ZRZ REALTY Co. v. FIRE

349 Or. 117

241 P.3d 710

ZRZ REALTY COMPANY, an Oregon corporation, for itself and as trustee of the Zidell Remediation Funding Trust, an Oregon trust; Zidell Marine Corporation, a Washington corporation; Tube Forgings Of America, Inc., an Oregon corporation; and Pon Exploration, Inc., a Delaware corporation, fka Zidell Explorations, Inc., an Oregon corporation, Petitioners on Review, v. BENEFICIAL FIRE AND CASUALTY INSURANCE COMPANY, succeeded in interest by J.C. Penney Life Insurance Company, et. al., Defendants and Certain Underwriters at Lloyd's of London, and Certain London Market Insurance Companies, aka “Lloyds”, including the following defendant companies: Assicurazioni Generali S.P.A., Insurance Company Of North America (UK) Ltd., Commercial Union Assurance Company, PLC, Edinburgh Assurance Company, Ltd., Ocean Marine Insurance Company, Ltd., World Auxiliary Insurance Corporation, Ltd., Cornhill Insurance Company, Ltd., Dominion Insurance Company, Ltd., Eagle Star Insurance Company Ltd., The Threadneedle Insurance Company Ltd., Excess Insurance Company Ltd., London & Edinburgh General Insurance Company Ltd., New Zealand Insurance Company, Ltd., Road Transport & General Insurance Company, Ltd., South British Insurance Company, Ltd., Ulster Marine Insurance Company, Ltd., The United Scottish Insurance Company, Ltd., Yorkshire Insurance Company, Ltd., Hansa Re & Marine Insurance Company (UK) Ltd., La Reunion Francaise (UK) Ltd., Economic Insurance Company Ltd., Norwich Union Fire Insurance Society, Ltd., Firemen's Insurance Company Of Newark New Jersey, Swiss Union General Insurance Company, Ltd., Leadenhall Insurance Company, Ltd., Bishopgate Insurance Company, Ltd., Home Insurance Company, Nippon Fire & Marine Insurance Company (UK) Ltd., Switzerland General Insurance Company, Ltd., River Thames Insurance Company, Ltd., Royal Insurance Company Ltd., British Fire Insurance Company, Ltd., British & Foreign Insurance Company, Ltd., National Provincial Insurance Company, Ltd., The Scottish Lion Insurance Company, Ltd., Skandia Marine Insurance Company (UK), Ltd., Drake Insurance Company, Ltd., Sphere Insurance Company, Ltd., Sphere Drake Insurance Company PLC, Alliance Assurance Company, Ltd., British Law Insurance Company, Ltd., And Continental Assurance Company Of London, Ltd., Liverpool Marine & General Insurance Company, Ltd., Phoenix Assurance Company Ltd., Fine Art & General Insurance Company, Ltd., Anglo-French Insurance Company, Ltd., Baloise Marine Insurance Company, Ltd., Baltica Insurance Company (UK) Ltd., Fuji Fire & Marine Insurance Company (UK), Ltd., R.W. Gibbon Group, La Preservatrice Group, Switzerland General Insurance Company (London) Ltd., Yasuda Fire & Marine Insurance Company, Ltd., Iron Trades Mutual Insurance Company, Ltd., Minster Insurance Company Ltd., Reliance Insurance Company, Sirius (UK) Insurance PLC, Indemnity Marine Assurance Company, Ltd., London & Hull Maritime Insurance Company, Ltd., And Associated Companies, C.A. Parr Agencies, Ltd., Sun Insurance Office, Marine Insurance Company, Limited, and Sumitomo Marine & Fire Insurance Company, Limited, Respondents on Review.

(CC 9708-0626; CA A121145; SC S057155).

Supreme Court of Oregon,En Banc.

Argued and Submitted Jan. 6, 2010.

Decided Oct. 14, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

On review from the Court of Appeals. ^*

Bruce L. Campbell, Miller Nash LLP, Portland, argued the cause and filed the brief for petitioners on review.

Thomas W. Sondag, Lane Powell PC, Portland, argued the cause and filed the brief for respondents on review. With him on the brief were John Folawn and Folawn Alterman & Richardson LLP.

Gregg A. McDonald, Portland, filed the brief for amici curiae Schnitzer Steel Industries, Inc., Prescision Castparts Corp., and Oregon Metals Industries Council.

Gregory L. Baird, Gordon & Polscer, LLP, Portland, filed the brief for amicus curiae Complex Insurance Claims Litigation Association. With him on the brief were Laura A. Foggan, Kathryn C. Walsh, and Wiley Rein LLP.

KISTLER, J.

