Roberts Oil Co., Inc. v. Transamerica Ins. Co.

• Decision Date: 18 May 1992
• Docket Number: Nos. 19789,19794,s. 19789
• Citation: 833 P.2d 222,1992 NMSC 32,113 N.M. 745
• Parties: ROBERTS OIL COMPANY, INC. and Federated Service Insurance Company, Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY and CNA Insurance Company, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 222

833 P.2d 222

113 N.M. 745

ROBERTS OIL COMPANY, INC. and Federated Service Insurance

Company, Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY and CNA Insurance Company,

Defendants-Appellees.

Nos. 19789, 19794.

Supreme Court of New Mexico.

May 18, 1992.

[113 N.M. 745] Hinkle, Cox, Eaton, Coffield & Hensley, Thomas M. Hnasko, Joe W. Wood, Gary W. Larson, Santa Fe, for plaintiffs-appellants.

Civerolo, Hansen & Wolf, Terry R. Guebert, Albuquerque, Steven M. Crane, Los Angeles, Cal., for defendant-appellee Transamerica Ins. Co.

Hatch, Beitler, Allen & Shepherd, Bob Thorson, Kimberly A. Franklin, Albuquerque, for defendant-appellee CNA Ins. Co.

OPINION

MONTGOMERY, Justice.

This case, at least as argued by the parties, presents a conflict between basic principles of insurance law and the necessity for prompt remedial action to correct an instance of environmental contamination. As we view the case, these competing objectives can be harmonized by applying settled New Mexico law and fundamental concepts underlying the nature of an insurance contract.

The insurers defend two partial summary judgments relieving them of liability under their respective insurance policies for an incident of groundwater contamination that occurred several years before they were notified of the insured's claims against them and after the insured had assumed substantial obligations and incurred significant expenses to remediate the contamination. The insured appeals from the summary judgments, arguing that, even if it breached a clause in the policies providing that it would not make such voluntary payments, the breach did not discharge the insurers absent prejudice to them. We basically agree with the insured's position (modified as discussed in this opinion), reverse the summary judgments, and remand the case for trial.

I. FACTS AND ISSUES

A. The Leaded Gasoline Leak and the Insured's Steps to Abate It

The contamination in question was discovered on January 21, 1985. It was occurring at a site in Albuquerque, New Mexico, which the insured, Roberts Oil Company, Inc. ("Roberts"), had leased as a Pump-N-Save filling station ("the site"). Roberts, a distributor and retailer of gasoline, had leased the site from Charles Bass in 1980, and Bass was operating the station by agreement with Roberts.

An underground transmission line running from leaded (regular) gasoline storage tanks to the dispensers at the pump islands had developed a leak sometime before January 1985, and the leaking gasoline had contaminated the groundwater beneath the site. Coincidentally, another underground gasoline leak had occurred at the site, apparently beginning sometime before 1980. This second (though earlier occurring) gasoline leak had led to the filing of a lawsuit by the Environmental Improvement Division of the New Mexico Health and Environment Department ("the EID") against Bass and Roberts in 1984. The leak which was the subject of this law suit was a release of unleaded gasoline that apparently occurred while Bass was operating the site as another brand of filling station. The EID's suit against Bass and Roberts was unrelated to the leaded gasoline leak discovered in January 1985, but Roberts was joined as a defendant on the theory that, by permitting the release of unleaded gasoline, Roberts was maintaining a public nuisance.

The EID suit over the unleaded gasoline leak was pending in January 1985 when the leaded gasoline leak was discovered. While responsibility for the earlier (unleaded) leak appears to have been directed primarily at Bass, the later (leaded) leak was regarded as primarily Roberts' responsibility. Roberts gave prompt notice of the leaded gasoline leak to the EID; and the EID, of course, demanded that Roberts abate the contamination resulting from the leak, under threat of litigation and sanctions pursuant to applicable statutes and regulations. Roberts also notified its then comprehensive general liability (CGL) insurer, Federated Service Insurance Company ("Federated"), which had undertaken Roberts' CGL insurance coverage effective January 1, 1985--twenty-one days before discovery of the leak. Federated began investigating the claim and designing and implementing a system to define the extent of groundwater contamination and to prevent further contamination. Roberts and Federated first notified Roberts' previous CGL carriers, Transamerica Insurance Company ("Transamerica") and CNA Insurance Company ("CNA"), of the problem on July 14, 1989. By that time Federated had spent in excess of $250,000 in abating the contamination and negotiating with the EID over the remediation project.

