Court Opinion

ID: 9943126
Source: CourtListenerOpinion
Date Created: 2024-02-22 18:12:27.64249+00
Date Added: 2024-06-11T13:46:08.044494
License: Public Domain

26                    February 22, 2024         No. 109

           IN THE COURT OF APPEALS OF THE
                   STATE OF OREGON

      CONTINENTAL CASUALTY COMPANY
      and Transportation Insurance Company,
         Plaintiffs-Counterclaim Defendants,
                     Respondents,
                          v.
       ARGONAUT INSURANCE COMPANY,
                      Defendant,
                         and
  INSURANCE COMPANY OF NORTH AMERICA,
    now known as Century Indemnity Company,
        successor to CCI Insurance Company,
     Defendant-Counterclaimant-Cross Claimant,
                     Respondent,
                         and
 EMPLOYERS INSURANCE COMPANY OF WAUSAU,
     Defendant-Counterclaimant-Cross Claimant,
             Respondent Cross-Appellant,
                         and
         INSURANCE COMPANY OF THE
           STATE OF PENNSYLVANIA,
          Defendant-Cross Claim Defendant,
             Appellant Cross-Respondent.
          Multnomah County Circuit Court
                 16CV14319; A176743

     David F. Rees, Judge.
     Argued and submitted October 10, 2023.
   William C. Perdue, Washington D. C., argued the cause
for appellant-cross-respondent. Also on the briefs were
Robert Reeves Anderson, Colorado, Samuel I. Ferenc, and
Arnold & Porter Kaye Scholer LLP, Washington, D. C. and
Thomas W. Brown, Julie A. Smith, and Cosgrave Vergeer
Kestler LLP and Stephen R. Wong, Kenneth H. Sumner,
and Sinnott, Puebla, Campagne & Curet APLC, California.
Cite as 331 Or App 26 (2024)                              27

   Laurie J. Hepler, California, argued the cause for respon-
dents Continental Casualty Company and Transportation
Insurance Company. Also on the brief were Rachel A. Beyda
and Greines Martin Stein & Richland LLP, California, and
Lawrence Gottlieb, Jeremy Schultze, H. Matthew Munson,
and Betts, Patterson & Mines, P.S., Washington.
   David C. Linder, Minnesota, argued the cause for
respondent-cross-appellant Employers Insurance Company
of Wausau. Also on the brief were Larson King LLP,
Minnesota, and Thomas W. Sondag, Carter M. Mann, and
Lane Powell, PC.
   Thomas M. Christ and Sussman Shank LLP filed the
brief for respondent Insurance Company of North America.
  Before Egan, Presiding Judge, and Kamins, Judge, and
DeVore, Senior Judge.
   EGAN, P. J.
   Reversed and remanded.
28 Continental Casualty Co. v. Argonaut Ins. Co. (A176743)

           EGAN, P. J.
         In Continental Casualty Company v. Argonaut
Insurance Company (A176763) (Wausau), 331 Or App 38, ___
P3d ___ (2024), we set out the background facts and legal
context for this claim by plaintiff Continental Casualty
Company and Transportation Insurance Company (collec-
tively, Continental) for contribution from defendant/appel-
lant Insurance Company of the State of Pennsylvania
(ICSOP) and other insurers, for costs that Continental has
incurred and is obligated to pay to Schnitzer Steel Industries,
Inc. (SSI), and MMGL Corp (formerly Schnitzer Investment
Corp) (SIC) (collectively “Insureds”), relating to the defense
of claims by the United States Environmental Protection
Agency (EPA) for environmental cleanup of the Portland
Harbor Superfund Site. In that opinion, we reversed that
portion of the trial court’s judgment holding that defendant
Employers Insurance Company of Wausau (Wausau), which
had issued comprehensive general liability insurance to the
Insureds, was subject to Continental’s contribution claim.
ICSOP issued three “umbrella” policies to the Insureds
during the relevant period.1 In this separate appeal by
ICSOP from that same judgment, ICSOP challenges the
trial court’s determination on ICSOP’s and Continental’s
cross-motions for summary judgment that, based on its
umbrella policies, ICSOP is subject to Continental’s claim
for contribution to defense costs. Continental contends in a
cross-assignment of error that, in the event that we deter-
mine that ICSOP is not subject to contribution, the judg-
ment should be remanded for reallocation of contribution.2
         On ICSOP’s appeal, we conclude that the trial court
erred. We therefore reverse that portion of the judgment
holding that ICSOP is subject to Continental’s contribu-
tion claim and remand the judgment for a reallocation of
contribution.
        We set forth additional facts as necessary to address
the legal issues raised on appeal. After the EPA designated
the Insureds as parties potentially responsible for cleanup
    1
      The policy form is entitled an “umbrella policy” but the policy itself appears
to provide only excess coverage over underlying policies.
    2
      Wausau filed but has abandoned a cross-appeal.
Cite as 331 Or App 26 (2024)                                                     29

