Sharon Steel Corp. v. Aetna Cas. and Sur. Co.

• Decision Date: 14 January 1997
• Docket Number: No. 940384,940384
• Court: Utah Supreme Court
• Parties: , 308 Utah Adv. Rep. 3 SHARON STEEL CORPORATION, Plaintiff, v. AETNA CASUALTY AND SURETY COMPANY, et al., Defendants. David FINKELSTEIN, et al., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, et al., Defendants. AETNA CASUALTY AND SURETY COMPANY, Cross-Claimant and Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY and Hartford Accident & Indemnity Company, Cross-Claim Defendants and Appellees.

Page 127

931 P.2d 127

44 ERC 1745, 308 Utah Adv. Rep. 3

SHARON STEEL CORPORATION, Plaintiff, v. AETNA CASUALTY AND SURETY COMPANY, et al., Defendants.

David FINKELSTEIN, et al., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, et al., Defendants.

AETNA CASUALTY AND SURETY COMPANY, Cross-Claimant and Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY and Hartford Accident &

Indemnity Company, Cross-Claim Defendants and Appellees.

No. 940384.

Supreme Court of Utah.

Jan. 14, 1997.

Michael W. Homer, Jesse C. Trentadue, Claudia F. Berry, Salt Lake City, and Randolph P. Sinnott, Margo T. Wright, Los Angeles, CA, for Aetna.

Mark J. Williams, Jaryl L. Rencher, Salt Lake City, and David F. Abernethy, Philadelphia, PA, and Kevin Gross, Washington, DC, for American Motorists.

Joy L. Clegg, Julianne Blanch, Salt Lake City, for Hartford.

DURHAM, Justice:

Appellant Aetna Casualty and Surety Company appeals the trial court's grant of summary judgment in favor of appellees American Motorists Insurance Co. (AMICO) and Hartford Accident & Indemnity Co. Aetna claims that the trial court erred in holding that it did not have a cause of action for equitable subrogation against AMICO and Hartford for monies it paid in defending UV Industries, Inc. and UV Industries, Inc. Liquidating Trust (Liquidating Trust) in an action brought by the Environmental Protection Agency. On cross-appeal, AMICO argues that the trial court erred in holding that it had a duty to defend the insured parties under its insurance policies with UV Industries, Inc. We agree with both contentions and thus reverse the trial court and remand for further proceedings.

I. BACKGROUND

A. The Midvale Pollution and the Underlying Litigation

Between approximately 1908 and 1971, UV Industries, Inc., previously known as U.S. Smelting, Refining, & Mining Co., was engaged in ore milling operations at a 260-acre site in Midvale, Utah. During this time, UV Industries milled and refined ores of copper, lead, and zinc at the Midvale property. The residues, or tailings, of these processes were pumped from the mill and piled or impounded at various locations throughout the site. In total, ten million tons of tailings were generated and dumped in piles up to fifty feet high. In 1971, all milling operations at the site ceased, but the tailings remained on the site in the same uncontained piles in which they originally were dumped. In 1979, UV Industries conveyed most of its assets, including the Midvale property, to Sharon Steel Corporation. UV Industries was subsequently dissolved, and all remaining assets were transferred to the Liquidating Trust.

Between 1984 and 1986, the United States Environmental Protection Agency (EPA) determined that the Midvale property posed an imminent danger to the public health and environment owing to the actual or threatened release of hazardous substances from the toxic mine tailings on the property. The EPA subsequently initiated an action in federal district court against UV Industries, the Liquidating Trust, and Sharon Steel alleging liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, and the Resource Conservation and Recovery Act (RCRA) 42 U.S.C. §§ 6901-6992, for costs arising from the cleanup of the hazardous substances at the Midvale property. United States v. Sharon Steel Corp., No. 86-C-924J (D. Utah filed Oct. 10, 1986). This action was subsequently consolidated with a second action, entitled United States v. Sharon Steel Corp., Civil Action No. 89-C-136 (D. Utah filed Feb. 10, 1989), ¹ which also asserted liability against UV Industries, the Liquidating Trust, and Sharon Steel for the cleanup of a slag site on the Midvale property. ²

B. The Insurance Policies and Coverage Litigation

During many, but not all, of the years that UV Industries was in business, it purchased insurance to cover its operations. Aetna, Hartford, and AMICO issued consecutive comprehensive general liability insurance policies to UV Industries from January 1966 through April 1980: Aetna issued five policies from January 1966 to January 1971 with limits of $100,000; Hartford issued four policies from January 1971 to March 1975 with limits of $100,000; and AMICO issued three policies from April 1975 to April 1980 with limits of $200,000 and $1,000,000.

The Liquidating Trust gave timely notice of the EPA action to all the insurance companies. Although Aetna, Hartford, and AMICO all disputed whether their policies covered this type of damage, Aetna and Hartford nevertheless began paying the defense costs for UV Industries and the Liquidating Trust. ³ Hartford, however, limited its obligation to five percent of defense costs based on a pro rata formula of the number of years it provided coverage.

