Rick Franklin Corp. v. State

Citations: 207 Or. App. 183; 140 P.3d 1136; 2006 Ore. App. LEXIS 1126Docket: 98-10244CV; A121634

Court: Court of Appeals of Oregon; August 2, 2006; Oregon; State Appellate Court

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The case addresses the liability of primary insurer Canal Insurance Company and excess insurer Acceptance Insurance Company regarding environmental cleanup costs following a gasoline spill from a tanker truck owned by Lori and Robert Larkin, operating as Larkin Transport. The environmental cleanup was conducted by Rick Franklin Corporation (RFC), which incurred costs totaling $1,658,655.09. Following the spill, Larkin notified both insurers; Canal accepted coverage and paid its policy limit of $1 million, while Acceptance denied coverage. RFC sought to recover the unpaid remediation balance of $686,557.97 from Canal and Larkin, asserting a contractual obligation from Canal for the cleanup costs. The trial court granted summary judgment to Canal and Larkin, leading to appeals from both RFC and Acceptance. The appeals court affirmed Canal's judgment but reversed Larkin's, determining that Acceptance was entitled to summary judgment, thus rendering Larkin's cross-appeal moot. The court also noted that RFC's claim hinged on a promise allegedly made by Canal's attorney, which was not formally pled, undermining RFC's position.

Canal contends that no objective evidence supports an express contract between RFC and Canal since Canal rejected direct dealings with RFC. RFC counters that its second amended complaint asserts a breach of contract claim, claiming Canal formed a contract through its agents, including O'Hanlon. RFC's second assignment of error argues that the trial court incorrectly granted Canal's summary judgment motion, highlighting disputed factual issues regarding Canal's alleged promises to pay RFC for cleanup costs, Canal's knowledge of Larkin's insurance coverage, and RFC's detrimental reliance on Canal's assurances. Canal defends the summary judgment, asserting that RFC relied on statements from non-agents Lee and Larkin and that O'Hanlon did not contract directly on Canal's behalf. The trial court determined the July 10, 1998 letter from O'Hanlon was clear and that Lee and Larkin were not Canal's agents. It ruled in favor of Canal, denying RFC's cross-motion for summary judgment. The court reviewed the summary judgment record favorably towards RFC. Following a spill on June 30, 1998, Lee, claiming to be Larkin's agent, hired RFC for cleanup. RFC's July 10 letter to Canal estimated cleanup costs and stated work would commence upon receiving a signed form. An RFC representative testified that O'Hanlon indicated Canal would cover costs but could not contract directly with RFC. During a deposition, O'Hanlon confirmed that the work order needed to be submitted to Larkin for signature due to Canal's refusal to execute it directly.

A work order was initially sent to Canal Insurance to execute a document, but Canal refused to contract with RFC. Despite this, RFC claims that a letter dated July 10, 1998, from O'Hanlon to RFC raises a genuine issue regarding whether Canal contracted with them. The letter clarifies that Canal Insurance cannot contract directly with RFC and emphasizes that Canal's obligation is solely to its insured. It states that Canal is willing to pay reasonable cleanup costs incurred by its insured, contingent upon approval from Bob Larkin, and that Canal is not liable to RFC or the State for the cleanup. 

RFC sent a revised work order to Larkin, which he signed, outlining payment terms for a time and materials job. The trial court granted summary judgment to Canal on RFC's claims of contract and promissory estoppel. The excerpt explains that contract formation requires mutual intent, while promissory estoppel necessitates a promise, foreseeable reliance, actual reliance, and a substantial change in position. RFC interprets the letter as containing promises to pay cleanup costs, arguing that it invites RFC to submit billings and suggests ambiguity regarding insurance coverage limits. However, the court notes that RFC's interpretation disregards the letter's explicit limitations, underscoring that Canal Insurance's obligations are strictly to its insured and not to RFC or the State.

Franklin's deposition revealed that O’Hanlon informed him during a July 10, 1998, phone call that Canal would neither execute the work order nor contract with RFC, which Canal confirmed by refusing to sign the work order and directing RFC to send it to Larkin instead. The evidence strongly indicates that RFC and Canal did not intend to establish any contractual relationship regarding the cleanup, as Canal made no commitments to RFC that could support a claim for cleanup costs, aside from Larkin's rights under its insurance policy. O’Hanlon explicitly stated that Canal's obligation was solely to its insured. Although Canal’s letter mentioned a willingness to consider reasonable costs, these remarks were made in the context of limiting Canal's liability to the terms of its policy with Larkin. RFC's complaint, however, is based on an alleged promise from Canal to cover cleanup costs independent of the policy terms, but no evidence suggests Canal authorized any representative to guarantee payment up to the full policy limit. Consequently, the trial court's summary judgment in favor of Canal was appropriate.