of the Portland Harbor Superfund Site, the Insureds filed
claims for defense and indemnity with their comprehensive
general liability insurers, including Continental. They also
filed a claim with ICSOP, which had provided what was enti-
tled “umbrella” insurance to the Insureds during the relevant
period, with limits of $5,000,000. The ICSOP policies provided
excess coverage for losses within the scope of coverage of the
underlying insurance named in the policy.3 ICSOP denied
coverage or a duty to defend, contending that, based on the
provisions of its policies with the Insureds, the Insureds’ envi-
ronmental claims were subject to the excess liability portions
of the policies and those provisions had not been triggered.
         A federal judgment determined that Continental
had a duty to defend the Insureds in the Portland Harbor
Superfund Site claims by the EPA. Continental brought
this action for contribution against all other insurers that
had provided insurance to the Insureds during the rele-
vant period, including ICSOP, as permitted by the Oregon
Environmental Cleanup Assistance Act (OECAA), ORS
465.475 to 465.485.
        ICSOP argued that it should not be allocated any
portion of contribution toward defense costs, because its
    3
      In Hoffman Construction Co. v. Fred S. James & Co., 313 Or 464, 466 n 6,
836 P2d 703 (1992), the Supreme Court described three “tiers” of insurance—
primary, excess, and umbrella:
    “Liability insurance policies frequently are arranged in tiers, with each
    level of policy designed to ‘kick in’ when the coverage provided by the lower
    level of insurance is exhausted. The general nomenclature surrounding this
    phenomenon labels an insured’s basic insurance as the ‘primary’ insurance,
    the insured’s next level of insurance (that covers risks involving amounts in
    excess of the primary insurance) as ‘excess’ insurance, and the insured’s final
    level of insurance (that covers risks only after and to the extent that lower
    levels do not) as ‘umbrella’ insurance.’ ”
Although Hoffman described three “tiers” of insurance and described the dis-
puted policy in that case as “umbrella insurance,” in fact, the policy would, in
the event of a loss covered by the policy, pay the excess of the amount of the loss
over the “amount recoverable” under certain underlying insurance policies, 313
Or at 466. Thus, “umbrella insurance” as used in Hoffman, was synonymous with
excess coverage, rather than true umbrella coverage (i.e., coverage of losses not
covered by underlying policy’s insuring clauses). Here, although it is not the dis-
positive issue, it appears that, as in Hoffman, the “umbrella” coverage of ICSOP’s
policies is really just excess coverage. If the policies were true umbrella policies,
we would expect an insuring clause or clause describing covered risks different
from the risks of liability for personal injury or property damage included within
the main policy form’s insuring clause.
30 Continental Casualty Co. v. Argonaut Ins. Co. (A176743)

policies with respect to the Insureds’ environmental claim
had two features: (1) The policies provided excess, not pri-
mary, coverage of any liability that the Insureds might have
for cleanup of the Portland Harbor Superfund Site, mean-
ing that the policies were excess to the loss covered by the
underlying insurance listed in the policies—in this case, El
Dorado Insurance Company, which is defunct. (2) ICSOP
contended that its policies required “horizontal exhaustion,”
meaning that, before ICSOP’s coverage was triggered, there
must be an exhaustion of all comprehensive general liability
policies the Insureds held for the covered loss, not just the
El Dorado policies. Because there had not been exhaustion
of the Insureds’ comprehensive general liability policies,
ICSOP asserted that ICSOP’s policies were not triggered,
and that it had no liability and no duty to defend.
         ICSOP cited provisions of its policies that it con-
tends support its construction. The policies’ coverage provi-
sion stated:
      “The Company hereby agrees, subject to the limitations,
   terms and conditions hereinafter mentioned, to indemnify
   the Assured for all sums which the Assured shall be obli-
   gated to pay by reason of the liability
      “(a) Imposed upon the Assured by law, or
      “(b) Assumed under contract or agreement by the
   Named Assured and/or any officer, director, stockholder,
   partner or employee of the Named Assured, while acting in
   his capacity as such,
   “for damages, direct or consequential and expenses, all as
   more fully defined by the term ‘ultimate net loss’ on account
   of:—
      “(i)    Personal injuries, including death at any time
   resulting therefrom,
      “(ii)    Property Damage,
      “(iii)   Advertising liability,
   “caused by or arising out of each occurrence happening
   anywhere in the world.”
The policies’ “Limit of Liability” provision stated:
Cite as 331 Or App 26 (2024)                                       31

