Land O' Lakes, Inc. filed a lawsuit against its insurers, Employers Mutual Liability Insurance Company of Wausau and The Travelers Indemnity Company, seeking defense costs and indemnification under commercial general liability (CGL) policies related to an action brought against it by the Environmental Protection Agency (EPA) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). The district court granted summary judgment in favor of the insurers, citing two main reasons: (1) Land O' Lakes's claim for breach of duty to defend was barred by Minnesota’s six-year statute of limitations on contract actions, and (2) the owned-property exclusion in the CGL policies nullified the insurers’ duty to indemnify Land O' Lakes for cleanup costs mandated by the EPA.
Land O' Lakes, an agricultural cooperative, had merged with Midland Cooperatives, which previously owned an oil refinery in Cushing, Oklahoma. After abandoning the site, Hudson Oil, Midland's successor, was later released from cleanup obligations by the EPA. In 1998, following inspections, the EPA identified hazardous material issues at the site, leading to emergency actions and its designation as a Superfund site in 1999. In 2001, the EPA issued a Special Notice Letter to Land O' Lakes, identifying it as a Potentially Responsible Party (PRP) under CERCLA due to its predecessor’s ownership of the site and demanding payment for approximately $8.9 million in cleanup costs already incurred. The letter also invited negotiations for further studies regarding site remediation. The appellate court affirmed the district court's judgment.
In March 2001, Land O' Lakes responded to the EPA's 2001 PRP Letter, asserting that Hudson Oil, rather than Midland, was responsible for contamination at a refinery site, thereby rejecting liability for cleanup costs and refusing to pay $8.9 million in past expenses incurred by the EPA. Land O' Lakes sought defense and indemnification from its insurers under various CGL policies. Wausau declined to defend, stating the PRP Letter did not constitute a covered 'suit,' a decision Land O' Lakes contested in January 2002, citing judicial precedent supporting its position. However, Land O' Lakes did not pursue further action against Wausau for six years. Travelers also denied defense, reasoning its policies predated Land O' Lakes's acquisition of Midland, and Land O' Lakes similarly took no action against this denial for seven years.
Meanwhile, the EPA proceeded with cleanup efforts at the refinery, completing a non-time-critical removal action by June 2003. An RI/FS conducted by the ODEQ from 2004 to 2007 detailed site contamination and proposed cleanup alternatives. In November 2007, the EPA issued a Record of Decision (ROD), selecting a remedy estimated to cost $9.65 million. The EPA sent Land O' Lakes a second PRP Letter in February 2008, requesting negotiation on continued cleanup and reimbursement of approximately $21 million for prior costs, along with a draft consent decree and a Remedial Design/Remedial Action plan.
In May 2008, Land O' Lakes reiterated its denial of responsibility and refusal to pay for past or future cleanup activities, prompting notifications to the insurers for defense and indemnification again. The insurers denied these obligations once more. In January 2009, the EPA issued a Unilateral Administrative Order directing Land O' Lakes to implement the selected cleanup remedy from the ROD, rejecting Land O' Lakes's denial of liability for remediation.
The UAO mandated Land O' Lakes to create and implement a remedial design for a refinery site cleanup, which they began shortly after receiving the order in February 2009, despite expressing objections to some details. By November 2010, the EPA confirmed that the cleanup was compliant with the ROD, although ongoing inspections by the EPA or ODEQ will continue. Following the cleanup initiation, Land O' Lakes filed a breach-of-contract lawsuit against its Insurers for reimbursement of defense costs related to the EPA action and for indemnification of cleanup expenses. The Insurers sought summary judgment, which the district court granted.
The court ruled that the 2001 EPA PRP Letter constituted a suit for arguably-covered damages, and the Insurers' failure to defend against it breached their duty under CGL policies, triggering a six-year limitations period under Minnesota law. Since Land O' Lakes filed its lawsuit in 2009, this claim was deemed untimely. Regarding the duty-to-indemnify claim, the court found that an owned-property exclusion in the policies barred coverage for Land O' Lakes's cleanup costs.
On appeal, Land O' Lakes contends the 2008 PRP Letter qualifies as a 'suit' while the 2001 letter does not, arguing they are distinct claims with separate accrual dates. They also assert that the owned-property exclusions should not apply because the cleanup addressed an existing threat. The district court's interpretation of the insurance contract and summary judgment decision are reviewed de novo. Land O' Lakes challenges the ruling that the 2001 PRP Letter triggered the Insurers' duty to defend, arguing it was merely an invitation to participate in an investigation rather than a suit seeking damages. The court applied Minnesota law to the Travelers Insurance policy, determining it governed the contract due to its issuance before Land O' Lakes acquired the Oklahoma refinery.