Regarding the summary judgment favoring Larkin against Acceptance, Acceptance argued that the trial court misinterpreted its insurance policy as ambiguous, which led to a determination that the policy covered sudden and accidental releases of toxic chemicals. Acceptance asserted that a specific exclusion in the policy negated coverage provided elsewhere. Larkin argued that the presence of a 'following form' endorsement and an absolute exclusion created ambiguity, which should be construed against Acceptance as the policy drafter. An ambiguity exists when a policy can be interpreted in multiple plausible ways, considering the specific context of the terms used and the overall policy. The Canal policy specifically excludes coverage for damage resulting from the discharge of pollutants, although it allows coverage if such discharge is sudden and accidental.

Canal’s policy provides coverage for damages resulting from the spill in this case, while the Acceptance policy serves as a $4 million excess coverage policy with a pollution exclusion identical to Canal's. Acceptance’s Form 16 excludes coverage for personal injury or property damage related to automobile use away from the insured premises, indicating that cleanup costs would be covered after Canal's limits are exhausted. However, Acceptance argues that its Form 172 ARC, titled 'Pollution Endorsement,' explicitly excludes coverage for contamination-related damages, including cleanup costs. Larkin counters by asserting that Form 172 ARC does not limit Form 16’s coverage, as there is no language stating that Acceptance's policy prevails over Canal's in case of conflict. The court must determine the parties' intent through a three-step process under Oregon law, beginning with assessing whether the policy terms are ambiguous. It notes that conflicting clauses do not inherently create ambiguity, as exclusions are meant to clarify coverage. Larkin also posits that the phrase "notwithstanding anything contained in this policy" in Form 172 ARC suggests the exclusion applies only to coverage specifically in the Acceptance policy, not to that incorporated from Canal. The court finds that the gasoline release was sudden and accidental, thus making the pollution exclusion inapplicable.

The language in Form 16 indicates that the Acceptance policy does not extend coverage beyond what is available in Canal’s policy, which includes coverage for sudden and accidental pollution damage. However, Form 172 ARC excludes certain coverage provided in Form 16. The phrase "notwithstanding anything contained in this policy to the contrary" in Form 172 ARC is clear and overrides any existing pollution coverage provisions, indicating that it applies to all coverage under the policy. Larkin's argument attempting to create ambiguity through the phrase "this policy" is unconvincing, as it lacks limiting language. Furthermore, Form 172 ARC states that "all other terms and conditions of this policy remain unchanged," reinforcing its applicability to all coverage areas. Consequently, the trial court erred in granting summary judgment to Larkin and should have ruled in favor of Acceptance.

Larkin also claims that Form 172 ARC violates the explanatory title requirement of ORS 742.246(2), believing it necessitates the policy be construed without Form 172 ARC. Acceptance counters that this statute is limited to fire insurance policies, which does not encompass general or excess liability policies. ORS 742.246(2) mandates that any policy provision that restricts the insured's rights must have an explanatory title. The court in Fleming held that the statute applies to fire insurance policies, but did not extend its applicability to all insurance types. Therefore, the court concludes that ORS 742.246(2) does not apply to Acceptance’s policy, rejecting Larkin’s cross-assignment of error.

The judgment against Acceptance Insurance Company is reversed, resulting in the dismissal of Larkin’s cross-appeal regarding attorney fees as moot. The appeal is partially reversed and remanded for the entry of summary judgment in favor of Acceptance Insurance Company. Claims from RFC against Larkin have been settled, and Larkin agreed to a judgment in favor of RFC. While a party typically cannot appeal a denial of a summary judgment motion, the presence of cross-motions allows for a judgment to be directed if one party must prevail based on undisputed facts. The assumption is made that RFC properly relied on O’Hanlon’s letter, despite Lee’s deposition testimony indicating she did not hire RFC. 'Promissory estoppel' is clarified as a theory related to breach of contract rather than a standalone cause of action. There are no genuine issues of material fact regarding whether Lee or Larkin had authority to promise payment for cleanup costs beyond Canal's obligations under its policy with Larkin. The Acceptance policy includes a pollution exclusion, which is ambiguous as the relevant box is unmarked. If ambiguity exists, it is analyzed within the broader context of the policy, and if it remains, it is construed against the drafter, Acceptance. Additionally, ORS 742.246's 2001 amendment, which is not pertinent to this case, specifies its applicability to standard fire insurance policies only.