This case arises out of a dispute over insurance coverage for plaintiffs' ship dismantling business. Before this court, the parties have raised primarily two issues. The first is whether plaintiffs or defendants had the burden to prove that environmental damages resulting from the operation of plaintiffs' business were neither expected nor intended. On that issue, the Court of Appeals held that, when the insurance policies that defendants issued expressly granted coverage only for unexpected and unintended damages, plaintiffs had the burden of proving that their loss came within that coverage. ZRZ Realty v. Beneficial Fire and Casualty Ins., 222 Or.App. 453, 472-73, 194 P.3d 167 (2008), modified on recons. 225 Or.App. 257, 201 P.3d 912 (2009). However, the court also held that, when the insurance policies granted broad coverage subject to an implied limitation for expected or intended damages, the implied limitation functioned as an exclusion that defendants had the burden to prove. 222 Or.App. at 474-75, 194 P.3d 167.

The second issue that the parties have raised involves protection and indemnity policies in which defendants agreed to indemnify plaintiffs for liability they incurred for “damages to any harbor, dock, * * * buoy, telegraph cable or other fixed or moveable thing whatsoever.” The Court of Appeals held that the promise to indemnify plaintiffs for “damages to any * * * other fixed or moveable thing whatsoever” did not include a promise to indemnify plaintiffs for damages to the riverbed. Id. at 488-91, 194 P.3d 167. Rather, according to the Court of Appeals, defendants agreed to indemnify plaintiffs only for damage to artificial structures. Id. We allowed plaintiffs' petition for review and now affirm the Court of Appeals decision allocating the burden of proof but reverse its decision regarding coverage for damage to the riverbed.

A. Facts

Plaintiffs (collectively Zidell) are a group of related companies that began acquiring and dismantling decommissioned navy andmerchant marine ships after World War II. ¹

Zidell towed the decommissioned ships to a site along the Willamette River in Portland (the Moody Avenue site) where it dismantled the ships for scrap, generally while the ships were tied to a dock at the site. Dismantling the ships resulted in the release of pollutants found in, among other places, the ships' paint, batteries, motors, and fuel tanks. The pollutants included polychlorinated biphenyls, petroleum products in the form of fuel, lubricating, and hydraulic oils, and a variety of metals, such as arsenic, cadmium, chromium, lead, mercury, and zinc. Some of the pollutants were released directly into the river; others contaminated the land on which Zidell operated its business and, from there, leached into the groundwater and the river.

Over the years, Zidell purchased different types of insurance from a variety of insurers. Only two insurers, Certain Underwriters at Lloyd's of London and Certain London Market Insurance Companies, remain in this litigation; the others have settled. The interests of the two remaining insurers are, for the purposes of this appeal, identical, and we refer to them collectively as London. From 1956 to 1983, Zidell purchased three types of insurance policies from London that are at issue in this litigation: comprehensive general liability policies, a form of marine excess coverage known as bumbershoot policies, and another form of marine insurance known as protection and indemnity policies. In setting out the facts, we discuss the comprehensive general liability policies and refer to the other policies where appropriate.

The comprehensive general liability policies consisted of primary and excess policies that provided coverage for damage to property but contained an owned property exclusion. See Schnitzer Investment Corp. v. Certain Underwriters, 341 Or. 128, 138-39, 137 P.3d 1282 (2006) (discussing effect of owned property exclusion on coverage for environmental contamination). From 1956 to 1965, London issued a series of comprehensive general liability policies that the parties refer to as the “implied fortuity policies.” By their terms, those policies provided coverage without regard to whether the property damage that resulted from Zidell's business activities was either expected or intended. One policy, for example, provided coverage for “any and all liability imposedby law against the Assured for loss of or damage to or destruction of the property of others * * * arising from any cause whatsoever out of the operation” of Zidell's business.

Despite that broad grant of coverage, the trial court read a limitation into the implied fortuity policies. Specifically, the trial court ruled that “the general principle that only ‘fortuitous' losses will be covered will be deemed a condition of each such policy, consistent with the holding in A-1 Sandblasting & Steamcleaning Co. v. Baiden, 293 Or. 17, 643 P.2d 1260 (1982).” As the trial court explained, that principle

“limits coverage to those losses that were not expected or intended for policies between 1957 and January 1, 1968. From January 1, 1968 until July 1, 1983, the implied fortuity doctrine limits coverage to those losses that were not intended.” ²

Both parties accept the limitation that the trial court read into the agreements that they entered into before January 1, 1968. ³

Starting in 1966, London began issuing comprehensive general liability policies to Zidell that the parties refer to as the “expressfortuity policies.” Those policies provided coverage only for damages that were both unexpected and unintended. For example, in one of those policies, London agreed to pay Zidell “all sums which the Assured shall be obligated to pay by reason of the liability [i]mposed upon the Assured by law * * * for damages * * * on account of * * * [p]roperty damage * * * caused...