Nw. Pipe Co. v. RLI Ins. Co.

734 F.Supp.2d 1122

NORTHWEST PIPE COMPANY, Plaintiff,

v.RLI INSURANCE COMPANY and Employers Insurance of Wausau, Defendants.

No. 09-CV-1126-PK.

United States District Court, D. Oregon.

Aug. 12, 2010.

Michael B. Merchant, Black Helterline, LLP, Portland, OR, for Plaintiff.

Bruce C. Hamlin, Timothy J. Fransen, Martin, Bischoff, Templeton, Langslet & Hoffman LLP, Portland, OR, Christopher W. Tompkins, Betts Patterson & Mines PS, Seattle, WA, for Defendant RLI Insurance Company.

William G. Earle, Hanne Eastwood, Davis Rothwell Earle & Xochihua, PC, Portland, OR, Bryan M. Barber, Barber Law Group, San Francisco, CA, for Defendant Employers Insurance of Wausau.

ORDER

BROWN, District Judge.

Magistrate Judge Paul Papak issued Findings and Recommendation (# 54) on April 27, 2010, in which he recommends the Court grant the Motion (# 23) for Partial Summary Judgment of Defendant Employers Insurance of Wausau, grant the Motion (# 28) for Summary Judgment of Defendant RLI Insurance Company, deny the Motion (# 32) for Summary Judgment (Phase I-Duty to Defend) of Plaintiff Northwest Pipe Company, dismiss Plaintiff's claims against RLI and Wausau, and declare Wausau does not have a duty to defend or to indemnify NW Pipe under the 1985-86 insurance policy. Plaintiff filed timely objections to the Findings and Recommendation. The matter is now before this Court pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b).

Portions of the Findings and Recommendation to which Plaintiff does not object.

Plaintiff does not object to those portions of the Findings and Recommendation in which the Magistrate Judge recommends this Court grant Wausau's Motion for Partial Summary Judgment, deny the portion of Plaintiff's Motion for Partial Summary Judgment as to Wausau's duty to defend, dismiss Plaintiff's claims against Wausau, and declare Wausau does not have a duty to defend or to indemnify NW Pipe under the 1985-86 insurance policy.

Because Plaintiff does not object to these portions of the Magistrate Judge's Findings and Recommendation, this Court is relieved of its obligation to review the record de novo.See Britt v. Simi Valley Unified School Dist., 708 F.2d 452, 454 (9th Cir.1983)(rev'd on other grounds). See also Lorin Corp. v. Goto & Co., 700 F.2d 1202, 1206 (8th Cir.1983). Havingreviewed the legal principles de novo, the Court does not find any error.

Accordingly, the Court adopts these portions of the Magistrate Judge's Findings and Recommendation.

Portions of the Findings and Recommendation to which Plaintiff does object.

Plaintiff objects to those portions of the Findings and Recommendation in which the Magistrate Judge recommends the Court grant RLI's Motion for Summary Judgment as to RLI's duty to defend, deny Plaintiff's Motion for Summary Judgment as to RLI's duty to defend, and dismiss Plaintiff's claims against RLI.

When any party objects to any portion of the Magistrate Judge's Findings and Recommendation, the district court must make a de novo determination of that portion of the Magistrate Judge's report. 28 U.S.C. § 636(b)(1). See also United States v. Bernhardt, 840 F.2d 1441, 1444 (9th Cir.1988); McDonnell Douglas Corp. v. Commodore Business Mach., Inc., 656 F.2d 1309, 1313 (9th Cir.1981), cert. denied, 455 U.S. 920, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982).

I. Policy Language

RLI's insurance policy issued to Plaintiff provides in pertinent part:

I. COVERAGE

The Company hereby agrees ... to indemnify [Plaintiff] ...

for damages, direct or consequential and expenses, all as more fully defined by the term "ultimate net loss" on account of:

(i) Personal injuries, including death at any time resulting therefrom,

(ii) Property Damage,

(iii) Advertising liability,

caused by or arising out of each occurrence.

* * *

II. LIMIT OF LIABILITY

The Company shall only be liable for the ultimate net loss the excess of ...

(a) the limits of the underlying insurance as set out in the schedule in respect of each occurrence covered by said underlying insurances.

* * *

III. DEFENSE, SETTLEMENT, SUPPLEMENTARY PAYMENTS

With respect to any occurrence not covered by the underlying policies listed in the Schedule of Underlying Insurances hereof or any other underlying insurance collectible by [Plaintiff], but covered by the terms and conditions of this policy ... [RLI] shall

(a) defend any suit against [Plaintiff] alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent.

* * *

6. ULTIMATE NET LOSS

The term "Ultimate Net Loss" shall mean the total sum which [Plaintiff] ... become[s] obligated to pay by reason of ... property damage ... and shall also include ... expenses for ... litigation ... of claims and suits which are paid as a consequence of any occurrence covered hereunder.

