State of Wyoming v. Federated Serv. Ins. ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAY 2 2000
TENTH CIRCUIT
PATRICK FISHER
Clerk
STATE OF WYOMING, through the
DEPARTMENT OF
ENVIRONMENTAL QUALITY, as
Subrogee of Montana Petroleum
Marketing Company,
Plaintiff - Appellant,
v.
FEDERATED SERVICE
INSURANCE COMPANY, a
Minnesota corporation,
No. 98-8096
(D.C. No. 98-CV-48)
Defendant - Appellee.
(District of Wyoming)
WYOMING ASSOCIATION OF
MUNICIPALITIES; WYOMING
COUNTY COMMISSIONERS
ASSOCIATION; UNITED
POLICYHOLDERS; THE
INSURANCE ENVIRONMENTAL
LITIGATION ASSOCIATION
(“IELA”),
Amici Curiae.
ORDER AND JUDGMENT *
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Before LUCERO, Circuit Judge, MCWILLIAMS, Senior Circuit Judge, and
BROWN **, Senior District Judge.
In this diversity suit, the State of Wyoming, as the subrogee of Montana
Petroleum Marketing Company, seeks indemnification from Federated Service
Insurance Company, Montana Petroleum’s insurer, for past and future costs
associated with the remediation of an oil spill on Montana Petroleum’s property.
The district court granted summary judgment in favor of Federated, and
subsequently denied Wyoming’s motions for a new trial, alteration or amendment
of the judgment, and correction of the order. Exercising jurisdiction pursuant to
28 U.S.C. § 1291, we affirm.
I
In the Spring of 1985, the Wyoming Department of Environmental Quality
(“WDEQ”) discovered petroleum discharges into Clear Creek in Buffalo,
Wyoming, and traced the discharge to a truck stop operated by Montana
Petroleum. Testing conducted at WDEQ’s request revealed leaks in pipes leading
from above-ground storage tanks at the truck stop. Based on the test results,
WDEQ issued a letter of violation notifying Montana Petroleum that it was
**
The Honorable Wesley E. Brown, Senior District Judge of the District of
Kansas, sitting by designation.
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operating in violation of Wyo. Stat. Ann. § 35-11-301(a)(i)-(ii) , which states that
no person shall “[c]ause, threaten or allow the discharge of any pollution or
wastes into the waters of the state” or “[a]lter the . . . properties of any waters of
the state” without a permit.
Montana Petroleum promptly advised Federated of the notice of violation.
At the time the leak was discovered by Wyoming, Montana Petroleum was insured
under both a comprehensive general liability policy and a commercial umbrella
liability policy issued by Federated. Federated acknowledged coverage under
these policies and paid for additional investigation and monitoring at the site,
replacement of the distribution lines, and installation and operation of
remediation systems. Montana Petroleum has never conceded liability, wholly or
in part, for the contamination at the truck stop, nor has liability been established
through adjudication. In fact, in a letter to Federated, Montana Petroleum
suggested that a lessee or previous owner of the property might be wholly or
partially responsible for the contamination given that its records indicated no
significant loss of petroleum.
In 1990 the Wyoming legislature enacted the Water Pollution from
Underground Storage Tanks Corrective Action Act of 1990, Wyo. Stat. Ann.
§§ 35-11-1414 to -1428 (“Corrective Action Act”) . The primary purpose of the
Corrective Action Act is to protect Wyoming’s groundwater supply from leaking
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oil storage tanks while ensuring that state and federally mandated clean-up
standards do not bankrupt businesses vital to supplying oil throughout the rural
state. See Wyo. Stat. Ann. § 35-11-1414. Towards this end, the Corrective
Action Act created a “corrective action account” to pay for the remediation of
qualified sites. See Wyo. Stat. Ann. § 35-11-1424(a) and (c). It also gives the
State of Wyoming the “right of subrogation to any insurance policies in existence
at the time of the release to the extent of any rights the owner or operator may
have had under the policy.” Wyo. Stat. Ann. § 35-11-1424(h). Although initially
limited to underground tanks, the Corrective Action Act was amended in 1994 to
cover above-ground tanks as well. See Act of March 20, 1994, ch. 32 § 1, 1994
Wyo. Sess. Laws.
