Transp. Ins. Co. v. Cent. Nat'l Ins. Co. of Omaha

Full title: TRANSPORTATION INSURANCE COMPANY, Plaintiff and Counter-Defendant, v…

Court: United States District Court, District of Oregon

Date published: Oct 12, 2021

3:18-cv-00734-YY (D. Or. Oct. 12, 2021)

Opinion

3:18-cv-00734-YY

10-12-2021

TRANSPORTATION INSURANCE COMPANY, Plaintiff and Counter-Defendant, v. CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, PACIFIC EMPLOYERS INSURANCE COMPANY, Defendants, Counter-Claimants, and Cross-Defendants, and ACME TRADING & SUPPLY COMPANY, Defendant, Counter-Claimant, and Cross-Claimant.

Yim You United States Magistrate Judge

FINDINGS AND RECOMMENDATIONS

Yim You United States Magistrate Judge

FINDINGS

Plaintiff Transportation Insurance Company (“Transportation”) issued primary insurance policies to defendant Acme Trading & Supply Company¹ (“Acme”) in the 1980s. Defendants Pacific Employers Insurance Company (“Pacific”) and Central National Insurance Company of Omaha (“Central National”) issued Acme umbrella and excess insurance policies covering some of the same periods. Acme faces claims for property damage related to environmental contamination at the Portland Harbor Superfund Site. Acme tendered those claims to Transportation, who asserted its policies were exhausted and denied Acme a defense. Transportation then brought this action seeking, among other things, a declaratory judgment that its policies are exhausted and it has no duty to defend Acme. After filing suit, Transportation accepted Acme's tender under a reservation of rights and agreed to defend Acme for “future defense costs, ” i.e., from the time it accepted Acme's defense.

1 Acme is erroneously named in this lawsuit as Acme Trading Company of Portland. Acme's Resp. Transportation's Mot. Summ. J. 2 n.1, ECF 73; Acme Ans. ¶ 6, ECF 36.

Transportation asserts two claims. In claim one, Transportation seeks (1) a judicial determination pursuant to O.R.S. 28.010 et seq., regarding the scope and nature of Pacific and Central National's obligations to pay their legal and equitable shares of past, present, and future defense expenses, and (2) declaratory relief that: the Transportation policies are exhausted; it has no duty to defend Acme; Pacific, and Central National have, and have had, a duty to defend Acme; and Pacific's and Central National's conduct has harmed Transportation. Compl. 12-13, ECF 1. In claim two, Transportation seeks contribution from Central National and Pacific under O.R.S. 465.480(4) for the cost of Acme's defense.

Pacific and Central National have filed a counterclaim for a declaratory judgment that they “owe no duty to defend, indemnify, or pay with respect to any of the underlying liabilities” in Transportation's complaint. Pacific-Central National Ans. 16, ECF 17.

Acme has filed counterclaims for breach of contract and unfair environmental claims settlement practices under O.R.S. 465.484 et seq. Acme Ans. 24, ECF 36. Acme further seeks declaratory relief as follows:

a. Transportation is liable under each of the Transportation Policies to pay the full amount of Acme's reasonable and necessary defense costs until such time as the limits of the Transportation Policies have been exhausted pursuant to the terms of each of those policies.

b. Transportation is obligated to make a reasonably prompt determination of the reasonable and necessary fees, costs, and expenses incurred by Acme and submitted to Transportation for payment. Pursuant to O.R.S. 465.484(1), such payments must be made within 30 days.

Id. Acme also has separately filed cross claims against Pacific and Central National for breach of contract and for declaratory judgment, as an alternative to its breach-of-contract and declaratory-judgment counterclaims against Transportation. Id. at 25-31.

The court previously denied Transportation's motion for preliminary injunction. Tr. 22, ECF 47. The parties then filed motions for summary judgment, which are now before the court.²

2 No party moved for summary judgment on Acme's crossclaims, Pacific's counterclaim, or Central National's counterclaim.

All parties seek summary judgment on portions of Transportation's first claim for declaratory judgment. Acme's Mot. Summ. J. 2, ECF 60; Central National's Mot. Summ. J. 2, ECF 63; Pacific's Mot. Summ. J. 2, ECF 65; Transportation's Mot. Summ. J. 1, ECF 67. Central National and Pacific also move for summary judgment on Transportation's second claim for contribution under O.R.S. 465.480(4). Central National's Mot. Summ. J. 2, ECF 63; Pacific's Mot. Summ. J. 2, ECF 65. Finally, Acme seeks partial summary judgment on its counterclaims for breach of contract, unfair environmental claims settlement practices, and declaratory judgment regarding Transportation's liability and payment of defense costs. Acme's Mot. Summ. J. 2, ECF 60.

For the reasons set forth below, Acme's, Pacific's, and Central National's motions (ECF 60, 63, 65) should be GRANTED, and Transportation's motion (ECF 67) should be DENIED.

I. Jurisdiction

This court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(1), as the matter in controversy exceeds $75,000, and the parties are citizens of different states. Acme is an Oregon company with its principal place of business in Portland, Oregon. Acme Ans. ¶ 6, ECF 36. Transportation is an Illinois insurance company, Complaint ¶ 3, ECF 1, and a subsidiary of CNA Financial Corporation. Transportation's Corporate Disclosure Statement, ECF 22. Pacific is a Pennsylvania insurance company and Central National is a Nebraska insurance company. Pacific-Central National Ans. ¶¶ 4-5, ECF 17.

II. Factual Background

Beginning in 1968, Acme operated a scrapyard at 4927 N.W. Front Avenue in Portland. Decl. Mark Myers ¶ 5, ECF 62; id., Ex. 3, at 45, 64, ECF 62-3; id., Ex. 5, at 2, ECF 62-5. In 1983, Acme became a wholly owned subsidiary of Manufacturing Management, Inc. Myers Decl. ¶ 7, ECF 62. Schnitzer Steel Industries Inc. owns Manufacturing Management. See Thompson Decl., Ex. 1, at 23, ECF 85-1. In 1995, Manufacturing Management sold Acme to Calbag Metals Co. but agreed to indemnify and hold harmless Calbag and Acme for any environmental liability arising from Acme's pre-1995 operations. Thompson Decl. ¶ 8, ECF 85; id., Ex. 1, at 5, 17-19, ECF 85-1. After environmental liability arose, Manufacturing Management disputed its obligation to Calbag and Acme. Id., Ex. 2, at 1, ECF 85-2. That dispute was resolved by a mediated settlement in 2010. Id. In 2014, Acme expressly assigned its insurance claims to Manufacturing Management, including its rights to recover defense and indemnity costs incurred under Acme's insurance policies. See Id. at 1-2 (assignment of insurance claims pursuant to O.R.S. 465.481). Manufacturing Management and Schnitzer Steel are prosecuting this action in Acme's name. See id., Ex. 3, ECF 85-3.

A. Insurance Policies

1. Primary Insurance

Transportation issued primary comprehensive general liability insurance Policy No. TBP 007 9615 51 (the “551 policy”) to General Metals of Tacoma as primary insured. Thompson Decl., Ex. 4, at 1, ECF 61-4. The 551 policy was issued with an effective period from October 1, 1979, to October 1, 1982. Id. Transportation added Acme as an additional insured to the 551 policy by endorsement dated March 31, 1981. See Id. at 26.

The 551 policy was canceled on October 1, 1981, id., Ex. 12, at 6, ECF 61-12 (Joann Dickinson Deposition), and Transportation issued primary comprehensive general liability insurance Policy No. TBP 02 9028 414 (the “414 policy”) to General Metals and Acme, effective from October 1, 1981, to October 1, 1984. Id., Ex. 5, at 1, ECF 61-5. Transportation renewed the 414 policy for another year under Policy No. TBP 60 238 76 25 (the “625 policy”), until October 1, 1985.³ Id., Ex. 6, at 1, ECF 61-6; see also id., Ex. 12, at 32, 37-38, ECF 61-12 (Dickinson Dep., confirming effective dates of Transportation's policies).

3 Some evidence suggests the 625 policy ran until October 1, 1986. See Myers Decl., Ex. 5, at 3, ECF 62-5 (showing 625 policy ended on October 1, 1986); Decl. Jeremy Schulz, Ex. 3, at 10, ECF 68-3 (indicating policies ran through 1986); Decl. Joann Dickinson, Ex. 2, at 16, ECF 83 (run loss showing 625 policy effective through October 1, 1986). However, there is evidence that the policy ended on October 1, 1985, and the parties appear to agree for the purpose of this motion, that the 625 policy ended in 1985. Acme Ans. ¶ 4, ECF 36; Guy Thompson Decl., Ex. 12, at 12, ECF 61-12; Acme's Resp. Transportation's Mot. Summ. J. 3, ECF 73; Transportation's Resp. Acme's Mot. Summ. J. 10, ECF 77.

2. Excess and Umbrella Insurance

Pacific issued excess insurance Policy No. XMO 00 56 96 (the “Pacific policy”) to Acme, effective March 31, 1981, to October 1, 1981. Linda Stapley Decl., Ex. 1, at 1, ECF 66-1. During that time, underlying primary coverage was provided by Transportation's 551 policy.

Central National issued Policy No. CNU 00 82 76 (the “Central National policy”) to Acme. Stapley Decl., Ex. 1, ECF 64-1. The Central National policy provides excess and umbrella coverage depending on the nature of the occurrence. Including extensions of the policy period, the policy was effective from October 1, 1981, to October 1, 1984. See Id. at 1, 3, 13. During that time, underlying primary coverage was provided by Transportation's 414 policy.

B. Present Insurance Claims: ODEQ and EPA

In a December 21, 1999 letter, the Oregon Department of Environmental Quality (“ODEQ”) advised Calbag, Acme's owner, that the facility located at 4927 N.W. Front Avenue was a “high priority” for hazardous substance contamination and requested Calbag to perform a voluntary preliminary assessment with sampling in accordance with Oregon's Environmental Cleanup Law. Myers Decl., Ex. 1, ECF 62-1. The site is located within the Portland Harbor Superfund Site (“PHSS”). See id., Ex. 3, at 1-2, ECF 62-3.

Acme tendered notice of the ODEQ claim to Transportation in 2000. See Myers Decl.¶ 5, ECF 62; id., Ex. 3, at 2, ECF 62-3. Transportation responded that it was investigating the matter. Id., Ex. 3, at 14, ECF 62-3. Acme performed various environmental studies and took several remedial actions. See Id. at 2. ODEQ issued a final source control decision in November 2015, finding the property did not appear to be a current source of water or sediment contamination. Id. Acme represents that it incurred $352,138 in defense and indemnity costs relating to the ODEQ claim. Id. Transportation did not pay these costs.

In March 2009, the United States Environmental Protection Agency (“EPA”) designated Acme as a potentially responsible party (“PRP”) for the cleanup of the PHSS. Id., Ex. 2, ECF 62-2. This designation was based on Acme's release of hazardous substances from three Portland facilities: 4927 N.W. Front Avenue, 12005 N. Burgard Road, and 2495/2550 N.W. Nicolai Street. Id. at 2.

In 2010, Acme tendered notice of the EPA suit to Transportation and demanded a defense and indemnity. Id., Ex. 3, ECF 62-3; see also id., Ex. 4, ECF 62-4 (Acme letter dated July 2011). Acme also requested reimbursement for costs incurred in relation to the ODEQ suit. Id., Ex. 3, at 2, ECF 62-3. These suits are collectively referred to as the PHSS suits.

