Title: Schnitzer Investment Corp. v. Certain Underwriters
Citation: N/A
Docket Number: S52422
State: Oregon
Issuer: Oregon Supreme Court
Date: June 30, 2006

FILED: June 30, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
v.


CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON and CERTAIN LONDON MARKET INSURANCE COMPANIES,
THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, TRANSPORTATION INSURANCE COMPANY; CONTINENTAL CASUALTY COMPANY;
INSURANCE COMPANY OF NORTH AMERICA; and
PHOENIX INSURANCE COMPANY,


Respondents on Review.


(CC 9902-02004; CA A116662; SC S52422)


En Banc




On review from the Court of Appeals.*




Argued and submitted March 10, 2006.




Charles F. Hinkle, Stoel Rives, LLP, Portland, argued the
cause and filed the brief for petitioner on review.  With him on
the brief was Joan P. Snyder.




I. Franklin Hunsaker, Portland,
argued the cause and filed the briefs for respondent on review
Certain Underwriters at Lloyd's of London and Certain London
Market Insurance Company.  With him on the briefs were Paul J.
Killion and Bruce J. Rome, Duane Morris LLP, San Francisco.




Peter J. Mintzer, Cozen O'Connor, Seattle, filed the
response and brief for respondent on review The Insurance Company
of the State of Pennsylvania.  With him on the brief were Thomas
M. Jones and Helen A. Boyer.


David E. Prange, Abbott &amp; Prange, PC, Portland, filed the
response and brief for respondents on review Transportation
Insurance Company and Continental Casualty Company.  With him on
the brief was Nicholas A. Nardi.


Peter R. Chamberlain, Bodyfelt, Mount, Stroup &amp; Chamberlain,
Portland, filed the response for respondent on review Insurance
Company of North America.  With him on the response was R. Lind
Stapley, Soha &amp; Lang, P.S., Seattle.


Timothy R. Volpert, Davis Wright Tremaine, LLP, Portland,
filed the response for respondent on review The Phoenix Insurance
Company.  With him on the response was Everett W. Jack, Jr.


William H. Walters, Miller Nash, LLP, Portland, filed the
brief for amici curiae Northwest Natural Gas Company, ZRZ Realty
Company, Zidell Remediation Funding Trust, Zidell Marine
Corporation, and Tube Forgings of America, Inc.  With him on the
brief was Gayle Patterson, attorney for Northwest Natural Gas
Company.


KISTLER, J.


The decision of the Court of Appeals is affirmed. 






* Appeal from Multnomah County Circuit Court,
David Gernant, Judge. 197 Or App 147, 104 P3d 1162 (2005).


Plaintiff owns property in Portland near the Willamette
River.  After the Oregon Department of Environmental Quality
(DEQ) ordered plaintiff to clean up environmental contamination
on its property, plaintiff brought this action seeking, among
other things, indemnification from defendants for the costs that
it had incurred in complying with DEQ's orders.  The trial court
granted defendants' summary judgment motion and entered judgment
in their favor.  Although the Court of Appeals disagreed with
some aspects of the trial court's judgment, it upheld the trial
court's ruling that defendants had no duty, under the terms of
certain insurance policies that they had issued, to indemnify
plaintiff.  Schnitzer Investment Corp. v. Certain Underwriters, 197
Or App 147, 104 P3d 1162 (2005).  We allowed plaintiff's petition
for review to consider that issue and now affirm the Court of
Appeals decision.



"(1) physical injury to or destruction of tangible
property which occurs during the policy period
including the loss of 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[.]"
 (2)


Unless an ambiguity exists, we determine the meaning of
those Records of Decisions as a matter of law, based on those
decisions only and without reference to extrinsic evidence.  See
State v. Swain/Goldsmith, 267 Or 527, 530, 517 P2d 684 (1974)
(signed order, rather than judge's statements, controls).  If the
decision is ambiguous, we may look to the record before DEQ to
help determine the decision's meaning.  See Bennett v. Bennett,
208 Or 524, 529, 302 P2d 1019 (1956) (stating proposition).  We
begin with the terms of the 1995 Record of Decision directing
plaintiff to remedy the contamination to Unit A of its
property.
 (3)


Based on those findings, DEQ found that "Unit A poses
no significant risk of adverse impact on the environment" --
i.e., DEQ did not find a significant risk of adverse impact on
the groundwater.  Rather, DEQ found that the environmental
contamination posed risks to human health; specifically, it found
that the risk to human health derived from "long-term direct
contact with near-surface soil" to which the contaminants had
bound.  DEQ observed that "[t]he routes of exposure included soil
ingestion, dermal contact, and inhalation of particulates." 
Applying certain risk factors, DEQ concluded that "Unit A soils
pose a potential chronic risk from surficial contamination for
children under an uncontrolled residential site usage scenario
because of possible ingestion, inhalation and dermal absorption
of soil contaminants." (4)  It also found that certain levels
of carcinogenic risk may occur from "surficial exposure to
pesticides and [carcinogenic polycyclic aromatic hydrocarbon
compounds] * * * resulting from ingestion, dermal contact, and
inhalation of soil." 