Following that amendment, Federated ceased paying for remediation at the
truck stop and offered to pay Wyoming $30,000 in exchange for a release of
Federated and Montana Petroleum from liability. Wyoming did not accept the
offer. After requesting information concerning Federated’s policies with Montana
Petroleum, on December 12, 1997, Wyoming sent Federated a letter inquiring if
Federated was “willing to complete the remediation that it started at this site.” (I
Appellant’s App. at 225.) When Wyoming did not receive a response, it filed suit
on February 26, 1998, seeking a declaratory judgment that it was entitled to
indemnification under the policies issued to Montana Petroleum by Federated for
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all past and future costs of remediation, damages arising from Federated’s denial
of coverage, and related relief. Wyoming had spent $68,445.57 on site
investigation and monitoring costs as of July 30, 1998, and estimates it will cost
an additional $388,268.10 to complete the remediation.
The district court granted Federated’s motion for summary judgment and
dismissed the suit. It first held that, pursuant to Wyo. Stat. Ann. § 35-11-1424(h),
Wyoming has a statutory right of subrogation to Montana Petroleum’s policies
with Federated, a holding Federated does not challenge on appeal. It then held
that Wyoming is not entitled to coverage under the policies because “neither the
insured nor the insured’s subrogee has a right to sue Federated for coverage until
Federated denies a claim under which its insured has been found legally liable,”
(III Appellant’s App. at 748), and Montana Petroleum’s legal liability for the
contamination has not been established.
In reaching this conclusion, the district court relied primarily on the
policies’ “no action” clauses:
No action shall lie against the company unless, as a condition
precedent thereto, the Insured shall have fully complied with all the
terms of this policy, nor until the amount of the Insured’s obligation
to pay shall have been finally determined either by judgment against
the Insured after actual trial or by written agreement of the Insured,
the claimant and the company.
Any person or organization . . . who has secured such judgment or
written agreement shall thereafter be entitled to recover under this
policy to the extent of the insurance afforded by this policy. Nothing
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contained in this policy shall give any person or organization any
right to join the company as a co-defendant in any action against the
Insured to determine the Insured’s liability.
(II Appellant’s App. at 509.) 1
It also relied on the policies’ coverage provisions,
which obligated Federated to indemnify Montana Petroleum for, inter alia, “all
sums which the insured shall become legally obligated to pay as damages because
of . . . property damage,” (II Appellant’s App. at 459 (comprehensive liability
policy)), and “all sums which the Insured shall be obligated to pay by reason of
the liability . . . imposed upon the Insured by law,” (II Appellant’s App. at 506
(umbrella liability policy)). At issue on appeal is whether the district court erred
in holding that the no action clause bars Wyoming’s suit.
II
Applying Wyoming law, we review the district court’s interpretation of the
insurance policies de novo, and we will uphold summary judgment only if “the
terms of the parties’ contract do not raise issues of material fact, the contract
language is plain and unambiguous, and the terms of the contract are controlling.”
Fremont Homes, Inc. v. Elmer , 974 P.2d 952, 955 (Wyo. 1999) (citations
1
The quoted language comes from the umbrella liability policy. The
comprehensive liability policy contains a virtually identical no action clause that
differs in substance only in that the final sentence of the second paragraph reads
as follows: “No person or organization shall have any right under this policy to
join the Company as a party in any action against the insured to determine the
insured’s liability, nor shall the Company be impleaded by the insured or his legal
representative.” (II Appellant’s App. at 401 (emphasis added).)
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omitted). This standard incorporates a fundamental precept of Wyoming contract
law: “[T]he words used are given the plain meaning that a reasonable person, in
the position of the insured, understands them to mean.” Doctors’ Co. v. Insurance
Corp. of Am. , 864 P.2d 1018, 1023-24 (Wyo. 1993) (citations omitted).
The district court held, and Federated does not contest, that Wyoming has a
statutory right of subrogation. As subrogee, Wyoming succeeds to the rights of
Montana Petroleum under the insurance policies; its rights are identical to those
of the policyholder. See Stilson v. Hodges, 934 P.2d 736, 738 (Wyo. 1997). At
the same time, Wyoming is also the injured party, i.e., the third-party claimant,
because the contamination at Montana Petroleum’s truck stop allegedly violated
its legally enforceable rights and it is seeking to recover costs incurred as a result
of that violation. By its own admission, Wyoming seeks “to resolve issues of
coverage and liability in one action.” (Appellant’s Reply Br. at 4.)
