Court Opinion

ID: 9900365
Source: CourtListenerOpinion
Date Created: 2023-11-18 22:11:43.219663+00
Date Added: 2024-06-11T09:21:04.868314
License: Public Domain

64                   September 13, 2023            No. 458

           IN THE COURT OF APPEALS OF THE
                   STATE OF OREGON

                   STATE OF OREGON,
                   acting by and through
         the Oregon Department of State Lands and
         the Oregon Department of Transportation,
                    Plaintiff-Respondent,
                               v.
             PACIFIC INDEMNITY COMPANY,
            as successor to all of the liabilities of
       Northwestern Pacific Indemnity Company et al.,
                        Defendants,
                              and
          ARROWOOD INDEMNITY COMPANY,
            as successor to all of the liabilities of
              Royal Globe Insurance Company,
                    Defendant-Appellant.
              Multnomah County Circuit Court
                    15CV29585; A175985

     Leslie M. Roberts, Judge.
     Argued and submitted August 16, 2023.
   Thomas M. Christ argued the cause for appellant. Also
on the briefs were Sussman Shank LLP; Nicholas L. Dazer
and Nicholas Dazer P.C.; and Alex E. Potente and Clyde &
Co.
   Michael E. Farnell argued the cause for respondent. Also
on the brief was Denise G. Fjordbeck, Assistant Attorney
General.
  Elizabeth Riegel and Crowell & Moring LLP filed the brief
amicus curiae for American Property Casualty Insurance
Association.
  Before Tookey, Presiding Judge, and Egan, Judge, and
Kamins, Judge.
Cite as 328 Or App 64 (2023)   65

  KAMINS, J.
  Affirmed.
66                                     ODOT v. Pacific Indemnity Co.

              KAMINS, J.
        The Oregon Department of Transportation (ODOT)
brought this action against Arrowood Indemnity Company
(Arrowood), an insurance company, seeking to establish
Arrowood’s duty to pay ODOT’s defense costs in litigation
by the Environmental Protection Agency (EPA) relating to
the cleanup of environmental contamination at the Portland
Harbor Superfund site. The asserted duty to defend is
based on an automobile liability insurance policy that
Arrowood’s predecessor, Royal Globe Insurance Company,
issued to ODOT’s predecessor, the Oregon Transportation
Commission, for a coverage period from 1978 to 1981.
Arrowood responded that it was not required to defend
ODOT or that its required contribution to defense costs
under the policy are negligible.
         On the parties’ cross-motions for summary judg-
ment, the trial court entered a limited judgment for ODOT
under ORCP 67 B on ODOT’s fifth claim for relief, which
sought a declaratory ruling. The court determined that
Arrowood has a duty to defend ODOT and to pay ODOT’s
defense costs against all Portland Harbor Superfund site
“claims,” and that Arrowood may not allocate its obligation
to pay defense costs to those claims deemed to be covered
by the policy. The limited judgment states that it does not
address, and the parties have reserved, “all of their respec-
tive rights and defenses as to the reasonableness and neces-
sity of ODOT’s claimed defense costs.”
          Arrowood appeals, asserting in its first assignment
of error that the trial court erred in granting ODOT’s motion
for summary judgment and in denying Arrowood’s motion,
determining that Arrowood has a duty to defend ODOT. In
its second assignment, Arrowood asserts that the trial court
erred in rejecting its contention that it is entitled to appor-
tion its duty to defend to potentially covered claims under
the policy.1 We conclude that the trial court did not err and
therefore affirm the limited judgment.
      The former Oregon Transportation Commission
(Commission), now ODOT, owned approximately 242 acres
     1
         ODOT filed but has withdrawn a cross-appeal.
Cite as 328 Or App 64 (2023)                                      67