In directing plaintiff to remedy the environmental
contamination on Unit A, DEQ sought to determine the most cost-effective remedy in light of the magnitude of the risks that the
contaminants on Unit A posed.  After considering several possible
remedies, DEQ directed plaintiff (1) to excavate the top four
feet of any soil that contains specified levels of six chemical
compounds; (2) to remove certain sludge, crushed drums, and an
underground storage tank; (3) to use a soil cap (5) to prevent
direct exposure to any residually contaminated soil and to
prevent erosion and runoff of contaminated soil; and (4) to
monitor hydrogen sulfide gas to ensure that "the objectives of
long term [hydrogen sulfide] gas management are maintained." 
Finally, DEQ required plaintiff to monitor the groundwater for at
least five years.  DEQ suggested that, "[i]f groundwater quality
has not been degraded [during that period]," no additional
monitoring would be necessary.


Indeed, Gilles executed an earlier affidavit for one of
defendants that is at odds with the affidavit that he executed
for plaintiff. (6)  The conflict between those two after-the-fact explanations illustrates why neither affidavit provides a
reliable basis for understanding what DEQ required in its 1993
and 1995 Records of Decision.  Rather, the terms of those
decisions control.




Plaintiff also cites cases from other jurisdictions in
which an insured was legally obligated, as a result of pollution
emanating from the insured's property, to remedy environmental
contamination to a third person's property.  See, e.g., Bankers
Trust Co. v. Hartford Acc. &amp; Indem., 518 F Supp 371, vacated on
other grounds, 621 F Supp 685 (SDNY 1981).  In those cases, the
courts required the insurer, despite the owned-property
exclusion, to pay both for the cost of cleaning up the third
person's property and for at least some part of the cost of
cleaning up the source of the pollution on the insured's
property.  Id.  Plaintiff's reliance on those cases suffers from
the same problem that its reliance on Wyoming Sawmills does.  The
premise underlying all those cases -- that the insured was
legally obligated to clean up existing contamination to a third
person's property -- is absent here. (7)  We agree with both
the trial court and the Court of Appeals that defendants had no
obligation under the terms of their policies to indemnify
plaintiff for the costs of complying with DEQ's 1993 and 1995
Records of Decision.


1. Because the chemical components of soil and groundwater
vary, DEQ first determines the level of chemicals that occur
naturally in the soil or groundwater (the background levels) and
then measures whether chemicals or other contaminants exceed
those background levels. 


2. The policies define "occurrence" as "an accident,
including continuous or repeated exposure to conditions, which
results in * * * property damage neither expected nor intended
from the standpoint of the insured."


3. That decision is more favorable to plaintiff than the
1993 Record of Decision regarding Unit C.  If, as the Court of
Appeals held, the 1995 Record of Decision does not require
defendants to indemnify plaintiff, then neither does the 1993
Record of Decision.


4. When DEQ issued its 1995 Record of Decision,
plaintiff's property was unoccupied.  Plaintiff, however,
intended to develop it, and DEQ determined the risk of
contamination to both persons and the environment based on
plaintiff's intended use of the property.


5. DEQ recognized that plaintiff proposed to develop the
property.  The proposed structures and parking lots would result
in an "asphalt cap" over some residually contaminated soil.


6. In the affidavit that he filed for one of defendants,
Gilles averred:


"As project manager, I did not consider groundwater to
be contaminated by hazardous substances at levels
posing significant risk to human health or the
environment.  The risk assessments completed for
Units A and C eliminated the groundwater pathway as one
of potential concern.  If the DEQ ever had significant
concern for groundwater, we would have required cleanup
alternatives for groundwater to be developed in the
Feasibility Study.  The removal of soil contamination
at Units A and C, site grading, placement of a soil cap
on the Site, and installation of a diversion and
collection system were designed to clean up soil
contamination and to minimize direct exposure of
contaminants to humans."




7. Plaintiff also cites a few cases that have required
insurers, on the basis of public policy rather than the terms of
the insurance policy, to pay the cost of cleaning up
environmental contamination on the insured's property to prevent
the imminent contamination of neighboring properties.  That is so
even though no contamination of the neighboring properties had
occurred.  To the extent that plaintiff relies on those cases,
they are inconsistent with the definition of "property damage" in
defendants' policies.  That definition requires, at a minimum,
existing damage to a third person's property and defines the
obligation that defendants owe plaintiff.