By letter dated October 20, 2011, Transportation asserted all three of its primary insurance policies-the 551, 414, and 625 policies-had been exhausted by indemnity payments in settlement of prior claims. Id., Ex. 5, at 3-6, ECF 62-5. As discussed extensively below, Transportation contends its policies were exhausted by settling prior claims for environmental liability against Acme's co-insureds, General Metals and its owners, at two sites: Strandley-Manning and Commencement Bay.

C. Present Dispute

Acme represents it has incurred over $1.1 million in attorney's fees, consultant costs, and other costs and expenses related to defense of the PHSS suits. Myers Decl. ¶¶ 11-13, ECF 62; id., Ex. 7, ECF 62-7. Acme also claims it has incurred over $474,275 in costs in the form of assessments owed as a condition of its participation as a voting member in the Portland Harbor Participation and Common Interest Group (“PCI Group”). Myers Decl. ¶¶ 11, 14, ECF 62. The PCI Group is a nonjudicial private allocation organization established by potentially responsible parties to manage CERCLA⁴ liability arising from the EPA suit. Id.

4 Congress designed the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) to promote the “timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination.” Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (citation and quotation marks omitted). The CERCLA defines four categories of potentially responsible parties or PRPs, see 42 U.S.C. §§ 9607(a)(1)-(4), and authorizes two forms of legal action. “Section 113(f)(1) authorizes a contribution action to PRPs with common liability stemming from an action instituted under § 106 or § 107(a), while § 107(a) permits cost recovery (as distinct from contribution) by a private party that has itself incurred cleanup costs.” United States v. Atl. Rsch. Corp., 551 U.S. 128, 129 (2007).

On December 18, 2018, after filing this declaratory judgment action, Transportation sent Acme a letter “assuming Acme's future defense of environmental claims at the [PHSS] subject to a full reservation of rights.” Thompson Decl., Ex. 1, at 1, ECF 61-1. The letter does not refer to a specific policy and does not mention exhaustion. See Id. At a Rule 30(b)(6) deposition, Transportation's corporate designee, Joann Dickinson, testified that Transportation agreed to defend Acme under the 551 and 414 policies, and possibly the 625 policy. Id., Ex. 12, at 18-19, ECF 61-12. Transportation also paid several of Acme's assessments due to the PCI group, but refuses to pay Acme's defense costs incurred prior to December 18, 2018, the date Transportation accepted Acme's tender. Myers Decl. ¶ 15, ECF 62, id., Ex. 9-10, ECF 62-9-10. Additionally, Transportation paid several invoices from Williams Kastner, the firm defending Acme. Myers Decl. ¶ 17, ECF 62; id., Ex 12, ECF 62-12. Acme represents that over $1 million in costs remain outstanding.

III. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(a), “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The substantive law governing a claim or defense determines whether a fact is material. Moreland v. Las Vegas Metro. Police Dep't, 159 F.3d 365, 369 (9th Cir. 1998).

The party moving for summary judgment bears the initial responsibility of informing the court of the basis for the motion and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that establish the lack of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party does so, the nonmoving party must “go beyond the pleadings” and “designate ‘specific facts showing that there is a genuine issue for trial.'” Id. at 324 (citing Fed.R.Civ.P. 56(e)).

The court “does not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial.” Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9th Cir. 1999). “Reasonable doubts as to the existence of material factual issue are resolved against the moving parties and inferences are drawn in the light most favorable to the non-moving party.” Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000).

IV. Relevant Law

A. Insurance Policy Interpretation

A federal court, sitting in diversity, applies state law to interpret an insurance policy. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d 1142, 1145 (9th Cir. 2008). Under Oregon law, “[t]he overriding goal in construing an insurance policy is to ‘ascertain the intention of the parties.'” Id. at 422 (quoting Dewsnup v. Farmers Ins. Co., 349 Or. 33, 39-40 (2010)). The court determines “the intention of the parties by analyzing the policy's express terms and conditions.” Id. (citing Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464, 469 (1992); O.R.S. 742.016(1) (providing that, with some exceptions, “every contract of insurance shall be construed according to the terms and conditions of the policy”). The court interprets the terms of the policy from the perspective of an “ordinary purchaser of insurance.” Id. (quoting Congdon v. Berg, 256 Or.App. 73, 87 (2013)) (quotation marks omitted). “The language used in a contract of insurance is entitled to a construction as favorable to the insured as in good conscience will be permitted, and every reasonable intendment will be allowed to support a view that will protect the insured and prevent forfeiture.” Schweigert v. Beneficial Standard Life Ins. Co., 204 Or. 294, 301 (1955) (citations omitted).

If an insurance policy explicitly defines a phrase, the court must apply that definition. Holloway v. Republic Indemn. Co. of Am., 341 Or. 642, 650 (2006). “If the policy does not define the phrase in question, [the court] ‘resort[s] to various aids of interpretation to discern the parties' intended meaning.” Id. (quoting Groshong v. Mutual of Enumclaw Ins. Co., 329 Or. 303, 307-08 (1999)). “Under that interpretive framework, [the court] first consider[s] whether the phrase in question has a plain meaning, i.e., whether it ‘is susceptible to only one plausible interpretation.'” Id. (quoting Groshong, 329 Or. at 308). “If the phrase in question has a plain meaning, [the court] will apply that meaning and conduct no further analysis.” Id. “If the phrase in question has more than one plausible interpretation, [the court] will proceed to the second interpretive aid”-”[t]hat is, [the court] examine[s] the phrase in light of ‘the particular context in which that [phrase] is used in the policy and the broader context of the policy as a whole.'” Id. (quoting Hoffman, 313 Or. at 470) (final alteration in original).

“If the ambiguity remains after the court has engaged in those analytical exercises, then ‘any reasonable doubt as to the intended meaning of such [a] term[ ] will be resolved against the insurance company. . . .'” N. Pac. Ins. Co. v. Hamilton, 332 Or. 20, 25 (2001) (quoting, among other cases, Hoffman, 313 Or. at 470 (alterations in original)); see also Allen v. Cont'l Cas. Co., 280 Or. 631, 633 (1977) (“[A]lthough an insurance company is ordinarily entitled to the enforcement of an insurance policy as written by the company if its terms are clear and unambiguous, in the event of an ambiguity in the terms of an insurance policy any reasonable doubt will be resolved against the insurance company and in favor of extending coverage to the insured.”). “[A] term is ambiguous . . . only if two or more plausible interpretations of that term withstand scrutiny, i.e., continue[ ] to be reasonable. . . .” Holloway, 341 Or. at 650 (quoting Hoffman, 313 Or. at 470) (emphasis in Hoffman).

B. Duty to Defend

Under Oregon law, an insurer's duty to defend is a question of law. Hunters Ridge Condo. Ass'n v. Sherwood Crossing, LLC, 285 Or.App. 416, 422 (2017). An insurer's duty to defend is determined by two documents: the complaint and the insurance policy. Ledford v. Gutoski, 319 Or. 397, 399 (1994) (citing Oakridge Comm. Ambulance v. U.S. Fid., 278 Or. 21, 24 (1977)). Simply stated, if the claims asserted in the complaint are covered by the policy, the insurer has a duty to defend. W. Hills Dev. Co. v. Chartis Claims, Inc., 360 Or. 650, 653 (2016) (citations omitted). If the claims are not covered by the policy, there is no duty to defend. Id.

The duty to defend is interpreted broadly: there is a duty to defend if the “complaint provides any basis for which the insurer provides coverage.” Bresee Homes, Inc. v. Farmers Ins. Exch., 353 Or. 112, 116 (2012) (quoting Ledford, 319 Or. at 399-400) (emphasis in original). “[I]f some allegations reasonably can be interpreted as falling within the coverage, the insurer owes a duty to defend-even if other allegations of conduct or damage are excluded.” Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 237 Or.App. 468, 478 (2010), rev. den., 349 Or. 602 (2011). “Any ambiguity in the complaint with respect to whether the allegations could be covered is resolved in favor of the insured.” Ledford, 319 Or. at 400. “When attempting to show it has no duty to defend, an insurer can rely only on facts that have been previously incontrovertibly established.” Allstate Ins. Co. v. Morgan, 123 F.Supp.3d 1266, 1274 (D. Or. 2015) (quoting N. Pac. Ins. Co. v. Wilson's Distrib. Serv., Inc., 138 Or.App. 166, 174 (1995)).

C. Burden of Proof

Under Oregon law, the insured bears the initial burden of proving coverage, the insurer has the burden of proving exclusions to that coverage, and the insured has the burden of proving exceptions to exclusions. Employers Ins. of Wausau, A Mut. Co. v. Tektronix, Inc., 211 Or.App. 485, 509, 514 (2007), rev den., 343 Or. 363 (2007) (reasoning the party seeking the benefit of a particular provision generally bears the burden of proving its application).

V. Exhaustion of Transportation's Primary Insurance Policies

All four parties seek summary judgment regarding the portion of Transportation's first claim in which Transportation seeks a declaratory judgment that it has no duty to defend Acme because its policies have been exhausted. Because Transportation has failed to adduce a disputed issue of material fact on exhaustion, Transportation's motion should be denied, and summary judgment should be awarded in favor of Acme, Pacific, and Central National.

A. Burden of Proof on Exhaustion

Transportation bears the burden of proving its primary policies are exhausted.

As between an insured and the primary insurer, cases in this district hold that the primary insurer bears the burden of providing exhaustion. See United States Fire Ins. Co. v. Mother Earth Sch., 423 F.Supp.3d 1048, 1055 (D. Or. 2019) (denying insurer's motion for partial summary judgment that it had extinguished its duty to defend because the insurer offered no proof of judgment or settlement); Nw. Pipe Co. v. RLI Ins. Co., No. 3:09-CV-01126-BR, 2014 WL 1406595, at *7 (D. Or. Apr. 10, 2014) (denying insurer's motion for partial summary judgment on exhaustion where the insurer failed to establish the costs it paid were covered under the policy); Siltronic Corp. v. Employers Ins. Co. of Wausau, 921 F.Supp.2d 1099, 1109-10 (D. Or. 2013) (finding that “an insurer may not exhaust its indemnity limits until a settlement or judgment of some kind imposes a legal obligation on the insured to a third party”). This makes sense because to trigger the duty to defend, the insured need only show the complaint in the underlying lawsuit “provides any basis for which the insurer provides coverage.” Bresee Homes, 353 Or. at 116 (emphasis added). Once the insured meets this burden, the burden shifts to the insurer to demonstrate an absence of a duty to defend. See Allstate Insurance, 123 F.Supp.3d at 1274.

On the other hand, as between an insured and an excess insurer, the insured bears the burden of proving the underlying insurance policies have been exhausted. Steven Plitt et al., Couch on Insurance § 254:39 (3d ed. June 2021 update); Allan D. Windt, Insurance Claims and Disputes § 9:1 (6th ed. March 2021 update). As such, if a primary insurer seeks contribution from an excess insurer, the primary insurer stands in the insured's position and must prove exhaustion. Scott M. Seaman and Jason R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims § 10:4 (December 2020 update). Thus, if a primary insurer seeks declaratory judgment against an excess insurer on grounds that its policy is exhausted, it bears the “burden of proving noncoverage.” QBE Ins. Corp. v. Creston Court Condo., Inc., 58 F.Supp.3d 1137, 1144 (D. Or. 2014) (citing United Pacific Insurance Co. v. Mazama Timber Products, Inc., 270 Or. 242, 245 (1974)).

