Employers Ins. of Wausau v. Tektronix, Inc.

156 P.3d 105

211 Or. App. 485

EMPLOYERS INSURANCE OF WAUSAU, A MUTUAL COMPANY, a Wisconsin mutual company, Plaintiff-Appellant Cross-Respondent, v. TEKTRONIX, INC., an Oregon corporation, Defendant-Respondent Cross-Appellant, and Continental Casualty Company, an Illinois corporation; Travelers Indemnity Company, a Connecticut corporation; Aetna Casualty and Surety Company, a Connecticut corporation; Granite State Insurance Company, a New Hampshire corporation; National Union Fire Insurance Company of Pittsburgh, PA, a Pennsylvania corporation; Certain Underwriters at Lloyd's London; Certain Underwriting Syndicates at Lloyd's London; and Does 1-100, inclusive, Defendants.

Tektronix, Inc., an Oregon corporation, Third-Party Plaintiff, v. Aetna Casualty & Surety Company, a Connecticut corporation; AIU Insurance Company, a New York corporation; Century Indemnity Company, a Pennsylvania corporation; Central National Insurance Company of Omaha, a Nebraska corporation; Certain London Market Insurance Companies, foreign corporations; Equitas Reinsurance Limited, a

foreign corporation; Equitas Limited, a foreign corporation; Equitas Holdings Limited, a foreign corporation; Equitas Management Services, a foreign corporation; Equitas Policyholders Trust Limited, a foreign corporation; Granite State Insurance Company, a New Hampshire corporation; Highlands Insurance Company, a Texas corporation; Insurance Company of the State of Pennsylvania, a Pennsylvania corporation; National Union Fire Insurance Company of Pittsburgh, PA., a Pennsylvania corporation; Oregon Insurance Guaranty Association, an Oregon association; and Travelers Indemnity Company, a Connecticut corporation, Third-Party Defendants.

CCV9908032.

A123664.

Court of Appeals of Oregon.

Argued and Submitted June 14, 2006.

Decided March 28, 2007.

Bryan M. Barber, San Francisco, argued the cause for appellant-cross-respondent. With him on the briefs were Barber Law Group, San Francisco, and William G. Earle and Davis Rothwell Mullin Earle & Xóchihua P.C.

Robert M. Horkovich, New York, argued the cause for respondent-cross-appellant. With him on the briefs were Anderson Kill & Olick, P.C., New York, and Charles F. Hinkle, Scott J. Kaplan, and Stoel Rives LLP.

Gregory L. Baird and Gordon & Polscer, LLC, Portland, and Laura A. Foggan, John C. Yang, Alicia C. Ritter, and Wiley Rein & Fielding LLP, Washington, DC, filed the brief amicus curiae for Complex Insurance Claims Litigation Association.

Before EDMONDS, Presiding Judge, and BREWER, Chief Judge,^* and SCHUMAN, Judge.^**

EDMONDS, P.J.

This case involves the respective rights and obligations of plaintiff Employers Insurance of Wausau (Wausau) and defendant Tektronix, Inc. (Tektronix) concerning insurance polices issued by Wausau to Tektronix between 1973 and 1985. After Tektronix requested that Wausau indemnify it under those policies for costs associated with environmental cleanup at Tektronix's manufacturing facility, Wausau sought a declaration that it was not obligated under the policies to defend or indemnify Tektronix for those costs. Tektronix counterclaimed for breach of contract. Following a jury trial, the court entered judgment in favor of Tektronix for $1,455,660, plus prejudgment interest in the amount of $525,507. The court then awarded attorney fees and costs to Tektronix in the amount of $3,301,415.

Wausau appeals, arguing, among other things, that (1) the trial court should have granted its motion for a directed verdict on the grounds that Wausau was prejudiced by Tektronix's delayed notice of claims under the policies; (2) the court erred in failing to permit Wausau to offer extrinsic evidence of the parties' intent under the policies; (3) the trial court improperly instructed the jury regarding the burden of proving the applicability of the "sudden and accidental" exception to the pollution exclusion in the policies; (4) the court misinterpreted the meaning of the "sudden and accidental" exception; (5) the court erred in allowing Tektronix to recover its own employees' wages and benefits as "damages" under the policies; and (6) the amount of attorney fees awarded to Tektronix was excessive. Tektronix cross-appeals, arguing that (1) the court erred in removing from the jury's consideration the application of the exception to the pollution exclusion in certain parts of the manufacturing facility and (2) the court erred in failing to award prejudgment interest on part of the judgment. We reverse and remand.

