Siltronic Corp. v. Employers Insurance

Citations: 921 F. Supp. 2d 1099; 2013 WL 428453; 2013 U.S. Dist. LEXIS 14442Docket: Case No. 3:11-cv-1493-ST

Court: District Court, D. Oregon; February 3, 2013; Federal District Court

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Siltronic Corporation has initiated a legal action for declaratory judgment and breach of contract against Employers Insurance Company of Wausau, Granite State Insurance Company, Century Indemnity Insurance Company, and Fireman’s Fund Insurance Company. This action seeks to determine financial liability under various insurance policies that cover defense costs against third-party claims, including those for property damage. Siltronic held commercial liability coverage from Wausau from 1978 to 1986, with Granite State providing umbrella coverage for all but one year (1985), and excess coverage from either Century Indemnity or Fireman’s Fund during specific years in that period.

All parties agreed to allow a Magistrate Judge to render final judgments under F.R.C.P. 73 and 28 U.S.C. 636(c). Siltronic filed a Motion for Partial Summary Judgment regarding Wausau's ongoing obligation to defend against environmental claims after its indemnity coverage was exhausted. However, this motion was denied.

The factual background indicates that Siltronic owns a property in a heavy industrial area near the Willamette River, where it operates a silicon wafer manufacturing plant. In December 2000, a section of the river adjacent to Siltronic's property was designated as a Superfund site by the EPA, later expanded to include a larger area known as the Portland Harbor Superfund Site. Siltronic's six consecutive liability policies from Wausau each provide $1 million in coverage and include a provision for defense costs, stipulating that Wausau must defend any suit for property damage unless the policy limits are exhausted.

Additionally, in October 2000, the Oregon Department of Environmental Quality issued an order to Siltronic and its neighbor, NW Natural, mandating them to conduct a remedial investigation and implement necessary control measures due to hazardous substance concerns. The order cited noncompliance with previous requests for remedial actions and required formal notice of intent to comply within ten days.

On December 8, 2000, the EPA identified Siltronic as a potentially responsible party (PRP) for sediment contamination in the Willamette River, issuing a Notice of Potential Liability. This notice indicated that Siltronic could be required to undertake necessary response actions and compensate for damages, including assessment costs. The subsequent step involved negotiating an Administrative Order on Consent for a Remedial Investigation/Feasibility Study with willing PRPs, which included Siltronic, finalized on September 28, 2001.

On June 23, 2003, Siltronic informed Wausau of the EPA and DEQ actions against it. Wausau, through Nationwide, agreed to cover Siltronic's defense costs while reserving rights. From September 2003, Wausau began to pay these costs, categorizing them as 'defense' or 'indemnity' payments. Subsequently, on February 5, 2004, the DEQ issued an Order mandating Siltronic to conduct further investigations and source control measures concerning trichloroethene (TCE) releases into the river. Siltronic responded on February 17, 2004, by confirming its intent to comply with the DEQ’s requirements.

An Administrative Settlement Agreement for a Remedial Investigation/Feasibility Study was reached among the EPA, Siltronic, and other PRPs on April 27, 2006, amending the earlier 2001 order. In late 2006, a Consent Judgment was established between DEQ, Siltronic, and other PRPs to resolve liability for certain remedial action costs related to the Portland Harbor Superfund Site, incorporating the 2006 EPA Settlement Agreement.

In February 2007, Siltronic and Wausau entered an agreement to fund Siltronic’s share of a partial settlement for DEQ claims regarding past remedial costs at the Superfund Site. This agreement specified that Wausau would pay $49,920.00 to indemnify Siltronic for its liability to DEQ for these costs, as outlined in the Consent Judgment recorded in the Circuit Court for Multnomah County, Oregon.

The parties agreed that payments would equally affect each insurance policy, reducing the available coverage limits correspondingly. In June 2008, Wausau and Siltronic entered into an agreement to fund Siltronic’s share of an interim payment to the National Resource Trustees (NRT) for natural resource injury assessment costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Siltronic was deemed partially responsible for natural resource damages, prompting NRT to notify Siltronic of its intent to conduct an injury assessment and seek funding from Siltronic and other responsible parties. Siltronic requested Wausau to pay $27,777.78 towards this interim payment, which Wausau agreed to, characterizing it as indemnification for Siltronic's liabilities under CERCLA.