Contrary to Transportation's contention, the rule announced in AXIS Reinsurance Co. v. Northrop Grumman Corp., 975 F.3d 840 (9th Cir. 2020), does not apply here. There, primary and first-layer excess insurers exhausted their policy limits through the payment of two settlements. The insured tendered the unpaid part of the second settlement to its secondary excess insurer, who paid the settlement without reserving its right to contest the underlying insurers' decision to fund the first settlement. Id. at 842, 848. The secondary excess insurer then sued the insured for reimbursement of a portion of the first settlement under a theory of improper erosion. Presented with these circumstances, the Ninth Circuit asked “when, if ever, may an excess insurer challenge an underlying insurer's payment decision as outside the scope of coverage?” Id. at 842.⁵ The court rejected the proposition that “excess insurers generally may contest the soundness of underlying insurers' payment decisions, ” reasoning such a rule would “undermine the confidence of both insureds and insurers in the dependability of settlements.” Id. at 846. Instead, the court held that “[a]n excess carrier generally may not avoid or reduce their own liability by contesting payments made at prior levels of insurance unless there's an indication that the payments were motivated by fraud or bad faith.” Id. at 844, 849 (citation and quotation marks omitted).

5 The Ninth Circuit observed that this was an issue of first impression in this circuit. Contrary to its assertion that AXIS Reinsurance is binding, Transportation did not argue any such issue was present in its briefing. In fact, Transportation did not address which party bears the burden to prove exhaustion in its briefing at all.

AXIS Reinsurance is inapplicable here because Acme is an insured, not an excess insurer, and the exhaustion of the Transportation policies are at issue, not its payment decisions under a theory of improper erosion. In AXIS Reinsurance, the insured and underlying insurers agreed the underlying policies were exhausted. But for the question of whether the losses were covered, there was no dispute whether the primary and first-layer excess insurers had made payments for what they deemed covered losses. Here, the primary insurer-Transportation-is contesting exhaustion. At issue is whether Transportation made payments at all and whether an aggregate limit applies to any such payments, not whether payments were made for uncovered claims. The excess insurers, Pacific and Central National, are party to this suit and agree with Acme that the primary policies are not exhausted, and Acme is not attempting to trigger its excess insurers' obligations. Moreover, it does not comport with the “objectively reasonable expectations of the insured, ” id. at 842, to require Acme to answer this question by showing Transportation's payments were motivated by fraud or bad faith.

In sum, Transportation is the primary insurer, it brought this action for declaratory judgment, and it seeks contribution from the excess insurers. Thus, Transportation bears the burden of proof on exhaustion, and Acme need not prove fraud or bad faith to prevail.

B. Transportation's Policies

All three⁶ of Transportation's primary policies provide coverage for property damage:

6 Acme is correct in observing that Transportation's complaint refers only to the 551 policy and alleges only that the 551 policy is exhausted. See Acme's Mot. Summ. J. 16, 16 n.1, ECF 60; see Compl. ¶¶ 18, 32-35, ECF 1. Also, in its motion for summary judgment, Transportation expressly seeks summary judgment only regarding the 551 policy. Transportation's Mot. Summ. J. 2, ECF 67. Yet both Acme and Transportation refer to all of the policies-the 551, 414, and 625 policies-in their respective replies. Transportation's Reply Supp. Mot. Summ. J. 1-2, ECF 82; Acme's Reply Supp. Mot. Summ. J. 4, ECF 84. As the parties have had a “full and fair opportunity to ventilate the issues involved in the matter, ” the court considers all three policies for purposes of resolving the pending motions. Gospel Missions of Am. v. City of Los Angeles, 328 F.3d 548, 553 (9th Cir. 2003) (holding district court did not error when entering summary judgment sua sponte under similar circumstances).

The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of . . .

B. Property Damage

to which this insurance applies, caused by an Occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of . . . Property Damage, even if any of the allegations of the suit are groundless, false or fraudulent, . . . but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.

Thompson Decl., Ex. 4, at 4, ECF 61-4 (551 policy); id., Ex. 5, at 37, ECF 61-5 (414 policy); id., Ex. 6, at 14, ECF 61-6 (625 policy).⁷ Property damage is defined as

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss or use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an Occurrence during the policy period.

Id., Ex. 4, at 23, ECF 61-4.

7 Moving forward and where relevant, only citations to the 551 policy are included where the policies all share the same language.

The Limits of Liability provision contains a schedule that limits property damage liability to $250,000 for each occurrence and $250,000 for each aggregate. Id. at 46. The aggregate limits apply separately to each annual period of the policy term. Id. at 20. The Limits of Liability provision further defines per-occurrence and aggregate limitations as follows:

Regardless of the number of (1) Insureds under this policy, (2) persons or organizations who sustain . . . Property Damage, or (3) claims made or suits brought on account of . . . Property Damage, the Company's liability is limited as follows: . . . .

The total liability of the Company for all damages because of all Property Damage sustained by one or more persons or organizations as the result of any one Occurrence shall not exceed the limit of Property Damage liability stated in the above schedule as applicable to each Occurrence.

Subject to the above provision respecting each Occurrence, the total liability of the Company for all damages because of all Property Damage to which this coverage applies and described in any of the numbered subparagraphs below shall not exceed the limit of Property Damage liability stated in the above schedule as aggregate.

(1) all Property Damage arising out of premises or operations rated on a remuneration basis or contractors equipment rated on a receipts basis, including Property Damage for which liability is assumed under any Incidental Contract relating to

such premises or operations, but excluding Property Damage included in subparagraph (2) below;

(2) all Property Damage arising out of and occurring in the course of operations performed for the Named Insured by independent contractors and general supervision thereof by the Named Insured, including any such Property Damage for which liability is assumed under any Incidental Contract relating to such operations. . . .

(3) all Property Damage included within the Products Hazard and all Property Damage included within the Completed Operations Hazard.

Id. at 46 (emphases omitted).

Thus, the policies provide insurance for covered “property damage, ” which is subject to a per-occurrence limit, unless the property damage is encompassed by one of the three subparagraphs above, in which case it is also subject to an aggregate limit. E.g., Sinclair Oil Corp. v. Allianz Underwriters Ins. Co., 39 N.E.3d 570, 583 (Ill.App.Ct. 2015) (interpreting the same limits of liability provisions and concluding that “only certain types of claims are subject to an aggregate limit under the policy”).

The Limits of Liability provision further allows for multiple aggregate limits: “Such aggregate limit shall apply separately to the Property Damage described in subparagraphs (1), (2) and (3) above, and under subparagraphs (1) and (2), separately with respect to each project away from premises owned by or rented to the Named Insured.” Thompson Decl., Ex. 4, at 26, ECF 61-4.

C. Premium Basis Rating Scheme

The policies also contain an Additional Declarations form that defines three “hazards”: Premises-Operations-Escalators, Independent Contractors, and Completed Operations-Products. For example, the Additional Declarations form for the 551 policy appears as follows:

(Image Omitted) Id. at 85.

As reflected in the Additional Declarations form, the policies apply different “premium bases” and “rates” for the three types of hazards to determine the premium amount owed. Id. The Premises-Operations-Escalators hazard is rated on one of four premium bases: (a) area (sq ft), (b) frontage, (c) remuneration, ⁸ and (e) number of escalators insured. Id. The Independent Contractors hazard is rated on a (g) cost or (h) number basis. Id. The “Completed Operations- Products” hazard is rated on a (d) receipts or (f) sales basis.⁹ Id.

8 “When used as a premium basis . . . ‘remuneration' means”:

the entire remuneration earned during the policy period by proprietors and by all employees of the Named Insured, other than chauffeurs (except operators of Mobile Equipment and aircraft pilots and co-pilots, subject to any overtime earnings or limitation of remuneration rule applicable in accordance with the manuals in use by the Company.

Thompson Decl., Ex. 4, at 188, ECF 61-4 (close parenthesis missing in original).

9 Cost, receipts, and sales are also defined in the policies. Thompson Decl., Ex. 4, at 188, ECF 61-4.

Transportation argues that the aggregate limit subparagraphs (1) through (3) in the Limits of Liability provision correspond to each hazard, i.e., subparagraph (1) corresponds to the Premises-Operations-Escalators hazard; subparagraph (2) corresponds to the Independent Contractors hazard; and subparagraph (3) corresponds to the Completed Operations-Products hazard. Transportation's Reply Supp. Mot. Summ. J. 5-6, ECF 82. However, this assertion is refuted by a plain reading of the Limits of Liability provision in which subparagraph (1) refers to both “premises or operations rated on a remuneration basis, ” which corresponds to the Premises-Operations-Escalators hazard, and “contractors equipment rated on a receipts basis, ” which corresponds to the Completed Operations-Products hazard. See Thompson Decl., Ex. 4, at 46, ECF 61-4.

Transportation correctly contends, however, that the premium bases used to rate the different hazards are not interchangeable. Transportation's Reply Supp. Mot. Summ. J. 7-8, ECF 82. For example, the Premises-Operations-Escalators hazard cannot be rated on a (d) receipts or (h) number basis, and the Completed Operations-Products hazard cannot be rated on an (a) area or (g) cost basis. Thus, for example, if an insured's premises or operations are rated on a remuneration basis, any payments of judgments or settlements to resolve property damage liability in connection with those premises or operations would be subject to the aggregate limit under subparagraph (1) of the Limits of Liability provision. See Limits of Liability, subpara. 1 (referring to “all Property Damage arising out of premises or operations rated on a remuneration basis”). But if an insured's premises or operations are rated on the other three bases identified in the Additional Declarations Form-area, frontage, or number of escalators-any payments of judgments or settlements to resolve property damage liability in connection with those premises or operations would not be subject to the aggregate limit of subparagraph (1), although they would still be subject to the per-occurrence limit. This is the only reasonable interpretation of the premium-basis rating scheme, given how the Additional Declarations form depicts each hazard to corresponding premium bases. See Thompson Decl., Ex. 4, at 32, ECF 61-4.

D. “Existence” of an Aggregate Limit

One additional matter must be examined before reaching the exhaustion analysis: Transportation asserts it rated all of the operations on a (c) remuneration basis, thereby exhausting the aggregate limit of subparagraph (1) for each of its policies. Transportation Mot. Summ. J. 8, ECF 67. Subparagraph (1) of the Limits of Liability provides that the aggregate limit of $250,000 applies for “all Property Damage arising out of premises or operations rated on a remuneration basis.” Thompson Decl., Ex. 4, at 46, ECF 61-4.

Acme and the excess insurers argue Transportation has not proven the “existence” of this aggregate limit. Pacific-Central National Resp. Mot. Summ. J. 3-4, 7, 9, 13, ECF 71; Pacific's Reply Supp. Mot. Summ. J. 2, ECF 80; Acme's Reply Supp. Mot. Summ. J. 5, 6, ECF 84. They assert that General Metals' and Acme's operations were in fact rated on a (d) receipts basis after March 31, 1981, when Acme was added as an additional insured, rather than on a (c) remuneration basis, as Transportation contends. As such, they contend that the subparagraph (1) aggregate limit does not exist. However, as discussed below, this argument either conflates the “operations” from the Premises-Operations-Escalators hazard with the “operations” from the Completed Operations-Products hazard, or simply misidentifies the hazard that was insured.

A careful examination of Transportation's policies shows that General Metals' and Acme's operations were rated on a (c) remuneration basis, while other hazards were rated on other bases. Before March 31, 1981, the General Metals' hazards of “Iron or Steel Scrap Dealers, ” “R/A Machine Shops Repair” and “Metal Scrap Dealers” were rated on a (c) remuneration basis:

(Image Omitted) Thompson Decl., Ex. 4, at 86, ECF 61-4.