along the Willamette River, including Block 78, which was
a half-acre parcel that the Commission leased to Northwest
Copper Works, Inc., for use as a parking lot. Arrowood’s pre-
decessor had issued an insurance policy to Northwest Copper
Works, Inc., that provided coverage for damages caused by
contamination from automobiles on Block 78, during the
coverage period March 17, 1978 to March 17, 1981. The pol-
icy provided, in relevant part:
     “The company will pay on behalf of the Insured all sums
   which the insured shall become legally obligated to pay as
   damages because of
      “C. bodily injury or
      “D. property damage
      “to which this insurance applies, caused by an occur-
   rence and arising out of the ownership, maintenance or
   use, including loading and unloading, of any automobile,
   and the company shall have the right and duty to defend any
   suit against the insured seeking damages on account of such
   bodily injury or property damage, even if any of the allega-
   tions of the suit are groundless, false, or fraudulent[.]”
(Emphasis added.) The italicized text of the quoted policy
refers to Arrowood’s duty to defend the insured—to which
this appeal pertains, as distinct from its duty to indem-
nify the insured. By endorsement, the Commission was an
insured under the policy with respect to Block 78, and it is
undisputed that ODOT, as the Commission’s successor, is an
insured under the policy. The policy defined “property dam-
age” as physical injury to tangible property “which occurs
during the policy period.”
         In 1980, Congress enacted the Comprehensive Envi-
ronmental Response, Compensation, and Liability Act, 42
USC §§ 9601 - 9628 (CERCLA), which establishes the ret-
roactive joint and several strict liability for environmental
cleanup of past and current landowners or operators of prop-
erties or facilities from which hazardous substances have
been released or disposed into the environment. CERCLA
required the creation of a National Priorities List. See U.S.
v. Asarco Inc., 214 F3d 1104, 1105-06 (9th Cir 2000) (The
President is “to compile a list identifying top priorities
68                               ODOT v. Pacific Indemnity Co.

among the nation’s known hazardous waste sites. Sites on
this list, the National Priorities List, are considered the
leading candidates for Superfund-financed cleanup.” (Citing
42 USC § 9605(a)(8)(B).)).
        In December 2000, the EPA listed a section of the
lower Willamette River on the National Priorities List as a
federal Superfund site. The site includes an investigation
area, which is an area designated by the EPA in conducting
a search for parties potentially responsible for cleanup of the
site under CERCLA.
        In 2008, the EPA issued to ODOT, and ODOT
responded to, a “104(e) demand,” pursuant to section 104(e) of
CERCLA, for information regarding alleged releases of haz-
ardous substances within the investigation area, between
1937 and the present, by ODOT and its affiliated commis-
sions and divisions. The 104(e) demand directed ODOT to:
     “[i]dentify each and every Property that Respondent cur-
     rently owns, leases, operates on, or otherwise is affiliated
     [with] or historically has owned, leased, operated on, or
     otherwise been affiliated with within the Investigation
     Area during the period of investigation (1937 - Present).
     Please note this question includes state roads, state rights
     of way or easements, and state bridges. Please note that
     this question includes any aquatic lands owned or leased
     by Respondent.”
         In 2011, the EPA issued a General Notice Letter
(GNL) to ODOT, stating that the EPA “believes that the State
of Oregon, by and through the Department of Transportation
may be a PRP [potentially responsible party] with respect
to this Site.” The GNL stated that a release of hazardous
substances had occurred at “the site,” and that the state
may be liable for those releases as an owner or operator of
property at the site. The GNL directed the state to, among
other things, take action and to “give these matters your
immediate attention.”
         ODOT tendered the GNL to Arrowood, request-
ing defense of its potential liability for the environmental
cleanup. Arrowood declined to defend ODOT in any litiga-
tion relating to the cleanup and also declined coverage.
Cite as 328 Or App 64 (2023)                                      69