      “The Company shall only be liable for the ultimate net
   loss the excess of either
      “(a) the limits of the underlying insurances as set out
   in the schedule in respect of each occurrence covered by
   said underlying insurances, or
       “(b) the amount as set out in the declarations as the
   self-insured retention in respect of each occurrence not cov-
   ered by said underlying insurances (hereinafter called the
   “Underlying Limits”)[.]
      “* * * * *
      “In the event of reduction or exhaustion of the aggregate
   limits of liability under said underlying insurances by rea-
   son of losses paid there-under, this policy shall
          “(1) in the event of reduction pay the excess of the
   reduced underlying limit
           “(2) in the event of exhaustion continue in force as
   underlying insurance. The inclusion or addition hereunder
   of more than one Assured shall not operate to increase the
   Company’s limit of liability.”
         As noted, the policies’ coverage was for “ultimate
net loss.” The policies defined “ultimate net loss”:
        “The term ‘Ultimate Net Loss’ shall mean the total sum
   which the [Insured] or any company as his insurer or both
   become obligated to pay by reason of * * * property dam-
   age * * *, and shall also include expenses for * * * lawyers
   * * * and investigators and other persons and for litigation,
   adjustment and investigation of claims and suits which are
   covered hereunder[.]
       “[ICSOP] shall not be liable for expenses as aforesaid
   when such expenses are included in other valid and collect-
   ible insurance.”
(Emphasis added.) Thus, ICSOP’s coverage and liability to
indemnify for expenses constituting “ultimate net loss,”—
including the Insureds’ defense costs—as defined in the first
paragraph above, arose only if, as stated in the second para-
graph, such incurred expenses were not included in other
“valid and collectible” insurance.
32 Continental Casualty Co. v. Argonaut Ins. Co. (A176743)

         ICSOP’s policies also included a Loss Payable provi-
sion stating, in part:
       “Liability under this policy with respect to any occur-
   rence shall not attach unless and until the Assured, or the
   Assured’s underlying insurer, shall have paid the amount
   of the underlying limits on account of such occurrence.”
   The policies also included an “Other Insurance” provision:
   “If other valid and collectible insurance with any other
   insurer is available to [the Insureds] covering a loss also
   covered by this policy * * * the insurance afforded by this
   policy shall be excess of and shall not contribute with such
   other insurance.”
(Emphasis added.) Those paragraphs, ICSOP contended,
established ICSOP’s excess coverage as requiring “hori-
zontal exhaustion,” meaning that, before ICSOP’s excess
coverage could be triggered, all insurance provided by all
other insurers for the covered loss during the relevant time
must have been exhausted. Because the Insureds had other
insurance policies that were “valid and collectible” on their
environmental claim during the relevant periods, ICSOP
asserted that it had no liability for defense costs or any loss
that had been incurred by the Insureds.
         ICSOP’s policies included a provision for “Maintenance
of Underlying Insurances,” requiring the Insureds to main-
tain underlying insurance during the policy terms. ICSOP’s
policies provided excess coverage for losses covered by
the underlying insurance. The policies provided that the
Insureds’ failure to retain underlying insurance would not
change ICSOP’s liability, meaning that ICSOP’s coverage
remained excess of what the underlying policy should have
provided:
       “It is a condition of this policy that the policy or pol-
   icies referred to in the attached ‘Schedule of Underlying
   Insurances’ shall be maintained in full effect during the
   currency of this policy except for a reduction of the aggre-
   gate limit or limits contained therein solely by payment of
   claims in respect of accidents and or occurrences occurring
   during the period of this policy. Failure of the [Insured] to
   comply with the foregoing shall not invalidate this policy but
   in the event of such failure, [ICSOP] shall only be liable to
Cite as 331 Or App 26 (2024)                                      33

