Northern States Power Co. v. Fidelity and Cas. Co. of New York

• Decision Date: 30 September 1994
• Docket Number: No. C3-92-2363,C3-92-2363
• Citation: 523 N.W.2d 657
• Parties: NORTHERN STATES POWER COMPANY Appellant, v. FIDELITY AND CASUALTY COMPANY OF NEW YORK, Defendant, St. Paul Fire and Marine Insurance Company, as itself and as successor in interest to Mercury Insurance Company, et al., Petitioners, Respondent.
• Court: Minnesota Supreme Court

Page 657

523 N.W.2d 657

NORTHERN STATES POWER COMPANY Appellant, v. FIDELITY AND CASUALTY COMPANY OF NEW YORK, Defendant,

St. Paul Fire and Marine Insurance Company, as itself and as

successor in interest to Mercury Insurance

Company, et al., Petitioners, Respondent.

No. C3-92-2363.

Supreme Court of Minnesota.

Sept. 30, 1994.

Syllabus by the Court

Allocation of liability between multiple insurers consecutively on the risk for pollution damages should be proportionate to the damages which occurred during each policy period. Where the damages are continuous, allocation should be "pro rata by time on the risk."

Larry D. Espel, Greene Espel, Minneapolis, for appellant.

Charles E. Spevacek, Meagher & Geer, Minneapolis, for respondent.

Charles E. Lundberg, Bassford, Heckt, Lockhart, Truesdell & Briggs, P.A., Minneapolis, and Wiley, Rein & Fielding, Washington, DC, for amicus Ins. Environmental Litigation Ass'n.

Heard, considered and decided by the court en banc.

OPINION

KEITH, Chief Justice.

In this appeal, we must decide how to allocate damages between multiple insurers on the risk for pollution clean-up costs. These costs were incurred by the insured, Northern States Power (NSP) when it complied with a Minnesota Pollution Control Agency (MPCA) order to clean up property contaminated by operations as a coal-tar gasification site in Faribault, Minnesota. NSP commenced this action for declaratory judgment in 1989.

The property in question involves two adjacent sites along the Straight River in Faribault. In 1873, the Faribault Gas Light Company constructed an oil and gas plant on one of the sites. The company consolidated in 1889 with the Faribault Electric Light Company, forming the Faribault Gas and Electric Company, and moved the plant to an adjacent lot. In 1897 the plant was rebuilt, and the processing method was changed from an oil to a water process. The Consumers Power Company purchased the Faribault Gas and Electric Company in 1910 and changed the processing method from a water to a coal process. Consumers Power Company became NSP in 1916. In 1924, NSP purchased the adjacent property and, in 1928, constructed another coal-gas facility on that property. NSP ceased operating the facilities sometime after 1933 and, between that year and 1978, sold both sites.

In 1981, the MPCA discovered that the groundwater at both sites was contaminated with coal tars and spent oxide waste; it subsequently urged NSP to investigate remedial measures. NSP did so from 1984 to 1987. In February of 1987, NSP notified its insurers of the potential liability. In June of 1988, NSP entered into a consent order whereby NSP was ultimately required to pay approximately $1,600,000 in response costs ¹ (including interest at 8%, 7% and 5% per annum for different years from 1987 to 1992) to the MPCA, and to pay for monitoring costs of approximately $40,000 per year. NSP then sought coverage from the thirteen companies from which it had purchased comprehensive general liability (CGL) or environmental impairment liability insurance between 1946 and 1985. NSP eventually settled, on terms analogous to Pierringer agreements, with all carriers except St. Paul. See Pierringer v. Hoger, 21 Wis.2d 182, 124 N.W.2d 106 (1963).

Five St. Paul policies are at issue in this case. They are standard form CGL policies with self-insured retainers of $25,000 for the period from 1958 to 1970 and $100,000 for 1970 to 1973. The policies are labelled "Excess Liability Policy," but the record shows that no other insurer was providing primary coverage to NSP from 1958 to 1973. Each of the policies ² provides that St. Paul agrees to pay:

on behalf of the Insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of tangible property, including the loss of use thereof.

(Emphasis added). The policies further state, "the company's limit of liability * * * shall be $5,000,000 for each occurrence or series of occurrences arising out of one event," and "[t]his policy applies only to occurrences which occur during the policy period * * *." The policies additionally provide:

If the insured's liability incurred under this policy is covered by any other valid and collectible insurance, this policy shall act as excess insurance over and above such other insurance.

The policies also contain exclusions for "injury to or destruction of property owned * * * by the insured."