In September 2009, Siltronic, along with the EPA and NW Natural, entered into an Administrative Settlement Agreement for the GASCO Sediments Site within the Portland Harbor Superfund Site, requiring them to conduct investigations and pay related response costs. The agreement aims for a final remedy to be implemented post-EPA issuance of the Record of Decision (ROD), while allowing the EPA to direct Siltronic to undertake response actions at any time. Later that month, Wausau declared its coverage limits exhausted and ceased payment of further defense costs, claiming to have paid a total of $6 million in indemnity and $7,699,837 in defense costs from 2003 to 2009, although it provided no detailed accounting.

Following Wausau's exhaustion declaration, Granite State, Siltronic’s umbrella liability insurer, accepted Siltronic's coverage claim but reserved the right to contest Wausau's exhaustion assertion. Granite State later deemed its coverage payments premature, believing Wausau still held obligations to pay. When Siltronic tendered further defense costs to Wausau, the tender was rejected, leading to continued accrual of costs. On December 9, 2011, Siltronic initiated legal action for declaratory judgment and breach of contract against all insurers, with cross claims filed between Granite State and Wausau, and counterclaims from Wausau against Siltronic, all parties seeking clarification of their respective rights and responsibilities under the insurance policies.

F.R.C.P. 56(c) allows for summary judgment when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The moving party must demonstrate the absence of any material fact issue, after which the nonmoving party must present specific facts indicating a genuine issue for trial. The court does not weigh evidence but assesses whether a genuine issue exists. Merely colorable evidence or a scintilla of evidence does not suffice to create a genuine issue. The determination of whether a fact is material depends on the substantive law governing the claim.

Siltronic seeks partial summary judgment for a declaratory judgment against Wausau, asserting that Wausau has a continuous duty to defend it regarding cleanup responsibilities at the Portland Harbor Superfund Site. Wausau contends that its obligation has ended due to having made $6 million in indemnity payments from 2003 to 2009, which it claims exhausts the liability limits of its policies. If Wausau's duty to defend ceases, Granite State would then be responsible for Siltronic's defense under its umbrella policies. However, Granite State argues it has a combined indemnity/defense limit, indicating that defense costs reduce the available indemnity funds. 

The issue hinges on the interpretation of Wausau's policy, which states it is not obligated to pay claims or defend suits after its liability limit is exhausted. Siltronic argues that "judgments and settlements" is unambiguous, asserting that Wausau must continue its defense until all proceedings with DEQ and EPA are resolved. Given the complexity of the Portland Harbor Superfund Site, this resolution could take years. Siltronic acknowledges its obligation to pay cleanup costs and the reimbursements received from Wausau but maintains that the duty to defend is separate from the duty to indemnify, dependent on whether Wausau's liability has been exhausted. Wausau argues that its payments for cleanup costs equate to "payments of judgment or settlement." Both parties agree that Oregon law governs the interpretation of the insurance policy, which is a legal question.

Interpreting an insurance contract involves determining the parties' intentions by analyzing the policy's terms. If a term is undefined, the court assesses its plain meaning. A single plausible interpretation leads to its application; multiple plausible interpretations require examining the context within the policy and the overall policy framework. Ambiguities favor the insured against the insurer. The term "exhausted by payment of judgments or settlements" lacks a clear definition, particularly in environmental cases, complicating the determination of when indemnity limits are exhausted. In typical cases, limits are exhausted upon settlement or judgment, but in environmental actions like those involving DEQ and EPA, such terms are not straightforward. Oregon law (ORS 465.480) treats environmental claims as equivalent to lawsuits, impacting coverage interpretation. Actions by DEQ or EPA requiring an insured to address contamination are deemed equivalent to lawsuits. The statute also establishes limits on an insurer's obligations and defines certain costs related to environmental actions. Between 2000 and 2009, multiple DEQ and EPA orders and agreements directed Siltronic's remediation efforts, qualifying as lawsuits under the statute. The key issue is whether Wausau's $6 million payment over six years for Siltronic's remediation obligations counts as "payment of judgments or settlements" for exhausting liability limits in its policies.

