Port of Portland v. Water Quality Ins. Syndicate

• Decision Date: 14 August 1986
• Docket Number: Nos. 84-4041,s. 84-4041
• Citation: 796 F.2d 1188
• Parties: , 16 Envtl. L. Rep. 20,956 The PORT OF PORTLAND, a municipal corporation, Plaintiff-Appellant/Cross-Appellee, v. WATER QUALITY INSURANCE SYNDICATE, a foreign corporation, Defendant-Appellee/Cross-Appellant. The PORT OF PORTLAND, a municipal corporation, Plaintiff-Appellee/Cross-Appellant, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a foreign corporation, Defendant-Appellant/Cross-Appellee. to 84-4043.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1188

796 F.2d 1188

24 ERC 1769, 16 Envtl. L. Rep. 20,956

The PORT OF PORTLAND, a municipal corporation, Plaintiff-Appellant/Cross-Appellee, v. WATER QUALITY INSURANCE SYNDICATE, a foreign corporation,

Defendant-Appellee/Cross-Appellant.

The PORT OF PORTLAND, a municipal corporation, Plaintiff-Appellee/Cross-Appellant, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a foreign

corporation, Defendant-Appellant/Cross-Appellee.

Nos. 84-4041 to 84-4043.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 9, 1986.

Decided Aug. 14, 1986.

Katherine H. O'Neil, Wood, Tatum, Mosser, Brooke & Holden, Portland, Or., for Port of Portland.

Joe D. Bailey, Landis, Aebi, Bailey & Mercer, Portland, Or., for St. Paul Fire & Marine Ins. Co.

Alex L. Parks, Parks, Montague, Allen & Greif, Portland, Or., for Water Quality Ins. Syndicate.

Appeal from the United States District Court for the District of Oregon.

Before SKOPIL, NELSON, and BOOCHEVER, Circuit Judges.

SKOPIL, Circuit Judge:

This is an action brought by the Port of Portland ("Port") against two of its insurers, St. Paul Fire & Marine Insurance Company ("St. Paul") and the Water Quality Insurance Syndicate ("WQIS"). The Port seeks to recover costs and expenses expended in containing and cleaning up an oil slick on the Willamette River. The slick occurred when the Port's dredge, the OREGON, sank at its moorings in the Portland harbor. More than 65,000 gallons of diesel fuel plus various lubricating oils were aboard. The Port contracted with third parties to contain and clean up the pollution and remove the diesel fuel.

WQIS and St. Paul denied liability. The district court held both companies liable under their respective insurance contracts. 549 F.Supp. 233 (1982). Damages were apportioned on a ratio to each insurer's policy limits and attorney's fees were awarded to the Port.

On appeal the insurers again deny coverage. WQIS contends that attorney's fees are not statutorily available. The Port cross-appeals the district court's exclusion of certain expenses and seeks attorney's fees on appeal.

DISCUSSION

A. Was the dredge OREGON a "public vessel" engaged in commerce and thus covered by the WQIS policy?

WQIS is an insurance syndicate offering coverage tailored to liabilities created by the Federal Water Pollution Control Act (FWPCA), 33 U.S.C. Secs. 1251-1376 (1982). The FWPCA is a remedial statute intended to create a comprehensive plan to expedite oil pollution cleanup and allocate and limit liability. Tug Ocean Prince, Inc. v. United States, 584 F.2d 1151, 1162 (2d Cir.1978), cert. denied, 440 U.S. 959, 99 S.Ct. 1499, 59 L.Ed.2d 772 (1979). WQIS's coverage for removal costs of oil is coextensive with FWPCA's liabilities. The Act specifically excludes public vessels unless engaged in commerce. 33 U.S.C. Secs. 1321(a)(3) and (4). The Act does not define "engaged in commerce."

The OREGON was used to dredge the Columbia and Willamette Rivers as an aid to navigation. These tasks were performed under contract with the U.S. Army Corps of Engineers. The Port's contract with the Corps of Engineers provided for the Port's recovery of all "actual costs" as well as indirect costs such as maintenance, capital expenditures, insurance, depreciation and standby costs. When the OREGON sank it was being prepared for another dredging season. Its crew had just completed final preparations that included loading fuel oil.

On these undisputed facts, the district court granted summary judgment in favor of the Port. The court concluded that the FWPCA was intended to cover a municipality's activity "far removed from traditional state functions, which is more commonly performed by the private sector." We agree.