On March 31, 1981, Transportation added Acme to the policy as an additional insured, and issued an additional premium for General Metals products on a (d) receipts basis via a Miscellaneous Liability Extension form and Endorsement No. 0-33 (the “0-33 endorsement”):

(Image Omitted) Id. at 180.

Transportation argues that the 0-33 endorsement is an extension of additional coverage and ratings, not a replacement of prior ratings. Indeed, the 0-33 endorsement expanded Transportation's coverage in several ways and reduced coverage in other ways. See Id. at 183. The 0-33 endorsement shows an “Add'l premium” for each expansion of coverage and a “Return premium” for each reduction in coverage. Id. As a result of the 0-33 endorsement, the premium payments increased. See Id. at 183, 192. But there is no change in premium payments to suggest that the prior remuneration basis rating of General Metals' operations had been altered.

Transportation further contends that on the 0-33 endorsement, codes (c) remuneration and (d) receipts were used simultaneously to “rate two different hazards for the same insured, not as mutually exclusive alternatives for rating the same hazard.” Transportation's Mot. Summ. J. 8, ECF 67 (emphasis in original). Specifically, code (c) renumeration was used to rate the “Premises-Operations-Escalators” hazard while code (d) receipts was used to rate the “Completed Operations-Products” hazard. Id. at 9. Transportation reiterates that code (d) receipts cannot apply to the Premises-Operations-Escalator hazard because that hazard can only be rated on one of four premium bases: (a) area, (b) frontage, (c) remuneration, and (e) number of escalators. Id. at 7-8. This interpretation matches the layout of the Additional Declarations form as discussed, supra, pp. 19-20.

The 414 and 625 policies continued to rate General Metals' and Acme's operations on a remuneration basis. The 414 policy contains an Additional Declarations form like that found in the 551 policy. Thompson Decl., Ex. 5, at 74, ECF 61-5. This form lists, among other things, the same hazards and premium bases as the 551 policy. Id. Within the 414 policy, Schedule G-13670 rates Acme's “Metal Scrap Dealers” operations at Front Avenue on a (c) remuneration basis and its “Metal Processing” products on a (d) receipts basis. Id. at 78. The schedule also rates General Metals' “Iron or Steel Scrap Dealers” operations at Marine View Drive on a (c) remuneration basis and its “Metal Processing” products at Portland Avenue on a (d) receipts basis. The 625 policy was rated in the same way. Id., Ex. 6, at 8, ECF 61-6. Thus, Transportation has shown that General Metals' and Acme's operations were rated on a remuneration basis under all three of its policies for the entire policy periods.

E. Exhaustion Analysis

Again, the policies provide that Transportation “shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.” Thompson Decl., Ex. 4, at 4, ECF 61-4. Transportation contends that because it “used remuneration as the rating basis for all the operations the Policy insured . . . for the property damage that was the subject of the Strandley-Manning and Commencement Bay claims, ” it exhausted the $250,000 annual aggregate limit of subparagraph (1) for each of its policies. Transportation's Mot. Summ. J. 17, ECF 67 (emphasis added); see Thompson Decl., Ex. 4, at 46, ECF 61-4 (subparagraph (1) providing that the aggregate limit of $250,000 applies for “all Property Damage arising out of premises or operations rated on a remuneration basis”). The 551 policy has a two-year period, the 414 policy has a three-year period, and the 625 policy has a one-year period. As a result, the annualized aggregate limit of subparagraph (1) is $500,000 for the 551 policy, $750,000 for the 414 policy, and $250,000 for the 625 policy.

To prove exhaustion of the aggregate limit of subparagraph (1), Transportation must show: (1) it paid “judgments or settlements” that General Metals was liable to pay because of property damage equal to these annualized aggregate limits; (2) the payments applied to property damage arising out of General Metals' operations rated on a remuneration basis; (3) the suits against Acme only allege property damage arising out of Acme's operations rated on a remuneration basis; and (4) none of the property damage arose from projects “away from the premises owned by or rented to” General Metals or Acme. These elements are referred to below as the elements of exhaustion.

1.Payment of “Judgments or Settlements” General Metals was Liable to Pay Because of Property Damage

This first element raises two related issues: First, proof of payment, and second, whether

Transportation paid settlements that General Metals was liable to pay because of property damage, as opposed to defense costs or other non-property-damage claims.

a. Proof of Payment

Transportation asserts it paid $761,000 to settle the Strandley-Manning claim and $500,000 to settle the Commencement Bay claim under the 551 policy, $750,000 to settle the Commencement Bay claim under the 414 policy, and $250,000 to settle the Commencement Bay claim under the 625 policy. For evidence, Transportation proffers its “loss runs” as proof that it made these payments.

In the ordinary course of its business, Transportation uses an electronic claims information system to record and track claims and payments made under its insurance policies. Joann Dickinson Decl. ¶¶ 6-9, ECF 78; Thomas Barriball Decl. ¶¶ 7-8, ECF 79. Transportation asserts that when a claim is paid, the payment information is entered into the system “at or very near the time that individual payments are made.” Dickinson Decl. ¶ 9, ECF 78; Barriball Decl. ¶ 11, ECF 79. Indemnity payments are recorded in a column labeled “paid loss.” Dickinson Decl. ¶ 13, ECF 78; Barriball Decl. ¶ 17, ECF 79. Defense costs and other types of payments are recorded in a column labeled “ALAE, ” which stands for allocated loss adjustment expenses.¹⁰Dickinson Decl. ¶ 12, ECF 78; Barriball Decl. ¶ 16, ECF 79. Transportation is then able to generate a “loss run” to extract financial data from the system to report the total amounts of various classes of payments made under individual insurance policies. Dickinson Decl. ¶ 10, ECF 78; Barriball Decl. ¶ 12, ECF 79.

10 The policies do not define this term. A loss adjustment expense is “the cost of investigating and adjusting losses.” Loss Adjustment Expense, International Risk Management Institute (“IRMI”) Glossary, https://www.irmi.com/term/insurance-definitions/loss-adjustment-expense (last visited July 30, 2021). Allocated loss adjustment expenses are “loss adjustment expenses that are assignable or allocable to specific claims.” Allocated Loss Adjustment Expense, IRMI Glossary, https://www.irmi.com/term/insurance-definitions/allocated-loss-adjustment-expense (last visited July 30, 2021). “Fees paid to outside attorneys, experts, and investigators used to defend claims are examples of ALAE.” Id.

One version¹¹ of the loss run for the 551 policy shows paid losses of $761,000 for the Strandley-Manning claim and $500,000 for the Commencement Bay claim. Schulz Decl., Ex. 4, at 5, ECF 68-4. The loss runs for the 414 and 625 policies show paid losses of $750,000 and $250,000, respectively, for the Commencement Bay claim. Id., Ex. 8, at 1, ECF 61-8; Dickinson Suppl. Decl., Ex. 2, at 1, ECF 83.

11 As explained in the next section, an earlier version of this loss run shows a different paid loss for the Commencement Bay claim.

Transportation cites U-Haul Int'l, Inc. v. Lumbermens Mut. Cas. Co., 576 F.3d 1040 (9th Cir. 2009), and General Insurance Co. of America v. U.S. Fire Ins. Co., 886 F.3d 346 (4th Cir. 2018), as amended (Mar. 28, 2018), to argue that its loss runs alone are sufficient to demonstrate exhaustion. Transportation contends that it is adequate “to show the total . . . amount of various types of payments, without separate proof of every transaction that contributes to the total.” See Transportation's Resp. Acme's Mot. Summ. J. 3, 10, ECF 77. This is a mischaracterization of these cases.

In U-Haul, the Ninth Circuit held that an insurer's loss runs are admissible. Id. at 1044 (“The data compilations therefore meet the requirements of Rule 803(6). . . . There is no merit to Lumbermens [sic] argument that the exhibits constitute evidence prepared solely for the purposes of litigation and not kept in a company's regular course of business.”). Admissibility is not in question here. Moreover, the loss runs in U-Haul were “computer-generated summaries of payments” that included vendor numbers, transaction dates, and check numbers with payment amounts, id. at 1043, and otherwise summarized this “backup documentation.” Id. at 1045 (“[The claims manager] detailed to the judge's satisfaction how the summary sheet matched up to backup documentation.”). Here, the integrity of Transportation's loss runs is not similarly evident from the record. The loss runs contain no transaction-specific information, and the record contains no “backup documentation” proving Transportation made any payments.

Likewise, in General Insurance, an insurer's loss runs were enough to sustain a grant of summary judgment but only after the veracity of the loss runs was established. 886 F.3d at 359. The court found the loss runs were admissible because “the information reflected in the loss runs were recorded by a person with knowledge of the information at or near the time of the payments reflected therein, and that the information was maintained during the regular and ordinary course of business.” Id. All the same, the insurer had produced “actual payment records” to the insured during discovery. Gen. Ins. Co. of Am. v. Walter E. Campbell Co., Inc., 241 F.Supp.3d 578, 588 (D. Md. 2017), aff'd sub nom. General Insurance, 886 F.3d 346 (4th Cir. 2018), as amended (Mar. 28, 2018). Transportation offers no such detailed recordkeeping here.

Transportation's position that “a loss run alone is sufficient” to establish exhaustion on summary judgment-on this record-is undermined even more by looking at how other courts have treated loss runs. Transportation's Resp. Acme's Mot. Summ. J. 10, ECF 77 (emphasis in original). The decision in UnitedHealth Group Inc. v. Columbia Casualty Co., No. CV 05-1289 (PJS/SRN), 2010 WL 11519975 (D. Minn. Nov. 23, 2010), denying a motion to compel loss-run discovery, is particularly instructive. There, UnitedHealth Group claimed that primary insurer and first-layer excess insurer policies were exhausted, and brought suit against several second-layer excess insurers for duty to defend and indemnify. Id. at *1. To prove it had paid its self-insured retention under the primary and first-layer excess policies, UnitedHealth Group produced a loss run of nearly 900 claims. To confirm the veracity of its loss run, UnitedHealth Group produced in discovery (1) a comprehensive audit of claims, (2) non-privileged documents related to an audit conducted by a third party to verify the accuracy of defense and indemnity payments reflected on the loss run, and (3) all documents related to denied claims, open claims, and 20 sample claims, among other documentation. A special master ordered the primary insurer to produce documentation for the 20 sample claims, which gave UnitedHealth Group the ability to spot-check the loss run. The court further ordered the primary insurer to produce documentation on any specific payment in dispute. “If [UnitedHealth Group] subsequently identified a questionable payment, [the primary insurer] was then required to produce all of the underlying documentation relating to the payment. Id. at *4. “The produced documents included pleadings, motions, orders, written discovery responses, depositions, settlements and judgments. Although the production was limited to 41 claims, it was a labor-intensive, costly process, taking over eighteen months to complete at a cost of $224,867.” Id. at *5. UnitedHealth Group also produced “a more detailed loss run, showing payments at an invoice level.” Id. The excess insurers could not point to any evidence that challenged or contradicted the audit results or the sample claims data. Id. Balancing the burdens and benefits of further production, the court denied the motion to compel production of the underlying documentation for the remaining claims. UnitedHealth Group illustrates the expectation that loss runs will be substantiated with underlying evidence.

