Century Indem. Co. v. Marine Grp., LLC, Case No.: 3:08-cv-1375-AC

CENTURY INDEMNITY COMPANY, a Pennsylvania Corporation, Plaintiff, v. THE MARINE GROUP, LLC, a California limited liability company,

as affiliated with Northwest Marine, Inc.; NORTHWEST MARINE, INC.,

an inactive Oregon corporation, as affiliated with Northwest Marine Iron Works;

NORTHWEST MARINE IRON WORKS, an inactive Oregon corporation, Defendants.

THE MARINE GROUP, LLC, a California limited liability company, as affiliated with

Northwest Marine, Inc.; NORTHWEST MARINE, INC., an inactive Oregon corporation, as affiliated with

Northwest Marine Iron Works; NORTHWEST MARINE IRON WORKS, an inactive Oregon corporation; andBAE SAN DIEGO SHIP REPAIR, INC., a California corporation, Third-Party Plaintiffs, v. AGRICULTURAL INSURANCE COMPANY, an Ohio corporation; AMERICAN CENTENNIAL INSURANCE COMPANY,

a Delaware corporation; CHICAGO INSURANCE COMPANY, an Illinois corporation;

CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation; EMPLOYERS MUTUAL CASUALTY COMPANY,

an Iowa corporation; FEDERAL INSURANCE COMPANY, an Indiana corporation;

GRANITE STATE INSURANCE COMPANY, a Pennsylvania corporation; HARTFORD INSURANCE COMPANY,

a Connecticut corporation; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, a New Jersey corporation;

INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation; CERTAIN UNDERWRITERS AT LLOYD'S,

LONDON, and CERTAIN LONDON MARKET INSURANCE COMPANIES, each a foreign corporation;

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, a Pennsylvania corporation;

NEW ENGLAND REINSURANCE COMPANY, a Connecticut corporation; OLD REPUBLIC INSURANCE COMPANY,

an Illinois corporation; PACIFIC MUTUAL MARINE OFFICE INC., a New York corporation;

RELIANCE INSURANCE COMPANY, a Pennsylvania corporation; ROYAL INDEMNITY COMPANY,

a Delaware corporation; ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota corporation;

TWIN CITY FIRE INSURANCE COMPANY, an Indiana corporation; WATER QUALITY INSURANCE SYNDICATE,

a syndicate of foreign corporations; WEST COAST MARINE MANAGERS, INC., a New York corporation;

and JOHN DOE INSURANCE COMPANIES, Third-Party Defendants.

Case No.: 3:08-cv-1375-AC

UNITED STATES DISTRICT COURT DISTRICT OF OREGON PORTLAND DIVISION

February 25, 2015

OPINION AND ORDER

ACOSTA, Magistrate Judge:

Introduction

The parties to this action seek clarification on the proper standards and burdens of proof applicable to the recovery of amounts expended in the defense of an environmental claim. The various insureds, third-party plaintiffs The Marine Group, LLC; Northwest Marine, Inc.; Northwest Marine Iron Works; and BAE Systems San Diego Ship Repair, Inc. (collectively referred to as "Marine"), seek reimbursement for defense costs from various insurers, including Agricultural Insurance Company and Agricultural Excess and Surplus Insurance Company, now collectively known as Great American Insurance Company ("Great American"); St. Paul Fire and Marine Insurance Company ("St. Paul"); and Insurance Company of North America,¹ who have notcontributed to, or participated in, the defense of Marine with regard to the remediation of the Portland Harbor Superfund Site (collectively referred to as "Insurers"). Intervenor Argonaut Insurance Company ("Argonaut"), who voluntarily agreed to defend Marine and has expended millions of dollars in defense costs to date, seeks contribution from the Insurers for these defense costs. Argonaut is seeking reimbursement for amounts paid to independent counsel retained to represent Marine as well as for amounts paid to counsel representing Argonaut's interests.

The court finds² Argonaut and Marine must establish the expenses it seeks to recover are properly characterized as defense costs. In doing so, they may rely on the rebuttable presumption found in OR. REV. STAT. 465.480(7)(a). Once the expenses are properly identified as defense costs, Argonaut and Marine bear the burden of proof on the existence and amount of the claimed defenses costs, including documentation of the hours expended, and Insurers must prove the requested costs were unreasonable or unnecessary. With regard to independent counsel financed by Argonaut for Marine, Argonaut is entitled to rely on the statutory presumption found in OR. REV. STAT. 465.483(3)(a) that amounts paid to independent counsel and environmental consultants as defense costs at the regular and customary rates charged for environmental claims similar to the one at hand are reasonable. Marine is not entitled to recover pre-tender defense costs.

