Cont'l Cas. Co. v. Argonaut Ins. Co.

545 P.3d 173

331 Or. App. 38

CONTINENTAL CASUALTY COMPANY and Transportation Insurance Company, Plaintiff-Respondents,

v.ARGONAUT INSURANCE COMPANY et al., Defendants,andInsurance Company of the State of Pennsylvania, Defendant-Respondent,

and

Employers Insurance Company of Wausau, Defendant-Appellant.

Insurance Company of North America, Third-Party Plaintiff,

v.Argonaut Insurance Company et al., Third-Party Defendants.

A176763

Court of Appeals of Oregon.

Argued and Submitted October 10, 2023

February 22, 2024

Multnomah County Circuit Court, 16CV14319; David F. Rees, Judge.

David C. Linder, Minnesota, argued the cause for appellant. Also on the briefs were Larson King LLP, Minnesota, and Thomas W. Sondag, Carter M. Mann, and Lane Powell PC.

William C. Perdue, Washington, D. C., argued the cause for respondent Insurance Company of the State of Pennsylvania. Also on the brief were Robert Reeves Anderson, Colorado, Timothy R. Macdonald, Samuel I. Ferenc, and Arnold & Porter Kaye Scholer LLP, Washington, D. C., and Thomas W. Brown, Julie A. Smith, and Cosgrave Ver-gear Kostler LLP and Stephen R. Wong, Kenneth H. Summer, and Sinnott, Puebla, Campagne & Curet APLC, California.

Laurie J. Helper, California, argued the cause for respondents Continental Casualty Company and Transportation Insurance Company. Also on the brief were Rachel A. Beyda and Greines Martin Stein & Richland LLP, California, and Lawrence Gottlieb, Jeremy Schultze, H. Matthew Munson, and Betts, Patterson & Mines, P.S., Washington.

Louis A. Ferreira, Cameron Zangenehzadeh, and Stoel Rives LLP, filed the brief amicus curiae for Schnitzer Steel Industries, Inc., and MMGL, LLC.

Before Egan, Presiding Judge, and Kamins, Judge, and DeVore, Senior Judge.

EGAN, P. J.

₄₀In this contribution action under ORS 465.480(4) arising in the context of the Portland Harbor Superfund Site cleanup, defendant Employers Insurance Company of Wausau (Wausau) appeals from a judgment for plaintiffs Continental Casualty Company and Transportation Insurance Company (collectively, Continental) holding that Continental is entitled to contribution from Wausau for defense costs Continental incurred in defending its insureds, Schnitzer Steel Industries, Inc. (SSI), and MMGL Corp (formerly Schnitzer Investment Corp) (SIC) (collectively "Insureds"), against claims for environmental cleanup of the Portland harbor. We conclude that the trial court erred and therefore reverse and remand.

Background: The Insureds engaged in industrial activities (including ship dismantling and scrap-metal recycling) on properties they owned on the banks of the Willamette River. In 2000, the Insureds were notified by the federal Environmental Protection Agency (EPA) that they had been identified as parties potentially responsible under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) for cleanup of pollution at the Portland Harbor Superfund Site, as a result of their activities and the activities of their tenants on the properties they owned or had owned that had resulted in the release of contaminants into the river.

The Insureds' insurance. During the relevant period, from 1937 to the present, the Insureds had comprehensive general liability insurance policies, and they tendered defense and sought coverage of their potential liability from their multiple insurers:

• Wausau—appellant here—had issued two comprehensive general liability policies to the Insureds during the relevant period, from 1965 to 1970, with policy limits of $100,000, and had issued 10 policies of insurance to tenants of the Insureds from 1977 to 1985, under which SIC was named as an additional insured. Wausau denied coverage under the policies issued directly to the Insureds but agreed ₄₁to defend the Insureds with regard to the policies it had issued to the Insureds’ tenants, with a reservation of rights to dispute its duty to indemnify the Insureds for the costs of actual cleanup.

• El Dorado Insurance Company had issued seven policies to the Insureds during the relevant period, from 1970 to 1977, with policy limits of $100,000 and $250,000. El Dorado ceases to exist.

• Continental—respondent on appeal— had issued seven policies to the Insureds during the relevant period, from 1977 to 1983, with limits of $500,000. Continental agreed to defend the Insureds, under a reservation of rights to withdraw from the defense in the event of any determination that the Insureds’ potential liability on the claims was subject to a coverage exclusion or in the event the coverage limits of Continental’s policies were exhausted by indemnity payments.