On its face, the language of the no action clause is plain and unambiguous:
“ No action shall lie against the company . . . until the amount of the Insured’s
obligation to pay shall have been finally determined either by judgment against
the Insured after actual trial or by written agreement of the Insured, the claimant,
and the company .” (II Appellant’s App. at 509; see also id. at 401.) It is
undisputed that the amount Montana Petroleum is obligated to pay as a result of
the oil leak from its distribution lines has not been determined after trial or by an
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agreement. Rather, the existence and extent of liability remains an open
question: Federated contends that Montana Petroleum was not solely liable for
the contamination at the Buffalo site, and that in any event the contamination for
which it might have been liable has been adequately remediated. Therefore, the
plain language of the no action clause prohibits an action from being brought
against Federated by Montana Petroleum, its subrogee, or any other party until
the amount of Montana Petroleum’s legal obligation is determined and a claim
for indemnification of that obligation is denied by Federated.
Despite this plain language, Wyoming contends that the no action clause
does not apply to the insured or the insured’s subrogee. Its primary support for
this contention is our assertion in Paul Holt Drilling, Inc. v. Liberty Mutual
Insurance Co., 664 F.2d 252, 254 (10th Cir. 1981), that “[w]e think the
Oklahoma court would hold the no action clause is intended to apply only to
claims made by third parties.” Wyoming’s reliance on this language is
misplaced. First, Paul Holt Drilling interpreted Oklahoma law, and therefore
does not control when, as here, we are required to apply Wyoming law. Second,
Pault Holt Drilling involved the single question of whether the statute of
limitations for a claim alleging breach of the duty to defend begins to run as soon
as the insured incurs defense expenses as a consequence of the insurer’s denial of
a request to defend. See id. at 253. In reaching the conclusion that it does, we
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first rejected the argument that a no action clause would bar a suit by the insured
for breach of the insurer’s duty to defend prior to the resolution of the underlying
suit. See id. 254-55. Application of the no action clause in that situation, we
reasoned, would create an absurd result: “If the no action clause applies to the
insureds’ claims, when would it no longer bar suit to recover the legal expenses
they bear when the insurer wrongfully refuses to defend? Unless insureds refuse
to pay their attorney, no judgment for those fees will ever be entered against
them.” Id.
No such absurd result presents itself when, as in this case, an insured or its
subrogee brings suit alleging wrongful refusal to indemnify. Pursuant to the no
action clause, Federated’s duty to indemnify does not arise until the amount of
Montana Petroleum’s obligation to pay is established by a qualifying judgment or
agreement. As mentioned, that has not yet occurred. By contrast, the no action
clause does not impose any conditions precedent on the duty to defend because
that duty arises when the insured is served a complaint asserting claims that, if
successful, would be covered under the policy, regardless of whether those claims
are ultimately successful and the insured becomes obligated to pay. See Reisig v.
Union Ins. Co., 870 P.2d 1066, 1068 (Wyo. 1994). Thus, even if Paul Holt
Drilling’s interpretation of Oklahoma law applies equally to Wyoming law, its
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reasoning would not be applicable to this case, which involves the duty to
indemnify and not the duty to defend.
We also reject Wyoming’s argument that the doctrine of judicial estoppel
bars application of the no action clause to Wyoming as subrogee of Montana
Petroleum. Under that doctrine, “‘[a] party who by his pleadings, statements or
contentions, under oath, has assumed a particular position in a judicial
proceeding is estopped to assume an inconsistent position in a subsequent
action.’” Ex rel. DG, JG & CW v. Natrona County Dep’t of Family Servs., 916
P.2d 991, 998 (Wyo. 1996) (quoting In re Paternity of JRW, 814 P.2d 1256,
1265-66 (Wyo. 1991)). “Judicial estoppel does not apply to legal conclusions
based on undisputed facts.” Id. (citing In re Paternity of SDM, 882 P.2d 1217,
1224 (Wyo. 1994)). Nor does it apply if the prior position was not successful.
See id.
In its brief to the New Mexico Supreme Court in the case of Roberts Oil
Co. v. Transamerica Insurance Co., 833 P.2d 222 (N.M. 1992), Federated argued
that a no action clause “applies only to third-party claims” and cannot be applied
to “prevent the insured from asserting a direct claim against the carrier for
environmental damages which are covered under the policy.” (III Appellant’s
App. at 594.) This position is not contrary to Federated’s argument in the instant
case that further remediation at the Buffalo site is not covered under the policy
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because the amount of Montana Petroleum’s legal obligation to pay has not been
determined. Even assuming Federated’s position in Roberts Oil is contrary to the
argument it makes to this court, that position is a legal argument based on the
undisputed and unambiguous language of the insurance policy. Cf. Ahrenholtz v.
