Port of Portland v. Water Quality Ins. Syndicate, Civ. No. 80-780-RE

• Decision Date: 07 October 1982
• Docket Number: 81-94-RE.,Civ. No. 80-780-RE
• Citation: 549 F. Supp. 233
• Parties: The PORT OF PORTLAND, a municipal corporation, Plaintiff, v. WATER QUALITY INSURANCE SYNDICATE, a foreign corporation, Defendant. The PORT OF PORTLAND, a municipal corporation, Plaintiff, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a foreign corporation, Defendant.
• Court: U.S. District Court — District of Oregon

549 F. Supp. 233

The PORT OF PORTLAND, a municipal corporation, Plaintiff, v.WATER QUALITY INSURANCE SYNDICATE, a foreign corporation, Defendant.

The PORT OF PORTLAND, a municipal corporation, Plaintiff, v.ST. PAUL FIRE & MARINE INSURANCE COMPANY, a foreign corporation, Defendant.

Civ. Nos. 80-780-RE, 81-94-RE.

United States District Court, D. Oregon.

October 7, 1982.

Paul N. Wonacott, Donald J. Morgan, Craig C. Murphy, Wood Tatum Mosser Brooke & Holden, Portland, Or., for plaintiff.

Alex L. Parks, C. Kent Roberts, Parks, Montague, Allen & Greif, Portland, Or., Sheldon E. Vogel, Thacher Proffitt & Wood, New York City, for defendant Water Quality Ins. Syndicate.

James M. Callahan, Landis, Aebi & Bailey, P.C., Portland, Or., for defendantSt. Paul Fire & Marine Ins. Co.

OPINION

REDDEN, Judge:

This is an action brought by the Port of Portland ("the Port") against two of its insurers, St. Paul Insurance ("St. Paul") and the Water Quality Insurance Syndicate ("WQIS").A dredge owned by the Port, the OREGON, sank at its moorings and created a large oil slick on the Willamette River.The Port contracted with third parties to clean up the slick, and sought repayment from its insurers.The insurers deny coverage under their policies for a variety of reasons.The case is now before the court on cross motions for summary judgment on certain legal issues.

Does the St. Paul Policy Cover the Loss in Question?

The Port's insurance policy issued by St. Paul provided coverage for "property damage," which is defined as "physical injury to or destruction of tangible property."St. Paul contends that the pollution of the Willamette did not result in "property damage"; or that if it did, the policy contains an express exclusion, Exclusion K, which avoids coverage.

Exclusion K to the policy reads as follows:

This Insuring Agreement does not apply:

. . . . .

K.To bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants, or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.(Emphasis added.)

The normal rule that ambiguities must be resolved in favor of the insured is even stronger when, as here, an exclusionary clause is at issue.Ins. Co. of North America v. Howard,679 F.2d 147, 150(9th Cir.1982)(Citing Oregon cases).However, in this case there is no ambiguity whatsoever about the terms of the policy, and its meaning is clear as a matter of law.Exclusion K itself states that "property damage" can result from the discharge of pollutants, and disallows coverage for certain types of pollution which result neither suddenly nor accidentally.There is no material issue of fact as to whether the sinking of the OREGON was sudden or accidental; the policy clearly covers such a loss.The insurer argues that the damage to the Willamette River was not "injury to or destruction of tangible property," but this interpretation is untenable.The language of Exclusion K itself disallows coverage for certain "property damage" resulting from discharge into navigable waters.Further, Oregon law establishes that the state's interest in its water resources is sufficient to support an action for damages caused by pollution, seeAskew v. American Waterways Operators,411 U.S. 325, 331-2, 93 S.Ct. 1590, 1595, 36 L.Ed.2d 280(1973);ORS 468.805.The court in Lansco, Inc. v. Environmental Protection,138 N.J.Super. 275, 350 A.2d 520(1975), aff'd per curiam145 N.J.Super. 433, 368 A.2d 363(App.Div.1976), interpreting policy provisions identical to those in the St. Paul policy on closely analogous facts, rejected the insurer's arguments that the "sudden and accidental" pollution was not "property damage," and I adopt this rationale as the "reasonable, enlightened view" which the Oregon Supreme Court would adopt, seeIns. Co. of North America v. Howard, supra, at 149.

St. Paul's next argument is that it should be able to introduce parol evidence tending to prove it did not intend to cover such pollution losses, or that the plaintiff did not intend to secure such coverage from them.I reject this proffer of parol evidence to vary the terms of the insurer's integrated, written contract.Parol evidence is inadmissable to contradict, add to, detract from, or vary a written contract which is clear and explicit and contains no ambiguities.Oregon-Pacific Forest Prods. v. Welsh Panel Co.,248 F.Supp. 903, 908(D.Or.1965)(Kilkenny, J.);Barnstaple v. United States National Bank,232 Or. 36, 40, 374 P.2d 386, 390(1962);Timberline Equip. v. St. Paul,281 Or. 639, 643, 576 P.2d 1244(1978)(Interpretation of an exclusionary clause which is not ambiguous is a matter of law.)This contract is clear and explicit.