         ODOT brought this proceeding, seeking in its fifth
claim a declaration that Arrowood has a duty to defend
ODOT’s potential liability for cleanup of the Portland
Harbor Superfund site. As noted, on the parties’ cross-
motions for summary judgment, the trial court issued a
limited judgment declaring that Arrowood does have a duty
to defend, must defend ODOT with respect to the entire liti-
gation, and may not apportion defense costs to those claims
that Arrowood determines are subject to defense under the
policy.
         On appeal, Arrowood argues in its first assignment
of error that the trial court erred in denying Arrowood’s
motion for summary judgment and in granting ODOT’s
motion for partial summary judgment as to the duty to
defend. In reviewing the trial court’s ruling on cross-motions
for summary judgment, “we examine whether there are any
disputed issues of material fact and whether either party
was entitled to judgment as a matter of law.” Providence
Health Plan v. Allen, 299 Or App 128, 135, 449 P3d 504
(2019), rev den, 366 Or 257 (2020). There is “[n]o genuine
issue as to a material fact” when “no objectively reasonable
juror could return a verdict for the adverse party on the
matter that is the subject of the motion for summary judg-
ment.” ORCP 47 C. The issues presented on appeal are all
legal; thus, we review the trial court’s rulings for legal error.
        Arrowood’s argument focuses exclusively on the
GNL, contending that there is no duty to defend, because
the GNL does not constitute a complaint. In support of its
motion for summary judgment, Arrowood wrote:
   “Under Oregon law, with no complaint, the EPA’s ‘General
   Notice’ and 104(e) letters are considered ‘suits’ within the
   meaning of a liability policy, and they and the policy gov-
   ern the determination of whether an insurer has a duty to
   defend.”
To the extent that Arrowood now argues in its first assign-
ment that the trial court erred because the GNL does not
constitute a complaint or a “suit” within the meaning of the
policy, Arrowood conceded that point below, and we hold
Arrowood to its concession and conclude for that reason that
Arrowood has failed to preserve error on that issue or has
70                           ODOT v. Pacific Indemnity Co.

invited any error in the trial court. We therefore decline to
address the contention on appeal. See Anderson Bros., Inc. v.
St. Paul Fire & Marine Ins. Co., 729 F3d 923 (9th Cir 2013)
(holding that a GNL letter and letter under section 104(e) of
CERCLA, issued by the EPA, requiring responses to ques-
tions that necessarily established CERCLA liability, iden-
tifying the recipient as a potentially responsible party, and
stating that the EPA believed it was responsible for hazard-
ous substances and intended to pursue compensation, were
“suits” under Oregon law).
          We turn to Arrowood’s further contention that the
trial court erred in determining that there was a duty to
defend. Arrowood acknowledges the familiar “four-corners”
rule, under which a duty to defend depends on whether
the complaint and the policy allege facts that would, if
proved, impose liability covered by the policy. West Hills
Development Co. v. Chartis Claims, 360 Or 650, 653, 385
P3d 1053 (2016) (describing rule). Under the rule, the alle-
gations of the complaint are compared with the insurance
policy’s terms. Marleau v. Truck Insurance Exchange, 333 Or
82, 89, 37 P3d 148 (2001). If the allegations assert a claim
covered by the policy, then the insurer has a duty to defend.
West Hills Development Co., 360 Or at 653. If the allegations
do not assert a claim covered by the policy, then the insurer
has no duty to defend. Id. By limiting the analysis to the
complaint and the policy, the four-corners (or eight-corners)
rule generally prevents consideration of extrinsic evidence.
Id.
         Arrowood thus acknowledges that there is a duty
to defend if a “complaint” and the policy together create the
potential for covered damages. Further, Arrowood acknowl-
edges that there is a duty to defend if the complaint alleges
facts that bring the conduct within the policy, even if the
complaint also alleged facts that are not covered or that are
excluded from coverage. See Ferguson v. Birmingham Fire
Ins., 254 Or 496, 506, 460 P2d 342 (1969) (the insurer has a
duty to defend if the complaint includes an allegation falling
within policy coverage, even if it includes allegations out-
side of coverage). But Arrowood argues that the GNL and
the 104(e) demand do not trigger that duty, because they
Cite as 328 Or App 64 (2023)                                                71