Here, Transportation's loss runs contain no transaction-specific information, let alone supporting documentation. The loss runs do not provide any details about specific payments such as who was paid, the payment amount, the date of payment, or any corresponding check numbers. Transportation's corporate designee could not explain the basis of the $761,000 indemnity payment under the 551 policy, who entered the data in the database, why the loss was allocated to the 551 policy, or why Transportation made payments above policy limits. Schulze Decl., Ex. 3, at 58-61, ECF 68-3 (Dickinson Dep.). Transportation admits that it has no underlying or backup documentation to substantiate its loss runs. See id.

At oral argument, Transportation likened its predicament to an archeological dig: just as an archeologist must try to reconstruct a fossilized dinosaur from the bones, Transportation is trying to reconstruct the exhaustion of its policies from its loss runs and publicly available information. This is a particularly unfitting analogy. Whereas the archeologist was not present when the dinosaur died some tens of millions of years ago, Transportation was there in the 1980s and 1990s when it purportedly made these indemnity payments. Further, while the dinosaur had no stake in the preservation of its bones, Transportation had a stake in proving exhaustion when it purportedly made payments-Transportation knew there were other insureds on the policies, like Acme, that could later seek coverage.

Transportation also argued that revealing any more information than its loss runs would implicate its other policyholders' confidentiality, and that it would only do so pursuant to a court order. Yet Transportation has sought no such order during these proceedings and never asserted that any additional documentation even exists. The excess insurers have produced excerpts of a settlement agreement regarding the Commencement Bay site that further undermines Transportation's position. This settlement agreement between several CNA Financial Corporation (“CNAF”) insurers, including Transportation, required Leslie and Sophie Sussman, the owners of General Metals, to submit invoices to the CNAF insurers for reimbursement. Stapley Decl., Ex. 3, at 5, ECF 72. The settlement agreement required the invoices to contain detailed information and allowed the CNAF insurers to request additional supporting documentation. See Id. Even so, Transportation has not produced these invoices or any related documents.

b. Because of Property Damage

It is also unclear whether Transportation paid “judgments or settlements” that General Metals was liable to pay because of property damage (i.e., indemnity) rather than defense costs or other non-property damage claims. Transportation relies on its loss runs to show that it made indemnity payments to resolve the Strandley-Manning and Commencement Bay claims. Transportation reasons that because the loss runs show payment in the paid loss column, any payments must be for indemnity.

However, different versions of the same loss runs do not match. A 551 policy loss run generated on January 29, 2010, lists a paid loss of $2,972,277 and ALAE of $1,440,465 for the Commencement Bay claim. Thompson Decl., Ex. 7, at 5, ECF 61-7. This directly conflicts with the same entry in a version of a 551 policy loss run generated on August 2, 2017, which lists a paid loss of only $500,000. Schulz Decl., Ex. 4, at 5, ECF 68-4. If these data were entered in the 1980s and ‘90s during the ordinary course of business, “at or very near the time” that individual payments were made, why would the loss run change between 2010 and 2017? Why would Transportation allocate nearly $3 million in indemnity payments to a policy with annual aggregate and occurrence limits of $250,000? And what justification does Transportation have for later re-allocating nearly $1,500,000 in payments away from this policy? See Acme's Reply Supp. Mot. Summ. J. 12-13, 18, ECF 84.

Also, Transportation's allocations on the loss runs do not align with its current position that the aggregate limit of subparagraph (1) applies. The 551 policy loss runs list a paid loss of $761,000 for the Strandley-Manning claim. Thompson Decl., Ex. 7, at 3, ECF 61-7; Schulz Decl., Ex. 4, at 5, ECF 68-4. Why would Transportation allocate $761,000 to a policy with an aggregate limit of $500,000? The 551 loss runs list a $500,000 paid loss for the Commencement Bay claim. Why would Transportation have allocated any indemnity payments to this policy for the Commencement Bay claim if it had exhausted the aggregate limit of subparagraph (1) with payments toward the Strandley-Manning claim? See Acme's Reply Supp. Mot. Summ. J. 8, 17, ECF 84.

Finally, the loss runs for the 551 policy list zero ALAE, which represents payment of defense and related costs, and the loss runs for the 414 and 625 policies likewise list zero ALAE. Schulz Decl., Ex. 5, at 1, ECF 68-5; Dickinson Suppl. Decl., Ex. 2, at 1, ECF 83. This raises serious questions about how Transportation allocated settlement payments between indemnity and defense costs. See Acme's Reply Supp. Mot. Summ. J. 8, ECF 84.

Loss runs aside, the excess insurers have produced portions of a settlement agreement between General Metals and four CNAF insurers, including Transportation, regarding the Strandley-Manning claim. Stapley Decl., Ex. 1, at 1, ECF 72. According to that settlement agreement, Transportation and other CNAF insurers collectively paid $761,000 directly to General Metals in exchange for a release of both “property damage pollution claims” and “non-property damage pollution claims, ” which expressly included General Metals' extra-contractual claim of “bad faith breach of fiduciary duty.” Id. at 5-6. This poses two problems for Transportation. First, payment to settle a claim for breach of fiduciary duty is different from payment to settle claims for property damage. Second, this payment was made to General Metals, not to a state or federal regulator to settle General Metals' liability for property damage. It is also a mystery why the settlement agreement released 23 other CNAF insurance policies without allocating a paid loss to any other policy. See Stapley Decl., Ex. 1, at 1-2, 5, 7, ECF 72.

There are also serious questions about the nature of payments for the Commencement Bay claim. In 1992, Transportation and other CNAF insurers filed a declaratory judgment against General Metals and its owners, the Sussmans. See Schulz Decl. ¶ 15, ECF 11 (citing American Casualty Co. of Reading, et al., v. General Metals of Tacoma, Inc., et al., 92-cv-5192B (W.D. Wash.)). The CNAF insurers settled with the Sussmans. Stapley Decl., Ex. 3, at 1, ECF 72. General Metals does not appear to be party to the settlement agreement. See Id. Although the Sussmans are named insureds on the 551 policy, Thompson Decl., Ex. 4, at 1, ECF 61-4, they are not named insureds on the 414 policy, see id., Ex. 5, at 15-18, 82, 84-87, 92, ECF 61-5 (omitting the Sussmans from lists of named insureds), and it is unclear whether they are named insureds on the 625 policy. See id., Ex. 6, at 3-6, ECF 61-6 (omitting the Sussmans from lists of named insureds); id. at 12-13 (including the Sussmans in list of additional insureds whose “interest has been satisfied as respects . . . Portland Avenue, Tacoma, WA”) (capitalization omitted). Payments to the Sussmans, who are not insureds under the 414 policy and may not be insureds under the 625 policy, do not show Transportation made settlement payments that General Metals was liable to pay because of property damage.

The settlement agreement includes confidentiality provisions, but Transportation's counsel has disclosed that settlement payments totaled more than $5 million. Schulz Decl. ¶ 15, ECF 11. Under the settlement agreement, the CNAF insurers agreed to pay the Sussmans $300,000 initially and then a percentage of future “Eligible Costs, ” where CNAF was to pay 100% of the first $100,000 of eligible costs, 70% of the next $1 million, and 50% of the next $3 million. Stapley Decl., Ex. 3, at 4, ECF 72. “Eligible Costs” included the “Costs of defense, including, for example, attorney's fees” incurred by the Sussmans in relation to the environmental claims. Id. at 3. Again, the payment for defense costs and attorney's fees are not payments for property damage, and payments to the insured directly are not payments to state or federal regulators settling General Metals' liability for property damage. This $5 million Commencement Bay settlement was allocated between 21 released policies, two released sites, released extracontractual claims, and released defense and indemnity obligations. Stapley Decl., Ex. 3, at 1, ECF 72. The loss runs provide no information about how the settlement was allocated between the released policies, sites, extra-contractual claims, and defense or indemnity payments.

Acme's reliance on Northwest Pipe Co. v. RLI Insurance Co., No. 3:09-CV-01126-BR, 2014 WL 1406595 (D. Or. Apr. 10, 2014), is well placed. There, the insurer moved for partial summary judgment that its policy limits had been exhausted. In support of its position, the insurer relied on the declaration of a claims handler and various charts that listed invoices by number and date, the amount of the invoice, the amount paid, and parts of the payments that the insurer allocated as defense or indemnity costs. Id. at *7. The court found that the insurer failed to provide “detailed evidence and testimony” to explain the basis for how it allocated its defense costs and indemnity payments. Id. at *8.¹² Here, Transportation only offers its loss runs to prove it made the purported payments, and it does not explain the bases of these allocations, much less “detailed evidence and testimony.” Id. at *8.

12 The court also pointed out that the insurer had taken an opposing position in prior litigation when it argued whether certain environmental response costs were “properly characterized as defense or indemnity expenses-is inherently a fact-based determination, including expert analysis.” 2014 WL 1406595 at *9 (citing insurer's brief in Siltronic Corp. v. Emp'rs Ins. Co. of Wausau, No. 3:11-cv-1483-ST, 2014 WL 901161 (D. Or. Mar. 7, 2014)).

Transportation's evidence is so lacking that it fails to create a genuine issue of material fact to survive Acme's and the excess insurers' motions for summary judgment at step one of the exhaustion analysis. “The mere existence of a ‘scintilla' of evidence is not enough to create a ‘genuine issue of material fact' in order to preclude summary judgment.” Nelson v. Pima Cmty. Coll., 83 F.3d 1075, 1081 (9th Cir. 1996) (citing United States ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810, 815 (9th Cir.1995)). “Likewise, mere allegation and speculation do not create a factual dispute for purposes of summary judgment.” Id. (citing Witherow v. Paff, 52 F.3d 264, 266 (9th Cir. 1995); Brit. Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir. 1978) (“a jury is permitted to draw only those inferences of which the evidence is reasonably susceptible; it may not resort to speculation.”).

Even drawing all reasonable inferences in Transportation's favor, Transportation at most has shown it might have made some payments on General Metals' behalf and some of those payments might have been to resolve claims for property damage. Unlike the loss runs in U-Haul, General Insurance, and UnitedHealth Group, Transportation's loss runs contain no transaction-specific information and are not supported by any backup documentation. The Strandley-Manning and Commencement Bay settlement agreements show Transportation made payments for defense costs and non-property damage claims. Yet Transportation has produced no evidence to permit the inference that it made indemnity/property damage payments. On this record, a reasonable jury could not find that Transportation paid settlements that General Metals was liable to pay because of property damage equal to the policies annualized aggregate limits. A reasonable fact finder would have to speculate to conclude anything more.

2.Whether Payments were Made for Property Damage Arising out of General Metals' Operations Rated on a Remuneration Basis

Transportation also relies on its loss runs to show that payments were made for General Metals' operations rated on a remuneration basis. But the loss runs merely state that payments were made for “Environmental Impairment Liability - Property Damage.” Thompson Decl., Ex. 7, at 3, ECF 61-7 (551 policy, Strandley-Manning); id. at 5 (551 policy, Commencement Bay); id., Ex. 8, at 1, ECF 61-8 (414 policy, Commencement Bay); Dickinson Suppl. Decl., Ex. 2, at 1, ECF 83 (625 policy, Commencement Bay). The loss runs lack additional details on the nature of the payments. They do not specify that each “paid loss” pertained to an insured's operations rated on a remuneration basis, ¹³ as Transportation claims happened, or otherwise identify any applicable aggregate limits. Likewise, Transportation's claims administrators merely attest that each “loss run reflects indemnity payment . . . for property damage” under each policy, but their declarations are silent as to which hazards the property damage arose from.

