Weyerhaeuser Co. v. Commercial Union Ins., 67694-1.

• Court: United States State Supreme Court of Washington
• Citation: 142 Wash.2d 654,15 P.3d 115
• Decision Date: 21 December 2000
• Docket Number: No. 67694-1.,67694-1.
• Parties: WEYERHAEUSER COMPANY, Respondent/Cross-Appellant, v. COMMERCIAL UNION INSURANCE COMPANY, Appellant/Cross-Respondent.

15 P.3d 115
142 Wash.2d 654

WEYERHAEUSER COMPANY, Respondent/Cross-Appellant,
v.
COMMERCIAL UNION INSURANCE COMPANY, Appellant/Cross-Respondent

No. 67694-1.

Supreme Court of Washington, En Banc.

Argued May 9, 2000.

Decided December 21, 2000.

As Amended January 16, 2001.

15 P.3d 119

Cusack & Knowles, Kenneth James Cusack, William Frank Knowles, Barney Jay Mason, Seattle; Johns, Monroe, Mitsunaga, Robert D. Johns, Bellevue; Reed, McClure, Greg Montgomery, Mary R. DeYoung, Seattle, for Appellant

Gordon, Murray, Tilden, Charles Cooper Gordon, Jeffrey Iver Tilden, Jeffrey M. Thomas, Seattle; Gabriel F. Gedvila, Federal Way; Eugene R. Anderson, Robert M. Horkovich, William G. Passannante, Anderson Kill & Olick, P.C., New York, New York, Counsel for Respondent.

Davis, Wright, Tremaine, Thomas Stephens James, Jr., Seattle, Amicus Curiae on Behalf of Insurance Environmental Litigation.

Mills, Meyers, Swartling, David MartinSchoeggl; Lane, Powell, Spears, Lubersky, Cathy Ann Spicer, D. Joseph Hurson, Seattle, Amicus Curiae on Behalf of Certain Underwriters at Lloyd's.

15 P.3d 116

15 P.3d 117

15 P.3d 118

SANDERS, J

Massive costs associated with hazardous waste cleanup prompt this litigation between insured and insurer to allocate financial responsibility pursuant to the terms and conditions of an insurance contract. The trial court resolved most claims on summary judgment, the remainder at trial. Neither party is satisfied. Commercial Union Insurance Co. (CU) appeals and Weyerhaeuser cross-appeals the resulting final judgment. The Court of Appeals certified this proceeding to the Supreme Court for direct review and we accepted. Ruling Accepting Certification, No. 67694-1 (Mar. 8, 1999). In part we agree with the learned trial judge, but in part we do not. A number of issues are presented which we must resolve.

We affirm the trial court and hold: (1) the supplemental policy does not create a property damage aggregate limit; (2) CU is not entitled to offset settlements Weyerhaeuser received from other insurers; (3) CU is obligated to provide coverage for the Mid State and Pasco sites; (4) the admission of expert testimony was proper; and (5) Weyerhaeuser is entitled to prejudgment interest for the five sites with liquidated damages. However we partially reverse the trial court to hold: (1) CU is entitled to a $500,000 per incident setoff against the underlying policy; (2) Weyerhaeuser is not entitled to prejudgment interest for (a) sites where damages are not liquidated, or (b) its award of attorneys' fees; and (3) a material issue of fact remains as to whether the underlying insurer's policy was properly exhausted, thus triggering CU's duty to defend Weyerhaeuser.

15 P.3d 120

Weyerhaeuser's cross-appeal raises two additional issues concerning the proration of costs in relation to CU's coverage at certain sites. CU concedes—and we agree—that in light of our subsequent holding in Am. Nat'l Fire Ins. Co. v. B & L Trucking & Constr. Co., 134 Wash.2d 413, 951 P.2d 250 (1998), a remand to the trial court is necessary to determine the correct amount of Weyerhaeuser's judgment for the sites where the jury prorated damages.

Accordingly, we affirm in part and reverse in part and remand to the trial court for proceedings consistent with this opinion.

FACTS

A. Background

Weyerhaeuser is the party responsible for cleaning up hazardous waste at approximately 130 sites nationwide under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, Washington's Model Toxics Control Act (MTCA), RCW 70.105D, and a variety of other state laws. Weyerhaeuser Co. v. Aetna Cas. & Sur. Co. (Weyerhaeuser I), 123 Wash.2d 891, 893, 874 P.2d 142 (1994). CERCLA and the MTCA impose strict liability for environmental cleanup. Id. at 898, 874 P.2d 142. The MTCA imposes joint and several liability for all natural resource damage and remediation costs. RCW 70.105D.040(2). Liability under both CERCLA and the MTCA extends broadly to current owners and operators of a facility, persons who owned or operated a facility at the time hazardous substances were disposed or released, and any other person who caused the disposal or release of the hazardous substance at any facility. See 42 U.S.C. § 9607(a); RCW 70.105D.040(1).¹ Weyerhaeuser claims its past and future "worst case scenario" costs may be as high as in the hundreds of millions of dollars to clean up these sites. Br. of Resp't/Cross Appellant at 22 (citing Clerk's Papers (CP) at 13410-13).