There is no question that municipalities engage in activities which may cause them liability under the FWPCA. See United States v. Massachusetts Bay Transportation Authority, 614 F.2d 27, 28-29 (1st Cir.1980) (transit authority liable for civil penalties for causing oil spills); United States v. City of New York, 481 F.Supp. 4, 6-7 (S.D.N.Y.1979) (city liable for civil penalties for discharges of oil into navigable waters), aff'd without opinion, 614 F.2d 1292 (2d Cir.1979), cert. denied, 446 U.S. 936, 100 S.Ct. 2154, 64 L.Ed.2d 789 (1980). Dredging operations have been held to be commercial activities. E.g., Ritch v. Puget Sound Bridge & Dredging Co., 156 F.2d 334, 337 (9th Cir.1946) (dredging contractors engage in commerce for purposes of Fair Labor Standards Act). Further, a city's dredging operations have been held not to be a "governmental" function that would shelter the municipality from liability by its sovereign immunity. MacKay v. Commissioner of Port of Toledo, 77 Or. 611, 152 P. 250, 252-53 (1915).

The Port is authorized by state law to "engage in certain commercial activities," including dredging. Or.Rev.Stat. Sec. 778.025(4) (1985). The Port may contract with the federal government to perform dredging work for compensation. Or.Rev.Stat. Sec. 777.110 (1985). Although the OREGON was committed to Corps of Engineers dredging, while on standby it was available by contract to third parties. While the Port did not make a "profit" on its dredging operations, it was still engaged in commerce. See United States v. California, 297 U.S. 175, 183-87, 56 S.Ct. 421, 423-26, 80 L.Ed. 567 (1936) (under traditional function test, state's operation of railroad without profit is interstate commerce); cf. Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 1016-21, 83 L.Ed.2d 1016 (1985) (rejecting functional analysis and holding that commerce clause extends to all intrastate economic activities affecting interstate commerce).

Finally, the agency in charge of administering the FWPCA has issued interpretive decisions construing the term "engaged in commerce." These decisions generally support a broad interpretation of commerce so as to narrow the exceptions to the FWPCA. See 429 C.G. Law Bulletin 8, 9 (Nov. 26, 1980); 420 C.G. Law Bulletin 12, 13-14 (Aug. 16, 1978).

B. Did the Port of Portland breach the WQIS contract by failing to comply with notice and consent provisions?

Paragraph 4 of the general conditions and limitations section of WQIS's policy provides that in the event of an occurrence which may result in a claim, the Port must give immediate notice and must forward to WQIS all information, communications, and processes relating to the occurrence. Section A, fifth subsection of the policy provides coverage for "[c]osts incurred with the consent of the insurers for the removal of oil." WQIS contends that the Port failed to comply with the notice or consent conditions. The interpretation and meaning of words in a contract in light of surrounding circumstances presents a question of law freely reviewable on appeal. Martin v. United States, 649 F.2d 701, 703 (9th Cir.1981).

The OREGON sank on Friday, June 17, 1978. That same day the Port's insurance broker inspected the site, observed the emerging oil, and called WQIS to report the spill. The broker left a recorded message. The following Monday, WQIS's manager returned the call and was informed of the spill. The broker, whom the district court found to be a credible witness, testified that he told WQIS's manager that (1) the OREGON sank; (2) the dredge had been ready to depart on a job and carried a substantial amount of fuel that would have to be removed; (3) the Port's oil skimmers were on the site; and (4) a third party's skimmers were also at the spill working to contain and remove the oil. The manager responded by questioning whether the OREGON was a public vessel and outside the policy's coverage. No mention was made of the consent requirement. The Port never received written directions or inquiry from WQIS. The broker testified that he inferred from the conversation that WQIS had consented to the Port's removal efforts.

The following day the Port's broker wrote to WQIS to confirm the information given over the phone. He opined that the fuel would soon be removed from the dredge to standby tanks. WQIS received the letter four days later and did not respond or inquire about further removal operations. Documents on the claim were finally compiled and forwarded to WQIS over a year later in July 1979.

We agree with the district court that the Port gave WQIS timely notice of the incident. Any delay in providing information to WQIS was excused by the Port's good faith efforts to collect and organize its documentation and the lack of diligence on the part of WQIS to make any effort to increase its knowledge of the circumstances. We further agree that WQIS's silence on the Port's removal operations constituted an acquiescence from which consent can be inferred. ¹

C. Is WQIS liable only for excess coverage?

WQIS contends that it is an excess carrier and its liability is therefore limited to the amount of damages that exceed the primary insurer's coverage. WQIS argues that St. Paul was the primary insurer with a coverage limitation of $1,000,000. The damages were determined to be $276,802.07. Thus, WQIS contends that it has no liability under its policy.

Section 10 of WQIS's policy provides that when there is other valid and collectible insurance with another insurer, WQIS's coverage "shall be in excess of and shall not contribute with such other insurance." Section 35 of the General Conditions of St. Paul's policy provides that its coverage is primary, but that between two coexisting coverages St. Paul's liability shall be prorated.

This issue was raised below by each party as a defense to the Port's claim under the respective policies. WQIS relied on the language of the policies. St. Paul relied on a written contract between St. Paul and WQIS that prohibits St. Paul from writing pollution coverage in competition with WQIS except on an excess basis. St. Paul further argued that if WQIS's policy was truly intended to provide only excess coverage, the Port was...