Time Ins. Co., 968 P.2d 946, 949 (Wyo. 1998) (holding that the interpretation of
unambiguous contract language is a matter of law, and ambiguity is not created
by a mere difference of position between parties). Moreover, to the extent
Federated took the categorical position that a no action clause never applies to
the insured, that position was unsuccessful. See Roberts Oil, 833 P.2d at 231
(“[W]e are willing for purposes of this case to accede to the insurers’ argument
that the no action clause does indeed convert the voluntary payment clause from a
promise by the insured to an express condition to the insurer’s obligations.”
(citation omitted)). Therefore, judicial estoppel does not apply.
Wyoming further argues that its suit is not barred by the no action clause
because, under Compass Insurance Co. v. Cravens, Dargan & Co., 748 P.2d 724
(Wyo. 1988), and State Farm Mutual Automobile Insurance Co. v. Shrader, 882
P.2d 813 (Wyo. 1994), public policy considerations militate against requiring
Wyoming to bring a separate action to establish the extent of Montana
Petroleum’s liability.
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State Farm addressed the question of whether the fault of an uninsured
motorist and the amount of damages suffered by the insured can be determined in
a single action against the insurer. 882 P.2d at 821-22. The Wyoming Supreme
Court concluded that, in order to further the public policy motivating the
statutorily mandated uninsured motorist coverage, such an action was
permissible. See id.
Unlike in State Farm, we are not confronted with statutorily mandated
insurance coverage, but rather a statutorily-created right of subrogation. That is,
the Corrective Action Act does not delineate the scope or nature of coverage but
simply gives Wyoming the right to recover under existing policies. See Wyo.
Stat. Ann. § 35-11-1424(h). Furthermore, the uninsured motorist policy did not
predicate coverage on the legal liability of the insured, nor did the court’s
analysis of that policy mention a no action clause. Rather, the policy covered all
damages the insured was “legally entitled” to recover from the uninsured
motorist, and neither the policy nor the statute had language prohibiting the
insured from establishing the fault of the uninsured motorist and the extent of
damages in an action against the insurer. State Farm, 882 P.2d 818, 821-22. As
a condition precedent to coverage, therefore, the policy simply required the
insured to show that his or her damages were proximately caused by the
negligence of an uninsured motorist. See id. at 823. In the instant case, by
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contrast, the language of the policy plainly prohibits bringing an action against
the insurer until the insured’s obligation to pay and the amount of that obligation
have been established. The language of the Corrective Action Act does not
abrogate those conditions precedent. It explicitly authorizes actions against tank
owners who have insurance, not the insurance companies themselves. See Wyo.
Stat. Ann. § 35-11-1424(g). Nor can such a statutory intent be read into the
subrogation provision, because the right of subrogation is specifically limited to
the rights of the policyholder. See Wyo. Stat. Ann. § 35-11-1424(h).
The second case on which Wyoming relies in support of its public policy
argument is equally unavailing. In Compass, a vandal opened a valve on an oil
storage tank in a Wyoming highway department maintenance yard, causing oil to
spill into a drainage ditch and then be carried by water onto adjacent property.
748 P.2d at 726. The highway department promptly cleaned the spill on its
property and the adjacent property, without having first been subject to a lawsuit
or having entered into a settlement. See id. It then sought indemnification from
Compass and Cravens, its liability and property insurers, respectively. See id.
Cravens paid the claim and accepted a right of subrogation from the highway
department for all claims it might have as a result of the spill. See id. Cravens
then brought suit against Compass for reimbursement. See id.
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Compass refused, arguing that under the terms of its policy, which
included a no action clause substantially similar to the one before us, it had no
obligation to pay for the clean-up costs because the highway department had not
been sued and was not legally liable for the damages. See id. at 728-29. The
Wyoming Supreme Court rejected these arguments. It first held that under the
Wyoming Environmental Quality Act and the rules and regulations promulgated
thereunder, “a person owning oil which is discharged is responsible for the clean
up of the discharged oil” without the need for “a judicial determination of that
fact.” Id. at 728; see also Wyoming v. Platte Pipe Line Co., 649 P.2d 208, 214
(Wyo. 1982) (holding that an owner of a pipeline that discharges oil is strictly
liable for the resulting damages).