do not specifically mention Block 78, the only insured loca-
tion, and indeed reference a completely different location.
Arrowood further asserts that the documents are vague, do
not contain any facts about the nature of the possible con-
tamination released from ODOT’s property, and, apart from
speculation, do not include any coverage-triggering facts.2
         ODOT responds that the standard is more nuanced
than whether the EPA documents contain specific facts
demonstrating covered liability. ODOT points out that an
insured does not have to prove that there are covered dam-
ages to be entitled to a defense. Ledford v. Gutoski, 319 Or
397, 403, 877 P2d 80 (1994) (“The duty to indemnify is inde-
pendent of the duty to defend.”). Rather, the insurer owes a
duty to defend if the claimant can recover against the insured
under the allegations of the complaint “upon any basis for
which the insurer affords coverage.” Nielsen v. St. Paul
Companies, 283 Or 277, 280, 583 P2d 545 (1978). Further,
ODOT points out that any ambiguity in the complaint with
respect to whether the allegations could be within coverage
is resolved in favor of the insured. Blohm et al v. Glens Falls
Ins. Co., 231 Or 410, 416, 373 P2d 412 (1962). Thus, citing
Minnis v. Oregon Mutual Ins. Co., 162 Or App 198, 207, 986
P2d 77 (1999), rev’d in part on other grounds, 334 Or 191, 48
P3d 137 (2002) (examining whether the allegations in the
complaint would permit a jury to find that plaintiff met the
claim in question), ODOT asserts that, even if a complaint is
unclear or devoid of coverage-related facts, there is a duty to
defend if the complaint’s allegations would permit the pre-
sentation of evidence that would establish the uncertain or
missing coverage fact.
         We agree with ODOT’s formulation of the con-
trolling analysis. Contrary to Arrowood’s argument, the
GNL and the 104(e) demand did not need to specifically
reference Block 78 in order to trigger Arrowood’s duty to
defend. As the Supreme Court has recognized, in the “real
world,” “a complaint may not definitively allege the facts
that ultimately will determine whether a claim is covered
by the policy.” West Hills Development Co., 360 Or at 660. In

     2
       In its opening brief, Arrowood addressed its argument only to the GNL. In
its reply brief, Arrowood also addressed its argument to the 104(e) demand.
72                              ODOT v. Pacific Indemnity Co.

the face of ambiguity or lack of clarity, a complaint should
be interpreted in favor of the insured and require a duty to
defend if “the court can reasonably interpret the allegations
to include an incident or injury that falls within the cov-
erage of the policy.” Id. at 667 (quoting Bresee Homes, Inc.
v. Farmers Ins. Exchange, 353 Or 112, 117, 293 P3d 1036
(2012)). Here, as ODOT asserts, Arrowood’s duty to defend
arises because the GNL and the 104(e) demand together
would permit proof that contaminants running off of Block
78, for which Arrowood provided coverage, caused damage.
         Citing Fred Shearer & Sons, Inc. v. Gemini Ins. Co.,
237 Or App 468, 240 P3d 67 (2010), rev den, 349 Or 602
(2011), Arrowood argues that, in the face of ambiguity or
the absence of coverage-triggering facts in the GNL, it was
incumbent on ODOT to present extrinsic evidence in sup-
port of the contention that the EPA has raised claims under
the policy. In Fred Shearer & Sons, Inc., we concluded that
extrinsic evidence could be admitted to show that a person
defending against a claim was in fact an insured under a
policy and entitled to a defense by the insurance company.
In that case, the “additional insured” portion of the policy
stated that it applied to “ ‘all vendors’ ” of a product “ ‘in the
regular course of the vendor’s business.’ ” Id. at 472. The
complaint against the defending party did not allege that
the defendant was a vendor of the product in the regular
course of business. We acknowledged application of the “four
corners” rule generally:
     “When the question is whether the insured is being held
     liable for conduct that falls within the scope of a pol-
     icy, it makes sense to look exclusively to the underlying
     complaint.”
Id. at 476. However, there was no dispute that, as to the cir-
cumstances alleged in the complaint, the defending party
was indeed a vendor in the regular course of business, thus
an insured. Id. at 474, 478 n 9. As limited to that question,
we held that it would be inappropriate to disallow the use of
extrinsic evidence, outside of the “four corners” of the policy
and the complaint, to establish the facts relevant to whether
the defending person was an insured. Id. at 485.
Cite as 328 Or App 64 (2023)                               73