13 Transportation rated other hazards with other premium bases: General Metals' “Buildings or Premises-Office” and “Vacant Land” at Marine View Drive and Portland Avenue were rated on an (a) area basis and a (b) frontage basis. Thompson Decl., Ex. 4, at 48, ECF 61-4. Its “Sales of used machinery and equipment” hazard was rated on an (f) sales basis. Id. at 50, 88, 157, 187. Its “Stores or Dealers - Wholesale” hazard was rated on a (h) number basis. Id. at 50, 88. There are endorsements showing the addition of various Contractor's Equipment hazards. Id. at 71-77. And, of course, both General Metals' and Acme's “Metal Processing” completed operations, or products, were rated on a (d) receipts basis. Id. at 180. If there was property damage arising from hazards other than premises or operations rated on a remuneration basis or contractors equipment rated on a receipts basis, payments settling that liability would not apply toward the aggregate limit of subparagraph (1).

Nevertheless, the prior Strandley-Manning and Commencement Bay claims are addressed to determine whether payments were allocated to a specific hazard.

a. Strandley-Manning Claim

In 1984, the EPA discovered that toxic oil was draining into an environmentally sensitive oyster bed on the Puget Sound in Washington state. Schulze Decl., Ex. 3, at 37, ECF 11-3. The oil was coming from a nearby property running a scrap metal operation. Id. Leonard Strandley, the owner, was breaking down electrical transformers containing polychlorinated biphenyls (PCBs)¹⁴ and selling the metal for scrap. Id. The toxic oils were either burned, sprayed on the ground as dust suppressants, or sent to an oil recycling company. Id. Strandley obtained the transformers from General Metals, the City of Centralia, Washington, and several Washington utilities. Id., Ex. 4. The EPA appears to have sought cleanup costs from General Metals because General Metals sent Strandley transformers for disposal. See Id. The EPA determined this contamination occurred from 1972 to 1984. See Schulz Decl., Ex. 4, at 189, ECF 11-4; id., Ex. 5, at 5, ECF 11-5. General Metals tendered an insurance claim to Transportation under the 551 policy.

14 PCBs are a persistent organic pollutant. In 1979, the EPA banned use of PCBs with limited exceptions under the Toxic Substances Control Act, 15 U.S.C. § 2605(e)(2). See 40 C.F.R. § 761.20.

It is unclear how payments for the Strandley-Manning claim could pertain to General Metals' operations rated on a remuneration basis. General Metals did not even own the property where Strandley broke down electrical transformers containing PCBs. An opinion by a federal administrative law judge shows some of the electrical transformers came from General Metals. See Schulze Decl., Ex. 5, at 6, ECF 11-5. However, whether transformers are “completed operations” or “products” subject to the aggregate limit of subparagraph (3) and not operations subject to the aggregate limit of subparagraph (1) is unclear. Acme surmises that Strandley could have been an independent contractor of General Metals such that the aggregate limit of subparagraph (2) applies. Acme's Reply Supp. Mot. Summ. J. 7, ECF 84. But this is all just speculation.

b. Commencement Bay Claim

The Commencement Bay Nearshore/Tide Flats is a superfund site at the southern end of Puget Sound's main basin in Tacoma, Washington. Schulz Decl., Ex. 7, at 3, ECF 11-7. The EPA placed Commencement Bay on the National Priorities List in 1983. Id. at 11. A 1989 Superfund Record of Decision identifies General Metals as a source of PCBs within the site. See Id. at 1, 30. General Metals is one of the site's several hundred PRPs. See id., Ex. 8, at 12, ECF 11-8. The initial Record of Decision placed cleanup costs at over $32 million, id., Ex. 7, at 112, ECF 11-7, but that figure grew as the scope of remedial actions expanded. See id., Ex. 9, at 17-18, ECF 11-9 (summarizing issuance of six Explanation of Significant Differences).

In 1991, the Washington Department of Ecology entered a consent decree with General Metals and the Sussmans over General Metals' “ferrous scrap metal recycling facility” in an upland area near Commencement Bay at Marine View Drive. Id., Ex. 11, at 6, ECF 11-11. The department had been investigating the facility and ordering remedial activities since 1986. See Id. at 8-12. General Metals had to cap the site and take other remedial actions. Id. at 12-13.

In 2008, General Metals entered a consent decree with the United States, the State of Washington, and two Indian tribes to resolve CERCLA liability for Natural Resource Damages in Commencement Bay. Id., Ex. 11, ECF 11-12. General Metals agreed to pay $479,559 in damage assessment costs. Id. at 7, 18.

It is unclear whether Transportation's payments for the Commencement Bay claim pertained solely to General Metals' operations rated on a remuneration basis. All of the documents proffered by Transportation provide for the possibility that General Metals faced claims for property damage related to its operations rated on a remuneration basis, but they do not prove that this was the only possibility. See Schulz Decl., Exs. 6-13, ECF 11. And none of these documents connect Transportation to the resolution of General Metals' liability.

The settlement agreement resolving the declaratory judgment action brought by Transportation and the other CNAF insurers does little to illuminate the nature of any payments. The settlement agreement provided for the payment of “eligible costs, ” including defense costs. See Stapley Decl., Ex. 3, at 4, ECF 72. Payment of defense costs are not payments that pertained solely to property damage arising from operations rated on a remuneration basis.

Like the first element of the exhaustion analysis, a reasonable fact finder would have to speculate to conclude any payments applied to property damage arising out of General Metals' operations rated on a remuneration basis. All that Transportation has shown is that, based on how it rated General Metals' various hazards, the aggregate limit of subparagraph (1) might apply. It also has shown that property damage arose from General Metals' operations rated on a remuneration basis. But a reasonably jury would have to resort to speculation to conclude Transportation made payments for property damage claims, as opposed to non-property damage claims, or that these payments were for property damage arising out General Metal's operations rated on a remuneration basis, as opposed to another hazard rated on a different basis to which the aggregate limit of subparagraph (1) does not apply. Transportation needs more than speculation to survive a motion for summary judgment. See Nelson, 83 F.3d at 1081; British Airways, 585 F.2d at 952.

3.Whether Suits Against Acme Only Allege Property Damage Arising Out of Operations Rated on a Remuneration Basis

The ODEQ and EPA suits concern Acme's release of hazardous substances at three facilities in Portland, Oregon. Myers Decl., Ex. 1-2, ECF 62. Acme and the excess insurers do not earnestly appear to contend these suits do not allege property damage arising out of Acme's operations rated on a remuneration basis.¹⁵ However, it is unnecessary to write definitively on this issue, as Transportation has failed to present disputed issues of fact as to the first two elements of the exhaustion analysis.

15 This appears to be one of the reasons why they argued General Metals' and Acme's operations were rated on a receipts basis after March 31, 1981. But as explained above, the receipts rating applied to the insureds' Completed-Operations-Products hazard.

4.Whether Property Damage Arose from Projects “Away from the Premises Owned By or Rented to the Named Insured”

Although Transportation has failed to present disputed issues of fact precluding summary judgment on the first two elements of exhaustion, it has established that it is entitled to summary judgment on the fourth element. This matters because the fourth element determines whether there are multiple aggregate limits.

Again, the Limits of Liability provision allows for multiple aggregate limits: “Such aggregate limit shall apply separately to the Property Damage described in subparagraphs (1), (2) and (3) above, and under subparagraphs (1) and (2), separately with respect to each project away from premises owned by or rented to the Named Insured.” Thompson Decl., Ex. 4, at 26, ECF 61-4. To be entitled to summary judgment on this element, Transportation must show there are no disputed issues of fact that property damage arose from “projects away from the premises owned by or rented to the Named Insured.” Id. If property damage did so arise, each project would be subject to separate aggregate limits.

Transportation argues that none of the property damage arose from anything that could be characterized as a project. Transportation's Reply Supp. Mot. Summ. J. 18-19, ECF 82. A project is “1: a specific plan or design as: a. obs.: a tabular outline: DRAFT, PATTERN b. a devised or proposed plan: a scheme for which there seems hope of success: PROPOSAL <presented his ~ to the committee> <he discusses his ~s with her>.” Project, Webster's Third New International Dictionary (2002). In Siltronic Corp. v. Emps. Ins. Co. of Wausau, the court was presented with whether the “40-year operation of an insecticide and pesticide manufacturing facility” was a project. No. 3:11-CV-1493-YY, 2018 WL 415928, at *5 (D. Or. Jan. 2, 2018), report and recommendation adopted, No. 3:11-CV-01493-BR, 2018 WL 1560083 (D. Or. Mar. 29, 2018). The court found that it was not, stating “a project is discrete and self- contained. A project has defined parameters, and a beginning and an end. A project is executed; it proceeds according to some series of specifications or tasks.” Id.

Acme operated a scrap yard from 1968 to 1995. Myers Decl. ¶ 5, ECF 62. General Metals operated a scrap-metal recycling business from 1965 until the early 1990s. Schulz Decl., Ex. 11, at 8-9, ECF 11-11. Leonard Strandley conducted transformer salvage operations, including the scrapping and salvaging of PCB-containing transformers from General Metals, from 1972 through 1984. See Schulz Decl., Exs. 3-4, ECF 11. These decades-long, routine business operations lack the characteristics of a project. They are not discrete, self-contained, or carried out according to defined parameters or with some completion date in mind.

Acme argues the site giving rise to the Strandley-Manning claim is “located away from premises owned by or rented to the Named Insured.” Acme's Reply Supp. Mot. Summ. J. 8, ECF 84. This is true but inapposite because Strandley's routine and years-long salvaging operations are unambiguously not a project.

Central National and Pacific assert the loss runs are silent about whether any payments or settlements involved a project away from an insured's premises, and that this silence must be construed against Transportation on summary judgment. But Transportation has adduced evidence apart from the loss runs, in the form of the documentation referenced above showing its insureds' decades-long and routine business operations are not projects, demonstrating the absence of material fact on this issue. On summary judgment, the nonmoving party must then designate specific facts showing a genuine issue for trial. See Celotex, 477 U.S. at 323-24. Thus, Transportation has met its burden of proving no property damage arose from projects away from the premises owned by or rented to the named insured.¹⁶

16 During oral argument, Acme argued the Strandley-Manning claim might be subject to a separate aggregate limit under subparagraph (3), even if the claim is not a project. It is not necessary to reach this argument to resolve the pending motions.

5.Conclusion

In sum, although Transportation has shown there is no disputed issue of fact on the fourth element of the exhaustion analysis, a reasonable jury could not find for Transportation on the first two elements without resorting to speculation. Transportation has failed to present disputed issues of material fact that it paid settlements that General Metals was liable to pay because of property damage and that these purported payments resolved claims for property damage that arose from General Metals' operations rated on a remuneration basis. Therefore, Acme and the excess insurers are entitled to summary judgment that Transportation's primary policies have not been exhausted and Transportation has a duty to defend Acme under those policies.

VI. Acme's Motion

Besides moving for summary judgment against Transportation on the exhaustion issue, Acme moves for partial summary judgment on its three counterclaims. Transportation's main argument, that it could not have breached the duty to defend because its policies were exhausted before Acme tendered the PHSS suits, is foreclosed by the exhaustion analysis above.

A. First Counterclaim

In its first counterclaim, Acme alleges Transportation “breached its obligation to defend and indemnify Acme” under the policies. Acme seeks partial summary judgment on Transportation's obligation to pay 16 PCI Group assessments totaling $377,200 plus 9% interest pursuant to O.R.S. 82.010.¹⁷

17 Acme represents that it will prove at trial all other costs were reasonable and necessary to its defense and that Transportation breached its obligation to pay them. Acme's Mot. Summ. J. at 20 n.5, ECF 60.