Meanwhile, the EID suit over the unleaded leak was settled as to Roberts in February 1986. The EID dismissed its claim against Roberts relating to the unleaded gasoline leak and agreed not to institute litigation over the leaded leak. In exchange, Roberts assumed responsibility for abating the leaded leak and agreed to undertake ongoing remedial activities at the site, including construction of wells to monitor and remove the groundwater contamination.

B. The Insurance Policies and the Insured's Claims Against the Insurers

As already indicated, Roberts was insured under a CGL policy issued by Federated, effective January 1, 1985. Before that date, and beginning on January 5, 1981, Roberts' operations at the site were insured under two successive CGL policies issued by Transamerica, providing coverage during the period January 5, 1981, to January 5, 1983. From January 1, 1983, to October 5, 1984, Roberts' insurance coverage was furnished by The Home Insurance Company ("The Home"), and from October 5, 1984, to January 1, 1985, its coverage was placed with CNA. Since, as will appear shortly, Roberts and Federated's claims against The Home were settled, we are concerned here only with the policies issued by Transamerica and CNA (to whom we shall sometimes refer as "the insurers"). Each of those policies insured against liability for property damage caused by an "occurrence," and each contained the following provisions pertinent to this appeal:

Under the heading "Insured's Duties in the Event of Occurrence, Claim or Suit," the policy provided that, in the event of an occurrence, written notice with respect to the circumstances of the occurrence would be given to the company by or for the insured "as soon as practicable." The policy then continued:

The insured shall cooperate with the company and, upon the company's request, assist in making settlements, [etc.] * * *. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of accident.

We shall refer to this clause as the "voluntary payment" clause.

Immediately after the voluntary payment clause, under the heading "Action Against Company," appears what we shall refer to as the "no action" clause. It reads in pertinent part as follows:

No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.

Sometime in late 1988 or early 1989, after the contamination had been abated, Federated began investigating the possibility that the leaded gasoline leak had occurred before January 1985, during the effective dates of insurance policies issued to Roberts by other carriers. According to an affidavit filed in the proceedings below, Roberts had no independent recollection of the carriers who had provided CGL insurance during the period 1981-1984 and no knowledge that a line leak during that period might entitle it to seek benefits under insurance policies previously in effect but then expired. Nevertheless, by July 14, 1989, attorneys retained by Federated had unearthed the insurance history recited above, and on that date the attorneys notified Transamerica, CNA, and The Home of claims for indemnity and contribution with respect to amounts Federated had expended on behalf of Roberts in connection with the pollution abatement project. The insurers did not respond (at least in writing) to the notices.

C. The Proceedings Below

Roberts and Federated commenced this action against Transamerica, CNA, and The Home on November 15, 1989. The complaint sought a declaratory judgment that each of the defendants was obligated to indemnify Roberts and reimburse Federated for amounts expended in abating the contamination and in defending against the claims of the EID or, alternatively, for contribution to Federated's payment of such amounts.¹ Each defendant answered, denied liability, and raised various affirmative defenses.

After filing the complaint, Roberts and Federated continued negotiations with the EID regarding ongoing remediation at the site. Federated informed Transamerica and CNA of these negotiations, but the defendants declined to participate in them. In June 1990, Roberts and Federated executed a second agreement with the EID, under which they agreed to transfer the remediation system to the EID and to pay it $45,000 in exchange for a complete release of their environmental cleanup obligations at the site. As of that date, Federated had spent approximately $504,000 in defense and cleanup costs on behalf of Roberts.

In July 1990, Federated and Roberts settled their claims against The Home and dismissed it from the lawsuit.

On November 1, 1990, Transamerica moved for partial summary judgment, requesting an adjudication that it was not liable for any amounts expended or obligations assumed by Roberts and Federated before they provided notice to Transamerica. The motion was based on the grounds that Roberts had breached the voluntary payment and no action clauses in the...