         Arrowood argues that, in view of Fred Shearer &
Sons, Inc., in the face of an ambiguous complaint, the insured
may, indeed must, produce coverage-triggering facts that
would give rise to an obligation to defend. Arrowood notes
that, in West Hills Development Co., the Supreme Court
referred to Fred Shearer & Sons, Inc., and did not overrule
it, allowing the case’s holding to stand.
         We reject Arrowood’s suggestion that Fred Shearer
& Sons, Inc. supports a general rule that there is an obliga-
tion on the part of the insured to present evidence of cover-
age, or that the Supreme Court has somehow let such a rule
stand. As noted, Fred Shearer & Sons, Inc. limited its hold-
ing to the unique question whether the defending party was
an insured, in which the evidence was undisputed that the
defending party was an insured under the policy in the first
place—it did not address whether the allegations fell within
the scope of coverage. Therefore, we explicitly held that the
four-corners rule “is justified” when the question is “whether
the insured is being held liable for conduct that falls within
the scope of a policy.” Id. at 476. Further, in Bresee Homes,
353 Or at 123, the Supreme Court has explicitly rejected
Arrowood’s contention, holding that an insured has “no bur-
den to come forth with facts beyond those alleged” in the
complaint. Id.
        We further reject Arrowood’s suggestion that the
use of extrinsic evidence as to facts of coverage might be
an open question, because the Supreme Court did not over-
turn Fred Shearer & Sons, Inc. in its opinion in West Hills
Development Co. In that case, the trial court had referred
to extrinsic evidence to determine that the alleged dam-
ages had been caused by an insured. Because the defending
party was also an insured under the policy, the trial court
concluded that the insurer was required to defend. 306 Or at
659. We affirmed the trial court’s ruling, citing our opinion
in West Hills Development Co. v. Chartis Claims, 273 Or App
155, 359 P3d 339 (2015).
        On review, the Supreme Court affirmed our opin-
ion but on different reasoning. The court explained that it
did not need to address the correctness of the holding in
Fred Shearer & Sons, Inc. that extrinsic evidence could be
74                                    ODOT v. Pacific Indemnity Co.

considered for purposes of determining who was an insured,
because the case before it did not involve the question whether
the plaintiff was an insured—it was undisputed that the
plaintiff was a named insured. West Hills Development Co.,
360 Or at 666. The court further concluded that, because
the complaint’s allegations, reasonably interpreted, could
result in the insured being held liable for damages covered
by the policy, the insurer had a duty to defend. Id.
         As in West Hills Development Co., the issue addressed
in Fred Shearer & Sons, Inc.—whether the defending party
was an insured under the policy—is not presented here.
ODOT is named as an insured. For the purpose of determin-
ing the duty to defend, the question is whether, despite any
ambiguity, the EPA 104(e) demand and GNL can reasonably
be interpreted to allow proof at trial of liability covered by
the policy. See West Hills Development Co., 360 Or at 666. We
conclude that the EPA’s allegations of releases from state-
owned land at the site, which implicitly includes Block 78,
fall squarely within that standard and give rise to a duty to
defend.3 We therefore reject Arrowood’s first assignment of
error.
         Arrowood’s second assignment of error relates to
the scope of Arrowood’s duty to defend, and whether the trial
court erred in limiting discovery on that question.4 Below,
Arrowood sought to limit its duty to defend to those aspects
of the EPA’s “claim” that were determined to be within the
scope of the policy’s coverage. Relying on Timberline Equip.
Co. v. St. Paul Fire and Mar. Ins., 281 Or 639, 645, 576
P2d 1244 (1978), ODOT responded that under the “com-
plete defense” rule, if there is an obligation under a policy
to defend against one allegation of a complaint, the insurer
has a duty to defend against the entire action. The trial
court agreed with ODOT and determined that Arrowood is
responsible for all of ODOT’s defense costs in the Portland
     3
       The 104(e) demand alleged property damage in the form of contamination
at the site and that the state, through ODOT, is among those potentially liable
for the contamination. The GNL stated that a release of hazardous substances,
pollutants, or contaminants occurred at the site and that the state may be liable
for those releases as an owner or operator of property at the site.
     4
       Although Arrowood challenges to the trial court’s ruling allowing ODOT’s
motion to stay discovery, it does not raise a separate argument addressing that
contention.
Cite as 328 Or App 64 (2023)                                       75

