Dolsen Cos. v. Bedivere Ins. Co.

264 F.Supp.3d 1083

The DOLSEN COMPANIES, a Washington Corporation, et al., Plaintiffs,

v.BEDIVERE INSURANCE COMPANY, f/k/a OneBeacon, et al., Defendants.

NO. 1:16–CV–3141–TOR

United States District Court, E.D. Washington.

Signed September 11, 2017

Sarah Lynn Wixson, Erika Nicole Hartliep, Stokes Lawrence Velikanje Moore & Shore, Yakima, WA, Bradford J. Axel, Krista Nelson, Seattle, WA, for Plaintiffs.

Michael K. McCormack, Holly Brauchli, Bullivant Houser Bailey PC, Karen Southworth Weaver, Misty A. Edmundson, Soha & Lang, Seattle, WA, for Defendants.

ORDER GRANTING DEFENDANTS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT; DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

THOMAS O. RICE, Chief United States District Judge

BEFORE THE COURT is Defendants QBE Insurance Corporation and Unigard Insurance Company's Motion for Partial Summary Judgment (ECF No. 35); Defendants Bedivere Insurance Company and Armour Risk Management, Inc.'s Motion for Partial Summary Judgment (ECF No. 38); and Plaintiffs The Dolsen Companies, Cow Palace, LLC, and Three D Properties, LLC's Motion for Partial Summary Judgment (ECF No. 48). The Court heard oral argument from the parties on September 6, 2017. The Court has reviewed the completed record and files herein, and is fully informed. For the reasons discussed below Defendants' Motions for Partial Summary Judgment (ECF No. 35; 38) are GRANTED and Plaintiffs' Motion for Partial Summary Judgment (ECF No. 48) is DENIED .

BACKGROUND

The instant action involves pollution and an attempt to get the insurance companies to pay for the associated costs. Plaintiffs, the Dolsen Companies, Cow Palace, and Three D Properties, operated (and still operate) a concentrated animal farm operation. As a byproduct of Plaintiffs' operation, Plaintiffs had to process millions of gallons of liquid manure. Plaintiffs stored the manure in holding ponds and spread it on their crops as fertilizer. Unfortunately, the holding ponds leaked—allowing the seepage of over 1.6 million gallons of untreated manure into the groundwater annually. ECF No. 37–14. Further, the Plaintiffs put far too much manure on the land—a state investigator documented that manure applied to frozen fields was at least 12 inches deep. ECF No. 43 at 2. As a result, the manure soaked the soil and entered the ground water table, contaminating the local water.

On or about February 14, 2013, Community Association for Restoration of the Environment, Inc., a Washington non-profit corporation, ("CARE"), and Center for Food Safety, Inc., a Washington D.C. non-profit corporation, filed a complaint in the United States District Court for the Eastern District of Washington against a number of dairies, including Plaintiffs. ECF No. 1–2 at ¶ 10.¹ CARE alleged Plaintiffs over-applied manure and allowed the holding ponds to leak, causing "significant environmental contamination of the soil and groundwater."² ECF No. 1–2 at 11–13. CARE alleged this violated the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. ("RCRA"), the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq. ("EPCRA"), and the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9601 et seq. ("CERCLA"). ECF No. 1–2 at ¶¶ 11–13.

Plaintiffs submitted a tender for defense and indemnity to its insurers, but Defendants Bedivere Insurance Company, Armour Risk Management, QBE Insurance Corporation, and Unigard Insurance Company denied coverage and did not provide for Plaintiffs' defense. Among other things, Defendants asserted the duty to defend and indemnify had not been triggered because the absolute pollution exclusions contained in the respective policies exclude the asserted loss from coverage.

The parties to the CARE Litigation settled in May 2015. ECF No. 1–2 at ¶ 23. As a result of the litigation and settlement, Plaintiffs incurred extensive expenses. Plaintiffs now seek a declaratory judgment that Defendants had a duty to defend Plaintiffs in the Care Litigation and must indemnify Plaintiffs for the losses arising from the CARE Litigation. ECF No. 1–2 at ¶¶ 30–33. Plaintiffs also allege breach of contract, ECF No. 1–2 at ¶¶ 34–36, bad faith, ECF No. 1–2 at ¶¶ 37–39, and violations of the Washington Insurance Fair Conduct Act and Consumer Protection Act, ECF No. 1–2 at ¶¶ 40–49.

Defendants moved for Partial Summary Judgment on the duty to defend and indemnify (ECF Nos. 35; 38). Plaintiffs moved for Partial Summary Judgment (ECF No. 48) on the duty to defend. These issues are now before the Court.