• Insurance Company of North America (now known as Century Indemnity Company (Century)) had issued a single policy to the Insureds during the relevant period, 1983 to 1984, with limits of $500,000. Century, like Continental, agreed to defend, under a reservation of rights to withdraw from the defense in the event of a determination that the Insureds’ potential liability on the claims was subject to a coverage exclusion or in the event the coverage limits of Century’s policy was exhausted by indemnity payments, among other reservations.

• Argonaut, which has settled with the Insureds and is not involved in any appeal, had issued policies to the Insureds during the relevant period.

The Insureds also had "umbrella" policies with Insurance Company of the State of Pennsylvania (ICSOP), which provided excess coverage with limits of $5,000,000, to five underlying primary insurance policies. ICSOP denied the Insureds’ claim, contending that, based on policy provisions, the excess liability policies had not been triggered.

₄₂Insurers Continental, Wausau, and Century, each of whom had agreed to defend the Insureds under a reservation of rights, subsequently entered into a cost-sharing agreement, under which Continental would pay 70 percent of the Insureds' defense costs, Wausau would pay 20 percent, and Century would pay the remaining 10 percent. Continental, Wausau, and Century began paying a portion of the Insureds’ defense costs beginning in 2001 but did not fully reimburse the Insureds for legal fees incurred that they asserted were excessive.

The attorney fee dispute: In 2003, the Insureds’ legal counsel at Stool Rives developed a conflict of interest that prevented the firm from continuing to represent the Insureds. Having the view that there were no nonconflicted Portland attorneys available with the necessary expertise to represent them, the Insureds retained Jim Dragna, of the Los Angeles firm Bingham McCutchen, to represent them in the Portland Harbor litigation. Bingham McCutchen’s billing rate was 40 percent higher than rates charged by Portland firms identified by Continental. But Continental and the other insurers ultimately agreed that the Insureds could retain Bingham McCutchen. They agreed, however, to reimburse the Insureds only at the rate charged by Portland firms.

The Oregon Environmental Cleanup Assistance Act (OECAA): In 1999, finding that the state has a substantial public interest to "promot[e] the fair and efficient resolution of environmental claims while encouraging voluntary compliance and regulatory cooperation," ORS 465.478, the Legislative Assembly adopted the Oregon Environmental Cleanup Assistance Act (OECAA), ORS 465.475 to 465.485. ORS 465.475(1) defines an "environmental claim" as

"a claim for defense or indemnity submitted under a general liability insurance policy by an insured facing, or allegedly facing, potential liability for bodily injury or property damage arising from a release of pollutants onto or into land, air or water." The Legislative Assembly recognized that often, multiple general liability insurers have insured a person potentially responsible for environmental cleanup. Under ₄₃ORS 465.480(3)(b), if an insured has made an environmental claim against multiple general liability insurance policies and the claim is not fully satisfied, the insured may choose to file suit against less than all the insurers.

The Insureds ’ federal claim for breach of contract against Continental: In 1999 and 2000, after they were identified by the Oregon Department of Environmental Quality and the EPA as potentially responsible parties for the Portland Harbor Superfund Site cleanup, the Insureds tendered claims for defense and indemnity to all of their insurers. As noted, Continental, Wausau, and Century had agreed to defend the Insureds, with reservations. And further as noted, the insurers had been sharing defense costs but had declined to pay the full amount of the Insureds’ defense-related attorney fees from Bingham McCutchen.

In 2010, having been unable to resolve their disagreement with the insurers over reimbursement for attorney fees, the Insureds brought a claim in the federal district court for breach of contract (the federal action) against Continental, seeking reimbursement from Continental of all defense-related legal costs previously paid by the Insureds on their potential liability for Portland Harbor cleanup as well as a declaration that Continental is responsible for future defense costs. The primary issue in the federal action was the determination of recoverable legal fees incurred by the Insureds as part of defense costs. The case went to trial in 2014.

The federal court determined that Continental had a duty to defend the entire action. And a federal jury agreed with the Insureds that no competent nonconflicted Portland legal counsel was available to represent the Insureds in the Portland Harbor litigation, and that no competent nonlocal counsel would work for Portland legal fees. The jury also found that the legal fees charged by Bingham McCutchen were reasonable under the circumstances and rejected other arguments that Continental offered in support of deductions it had made in reimbursing the Insureds. The jury awarded to the Insureds (and Continental satisfied) all of the Insureds’ unpaid legal defense costs to date—...