The position of St. Paul is that parol evidence should be allowed in to create an ambiguity; then parol evidence should be used to interpret the contract, given the ambiguity.This is exactly the sort of bootstrapping which the parol evidence rule forbids.SeeORS 41.740;Knox v. Hansen,242 Or. 114, 120, 408 P.2d 76, 79(1965): "Since the language is clear we cannot concern ourselves with extrinsic evidence bearing on what the parties understood or intended or with whether the results were equitable."

I hold that, as a matter of law, the St. Paul policy covers the loss.

Does The WQIS Policy Cover the Loss in Question?

The Port also had a policy written by WQIS, covering the Port's liability for pollution under the Federal Water Pollution Control Act (FWPCA), 33 U.S.C. § 1251 et seq.This policy covers any "discharge" as defined under the FWPCA, and includes both sudden accidental discharges, and more gradual or routine discharges.The St. Paul policy does not cover the latter.33 U.S.C. § 1321(a)(2).This insurer takes the position that it is not liable on its policy because the dredge OREGON was a "public vessel", not"engaged in commerce," which is exempted from FWPCA coverage.See33 U.S.C. § 1321(a).

It is true that the FWPCA does not cover "public vessels"unlessthey are "engaged in commerce".The Port admits that the dredge was a "public vessel", but contends that it was "engaged in commerce" in its dredging activities, cf.Ritch v. Puget Sound Bridge and Dredging,156 F.2d 334, 336(9th Cir.1946)(Dredging contractors were engaged in commerce for purposes of application of Fair Labor Standards Act).Normally under Oregon law I would interpret the policy so as to provide coverage where any ambiguities exist, but such a principle of construction has been held to be inapposite where coverage depends upon construction of a statute.Perez v. State Farm,289 Or. 295, 299 and n. 2, 613 P.2d 32(1980).I therefore approach this problem as one of straight statutory construction.Id.

There are no material issues of fact as to the operation of the dredge or its functions.The OREGON was used to dredge the Columbia and Willamette to specified depths as an aid to navigation.It performed this task under contract to the U.S. Army Corps of Engineers.The sinking of the OREGON occurred as the dredge was being prepared for another dredging "season".The dredge has performed its duties under contract with the Corps since 1972; prior to that date these functions were performed by private contractors or the Corps' own dredge.During the period 1972-1974, the OREGON was used by the Corps as were other private dredges.After 1974, the OREGON was the only vessel under contract with the Corps for dredging.

There is no case law or relevant legislative history on Congress' intent in exempting public vessels, not "engaged in commerce" from FWPCA.However, it seems probable that Congress intended, by the use of this language to invoke the principle of United States v. California,297 U.S. 175, 56 S.Ct. 421, 80 L.Ed. 567(1936).That case holds that a state or municipality engaging in activity far removed from traditional state functions, which is more commonly performed by the private sector, can be regulated by the Congress under the Commerce Clause.Thus in United States v. California,the Supreme Court held that California, by operating a state-owned railroad, was "engaging in interstate commerce" and was subject to federal railroad safety regulation, 297 U.S. 185, 56 S.Ct. 424.This test was subsequently recognized in National League of Cities v. Usery,426 U.S. 833, 852 n. 17, 96 S.Ct. 2465, 2474 n. 17, 49 L.Ed.2d 245(1976), and is applied to determine whether given governmental operations are "proprietary" or "services ... which the States have traditionally afforded their citizens."Id. at 851, 96 S.Ct. at 2474.

Certain operations of a public body, such as the operation of a coast guard cutter or a fireboat, are exempt from the FWPCA and are not covered by the WQIS policy.However, dredging is not an activity "traditionally afforded" to citizens.Not only was the OREGON in competition with private dredges for Corps work, but the OREGON was paid for its services by the Corps on a cost-recovery basis.Further, Oregon cases hold that such dredging is not a "governmental" function sheltering municipalities from liability by their sovereign immunity, McKay v. Comm. of Port of Toledo,77 Or. 611, 617, 152 P. 250(1915).This is in accord with the Ninth Circuit's holding in Ritch v. Puget Sound, supra, to the effect that contractors engaged in dredging as part of the World War II improvements to Puget Sound navigation were "engaged in commerce."Thus as a matter of statutory construction, and therefore of contract interpretation, I find that the OREGON was covered by the WQIS policy when the loss occurred.

I also reject, as inconsistent with the broad remedial purpose of the FWPCA, the WQIS contention that since the dredge was not actually...