STANDARD FOR SUMMARY JUDGMENT

A movant is entitled to summary judgment if "there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is "material" if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue is "genuine" where the evidence is such that a reasonable jury could find in favor of the non-moving party. Id. The moving party bears the "burden of establishing the nonexistence of a ‘genuine issue.’ " Celotex Corp. v. Catrett , 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "This burden has two distinct components: an initial burden of production, which shifts to the nonmoving party if satisfied by the moving party; and an ultimate burden of persuasion, which always remains on the moving party." Id.

GOVERNING LAW

A federal court sitting in diversity looks to the forum state's choice of law rules to determine the controlling substantive law. Patton v. Cox , 276 F.3d 493, 495 (9th Cir. 2002). All events transpired in Washington and the Plaintiffs-insureds are located in Washington, so Washington law governs the interpretation of the insurance policies at issue. See Mulcahy v. Farmers Ins. Co. of Wash. , 152 Wash.2d 92, 100, 95 P.3d 313 (2004).

STANDARD FOR REVIEW OF INSURANCE CONTRACT

Interpretation of an insurance contract is a question of law. Quadrant Corp. v. Am. States Ins. Co. , 154 Wash.2d 165, 171, 110 P.3d 733 (2005). In Washington, insurance policies are construed as contracts. Id. Courts consider the policy as a whole and give it a "fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance." Id. (internal quotation marks omitted; citations omitted). The court applies the "plain, ordinary, and popular meaning" of undefined terms. Xia v. ProBuilders Specialty Ins. Co. , 188 Wash.2d 171, 180–81, 400 P.3d 1234, 2017 WL 3711907, at *4 (2017)originally published at 188 Wash.2d 171, 400 P.3d 1234 (2017), as modified (Aug. 16, 2017), reconsideration denied (Aug. 17, 2017). "The contract will be given a practical and reasonable interpretation that fulfills the object and purpose of the contract rather than a strained or forced construction that leads to an absurd conclusion, or that renders the contract nonsensical or ineffective." Washington Public Utility Districts' Utilities System v. Public Utility Dist. No. 1 of Clallam County , 112 Wash.2d 1, 11, 771 P.2d 701 (1989) (citation omitted).

Importantly—unless it does not comport with Washington law —the court must enforce clear and unambiguous policy language as written; the court may not modify the policy or create ambiguity where none exists. Quadrant , 154 Wash.2d at 171, 110 P.3d 733 (citation omitted); Xia , 188 Wash.2d at 180–81, 400 P.3d 1234, 2017 WL 3711907, at *4. The expectations of the insured cannot override the plain language of the contract. Quadrant , 154 Wash.2d at 171, 110 P.3d 733 (citation omitted). Any ambiguities are construed in favor of the insured; but a clause is ambiguous only "when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable." Id. (citation omitted).

"Exclusions of coverage will not be extended beyond their ‘clear and unequivocal’ meaning." American Star Ins. Co. v. Grice , 121 Wash.2d 869, 875, 854 P.2d 622 (1993) (quoting McDonald Indus., Inc. v. Rollins Leasing Corp. , 95 Wash.2d 909, 915, 631 P.2d 947 (1981). "When an insured establishes a prima facie case giving rise to coverage under the insuring provisions of a policy, the burden is then on the insurer to prove that a loss is not covered because of an exclusionary provision in the policy." Id. (citation omitted). While exclusions are strictly construed against the drafter, a strict application should not trump the plain, clear language of an exclusion. Quadrant , 154 Wash.2d at 172, 110 P.3d 733 (citation omitted).

DISCUSSION

At issue in the Motions for Summary Judgment is whether Defendants have a duty to indemnify and defend Plaintiffs in the underlying action.

I. Duty to Indemnify

A duty to indemnify the insured arises when the insurance policy actually provides coverage for the loss. Xia , 188 Wash.2d at 180–81, 400 P.3d 1234, 2017 WL 3711907, at *4 (citation omitted).

The parties do not dispute that the losses—barring application of the absolute pollution exclusion—would be covered under the relevant insurance policies, which provides coverage for losses the insureds are legally obligated to pay. However, the parties dispute: (1) whether the losses are excluded from coverage under the policies' absolute pollution exclusion and (2) whether, even if the exclusion is triggered, coverage still lies because another covered occurrence was the "efficient cause" of the polluting event. These disputes are determinative: if the absolute pollution exclusion does not apply, the claim is covered; if the exclusion does apply, the policy may still cover the loss if an otherwise covered occurrence was the efficient cause of the excluded harm. Xia , 188 Wash.2d at 180–81, 400 P.3d 1234, 2017 WL 3711907, at *4 (citation omitted). The issues are addressed in turn.

a. The absolute pollution exclusion applies

Absolute pollution exclusions generally purport to exclude from coverage all losses related to...