In 1992 Weyerhaeuser filed a declaratory judgment action against 34 insurance companies seeking a declaration of coverage with regard to property damage at 42 allegedly polluted sites in a number of states. CP at 142-214. Of these 42 sites only 15 are located in Washington (CP at 207-08), but because Weyerhaeuser is incorporated and headquartered in Washington, the trial court applied Washington law to the entire proceeding. CP at 295. Discovery and trial were divided into three phases or groups of sites. CP 236-94.

Prior to trial the court granted the defendant insurers' motion for summary judgment with regard to 15 sites, finding no coverage where the government had not instituted legal action because there was no claim of liability by a third party. Weyerhaeuser I, 123 Wash.2d at 894, 874 P.2d 142. We reversed, holding

Comprehensive General Liability (CGL) insurance policies, which provide coverage for all sums which the insured shall be obligated to pay by reason of the liability imposed by law for damages on account of property damage, may provide coverage when an insured engages in the cleanup of pollution damages in cooperation with an environmental agency. Such policies can reasonably be read to provide coverage for actions taken to clean up pollution damages required under environmental statutes which impose strict liability for such cleanup.

Id. at 896-97, 874 P.2d 142.

Subsequent to this decision and prior to the Phase I trial, all but one of the 34 insurance company defendants settled with Weyerhaeuser.² CU was the sole insurer that did not settle.

B. Employers Surplus Lines Supplemental Policy

As is common for large companies, Weyerhaeuser purchased its insurance in layers.

15 P.3d 121

See Pub. Util. Dist. No. 1 v. Int'l Ins. Co., 124 Wash.2d 789, 793, 881 P.2d 1020 (1994). At trial Weyerhaeuser claimed coverage under a supplemental or excess policy (hereinafter "supplemental policy") issued by Employers' Surplus Lines Insurance Company, No. E 62079 (Pl.'s Trial Ex. 3). CU then appeared as successor to Employers' Surplus Lines Insurance Co. CP at 223. The policy declarations page provided the policy was effective March 1, 1970 to March 1, 1973; however, an endorsement (No. 2) extended coverage from January 1, 1970 to March 1, 1970 (referred to as the "stub policy" or the "stub period"). Pl.'s Trial Ex. 3. A subsequent endorsement (No. 6) terminated coverage one month early on January 31, 1973. Id. The Employers' Surplus Lines policy supplemented the underlying Fireman's Fund Insurance Company policy ("underlying policy") pursuant to the following provision:

2. MAINTENANCE OF UNDERLYING INSURANCE

This policy is subject to the same terms, definitions, exclusions and conditions (except as regards the premium, the amount and limits of liability and except as otherwise provided herein) as are contained in or as may be added to the Underlying Policies stated in Item 2 of the Declarations [the Fireman's Fund policy] prior to the happening of an occurrence for which claim is made hereunder.

Id. The supplemental policy specified limits of $1,500,000 in excess of the Fireman's Fund $500,000 primary policy limits (CP at 8940), although the parties disagree as to whether the aggregate limit in the supplemental policy applies to, or limits, property damage coverage.³ CU claims the $1,500,000 aggregate limit applies to property damage. Weyerhaeuser claims it does not, and contends there is no aggregate limit on property damage.

C. Trial

The Phase I trial began in fall 1994, focusing on (1) the Mid State landfill near Cleveland, Wisconsin, and (2) Weyerhaeuser's wood-treating plant in DeQueen, Arkansas. CP at 592-93. After three weeks the jury found coverage for the Mid State site but no coverage for the DeQueen site. The Phase II trial began in spring 1996 and included seven Washington sites. The jury found coverage for five of the seven sites. CP at 7130-44. The Phase III trial on 10 remaining sites was avoided by CU's offer of judgment to Weyerhaeuser totaling $4,001,000 plus certain future costs. CP at 7168-72, 7415-18. Weyerhaeuser accepted the judgment offer, which was filed on May 30, 1997. CP at 7415-25.

On December 19, 1997 the trial court entered the judgment on jury verdicts and declaratory judgment against CU in the amount of $7,873,200. CP at 11085. A supplemental monetary judgment of $556,200 in attorneys' fees and costs was entered on January 23, 1998. CP at 11180.

CU appealed a number of trial court rulings to the Court of Appeals and Weyerhaeuser responded and cross-appealed. The Court of Appeals certified the following "issue of broad public import" to this court:

What is the extent and nature of insurance coverage for pollution damage, including any set off for settlements received from other insurers?

Order of Certification, No. 42024-1-I (Feb. 26, 1999). The Commissioner accepted certification. Ruling Accepting Certification, No. 67694-1 (Mar. 8, 1999).

We must consider and decide the following issues: (1) Does the supplemental policy create a property damage aggregate limit and, if not, is CU entitled to a $500,000 per incident setoff?; (2) To what extent is CU entitled to offset settlements received by Weyerhaeuser from other insurers?; (3) Is CU obligated to provide coverage for Weyerhaeuser's legal liability arising from actions taken during the policy period by entities other than Weyerhaeuser when such actions...