At the trial court, NSP and St. Paul brought cross-motions for summary judgment. NSP argued that all carriers "on the risk" from 1946 to 1985 agreed to be liable for "all sums" which NSP became obligated to pay as the result of the property damage, and the carriers were therefore jointly and severally liable for $1.6 million. NSP based this argument on the assumption that, under Minnesota law all policies were "triggered" ³ if they were on the risk at any time during which damage occurred, and damage occurred continuously from the date of operations to the present. NSP further argued that the trial court should apportion the damages between carriers "pro rata by limits." ⁴

In response to NSP's claims, St. Paul made several arguments, including: that the definition of "actual injury" in Minnesota required that only those policies in effect when the contamination was manifested were "triggered;" that the policies' "owned property" exclusion precluded coverage because NSP had remedied contamination in the soil in order to prevent further contamination of the groundwater and the soil was NSP's property; and that the St. Paul policies' "other insurance" clauses made them "excess" to those of the settling carriers. The trial court rejected all but one of St. Paul's defenses, holding that the St. Paul policies' "other insurance" clauses did not conflict with the "other insurance" clauses of the other policies at issue in the case, that St. Paul's policies' therefore acted as "excess" to the other policies, and that NSP had failed to show that the other policies provided insufficient coverage to meet its costs. The trial court therefore granted St. Paul's motion for summary judgment.

The court of appeals reversed the trial court and remanded the case, holding that the "total policy insuring intent" should have been analyzed to determine whether St. Paul's policies provided primary coverage and, under that analysis, St. Paul's policies provided primary coverage. Northern States Power Co. v. Fidelity and Cas. Co., 504 N.W.2d 240, 244-45 (Minn.App.1993). The court of appeals also held that there was a genuine issue of material fact regarding whether all of the MPCA mandated expenditures were required to remedy existing contamination and whether the "owned property" exclusion precluded coverage for certain damages. Id. at 245-46. Finally, the court of appeals held that damages were to be allocated among the carriers in proportion to the injuries that occurred during each policy period, and that NSP would be required to satisfy its self-insured retention on each policy under which it sought coverage. Id. at 247 (citing Uniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y.1988)). This court granted review only as to the "other insurance" and allocation of damages issues. These issues are related and have been analyzed together by this court. We modify the court of appeals' decision with respect to the allocation of damages and affirm the court of appeals' result with respect to the "other insurance" clause, but on other grounds.

Environmental liability insurance cases create special problems for litigants and courts. The stakes in these cases can be extremely high. "The average cost of remedying hazardous conditions at a site on the Superfund 'National Priority List' now exceeds $30 million." Kenneth S. Abraham, Cleaning Up the Environmental Liability Insurance Mess, 27 Val.U.L.Rev. 601, 603 (1993) [hereinafter Cleaning Up ]. "The cost of hazardous waste cleanup under the federal Superfund program and analogous state regimes * * * is likely to be several hundred billion dollars before these programs are completed." Kenneth S. Abraham, Environmental Liability Insurance Law: An Analysis of Toxic Tort and Hazardous Waste Insurance Coverage Issues, 1 (1991) [hereinafter Analysis ]. While several commentators argue that the insurance industry expected to be held liable for damages to property due to pollution, ⁵ it seems unlikely that the parties to these actions anticipated the extent of the liability they now face as the result of CERCLA and its state equivalents. CERCLA imposes strict liability for "response" (cleanup) costs and may be applied retroactively. See 42 U.S.C. § 9607 (1988); Analysis, at 11. Furthermore, the costs of "response," defined by CERCLA as "remedial action," are theoretically limitless, and cannot be estimated by, for example, the value of the property at issue. See 42 U.S.C. § 9601(25) (1988). This makes it difficult for insurers to assess the risks they may incur. Cf., Allocation Between Successive Insurers at 301-02.

We have held that claims for "response costs" may qualify as "damages" under standard CGL policies. Minnesota Mining & Mfg. v. Travelers Indem. Co., 457 N.W.2d 175, 184 (Minn.1990). In this case, however, we are not faced with the question of whether these claims are "damages," but with how to allocate liability between insurers. This is a very different issue, one which may require a more flexible approach. As with all insurance contract-related issues, courts must consider many factors when deciding this issue, including the policy language, parties' intent or reasonable expectations, canons of construction and public policy. See, e.g., Atwater Creamery Co. v. Western Nat. Mut. Ins. Co., 366 N.W.2d 271, 276-77 (Minn.1985); Nordby v. Atlantic Mut. Ins. Co., 329 N.W.2d 820, 822 (Minn.1983); Dairyland Ins. Co. v. Implement Dealers Ins. Co., 294 Minn. 236, 244-245, 199 N.W.2d 806, 811 (1972).

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