An insured's claim to recover defense costs under an insurance policy is a claim for breach of contract. Nw. Pump & Equip. Co. v. Am. States Ins. Co., 144 Or.App. 222, 226 (1996) (“the duty to defend is a contractual duty, and, under general principles of contract law, the breach of that duty gives rise to a claim for damages.”). The insured “is entitled to receive only what the party would have received if there had been no breach.” Id. (quoting Timberline Equip. v. St. Paul Fire and Mar. Ins., 281 Or. 639, 646 (1978)). “The insured has the burden of proof on the existence and amount of the claimed defense costs, which are then presumed to be reasonable and necessary, requiring the insurer to prove the defense costs were unreasonable and unnecessary.” Century Indem. Co. v. Marine Grp., LLC, No. 3:08-CV-1375-AC, 2015 WL 810987, at *2 (D. Or. Feb. 25, 2015) (citing Ash Grove Cement Co. v. Liberty Mut. Ins. Co., No. 3:09-CV-00239-HZ, 2013 WL 4012708, at *8 (D. Or. Aug. 5, 2013), amended, No. 3:09-CV-00239-HZ, 2014 WL 837389 (D. Or. Mar. 3, 2014), aff'd, 649 Fed.Appx. 585 (9th Cir. 2016)). “The insured, as the fee applicant, also bears the burden of documenting the appropriate hours expended in the litigation and must submit evidence in support of those hours worked.” Id. (citing Ash Grove, 2013 WL 4012708, at *10). An insured meets its burden by showing

(1) that the costs and fees sought are associated with actions conducted within the temporal limits of [defendant's] duty to defend, i.e., between tender of the defense and conclusion of the action; (2) the actions taken amount to a reasonable and necessary effort to avoid or at least minimize liability; and (3) the actions taken are reasonable and necessary.

Century Indemnity, 2015 WL 810987, at *3 (quoting Ash Grove, 2013 WL 4012708, at *8).

Here, Acme has established the 16 PCI Group assessments are presumed to be reasonable and necessary. These costs are within the temporal limits of Transportation's duty to defend as the assessments were incurred after Acme tendered notice of the PHSS suits. See Myers Decl., Ex. 8, ECF 62-8. Each PCI Group assessment was billed to “Acme Trading and Supply Co.” with the description “Acme Trading and Supply Co.'s contribution toward Portland Harbor Participation and Common Interest Group expenses.” Myers Decl., Ex. 8, at 19, ECF 62-8. Acme's defense counsel Mark Myers, an experienced environmental-cleanup litigator, testified that the PCI Group assessments are reasonable and necessary to further Acme's defense of the ODEQ and EPA suits. Myers Decl. ¶¶ 2-3, 12, ECF 62. He explains that the PCI Group is an important part of Acme's overall defense. Acme is a potentially responsible party that is jointly and severally liable for environmental contamination at the PHSS under CERCLA. The PCI Group allows potentially responsible parties to equitably allocate liability privately rather than through litigation, thus reducing costs. Acme's allocation is based on a per capita share of ongoing costs because it is a voting member of the PCI Group. Id. at 5 n.1. According to Myers, the “PCI Group assessments are reasonable in amount and required to participate on Acme's behalf in the allocation process.” Id. ¶ 14.¹⁸ On this record, Acme has met its burden as a matter of law.

18 This determination comports with Judge Hernández's finding in a bench trial on an insurance coverage dispute related to the PHSS. See Ash Grove, 2013 WL 4012708, at *10 (finding the insured's “joining the PCI Group” to be reasonable and necessary).

On top of Myers' testimony is Transportation's payment of several assessments after accepting Acme's tender in December 2018. Transportation asserts is must only pay reasonable and necessary defense costs, and then it paid several PCI group assessments. The PCI group assessments are functionally identical. It follows that the unpaid assessments are also reasonable and necessary.

In response, Transportation only argues it has not waived or relinquished its right to challenge the reasonableness and necessity of the outstanding assessments by paying other assessments. Transportation Resp. 9, ECF 77. But Transportation does not then take the next step and address the reasonableness and necessity of the assessments or dispute any of Myers' testimony.

The closest Transportation gets to addressing reasonableness and necessity is asserting the assessments were reasonable and necessary for Schnitzer Steel, not Acme. Transportation's Resp. Acme's Mot. Summ. J. 13, ECF 77. Transportation claims Schnitzer Steel paid Myers's past invoices, the invoices of vendors associated with Acme's defense, and Acme's PCI Group assessments. Dickinson Decl. ¶19-20, ECF 78; Barriball Decl.¶ 22-23, ECF 79.

However, the reasons Schnitzer Steel paid the assessments are apparent on the record. In 1995, Calbag purchased Acme from Manufacturing Management, a wholly owned subsidiary of Schnitzer Steel. Thompson Decl., Ex. 1, ECF 61-1. As part of a settlement between Calbag, Manufacturing Management, and Schnitzer Steel related to the PHSS claims, Acme assigned its rights to recover defense and indemnity costs under its insurance policies to Manufacturing Management. Id. Since that settlement, Schnitzer Steel has been required to pay Acme's defense costs, and both Manufacturing Management and Schnitzer Steel have the right to recover those defense costs from Acme's insurers. Id.

This assignment is well within the law. The Oregon Environmental Cleanup Assistance Act permits an insured to assign its rights under an insurance policy without extinguishing the insured's cause of action against the insurer. O.R.S. 465.481(1) (“The assignment and any release or covenant given for the assignment may not extinguish the cause of action against the insurer unless the assignment specifically so provides.”). Moreover, Acme properly disclosed the assignment in its corporate disclosure statement. ECF 31.

Transportation has therefore failed to identify a disputed issue of fact that the 16 outstanding PCI Group assessments are not reasonable and necessary. Acme is entitled to summary judgment on its first counterclaim.

B. Second Counterclaim

Acme's second counterclaim alleges that Transportation has committed and continues to commit six unfair environmental claims settlement practices established by the Oregon Environmental Cleanup Assistance Act (“OECAA”), O.R.S. 465.475-465.484. Acme Answer 23, ECF 36. The OECAA creates a cause of action for insureds aggrieved by these unfair settlement practices. “Twenty days prior to filing an action based on [O.R.S. 465.484], the insured must provide written notice of the basis for the cause of action to the insurer and office of the Director of the Department of Consumer and Business Services.” O.R.S. 465.484(4)(b). Acme complied with this notice requirement. See Acme Counterclaims ¶ 32, ECF 36; Transportation Answer ¶ 32, ECF 58; Thompson Decl., Ex. 11, ECF 61-11. If the insured properly notices the insurer, the OECAA permits the court to award an insured aggrieved by an unfair settlement practice its “actual damages sustained, together with the costs of the action, including reasonable attorney fees and litigation costs.” O.R.S. 465.484(4)(a). Further, “the court may, after finding that an insurer has acted unreasonably, increase the total award of damages to an amount not to exceed three times the actual damages.” O.R.S. 465.484(4)(e).

In its motion, Acme seeks partial summary judgment that Transportation committed two unfair settlement practices related to payment for the PCI Group assessments at issue in the first counterclaim. Acme's Mot. Summ. J. 20, ECF 60. Acme relies on the following statutory provisions of the OECAA:

(b) Failure to make timely payments for costs reasonably incurred in the defense of environmental claims or for reasonable costs for which indemnity is owed.

. . .

(e) Failure to pay interest as specified in ORS 82.010:

(A) On payments that an insured has made and that the insurer is legally obligated to pay as costs of defense or indemnity, provided that interest begins to accrue only on the 31st day after the claim for payment or reimbursement is presented or payment is made by the insured, whichever is later[.]

O.R.S. 465.484(1)(b), (1)(e)(A). Acme asserts Transportation committed these unfair settlement practices by failing to pay the 16 PCI Group assessments incurred before Transportation accepted Acme's tender in December 2018, and by failing to pay interests on those costs. Acme also asserts Transportation failed to pay the 18th PCI Group assessment for eight months, which Acme incurred after Transportation accepted Acme's tender, and then failed to pay the interest accrued during that time. Myers Decl. Ex. 7, 10-12, ECF 62. Acme further seeks a declaratory judgment that Transportation acted unreasonably by committing these unfair settlement practices and requests an evidentiary hearing to both determine its actual damages and to show an increase in damages is appropriate under ORS 465.484(4)(e). Acme's Mot. Summ. J. 22, ECF 60.

Transportation admits that it did not make payments to Acme before February 1, 2019, and that it has not paid interest on costs not paid within 30 days of Acme's submission. Thompson Decl., Ex. 11, at 14, ECF 61-11. By failing to reimburse Acme for the 18th PCI Group assessment and for failing to pay interest accrued on that cost, Transportation violated O.R.S. 465.484(1)(b) and O.R.S. 465.484(1)(e)(A). These failures were unreasonable because Transportation had accepted Acme's tender and agreed to defend Acme in the PHHS for “future defense costs, ” but then inexplicably failed to do so for this assessment. Transportation does not even address this conduct in its briefing.

The 16 PCI Group assessments incurred before Transportation accepted Acme's tender in December 2018, present a closer question. Acme tendered notice of the ODEQ suit in 2000, and notice of the EPA suit in 2010. Transportation has consistently argued its policies were exhausted since 2000. It was not surprising that Transportation refused to make payments when it had consistently taken the position that its policies were exhausted and when it had not agreed to defend under a reservation of rights. It is unclear why this dispute only came to a head in 2018, when it had been brewing since 2000.

Even so, in December 2018, Transportation assumed Acme's defense subject to a full reservation of rights. Stapley Decl., Ex. 3, at 1, ECF 64-3. Even when an insurer defends under a reservation of rights, “the policyholder must be provided a full defense.” See Scott M. Seaman and Jason R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims § 5:8 (December 2020 update). Transportation submits no authority for its position that an insurer may provide a defense under a reservation of rights and refuse to pay for defense costs that were incurred before the insurer accepted tender.¹⁹ (Transportation argues it did not waive its right not to pay pre-acceptance costs, but this assumes this is an insurer's right to reserve.) Transportation admits there is no language in its policies to support its position. Thompson Decl., Ex. 12, at 24-25, ECF 61-12 (Dickinson Dep.) (Q. “Are you aware of any Transportation insurance policy for comprehensive general liability or commercial general liability that gives Transportation the ability to differentiate between past and future defense costs?” “A. No.”). A defending insurer must provide a full defense from the point of tender. See Century Indem. Co. v. Marine Grp., LLC, No. 3:08-CV-1375-AC, 2015 WL 810987, at *7 (D. Or. Feb. 25, 2015); Spring Vegetable Co. v. Hartford Cas. Ins. Co., 801 F.Supp. 385, 391 (D. Or. 1992); Oregon Ins. Guar. Ass'n v. Thompson, 93 Or.App. 5, 11 (1988). While an insurer's defense is not a blank check and the insurer need only pay for reasonable and necessary defense costs, the insurer may not arbitrarily refuse to pay. See Greenbrier Cos. v. Am. Dynasty Surplus Lines Ins. Co., No. 07-1445-KI, 2008 WL 3887643, at *4 (D. Or. Aug. 21, 2008) (stating legal defense work cannot stop while the insured and insurer argue over coverage issues). That is what Transportation did here when it refused to pay the post-tender, pre-acceptance PCI Group assessments.