I. BACKGROUND

Since approximately 1960, Tektronix has operated a manufacturing facility in Beaverton, Oregon (the Campus).¹ Over the years, the Campus has generated a significant amount of industrial waste. Specifically, operations at the Campus generated waste waters containing a variety of heavy metals and acidic and caustic waste waters that required neutralization before they could be discharged. Tektronix also used a variety of solvents to clean electronic and metal parts.

Beginning in 1963, the industrial waste waters were discharged into a wastewater treatment facility known as Building 40. Building 40 consisted of a series of treatment tanks and three "surface impoundments," or "lagoons," which were large holes dug in the ground to collect the partially treated waste waters. Originally, three surface impoundments were constructed with compacted natural soils. A concrete liner was installed in one of the impoundments in 1968, but the other two impoundments remained unlined until 1977.

The surface impoundments accumulated sludge at the bottom, which was periodically removed and spread on the ground at various Campus locations, including an area known as the Boneyard (later renamed West Park), which was adjacent to Building 40. Volatile organic solvents, such as trichloroethylene (TCE), were not treated by Tektronix's wastewater treatment facility, and TCE present in the processed waste waters passed through the treatment tanks and sludge-drying areas and then gradually leached into the soil and groundwater.

Tektronix also disposed of spent solvents by storing them in containers, usually 55-gallon drums, while awaiting recycling, reclamation, or other disposal. Tektronix constructed Building 02 and Buildings 10/12 to house these drums. Tektronix employees also placed spent solvents on the ground to help kill weeds. Tektronix also believed that there may have been regular nonspecific spills of solvent during the policy periods.

Beginning in 1980, the federal Resource Conservation and Recovery Act (RCRA) required Tektronix to take steps to license its treatment plant as a "Hazardous Waste Treatment Facility" and to obtain a Part A RCRA Permit. In January 1985, the Environmental Protection Agency informed Tektronix that, if it wanted to continue operating its treatment facility, it would need to apply for a RCRA Part B Permit. As a condition for the permit, Tektronix was required to conduct an investigation of the handling of hazardous waste throughout the Campus.

As part of its investigation, Tektronix interviewed more than 100 employees about their knowledge of waste disposal at the Campus. The investigation also included drilling wells to test groundwater contamination. Tektronix discovered solvent contamination of the groundwater beneath Building 40, Building 16 (a building adjacent to building 40), the Boneyard/West Park, Beaverton Creek, and Building 02. Tektronix ultimately was required to locate and clean up all contamination on the Campus. To accomplish this goal, defendant hired environmental contractors and paid its own employees from 1990 to 2002 for work associated with site remediation.

Wausau issued 12 general liability insurance policies to defendant for consecutive annual periods from June 1, 1973 to June 1, 1985. Each of those policies contained the following notice requirements:

"D. Insured's Duties in the Event of Occurrence, Claim, or Suit.

"1. In the event of occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place, and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

"With respect to the named insured, notice shall be given as soon as practicable after such occurrence comes to the attention of the insurance manager at the Beaverton, Oregon, corporate offices of the named insured.

"* * * * * "2. If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons, or other process received by him or his representative."²

Tektronix did not provide notice to Wausau of a claim for environmental cleanup costs until December 1997, 12 years after Tektronix began incurring those costs, believing that any claim would be subject to an exclusion from coverage in the policies. The exclusions provided:

"This insurance does not apply: * * * to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acid, alkali, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental[.]"

(Emphasis added.)

Beginning in 1985, with Transamerica Ins. Co. v. Sunnes, 77 Or.App. 136, 711 P.2d 212 (1985), rev. den., 301 Or. 76, 717 P.2d 631 (1986), and continuing into the mid-1990s, we repeatedly concluded that contamination resulting from the regular and intentional discharge of waste was not subject to the "sudden and accidental" exception to similar exclusions in insurance policies.³ Thus, we held in those cases that the exclusion applied to prevent coverage in those...