Is There Gold in your File Cabinet?
By Christopher R. Hermann
*Originally Published in Oregon Insider, November 15, 1997
Has your business cleaned up environmental contamination or is it in the process of investigating or cleaning up contamination? If so, your insurance company may be responsible for reimbursing you for some or all of the legal, consulting and cleanup costs of that work. It is well worth pulling out your dusty, old policies for an assessment of insurance coverage options, even if the cleanup is complete.
In a land mark 1996 decision, the Oregon Supreme Court rejected insurance companies' attempts to deny coverage for cleaning up environmental contamination. St.Paul Fire & Marine Insurance Co. v. McCormick & Baxter Creosoting Co., 324 Or 184, 923 P2d 1200 (1996). The Court decided that the insurance companies had a duty to reimburse their insureds for property damages, such as contamination in soil or water, that occurred during the policy periods. The Court determined that coverage was available for property damages that resulted from an "accident," or an unexpected or unintended event that causes contamination. Finally, the Court rejected the insurance companies' argument that the so-called "sudden and accidental" pollution exclusion barred coverage and remanded the case to the Multnomah County Circuit Court for further proceedings. In short, the decision created the possibility of insurance coverage under policies issued from as early as the 1940's to as late as the mid-1980's for cleaning up environmental contamination (see Hodson, Insider #162)
The McCormick & Baxter case is now moving towards trial in early 1998 in Multnomah County Circuit Court with Judge Keys presiding. A number of important environmental insurance coverage issues, not addressed in the Oregon Supreme Court's decision, are likely to be decided prior to commencement of trial. Some of those legal issues include: When did McCormick & Baxter effectively tender its claim to its insurance companies? When does an insurance company's duty to defend begin or end? What is the legal standard for differentiating between defense and indemnity costs? What is required to prove a covered loss during a given policy period? What is the legal standard for determining whether McCormick & Baxter "expected" or "intended" property damage? What is required to prove a "known risk" or "known loss," which many insurance policies exclude from coverage? Does an excess insurer have an obligation to defend before all primary and underlying insurance is exhausted? And, what is the applicability of several other common insurance policy exclusions regarding "owned property," "care custody control" or "used property?"
The possibility of "mining"old policies to pay for environmental cleanup became a reality for Cascade Corp. in early October 1997. In another environmental insurance coverage case, a Multnomah County Circuit Court jury determined that Cascade Corp. is entitled to at least $13 million in insurance coverage for cleanup of contaminated groundwater. The jury's verdict and Oregon Supreme Court's McCormick & Baxter decision may mean that your company may be rewarded for decades of faithful payment of insurance premiums.
Many commercial and industrial entities in Oregon previously decided not to tender claims for coverage of cleanup costs to their insurance companies, because Oregon law interpreting commercial general liability insurance policies was not favorable to insureds and their brokers advised them that no coverage was available for soil and groundwater cleanup at the plant sites. As the Cascade case jury verdict shows, McCormick & Baxter changed that law and businesses should reevaluate whether to tender claims for coverage of cleanup costs to their insurance companies.
The fact that an insurance company was not notified when cleanup began or until after cleanup was complete does not necessarily prevent a business from obtaining insurance coverage for the cleanup. The Oregon Supreme Court has not determined whether an insured is prevented from obtaining insurance coverage for a completed or ongoing cleanup. The recent Oregon Court of Appeals cases indicate that insurance company prejudices the insurance company by preventing it from investigating and determining whether the insured caused the contamination. See Carl v. Oregon Auto Ins. Co., 141 Or App 515, 918 P2d 861 (1996); North Pacific Ins. Co. v. United Chrome Products, Inc., 122 Or App 77, 857 P2d 158, mod 123 Or App 536, 858 P2d 1361, rev den 318 Or 171 (1993).
In many cases that involve a single source of contamination on property owned by only one industrial or commercial entity, the insurance company is unlikely to have been prejudiced by being notified of a claim after cleanup is commenced or complete. This is particularly true when there is no uncertainty about the causes of the contamination and the insured who conducts or conducted the cleanup has the incentive to do so cost-effectively. Even if the insurance company was prevented from protecting its interests through an investigation, it is well established under Oregon law that the insurance company must further demonstrate that the timing of the claim notice was unreasonable. See, e.g., Halsey v. Fireman's Fund Ins. Co., 68 Or App 349, 681 P2d 168, rev den 297 Or 601 (1984). Insureds should tender their claims for coverage and force insurance companies to meet their burden of proving prejudice.
It is time to pull out your insurance policies. There may be insurance coverage for your environmental cleanup costs after all.