Turning to Compass’s assertion that the highway department had no legal
liability absent the filing of a formal claim, the Wyoming Supreme Court
reasoned:
If the insurer’s promise to pay is to be of any practical value, it must
include an obligation of good faith and reasonableness. From the
beginning, the highway department was in a dilemma. If it did
nothing to clean up the oil spill, the damages would be much greater.
The damages would be much greater even if it waited only for
determinations as to who was liable and who would direct the
cleanup. An oil spill into flowing water, by its nature, requires an
immediate clean-up response. That no formal claims were filed is a
credit to the highway department’s clean-up efforts, not an excuse
for Compass to deny coverage. The principles of good faith and
reasonableness require the insurer, under these circumstances, to
acquiesce to the clean-up efforts. Compass has not pointed to any
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detriment which it has suffered from the highway department’s
actions. Compass stipulated to the damage amounts, and the liability
is clear. Compass’ coverage was not expanded in any way by the
highway department’s action. Rather, the highway department’s
actions limited the damages.
Compass, 748 P.2d at 728-29 (emphasis added).
There are several important distinctions between Compass and the case at
bar. Most significantly, Montana Petroleum’s liability is not clear. Although
Compass establishes that Montana Petroleum is responsible as a matter of law for
the clean-up of any of its oil that was discharged, Federated contends that
someone other than Montana Petroleum may be responsible for some of the
contamination and that the clean-up for which it paid was adequate to remedy the
contamination for which Montana Petroleum was legally responsible. No such
issues were present in Compass, where the source and extent of contamination
were obvious. Similarly, to the extent Compass can be read to hold that a
stipulation to damages, instead of a judgment or agreement, is sufficient to
satisfy the requirements of a no action clause, that holding does not apply to the
facts of this case: Neither Montana Petroleum nor Federated has stipulated to the
amount of damages.
Finally, Federated has demonstrated at least a modicum of good faith and
reasonableness in its handling of Montana Petroleum’s claim. It acquiesced to
monitoring and remediation efforts between 1986 and 1994 despite the absence of
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a judgment or settlement. Cf. Chemical Applications Co. v. Home Indemnity
Co., 425 F. Supp. 777, 779-80 (D. Mass. 1977) (finding that an insurer acted
unreasonably when it belatedly denied coverage for all work performed by the
insured to remediate an oil spill). This response facilitated rather than inhibited
Montana Petroleum’s compliance with statutory and regulatory provisions
mandating prompt containment and clean-up. 2 At issue in this case is whether
Montana Petroleum, and by implication its insurer, must pay for additional clean-
up. The important policy considerations underlying the holding in Compass,
therefore, are not implicated in the particular circumstances of this case.
We have taken as our starting point a basic precept of Wyoming contract
law: The language of contracts should be given their plain meaning. See
Doctors’ Co. , 864 P.2d at 1023-24. Compass establishes a narrow public policy
exception to that rule, permitting an action for coverage under a policy with a no
action clause when the insured’s obligation to pay is clear as a matter of law and
the amount of that obligation has been established by stipulation instead of
judgment or agreement. 748 P.2d at 728-29. If we adopted Wyoming’s position,
2
Wyoming argues that Federated has waived its right to challenge
Montana Petroleum’s liability because it already made payments based on the
1985 notice of violation. Waiver requires an intentional relinquishment of a
known right. See Loftus v. Romsa Constr., Inc., 913 P.2d 856, 859 (Wyo. 1996).
As the district court held, mere payment of past clean-up costs does not
demonstrate intentional relinquishment of the right to challenge future costs.
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we would effectively vitiate the plain meaning of no action clauses in the context
of environmental contamination by eliminating the need for clear legal liability
and agreed-upon damages. Because the public policy considerations implicated
by the “catch-22” scenario in Compass are not present under the facts of this
case, we decline to take such a step. 3
The judgment of the district court is AFFIRMED.
ENTERED FOR THE COURT
Carlos F. Lucero
Circuit Judge
3
The Wyoming legislature could have expressly abrogated the
enforceability of no action clauses in this context had it so desired. Other states
have done just that. See, e.g., La. Rev. Stat. Ann. §§ 22:655, 22:983(E)
(permitting direct action against the insured in general); R.I. Gen. Laws § 27-7-2
(permitting direct action against the insurer where the policyholder is not subject
to service of process).
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