA, the Montana Petroleum Release Board would reimburse Visocan for eligible corrective action costs not covered by Visocan's insurance policy with Federated. Visocan signed a subrogation agreement with the Board, as required by Admin. R.M. 17.58.332(5). This agreement transferred all of Visocan's rights against third parties liable for the leak and any claims it had against its insurers over to the Board. Visocan reserved its right to seek reimbursement for costs not reimbursed by the Board.

¶ 14 Visocan held general and umbrella commercial liability and property insurance policies from Federated. These policies contained a standard absolute pollution-exclusion clause which disclaimed all coverage for spills resulting from pollutants. The policy defined "pollutants" to include "liquid . . . irritant[s] or contaminant[s]." Visocan also held a coverage extension (hereinafter Endorsement CP-F-83), which provided for up to $100,000 of coverage for "expense[s] to extract `pollutants' from land or water. . . ." This coverage extension contained a notice provision which required Visocan to report any damage or loss to Federated within 120 hours of the occurrence of the loss.

¶ 15 Visocan sought reimbursement from Federated under its applicable policies, and also submitted claims to the Board for reimbursement for the corrective action costs. Federated denied Visocan's claims for reimbursement via letter dated April 22, 1999, citing Visocan's failure to give timely notice under the 120-hour notice requirement.

¶ 16 The Board accepted Visocan's claims for reimbursement for corrective action costs, and its transfer of claims and rights against Federated and other third parties under an agreement dated April 13, 2000. The Board then proceeded to seek reimbursement from Federated for the cost of the clean-up. Federated denied all of the Board's requests for reimbursement.

¶ 17 This litigation ensued, and the Board sought recovery of the corrective action costs from Federated, including administrative costs and fees. The District Court partially granted the Board's motion for summary judgment. The court held that no coverage existed under the commercial general liability portion of the policy (hereinafter "CGL") or under the petroleum products distributors' coverage forms. However, the District Court did find that coverage for the leak existed under Endorsement CP-F-83. Thus, the District Court found that Federated had breached its duty to indemnify Visocan's loss resulting from the leak.

¶ 18 The District Court also found that the Board, as Visocan's subrogee, was entitled to recover all damages resulting from Federated's breach, including administrative costs. A jury trial was then held to determine whether the Board incurred additional administrative expenses for handling the Visocan claims as a result of Federated's breach, and which expenses it could recover as consequential damages. The jury found that the Board did incur additional administrative expenses as a result of Federated's breach, and that it was entitled to $25,317.50 in additional damages.

¶ 19 Federated appeals the jury's verdict and damage award, as well as multiple parts of the District Court's Order on Various Motions.

DISCUSSION

¶ 20 I. Is the Board authorized to enter into subrogation agreements with owner/operators for the purpose of seeking reimbursement from insurers and other liable third parties?

¶ 21 Federated challenges the validity of Admin. R.M. 17.58.332(5) (2001), which authorizes the Board to enter into subrogation agreements with tank owners seeking reimbursement. This rule establishes the Board's right to "subrogation claim[s] against insurance carriers whose policies cover . . . reimbursed costs." Admin. R.M. 17.58.332(5) (2001). As a prerequisite to eligibility for reimbursement, the rule requires tank owners and operators to subrogate their rights to any claims under their insurance policies to the Board. Admin. R.M. 17.58.332(5) (2001). Federated argues that the Board exceeded its authority in making this rule, because the Legislature only authorized the Board to seek funding from a limited number of sources. The Legislature delineated these sources in § 75-11-313(2)(a-e), MCA, and, Federated argues, intentionally did not include subrogation among them.

¶ 22 The District Court rejected Federated's argument, and found that the Board did have authority to seek reimbursement of the corrective action costs from Federated. The court based its holding on two alternative grounds: first, the court found, the Board had the power to enter into subrogation agreements under the existing statutory scheme prior to the 2001 amendment of Admin. R.M. 17.58.332. The court held that §§...