   the same extent as they would have been had the [Insured]
   complied with the said condition.”
(Emphasis added.)
         The policies included a provision entitled “Assistance
and Cooperation,” stating that ICSOP would have no duty to
defend the Insureds (as distinct from coverage for indemni-
fication of defense costs included within “ultimate net loss”):
   “[ICSOP] 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 Insureds]. But [ICSOP]
   shall have the right and shall be given the opportunity
   to associate with the [Insured] or the [Insured’s] under-
   lying insurers, or both, in the defense and control of any
   claim, suit or proceeding relative to an occurrence where
   the claim or suit involves, or appears reasonably likely to
   involve [ICSOP], in which event the [Insured] and [ICSOP]
   shall co-operate in all things in the defense of such claim,
   suit or proceeding.”
But the policies also included a “Defense Endorsement,”
which established a duty to defend in certain circumstances:
        “In consideration of the premium provided, it is under-
   stood and agreed that in the event there be no underly-
   ing insurance against loss or claim covered by [the ICSOP
   Policies] [ICSOP] agrees to defend in [the Insureds’] name
   and behalf any suit against [the Insureds] alleging * * *
   property damage and seeking damages on account thereof
   * * *.
      “All other terms and conditions remain unchanged[.]”
         As Continental reads the defense endorsement,
it triggered a duty to defend if the underlying insurance
named in the policy—El Dorado—was not available to pay a
claim. Thus, Continental asserted that, because El Dorado
had become insolvent and was no longer in existence, it
was not available, and ICSOP’s defense endorsement was
triggered.
        ICSOP understands the defense endorsement dif-
ferently—not, like Continental, as wholesale exception to the
general policy provisions described above regarding excess
coverage, but as a description of ICSOP’s duty to defend if
34 Continental Casualty Co. v. Argonaut Ins. Co. (A176743)

the loss is one for which the ICSOP policy provides umbrella
coverage, i.e., coverage for losses not within the scope of cov-
erage provided by underlying insurance. That is, in the event
that a loss is not within the scope of coverage provided by an
underlying insurance (i.e., for which “there be no underlying
insurance”), rendering ICSOP’s umbrella coverage primary
after payment of the Insureds’ reserve, then ICSOP has an
obligation to defend. However, ICSOP contended, as to the
Insureds’ environmental claims, which are within the scope
of coverage of the El Dorado policies as well as within the
scope of coverage of other valid and collectible insurance,
its coverage, as well as its duty to defend, remained both
excess and subject to the requirement for horizontal exhaus-
tion—i.e., would be triggered only in excess of the limits of
the El Dorado policies and when all other insurance was
exhausted, even if the underlying insurer, El Dorado, was
no longer solvent or in existence.
        As pertains to ICSOP, the trial court agreed with
Continental’s construction of the defense endorsement and
held that, as a result of the extinction of El Dorado, there
was an absence of underlying insurance, and ICSOP had
a duty to defend the Insureds. The court therefore ruled
that ICSOP was required to share in the apportionment of
defense costs paid by Continental.
         ICSOP challenges that ruling on appeal. In its first
assignment, ICSOP contends that the trial court erred in
determining on summary judgment that ICSOP’s policies
were triggered so as to give rise to a duty to share in appor-
tionment of defense costs. In ICSOP’s view, provisions of
the policies—the “ultimate net loss,” “other insurance,” and
“limitation of liability” provisions—unambiguously show
that ICSOP’s coverage for the claimed loss is excess to other
valid and collectible insurance and also require that all other
outstanding insurance be exhausted before ICSOP’s policies
becomes available, either for defense or indemnity. Because
the Insureds had other valid and collectible insurance,
ICSOP contends, its policies, including the defense endorse-
ment, were not triggered and there was no duty to defend. As
for the defense endorsement, ICSOP contends that because
there was underlying insurance through El Dorado, despite
Cite as 331 Or App 26 (2024)                                35