Legal Standards

Oregon law applies to actions addressing the existence of insurance coverage for the costs of investigating or remediating environmental contamination, and for costs incurred in defending asuit against an insured for such costs, in all cases where the contaminated property is within the State of Oregon. OR. REV. STAT. 465.480(2)(a) (2013). The obligation of an insurer to participate in the defense of an environmental action is set forth at OR. REV. STAT. 465.480(3)(a), which provides:

An insurer with a duty to pay defense or indemnity costs, or both, to an insured for an environmental claim under a general liability insurance policy that provides that the insurer has a duty to pay all sums arising out of a risk covered by the policy, must pay all defense or indemnity costs, or both, proximately arising out of the risk pursuant to the applicable terms of the policy, including its limit of liability, independent and unaffected by other insurance that may provide coverage for the same claim.

OR. REV. STAT. 465.480 governs the responsibilities between an insured and its insurers for defense, investigation, and remediation costs incurred with regard to an environmental claim. Where more than one insurer provides coverage for such costs:

An insurer that has paid all or part of an environmental claim may seek contribution from any other insurer that is liable or potentially liable to the insured and that has not entered into a good faith settlement agreement with the insured regarding the environmental claim.

OR. REV. STAT. 465.480(4)(a) (2013). OR. REV. STAT. 465.480 provides the exclusive instructions and limitations on the question of contributions between insurers in an environmental action. "Contribution rights by and among insurers under this section preempt all common law contribution rights, if any, by and between insurers for environmental claims." OR. REV. STAT. 465.480(4)(d).

The Oregon legislature created rebuttable presumptions with regard to the characterization of certain costs involved in environmental claims. OR. REV. STAT. 465.480(7) provides:

(a) There is a rebuttable presumption that the costs of preliminary assessments, remedial investigations, risk assessments or other necessary investigation, as those terms are defined by rule by the Department of Environmental Equality, are defense costs payable by the insurer, subject to the provisions of the applicable general liability insurance policy or policies.

(b) There is a rebuttable presumption that payment of the costs of removal actions or feasibility studies, as those terms are defined by rule by the Department of Environmental Quality, are indemnity costs and reduce the insurer's applicable limit of liability on the insurer's indemnity obligations, subject to the provisions of the applicable general liability policy or policies.

The existence of these rebuttable presumptions places the onus on the party requesting payment of defense costs to present evidence the costs requested fall within the parameters of the statute. The burden then shifts to the opposing party to rebut the presumption.

Discussion

I. Insured Seeking Reimbursement from Insurers

A. Burden and Standard

An insured seeking to recover defense costs from an insurer is proceeding under a breach of contract theory and is entitled to recover only what would have been received in the absence of such breach. Northwest Pump & Equip. Co. v. American States Ins. Co., 141 Or. App. 210, 217 (1996). The insured has the burden of proof on the existence and amount of the claimed defense costs, which are then presumed to be reasonable and necessary, requiring the insurer to prove the defense costs were unreasonable and unnecessary.³ Ash Grove Cement Co. v. Liberty Mutual Ins. Co., No. 3:09-cv-00239-HZ, 2013 WL 4012708, at *8 (D. Or. Aug. 5, 2013). The insured, as the fee applicant, also bears the burden of documenting the appropriate hours expended in the litigation and must submit evidence in support of those hours worked. Id. at *10.

In Ash Grove, Judge Hernandez explained an insured meets its burden by showing:

(1) that the costs and fees sought are associated with actions conducted within the temporal limits of [defendant's] duty to defend, i.e., between tender of the defense and conclusion of the action; (2) the actions taken amount to a reasonable and necessary effort to avoid or at least minimize liability; and (3) the actions taken are reasonable and necessary."

Id. at *8 (quoting KLA-Tencor Corp. v. Travelers Indem. Co., 2004 U.S. Dist. LEXIS 15376, 13-14, 2004 WL 1737297 (N. D. Cal. Aug. 4 2004)). Two of the three elements necessary to meet an insured's burden require a showing that the actions taken are reasonable and necessary.

Judge Hernandez then addressed the insurers' objections to specific costs to determine whether they were reasonable and necessary. For example, Judge Hernandez found that counsel's involvement in the executive committee for the potentially responsible parties was reasonable and necessary while her work on the technical, insurance, and orphan committees was not. Ash Grove, 2013 WL 4012708, at *9. He also considered, and reduced, the fees charged by counsel based on block billing, billing in large increments, and vague entries,⁴ noting that "[t]he fee applicant bears the burden of documenting the appropriate hours expended in the litigation and must submit evidence in support of those hours worked." Id. at *10 (quoting Welch v. Metro Life Ins. Co., 480 F.3d 942, 948 (...