* * *

L. OTHER INSURANCE

If other valid and collectible insurance with any other insurer is available to [Plaintiff] covering a loss also covered by this policy, other than insurance that is in excess of the insurance afforded by this policy, the insurance afforded by this policy shall be inexcess of and shall not contribute with such other insurance.

Notice of Removal, Ex. A at 13, 15, 19.

II. Analysis

As noted, Plaintiff objects to those portion of the Findings and Recommendation in which the Magistrate Judge recommends this Court grant RLI's Motion for Summary Judgment, deny Plaintiff's Motion for Partial Summary Judgment as to the issue of RLI's duty to defend, and dismiss Plaintiff's claims against RLI. Specifically, Plaintiff objects to the Magistrate Judge's findings and conclusion that "horizontal exhaustion" applies to RLI's duty to defend ( i.e., that RLI's duty to defend is not "triggered" until "all [of Plaintiff's] primary insurance coverage is exhausted") and that RLI's duty to defend has not been "triggered" because other insurers are defending NW Pipe completely as to all of the claims against NW Pipe.

A. Insurance Contract Interpretation

Under Oregon law, courts

interpret insurance policy provisions according to the analytical framework set out in Hoffman Construction Co. [Courts] first determine whether the policy defined the term at issue and, if it did not, [courts] look to the plain meaning of the term. American Hardware Ins. Group, 167 Or.App. at 248, 2 P.3d 413. If [the court] determine[s] that there are two or more plausible interpretations of the term, then we consider whether those interpretations "withstand scrutiny, i.e., continue[ ] to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which that term is used in the policy and the broader context of the policy as a whole." Hoffman Construction Co. [ v. Fred S. James & Co.], 313 Or. [464] at 470, 836 P.2d 703 [ (1992) ]. Only if more than one interpretation remains reasonable after such an examination will we conclude that the policy provision is ambiguous. Id. If the provision is ambiguous, we construe it against the insurer as its drafter. Id. at 470-71, 836 P.2d 703.

Clinical Research Inst. of S. Or., P.C. v. Kemper Ins. Co., 191 Or.App. 595, 599-600, 84 P.3d 147 (2004).

Under Oregon law, courts " 'evaluate a duty to defend claim by examining two documents: the complaint and the insurance policy.' " Certain Underwriters at Lloyd's London and Excess Ins. Co., Ltd. v. Mass. Bonding and Ins. Co., 235 Or.App. 99, 116, 230 P.3d 103 (2010)(quoting Am. Hardware Ins. Group v. West One Auto., 167 Or.App. 244, 247, 2 P.3d 413 (2000)).

B. Exhaustion Requirement

The parties dispute the meaning of the phrase "any other underlying insurance" set out in the duty-to-defend portion of RLI's policy. Plaintiff contends that provision means RLI has a duty to defend under its umbrella policy issued to Plaintiff when the underlying coverage is exhausted for the same effective period as RLI's policy. RLI contends that provision means RLI has a duty to defend Plaintiff only after Plaintiff's underlying coverage for all possible periods has been exhausted. The Court concludes there are two plausible interpretations of the provision at issue, and, therefore, the Court must consider whether those interpretations "withstand scrutiny, i.e., continue [ ] to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which that term is used in the policy and the broader context of the policy as a whole." Clinical Research Inst. of S. Or., 191 Or.App. at 600, 84 P.3d 147 (quotation omitted).

It is undisputed that Oregon courts have not analyzed whether an umbrella insurer's duty to defend is triggered only after all of an insured's primary insurance is exhausted. The parties, therefore, rely on California cases.¹

The Magistrate Judge relied on California Insurance Company v. Oregon Insurance Guaranty Association, No. 01-CV-514-HA, 2005 WL 627624 (D.Or. Mar. 17, 2005), when he concluded the policy at issue required horizontal exhaustion of all underlying policies before RLI's duty to defend was triggered. California Insurance Company, however, addressed whether an insured was required to exhaust underlying insurance before the excess or umbrella insurers' duty to indemnify was triggered rather than whether an insured was required to exhaust underlying insurance before the umbrella insurer's duty to defend was triggered.

Plaintiff relies on Legacy Vulcan Corporation v. Transport Insurance Company, 185 Cal.App.4th 677, 110 Cal.Rptr.3d 795 (2 Dist.2010), to support its position. In Legacy the defendant issued liability insurance policies to the plaintiff for several years including a policy effective from January 1, 1981, through January 1, 1982. The 1981-82 policy provided in pertinent part:

The Company will indemnify the Insured for ultimate net loss in excess of the retained limit hereinafter stated which the Insured shall become legally obligated to pay as damages because of

A. personal injury or

B. property damage or

C. advertising

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