Harbor Superfund litigation. Thus, the trial court rejected
Arrowood’s contention that it is entitled to apportion its duty
to defend to those “claims” that are determined to be cov-
ered by the policy.
         Citing federal and California case law as persua-
sive authority, see, e.g., Ins. Co. of N. Am. v. Forty-Eight
Insulations, Inc., 633 F2d 1212 (6th Cir 1980), aff’d on reh’g,
657 F2d 814 (6th Cir 1981); Buss v. Superior Court, 16 Cal
4th 35, 65 Cal Rptr 2d 366, 939 P2d 766 (1997), Arrowood
asserts in its second assignment that its obligation, if any,
is limited to the cost of defending ODOT against potential
insured liability for pollution from Block 78 during the cov-
erage period, the only risk insured:
   “To require the insurer to defend the uncovered claim when
   joined gratuitously to the covered claim would give the
   insured a windfall at the insurer’s expense. The insured
   would be unjustly enriched, and the insurer unjustly bur-
   dened. The better holding is to require the insurer to defend
   the [covered] claim only[.]”
         ODOT responds that the cited cases are distin-
guishable factually and, further, that the “complete defense”
rule of Timberline Equip. Co. is controlling in Oregon and
requires that if Arrowood has an obligation to defend ODOT
on any of the EPA allegations, it has a duty to defend ODOT
in the entire litigation. That is indeed the rule that we have
drawn from Timberline Equip. Co. See Klamath Pacific Corp.
v. Reliance Ins. Co., 151 Or App 405, 413, 950 P2d 909 (1997),
modified on recons, 152 Or App 738, 955 P2d 340 (1998) (“If
some of the allegations pertain to conduct that could be cov-
ered by the insurance policy, and some that could not, the
insurer must defend the entire action.”).
          Arrowood asserts alternatively that the “complete
defense” rule is properly limited to cases involving multi-
ple claims arising from a single occurrence—seeking the
same damages for the same injury from the same covered
event—and should not apply to require defense of “permis-
sively joined” claims not within policy coverage for separate
damages for separate injuries from separate occurrences.
Arrowood argues that Timberline Equip. Co. and the cases
that have followed it have been single-occurrence cases, in
76                                     ODOT v. Pacific Indemnity Co.

which the plaintiff asserted both covered and uncovered
damages under alternative theories of liability but that did
not involve claims like those relating to the Portland Harbor
Superfund site cleanup, in which damages are claimed for
separate injuries from separate occurrences, and where
defense costs can be apportioned between insured and unin-
sured claims.
          The flaw in Arrowood’s reasoning is that the EPA
proceeding does not allege separate counts or permissively
joined independent claims with apportionable defense costs.
Under the EPA’s single theory of joint and several liability
under 42 USC sections 9606(a) and 9607(a) (“the owner and
operator of a vessel or a facility * * * shall be liable for * * * all
costs of removal or remedial action incurred by the United
States Government * * *”), ODOT is potentially liable for
all damages for the environmental cleanup from all causes
during the entire exposure period. That interpretation is
consistent with CERCLA, which “establishes a retroactive
strict liability regime that imposes joint and several liabil-
ity upon past and current landowners or operators of prop-
erties or facilities from which hazardous substances have
been released or disposed into the environment.” Anderson
Bros., 729 F3d at 926. Because CERCLA liability is joint and
several, “a responsible party may be held liable for the entire
cost of cleanup even where other parties contributed to the
contamination.” Chubb Custom Ins. Co. v. Space Sys./Loral,
Inc., 710 F3d 946, 957 (9th Cir 2013) (internal citations omit-
ted). That exposes anyone identified as a PRP, such as the
state, to liability for the entire cleanup. Thus, even assum-
ing the correctness of Arrowood’s attempted narrowing of
Timberline Equip. Co., the distinction is not apt.5
        We further agree with ODOT that the policy itself
supports the trial court’s ruling. It requires that Arrowood

    5
      We also note that, contrary to Arrowood’s suggestions, “apportionment” in
Oregon is generally between and among insurers, not between an insurer and its
insured. Cascade Corp. v. American Home Assurance Co., 206 Or App 1, 12, 135
P3d 450 (2006) (“[Lamb-Weston et al v. Ore. Auto. Ins. Co., 219 Or 110, 341 P2d 110
(1959)], provides a mechanism for insurers to determine among themselves how
much each must contribute to the insured’s loss, but it does not affect their duty
to make the insured whole up to the limits of their policies.”).
Cite as 328 Or App 64 (2023)                                 77

  “defend any suit against the insured seeking damages
  on account of [property damage to which the insurance
  applies,] even if any of the allegations of the suit are
  groundless, false, or fraudulent[.]”
The policy requires a defense of “any suit” seeking damages
and does not limit the duty to defend to claims for covered
damages. Because the EPA alleges damages on account of
property damage reasonably subject to coverage under the
policy, the trial court correctly held that Arrowood has a
duty to defend the entire action.
        Affirmed.