19 Transportation reserved its rights “against Acme and any other entity that may owe a duty to indemnify or defend.” Id. at 2. This reservation of rights preserved Transportation's claims of exhaustion. See Steven Plitt et al., Couch on Insurance § 202:51 (3d ed. June 2021 update). Acme is correct that Transportation's December 20, 2018 letter accepting Acme's tender did not address exhaustion by name. Acme's Mot. Summ. J. 11, ECF 60. But an insurer need not identify each coverage defense by name to preserve it. Transportation's consistent position on exhaustion and reservation of rights speaks to whether it failed to make timely payments for costs reasonably incurred before December 2018, but not afterwards.

Transportation contends it has not acted in bad faith. However, an insurer need not act in bad faith to commit an unfair environmental claims settlement practice. And although a lack of bad faith goes to the unreasonableness inquiry under O.R.S. 465.484(4)(e), an insurer can act unreasonably without engaging in bad-faith conduct.

Acme is entitled to partial summary judgment on its second counterclaim.

C. Third Counterclaim

In the third counterclaim, Acme seeks a declaratory judgment that Transportation is liable under the policies “to pay the full amount of Acme's reasonable and necessary defense costs until such time as the limits of the Transportation Policies have been exhausted pursuant to the terms of each of those policies, ” and is “obligated to make a reasonably prompt determination of the reasonable and necessary fees, costs, and expenses incurred by Acme and submitted to Transportation for payment.” Acme Ans. 24, ECF 36. Acme asks that the declaration require Transportation to “pay all unreimbursed defense costs within 30 days of the judgment unless Transportation can prove it has a good faith basis to dispute the reasonableness of a particular costs.” Acme's Mot. Summ. J. 15-16, ECF 60. Acme further requests an evidentiary hearing to address the reasonableness of any disputed costs. Id. at 16.

An insurer with a duty to pay defense costs to an insured for an environmental claim under a general liability insurance policy that provides the insurer has a duty to pay all sums arising out of a risk covered by the policy, as Transportations' policies do, must pay all defense costs proximately arising out of the risk pursuant to the applicable terms of its policy. O.R.S. 465.480(3)(a). The insurer must make “timely payments for costs reasonably incurred in the defense of environmental claims.” O.R.S. 465.484(1)(b). An insurer's duty to defend is triggered by formal notice of the underlying action to the insurer. See Century Indem. Co. v. Marine Grp., LLC, No. 3:08-CV-1375-AC, 2015 WL 810987, at *7 (D. Or. Feb. 25, 2015); Spring Vegetable, 801 F.Supp. at 391; Thompson, 93 Or.App. at 11 (“Notice of the claim is a condition precedent to the duty to defend.”).

As discussed above, Transportation policies are not exhausted as a matter of law; therefore, Transportation has a present duty to defend Acme in the PHSS suits. Acme tendered notice to Transportation of the ODEQ suit in 2000 and the EPA suit in 2010, but Transportation did not accept the tender and did not begin to pay defense costs until December 18, 2018. Acme has yet to be reimbursed for over $1.1 million in attorney's fees, consultant costs, and other costs and expenses related to the defense of these suits. Acme is entitled to its requested relief on the third counterclaim.

VII. Central National's Motion

In addition to moving for summary judgment against Transportation on the exhaustion issue, Central National moves for summary judgment against Transportation's request for a declaration that “Central National has a duty to defend” Acme and Transportation's corresponding claim for contribution under O.R.S. 465.480(4). Central National's Mot. Summ. J. 2, ECF 63 (emphasis added). Under its claim for declaratory judgment, Transportation seeks, among other things, both (1) “a judicial determination concerning the scope and nature” of Central National's duty to “pay” its share of Acme's defense expenses, and (2) a declaration that “[Pacific] and Central National have, and have had, a duty to defend Acme.” Transportation Complaint 12-13, ECF 1 (emphasis added). In response to Central National's motion, Transportation asserts it does not seek a declaration that Central National owes a duty to control or direct Acme's defense; rather, it seeks a declaration that Central National must pay for Acme's defense under its ultimate net loss provision. Transportation's Resp. Central National's Mot. Summ. J. 9, ECF 76. Transportation misrepresents its own complaint. In any event, Central National's motion concerns both the duty to defend and the duty to pay.

The Central National policy provides coverage for “ultimate net loss” in excess of “the amount recoverable under the underlying insurances as set out in Item 7 of the Declarations.” Stapley Decl., Ex. 1, at 26, ECF 64-1. For occurrences “not covered by said underlying insurance, ” the Central National policy is liable for ultimate net loss in excess of “the amount of the retained limit stated in Item 4 of the Declarations.” Id. Ultimate net loss includes certain defense costs, including expenses for lawyers, litigation, and the investigation of claims and suits.²⁰ The parties agree that Central National must pay defense costs as part of Acme's ultimate net loss once the underlying Transportation policy, the 414 policy, is exhausted. See Acme's Resp./Partial Opp. Central National's Mot. Summ. J. 6-7, ECF 75; Transportation's Resp. Central National's Mot. Summ. J. 9, ECF 76; Central National's Reply Supp. Mot. Summ. J. 3, ECF 81. As discussed above, the 414 policy is exhausted as a matter of law. Thus, Central National cannot presently be obligated to pay Acme's defense costs, and Central National is entitled to summary judgment on Transportation's contribution claim.

20 The policy defines “ultimate net loss” as

[T]he total sum which the insured, or any company as his insurer, or both, become obligated to pay by reason of personal injury, property damage or advertising liability, either through adjudication or compromise, and shall also include hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which, are paid as a consequence of any occurrence covered hereunder, excluding only the salaries of the Insured's or of any underlying insurer's permanent employees.

Stapley Decl., Ex. 1, at 26, ECF 64-1.

As for the duty to defend, the Central National policy provides excess and umbrella coverage. Relevant to this motion, Central National's excess coverage depends on the interpretation of the policy's Assistance and Cooperation condition, and its umbrella coverage depends on the interpretation of the policy's Defense Coverage Endorsement. Central National argues it does not have a duty to defend under the plain language of its policy because (1) the Assistance and Cooperation Condition unambiguously disavows a duty to defend even if the underlying coverage has been exhausted; and (2) the Defense Coverage Endorsement is only triggered for occurrences not covered by the underlying insurance, which is not the case here.

A. Assistance and Cooperation Condition

Central National's policy includes an “Assistance and Cooperation Condition” that states, among other things,

The company shall not be called upon to assume charge of the settlement or defense of any claim made, suit brought or proceeding instituted against the insured against the Insured but the Company shall have the right and shall be given the opportunity to associate with the Insured or the Insured's underlying insurers, or both, in the defense and control of any claim, suit or proceeding. . . .

Stapley Decl., Ex. 1, at 2, ECF 64-1.

This condition unambiguously confers the right to defend the insured but imposes no duty to defend. This court in Siltronic Corp. v. Emps. Ins. Co. of Wausau, No. 3:11-CV-1493-YY, 2017 WL 6943151, at *4 (D. Or. Dec. 29, 2017), report and recommendation adopted, No. 3:11-CV-01493-BR, 2018 WL 1535474 (D. Or. Mar. 29, 2018), reached the same conclusion interpreting a similar Assistance and Cooperation condition. There, the condition provided, in part, that “The Company shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Assured.” Id. The court found that this condition expressly disclaims the duty to defend. Other courts have reached the same conclusion. E.g., Newmont USA Ltd. v. Granite State Assur. Co., 676 F.Supp.2d 1146, 1155 (E.D. Wash. 2009) (finding no duty to defend under an “Assistance and Cooperation” condition); Harbor Ins. Co .v. City of Ontario, 231 Cal.App.3d 927, 934 (1991) (same).

B. Defense Coverage Endorsement

Despite the Assistance and Cooperation condition, the Central National policy imposes the duty to defend on Central National under certain limited conditions as provided by the Defense Coverage Endorsement. This endorsement imposes the duty to defend if there are “occurrences covered under this policy, but not covered under the underlying insurance or under any other collectible insurance. . . .” Stapley Decl., Ex. 1, at 17, ECF 64-1.

Central National argues this endorsement is unambiguous and triggered only if the Central National policy covers an occurrence that the underlying insurance does not cover. According to Central National, this endorsement is not triggered because Transportation's policies include coverage for the occurrences at issue here. Central National's Mot. Summ. J. 4, ECF 63. Indeed, Transportation has argued that the 414 policy is exhausted; it does not argue that the policy does not cover the property damage arising from the PHSS suits. Acme argues the endorsement is ambiguous and could mean Central National has a duty to defend when the underlying insurer refuses to defend. Acme's Resp./Partial Opp. Central National's Mot. Summ. J. 8, ECF 75.

Applying Oregon's rules of insurance policy interpretation, the first question is whether the endorsement is susceptible to only one plausible interpretation. Holloway, 341 Or. at 650. The relevant language in the endorsement states, “As respects occurrences covered under this policy, but not covered under the underlying insurance or under any other collectible insurance, the company shall [have a duty to defend].” Stapley Decl., Ex 1, at 17, ECF 64-1 (emphasis added). A plain interpretation of this language is that Central National has a duty to defend where two requirements are fulfilled. First, the occurrence must be covered by Central National's umbrella coverage, and second, the underlying insurance must not provide coverage for that occurrence. This language is not susceptible to more than one interpretation, and it is not “[in]comprehensible for some reason, such as indefiniteness, erroneous usage, or form of expression.” Hamilton, 332 Or. at 26. Other courts have reached the same conclusion in interpreting this same provision. E.g., Am. Special Risk Ins. Co. v. A-Best Prod., Inc., 975 F.Supp. 1019, 1025 (N.D. Ohio 1997), aff'd, 166 F.3d 1213 (6th Cir. 1998). Both requirements must be fulfilled for Acme to benefit from Central National's duty to defend. This endorsement is inapplicable because the 414 policy provides coverage for the relevant occurrences.

Thus, Central National is entitled to summary judgment that it has no duty to defend Acme.

VIII. Pacific's Motion

Aside from the exhaustion issue, Pacific seeks summary judgment on Transportation's claim for contribution under O.R.S. 465.480(4). Pacific's Mot. Summ. J. 2, ECF 65.

“The excess carrier's obligation to pay begins where the primary insurer's ends-when the limits of the primary policy are exhausted.” Maine Bonding & Cas. Co. v. Centennial Ins. Co., 298 Or. 514, 520 (1985). Here, pursuant to Pacific policy's coverage grant, Limits of Liability provision, and Other Insurance provision, Pacific has the “right and duty to defend” Acme upon exhaustion of the limits of liability of the underlying insurance, here, Transportation's 551 policy. Stapley Decl., Ex 1, at 2, ECF 66-1.²¹ As explained above, the 551 policy has not been exhausted as a matter of law. For this reason, it is unnecessary to reach the arguments that Transportation's present defense operates as a concession that Pacific's excess coverage is not triggered or that Transportation failed to reserve its rights to contest exhaustion. Because the 551 policy is not exhausted, Pacific has no present obligation to pay under its excess policy. Pacific is entitled to summary judgment on Transportation's contribution claim.

21 Transportation's assertion that the 551 policy is not underlying insurance to the Pacific policy does not pass the straight-face test for the reasons explained in Pacific's reply memorandum. See Pacific's Reply Supp. Mot. Summ. J. 2-3, ECF 80.

RECOMMENDATIONS

Acme's, Pacific's, and Central National's motions for summary judgment (ECF 60, 63, 65) should be GRANTED, and Transportation's motion for summary judgment (ECF 67) should be DENIED.

SCHEDULING ORDER

These Findings and Recommendations will be referred to a district judge. Objections, if any, are due October 26, 2021. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.

If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.

NOTICE

These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.