El Dorado’s dissolution, the defense endorsement is not trig-
gered. Alternatively, ICSOP contends that the phrase “in
the event there be no underlying insurance” means simply
that ICSOP will assume, under ICSOP’s umbrella coverage,
defense of a claim that is not within the scope of coverage of
underlying insurance. But that umbrella coverage, ICSOP
contends, is still subject to the policy’s requirement for hor-
izontal exhaustion. Thus, the obligation to defend would not
be triggered by the endorsement unless all other valid and
collectible insurance is exhausted.
         Continental agrees with ICSOP that the defense
endorsement’s reference to “underlying insurance” is a ref-
erence to El Dorado. But in Continental’s view, the defense
endorsement is triggered if the underlying insurance is not
available to pay damages on this claim. Here, Continental
argues, and the trial court held, in view of El Dorado’s
dissolution, there is no underlying insurance to pay the
Insureds’ claim. Thus, Continental argues, “there be no
underlying insurance,” and the defense endorsement has
been activated. Continental assert that, if and to the extent
the defense endorsement conflicts with other provisions
relating to excess coverage and horizonal exhaustion, the
defense endorsement, as the provision relating specifically
to the duty to defend, controls over those more general pro-
visions and does not require exhaustion of other policies. See
Waller v. Auto-Owners Ins. Co., 174 Or App 471, 476, 26 P3d
845 (2001) (“To the extent that there is a conflict between
the terms of an insurance policy and an endorsement, the
endorsement controls.”).
         An insurer’s duty to defend is determined by com-
paring the complaint to the insurance policy. West Hills
Development Co. v. Chartis Claims, 360 Or 650, 653, 385
P3d 1053 (2016) (describing rule). Here, it is undisputed
that the issue on appeal turns on a construction of the
defense endorsement of the ICSOP policies, in the context
of the policy as a whole, and whether it provides coverage
for the Insureds’ defense. Construction of an insurance pol-
icy requires ascertaining the parties’ intent, which is deter-
mined from the terms and conditions of the policy. Groshong
v. Mutual of Enumclaw Ins. Co., 329 Or 303, 307, 985 P2d
36 Continental Casualty Co. v. Argonaut Ins. Co. (A176743)

1284 (1999). The interpretation of plain and unambiguous
policy provisions is a question of law for the court. Hoffman
Construction Co. v. Fred S. James & Co., 313 Or 464, 469,
836 P2d 703 (1992).
         We conclude that ICSOP’s construction of the
defense endorsement as triggered only when underlying
insurance and other policy limits are exhausted is the cor-
rect construction, when viewed in the context of the policy
as a whole, because it gives the endorsement a meaning
that is consistent and not in conflict with the policies’ other
provisions. The defense endorsement must be considered
in the context of the Assistance and Cooperation provision
of the main policy, which explicitly denied a duty to defend
and provided only a discretionary right to an opportunity
to assist in the defense; the defense endorsement added a
true duty to defend when the policy covered a risk, albeit “in
the event there be no underlying insurance against loss or
claim covered by [the ICSOP Policies].” As we understand
the phrase “in the event there be no underlying insurance
against loss or claim covered by [the ICSOP Policies],” it is
a reference to coverage that ICSOP’s policies provided when
the limits of the underlying insurance had been exhausted.
Thus, despite El Dorado’s current insolvency, it was none-
theless underlying insurance, and its policy limits must be
exhausted before ICSOP’s duty to defend is triggered.
         Additionally, as ICSOP argues, the defense endorse-
ment states explicitly that “[a]ll other terms and conditions
remain unchanged.” Under the policies’ Limits of Liability,
Loss Payable, “Other Insurance,” and “Ultimate Net Loss”
provisions, ICSOP’s indemnity coverage is not triggered if
there are other policies that covered the loss and the limits
of those polices have not been exhausted. The provisions of
ICSOP’s policies mean that ICSOP’s liability and coverage
are both excess to El Dorado’s limits as stated in El Dorado’s
policies and excess to all other valid and collectible insur-
ance covering the risk. The defense endorsement would be
subject to both of those policy features.
        Thus, we conclude that the defense endorsement,
read in the context of the policy as a whole, means that,
when the underlying insurance does not cover a claimed loss
Cite as 331 Or App 26 (2024)                                37

because limits have been met, ICSOP will have a duty to
defend, subject to exhaustion of the limits of other valid and
collectible insurance. It is undisputed that El Dorado’s scope
of coverage included the Insureds’ environmental claims;
thus, although El Dorado is defunct, ICSOP’s coverage of
the Insureds’ loss based on El Dorado’s underlying coverage
is still excess of El Dorado’s coverage limits and not primary,
and ICSOP’s coverage will not be triggered until the limits
of El Dorado’s policies have been exhausted. See Century
Indemnity Co. v. Marine Group, LLC, 131 F Supp 3d 1018
(D Or 2015) (reaching same conclusion under same defense
endorsement in ICSOP policy). Additionally, even in that
context, ICSOP’s duty to defend under the defense endorse-
ment is subject to the policies’ requirement that, as long
as there is valid and collectible insurance on the Insureds’
environmental claim, ICSOP has no duty to defend.
         We decline to read the defense endorsement in
isolation from the rest of the policy so as to create cover-
age beyond what is consistent with the policy provisions
as a whole. We conclude, therefore, that Continental was
not entitled to seek contribution from ICSOP and that the
trial court erred in so concluding. We therefore reverse and
remand the judgment for a redetermination of the allocation
on Continental’s claim for contribution to defense costs.
        Reversed and remanded.