Environmental cleanups typically involve industrial sites that have operated for decades. Because of this, well-positioned policyholders will have defense coverage under numerous policies and from a range of different insurers. When this occurs, defense costs have to be allocated between insurers to avoid double recovery. The Oregon Environmental Cleanup Assistance Act (“OECAA”) creates a mechanism to allocate payments among insurers that independently owe full “all sums” defense obligations for the same claim. See ORS 465.480(5). While policyholders generally benefit from OECAA, the statute creates the dangerous possibility that an insured will have to pay a share of its own defense costs. See ORS 465.480(5)(e). Specifically, the statute allocates a share of defense costs to insureds that failed to purchase responsive and commercially available general liability insurance from 1971 until that coverage was taken off the market (mid-1980s). Id. This statutory provision is extremely concerning for policyholders, because it allows insurers to shift costs back onto their insureds.
In an ongoing case handled by Miller Nash Graham & Dunn, Century Indemnity Company asserted a novel argument under OECAA in an attempt to allocate a share of the defense costs to our policyholder client. Century asserted that our client “self-insured” for three years in the early 1980s when it purchased Century policies containing self-insured retention (“SIR”) amounts, which operated like deductibles. As a result, Century asserted that our client should be treated as either an insurer or uninsured under OECAA. In the 1980s, as a result of shifts in the insurance industry arising from mounting claim costs, corporations regularly purchased primary-level policies with SIRs. Century argued that “self-insured retentions are the equivalent to primary liability insurance” and that because of this, our client was the primary insurer for the Century policy periods. Century Indem. Co. v. Marine Grp., LLC, No. 3:08-CV-1375-AC, 2015 WL 5317324, at *18-20 (D. Or. Sept. 11, 2015). According to Century, our client was legally required to pay a share of its defense costs under OECAA.
The Court fully rejected Century’s argument, and found that SIRs do not render policyholders as “insurers” under OECAA. The Court held that a SIR was not akin to an insurance policy, that our client was not “uninsured” for the SIR amounts, and that OECAA did not require SIR policyholders to contribute to their own defenses. Id. As a result, the client will continue to receive a full 100 percent defense from its primary insurers.
This SIR ruling will be important to many policyholders seeking to recover defense costs under OECAA. Had the court found that the OECAA framework required SIR policyholders to pay defense costs, many insureds would likely be required to pay a share of their own defense costs at sites such as Portland Harbor. The decision protects those policyholders and allows them to collect the full defense obligations they are owed.