Oklahoma law governs the Wausau insurance policy, which was issued specifically for the refinery. The Minnesota Supreme Court has recognized that a PRP (Potentially Responsible Party) letter qualifies as a 'suit' under various Commercial General Liability (CGL) policies, a view not yet addressed by the Oklahoma Supreme Court. The district court concluded that Oklahoma would likely align with Minnesota's ruling, a determination not contested by Land O' Lakes or the Insurers. Land O' Lakes challenges the district court's view that the 2001 PRP Letter represented a 'suit' for potentially covered damages, arguing it was merely an invitation for investigation. However, the court emphasized that the 2001 PRP Letter initiated an adversarial process aiming to impose liability on Land O' Lakes for remediation costs, detailing several critical aspects: it notified Land O' Lakes of potential liability under CERCLA, outlined a 60-day negotiation period, invited participation in negotiations for settlement and response actions, indicated potential liability for future costs, and warned of fines and civil litigation if negotiations failed. The accompanying draft AOC (Administrative Order on Consent) alleged ongoing contamination damage. The district court noted that the 2001 PRP Letter was not simply an invitation but a formal notification of a suit for potentially covered damages. Interestingly, Land O' Lakes had previously acknowledged the letter as a suit in a communication to Wausau, arguing that an EPA demand letter triggers the duty to defend. Land O' Lakes now alternatively claims that even if the 2001 PRP Letter is considered a suit, no claim for covered damages arose until the EPA issued a subsequent 2008 PRP Letter.
Land O' Lakes argued that the 2008 PRP Letter from the EPA triggered the Insurers' duty to defend due to its implications for cleanup costs. However, the court found this argument unpersuasive, agreeing with the district court that the 2008 letter was merely a continuation of claims made in the earlier 2001 PRP Letter, which had already put Land O' Lakes on notice of potential property damage claims covered under their CGL policies. The 2001 PRP Letter initiated a duty to defend from that point, despite the unknown extent of contamination at the time. Consequently, the Insurers breached their duty to defend in 2001, and Land O' Lakes's 2009 claims were barred by Minnesota's statute of limitations.
Additionally, the court addressed the owned-property exclusion in the CGL policies, which the district court ruled relieved the Insurers from indemnifying Land O' Lakes for cleanup costs since these costs pertained solely to remediation of Land O' Lakes's own property. While the duty to defend is triggered by any arguably covered claim, the duty to indemnify requires actual coverage, meaning a causal link must exist between the damages sought and covered occurrences. The owned-property exclusion specifically prevents coverage for remediation costs confined to the insured's property, aligning with Minnesota law.
Contamination on an insured's property that has damaged third-party property may lead to coverage for government-mandated cleanup costs of both properties. However, costs incurred to clean up the insured's own property to prevent future pollution—without an existing causal link to third-party damage—are not covered. The Minnesota Supreme Court in Domtar established that cleanup costs on the insured's property may be covered if there is actual injury to third-party property and an existing threat requiring protection. Land O' Lakes contends that the district court wrongly determined it had not demonstrated third-party property damage from refinery site contamination. It argues that any historical contamination impacting third-party property suffices to meet the actual-injury criterion. Specifically, it cites contamination to Skull Creek and Cimarron River during the refinery's operation as fulfilling this requirement. Land O' Lakes claims that costs for current cleanup efforts to prevent future damage to third-party properties should be covered, regardless of whether the properties affected in the past differ from those currently at risk. An illustrative example from the district court highlights that costs for repair to prevent future contamination would not be covered without prior contamination on the insured's property. This reasoning underscores the necessity of a causal relationship between cleanup efforts and actual injury to third-party property, emphasizing that broadening coverage under CGL policies would be improper.
Land O' Lakes has not demonstrated an 'actual injury' to third-party property, which is essential under the Domtar standard. The court determined that Land O' Lakes could not fulfill the requirement of showing an existing threat to third-party property solely based on evidence of a general environmental threat. The court found that the owned-property exclusion applies, as Land O' Lakes failed to prove that third-party property was contaminated by hazardous materials from the refinery site, that it remained contaminated at the time of the EPA cleanup order, or that there was a continuing threat of contamination. Additionally, the cleanup was not shown to be aimed at protecting any specific third-party property. Land O' Lakes's reliance on the case of Continental Insurance Companies was deemed overstated; while that case addressed governmental interests in contaminated environments, it did not imply that general environmental damage constitutes property damage to third-party property for insurance purposes. The court affirmed the district court’s ruling, concluding that Land O' Lakes's remediation costs fell within the owned-property exclusion.
