A new decision from the Oregon federal court emphasizes the need to tender any kind of potentially covered claim as early as possible. The decision was, by and large, a win for the policyholder, but as noted at the end of this post the court carved out a large chunk of costs based on the timing of notice.
The decision, issued on October 28, 2014, came from Magistrate Judge Stewart in the long-running coverage dispute between Siltronic Corporation and its primary layer and excess carriers over costs for both cleanup of some of Siltronic’s property within the Portland Harbor Superfund Site ordered by DEQ, and defense against the EPA claims at the Harbor. The claims against Siltronic involved both contamination of soil, and river sediment, by TCE and MGP (Manufactured Gas Product). Siltronic had seven potentially applicable policies, from 1978 through 1986, with Wausau as primary and Granite State as excess. Wausau initially provided Siltronic with a defense under policies from 1980 through 1986, until Judge Stewart held that Wausau could stop defending the company because the primary insurer had paid to clean up TCE contamination and in so doing exhausted those six years of coverage. Siltronic’s excess layer carrier has been paying to defend the company since then.
The issue presented for Tuesday’s ruling was what to do with the 1978 – 1980 policy. Wausau had not been defending under that policy because Siltronic had not produced TCE until 1980, and Wausau contended that Siltronic had not tendered defense of the MGP contamination. Judge Stewart rejected that contention, noting that the DEQ letters and orders relating to the cleanup and included both MGP and TCE, and that therefore under the “eight-corners rule” in which the court only looks to the “four corners” of the policy and the “four corners” of the complaint (or equivalent), the tender had included MGP. Wausau also contended that it had no duty to defend under the 1978 policy because Siltronic had not actually incurred costs to defend against MGP-related liability, because NW Natural Gas, the successor to the prior owner of the MGP-contaminated site, had agreed to pay for cleanup. However, the evidence did not clearly establish that Siltronic had no potential future liability for the MGP contamination due to the agreement with NW Natural. Questions about whether Siltronic had incurred defense costs related to MGP were questions for trial on damages, according to the ruling.
The court did exclude from consideration, however, a seemingly large chunk ($450,000) of defense costs incurred by Siltronic relating to the contamination. It appears that Siltronic did not tender the DEQ and EPA communications to any carrier until TCE issues came to light, which was a few years after Siltronic had begun incurring costs relating to MGP. Judge Stewart held that under the “voluntary payments” provision of the policies Wausau was under no obligation to pay any pre-tender defenses costs. This reading of the voluntary payments provision has become the accepted wisdom among Oregon’s federal courts, although policyholders continue to challenge it.
The take-away is this: tender early, and tender everything that could be a claim or suit, and do not equivocate about seeking a defense.