Siltronic contends that Wausau cannot terminate its defense obligation until all issues related to the Portland Harbor Superfund site cleanup are resolved under a final Consent Decree, despite Wausau's responsibility to cover interim remediation costs. Relevant case law indicates that an insurer's payment for compliance with a consent decree equates to a settlement, which can end the insurer's duty to defend. Washington and Oregon laws support coverage when an insured cooperates with environmental agencies even without a formal lawsuit. Although a court acknowledged that such payments could signify exhaustion of policy limits, it denied summary judgment due to unresolved factual issues regarding the total costs. 

In a similar Texas case, cleanup costs were deemed payments of judgments or settlements, allowing the insurer to cease defense obligations after exhausting primary policy limits. An excess insurer's duty to defend was also examined, where a primary insurer entered a settlement to resolve coverage disputes but had not exhausted its limits through a direct judgment or settlement of the underlying claims. The court rejected the excess insurer's argument that its duty only arose post-settlement, asserting that this would render its defense obligation illusory. Ultimately, the court ruled that the primary insurer's settlement exhausted its policy limits, thereby triggering the excess insurer’s duties, interpreting the policy language to mean that once limits are reached through judgment or settlement, the primary insurer’s obligations end.

The primary insurer's settlement, occurring over three years after the insured's original payment tender and following the exhaustion of liability limits in remediation costs, was deemed legitimate and not a 'premature tender.' The court found no evidence of collusion, concluding the settlement exhausted the primary policy's indemnity limits. Concerns surrounding 'premature tender' are particularly relevant in environmental cases where defense costs can surpass indemnity limits. Under California law, a primary insurer's payment of policy limits prior to remediation plan approval does not constitute valid exhaustion of coverage, as it must address an obligation from a third-party claim. The Remedial Action Order required only investigation and plan development, and the insured had the right to appeal, thus lacking third-party liability at that stage. However, an approved remediation plan would create a legal obligation sufficient to exhaust indemnity limits and activate the insurer's defense duties. Previous cases illustrate that indemnity limits cannot be exhausted without a settlement or judgment imposing liability to a third party. Siltronic argued that compliance with DEQ and EPA orders before a final Consent Decree does not equate to 'exhaustion by payment of judgments or settlements.' However, these orders indicate enforceable rights and responsibilities to third parties. Wausau's indemnity payments were made in response to the DEQ Order that required Siltronic to implement cleanup measures. Siltronic contended that its final liability remains undetermined due to ongoing cleanup efforts, but environmental actions often take years to resolve. Siltronic's request for the inclusion of the term 'final' before 'judgments or settlements' was deemed less reasonable within the context of the policy. Therefore, Wausau's payments were recognized as fulfilling the policy's indemnity terms, and there is no indication of premature tender in good faith.

Wausau declared it had exhausted its coverage limits in an ongoing environmental action involving Siltronic, which had been active for nine years. Notably, Wausau accepted coverage when Siltronic notified it of environmental contamination and began paying related costs within two months, continuing for six years. Wausau paid nearly $78,000 for Siltronic’s remediation costs under two agreements with DEQ and NRT. Wausau's defense costs exceeded $7.6 million, significantly more than the $6 million in indemnity payments, indicating it had paid nearly double the policy limits. As long as Wausau has indeed paid at least $6 million in indemnity, its liability is deemed exhausted, and it has no continuing duty to defend Siltronic. However, there is no comprehensive accounting of Wausau's indemnity payments beyond its own statements and the two agreements, which total less than $78,000. Siltronic does not contest Wausau's accounting but notes Granite State's disagreement. The court finds that, assuming Wausau has paid $6 million in indemnity, it has exhausted its liability and thus has no further duty to defend Siltronic. Consequently, Siltronic's motion for a declaration to the contrary is denied, and the court grants summary judgment in Wausau’s favor concerning its duty to defend. The excerpt also notes the property’s ownership history and indicates that complete copies of the insurance policies involved have not been provided, only excerpts.