In 1987, UV Trust and Sharon Steel filed actions in the state district court against several insurance companies, including Aetna, Hartford, and AMICO, to compel them to defend and indemnify UV Trust and Sharon Steel in the underlying action. These two state actions were subsequently consolidated. That same year, UV Trust and Sharon Steel sought a partial summary judgment declaring that Aetna, Hartford, and AMICO had a duty to defend. Ultimately, the trial court held that all three insurance companies had a duty to defend. ⁴

Subsequent to the court's ruling, Aetna continued to provide for the defense of the Liquidating Trust, ultimately contributing approximately 95% (about $10.5 million) of the total defense costs. Hartford's contribution continued to be limited to five percent ($500,000). AMICO never paid any defense costs.

C. The Settlement and Subsequent Cross-Claim

In July 1991, although on notice that Aetna had paid a substantial amount in defense costs for the Liquidating Trust, and that Aetna had also requested contribution, AMICO and Hartford settled with Sharon Steel and the Liquidating Trust, paying $475,000 and $500,000 ⁵ respectively, for a release from any further obligations. Specifically, the Hartford settlement agreement provided that:

Upon final execution of this Agreement, Hartford shall have no further duties or obligations to Sharon, UV or UV Trust based upon, arising out of, or related in any way to the Hartford Policies ... [and] shall have no further duties to pay any defense or indemnity costs in connection with the USA Actions.

On August 14, 1991, Aetna filed its cross-claim against Hartford and AMICO, seeking equitable subrogation and contribution for the defense costs it paid on behalf of the Liquidating Trust. ⁶ Upon motion for summary judgment, however, the trial judge held that Aetna did not have an action for equitable subrogation against Hartford or AMICO. The judge reasoned that since an insurer's subrogation right is derivative of the rights of its insured, the insured parties' settlement with Hartford and AMICO extinguished any claim that Aetna may have had for contribution.

Aetna appeals to this court. It claims that the trial court erred in determining that the settlement extinguished Aetna's subrogation claim. AMICO also cross-appeals, claiming that if this court finds that Aetna does have a cause of action for equitable subrogation, the trial court erred in determining that AMICO had a duty to defend under its policies with UV Industries.

II. ANALYSIS

A. Applicability of the Statute of Limitations

Hartford and AMICO initially argue that even if Aetna has a valid subrogation claim, it is time barred by the applicable statutes of limitations. Although the trial court did not grant summary judgment on the basis of the statute of limitations, this court may nevertheless affirm summary judgment on any ground that finds support in the record. K & T, Inc. v. Koroulis, 888 P.2d 623, 628 (Utah 1994).

AMICO and Hartford contend that under the limitations period for an action based on contract or, in the alternative, for an action based in equity, Aetna's cross-claim was not timely filed. See Utah Code Ann. § 31A-21-313(1) (three years for action on written policy or contract of insurance); id. § 78-12-25 (four years for actions not otherwise provided for). They claim that since Aetna started to pay defense costs in February 1987, for which it seeks reimbursement, the bringing of the cross-claim in August 1991 was time barred. See Canadian Indemnity Co. v. K & T, Inc., 745 F.Supp. 661, 663-64 (D.Utah), aff'd 953 F.2d 1391 (10th Cir.1990) (holding that under claim for breach of duty to defend, limitations period accrued under Utah Code Ann. § 31A-21-313(1) when insurer began to incur defense expenses). We need not, however, decide at this time which statutory time period applies to the present action or when that time period began, because we find that Aetna's cross-claim relates back to the filing of the Liquidating Trust's original complaint in 1986.

The issue of whether cross-claims relate back to the filing of the complaint is one of first impression in Utah. Neither of the statutes governing the filing of cross-claims or supplemental pleadings provides that these pleadings relate back to the date of the filing of the original complaint. ⁷ We must therefore look to other sources for guidance. Other jurisdictions that have addressed this issue have distinguished between those counterclaims and cross-claims "wherein the defendant seeks to reduce the amount a plaintiff can recover, such as by recoupment, contribution, or indemnity, and those wherein the defendant is seeking affirmative relief." United States ex rel. Bros. Builders Supply Co. v. Old World Artisans, Inc., 702 F.Supp. 1561, 1569-70 (N.D.Ga.1988); see also Appelbaum v. Ceres Land Co., 546 F.Supp. 17, 20 (D.Minn.1981), aff'd, 687 F.2d 261 (8th Cir.1982); State ex rel. Egeland v. City Council, 245 Mont. 484, 803 P.2d 609, 613 (1990). In general, where a defendant's claim is similar to a pure defense, then the filing of the complaint tolls the statutory period. See 51 Am.Jur.2d Limitation of...