Compass Insurance Co. v. Cravens, Dargan & Co. ( 1988 )

MACY, Justice.

This is an appeal from a judgment against appellant Compass Insurance Company (Compass) awarding complete reimbursement to appellee Cravens, Dargan and Company (Cravens) for the amount it paid to the State of Wyoming for the cleanup of an oil spill.

We affirm in part and reverse in part.

The issue to be resolved is which of these insurers for the State of Wyoming insured the cost of cleaning up the oil spill.

Sometime after 4:00 p.m. on March 18, 1984, an unknown person entered the Wyoming highway department maintenance yard at Evanston, Wyoming, and opened the valve on an oil storage tank. Surrounding the maintenance yard was a ten-foot high chain link fence with barbed wire on top. Access gates to the maintenance yard were locked after 4:00 p.m. The maintenance yard had never before been vandalized, and the highway department personnel had no reason to believe that it would be vandalized.

When the unlocked oil storage tank valve was opened, approximately 3,000 gallons of road oil valued at $2,337 flowed out of the tank, across the maintenance yard, down a hill, and into a drainage or irrigation ditch, and it was carried by water onto landowners' fields.

Upon discovering the oil spill, the highway department immediately took steps to have the oil spill cleaned up. No formal complaint was ever made against the State of Wyoming by any third party for damage to any property caused by the oil spill. However, the highway department personnel did receive complaints from landowners that a fence was destroyed and fields were rutted during the clean-up process. One landowner also complained that his cows could not drink the polluted stock water. The highway department caused the fence to be replaced, the ruts to be filled with top soil, and water to be hauled to the landowner’s stock until the polluted water was clean enough for the stock to drink.

The cost of cleaning up the oil spill on the property owned by the State of Wyoming was $8,821, and the cost of cleaning up the oil spill on the property owned by others was $85,635.

At the time of the oil spill incident, the State of Wyoming had an effective comprehensive liability insurance policy issued by Compass and an effective property insurance policy issued by Cravens. Thereafter, the State of Wyoming made claims against Compass and Cravens for $96,792, which included the costs associated with cleaning up the oil spill and the value of the oil spilled. Cravens ultimately paid the $96,-792 claim and accepted a subrogation receipt from the State of Wyoming wherein the State subrogated all its rights, claims, and interest which it might have against any person or corporation liable for the loss and authorized Cravens to sue, compromise, or settle the claim in the name of the State. Compass refused the demand made by Cravens for reimbursement of the $96,-792 Cravens had paid to the State of Wyoming. On April 29, 1985, a complaint was filed in the Third Judicial District Court styled “STATE OF WYOMING, Plaintiff, v. COMPASS INSURANCE COMPANY, a New York Corporation, Defendant,” alleging that the State of Wyoming was liable for the cost of cleaning up the oil spill and any monetary damages arising therefrom and that, pursuant to the terms of the State’s insurance policy with Compass, Compass was obligated to pay for those amounts.

Compass filed its answer alleging that Cravens, and not the State of Wyoming, was the real party in interest and that, pursuant to the terms of the liability policy Compass had issued to the State, it owed no duty or obligation to either the State or Cravens for any expenses, costs, or damages occasioned by the oil spill.

Cross-motions for summary judgment were denied, and the court ordered that the caption of the case be amended to substitute Cravens as the real party in interest in place of the State of Wyoming. On October 9, 1986, a bench trial was held, and, on December 4, 1986, the trial court entered judgment generally in favor of Cravens and against Compass for the sum of $118,-144.09, which amount represents clean-up costs of $94,455, prejudgment interest of $13,567.88, attorneys fees of $10,000, and costs of $121.21.

Two questions must be answered in order to resolve this case: (1) Does the Compass policy cover the oil spill; and (2) if the Compass policy does cover the oil spill, does Cravens have a right to reimbursement from Compass.

The primary coverage language in the comprehensive liability policy issued by Compass provides 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 * * * property damage * * * caused by an occurrence * *

The Compass policy defines “occurrence” as

“an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured [.] ” (Emphasis added.)

It also defines “property damage” as:

“(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[.]”

We disagree with Compass’ assertion that the incident may not be an occurrence. A general finding and judgment carry with them every finding of fact which reasonably and fairly can be drawn from the evidence. Burk v. Burzynski, Wyo., 672 P.2d 419 (1983). Our examination of the record reveals that the trial court reasonably and fairly could have drawn from the evidence that one would not expect vandals to climb the ten-foot high chain link fence and open the valve on the oil storage tank.

We also disagree with Compass’ assertion that there is no evidence of damage to property of third parties. The evidence clearly shows that the oil spill resulted in the contamination of the ditch bank and the fields of landowners adjacent to the highway department maintenance yard and that the costs associated with cleaning up this property amounted to $85,635. The trial court could have reasonably and fairly drawn from the evidence that there was physical injury to, and loss of use of, tangible property; i.e., property damage as defined in the Compass policy.

In Lansco, Inc. v. Department of Environmental Protection, 138 N.J.Super. 275, 350 A.2d 520 (1975), aff’d 145 N.J.Super. 433, 368 A.2d 363, 88 A.L.R.3d 172 (1976), the Superior Court of New Jersey decided a case with facts nearly identical to this one. In that case, a person or persons unknown opened the valve on two storage tanks causing some 14,000 gallons of oil to leak from the tanks. The oil flowed into two storm drains which in turn emptied into the Hackensack River. At the time of the incident, Lansco had an effective general comprehensive liability policy with provisions the same or similar to the Compass policy.

The policy held by Lansco, like the Compass policy, defined an “occurrence” as an accident “ ‘which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.' ” Id. 350 A.2d at 523. The court in Lansco, Inc. v. Department of Environmental Protection stated:

“ ‘Accidental’ is defined as happening unexpectedly or by chance; taking place not according to usual course. Webster’s New International Dictionary, and Black’s Law Dictionary * * *; Furr v. Metropolitan Life Ins. Co., 111 N.J.Super. 596, 600, 270 A.2d 69 (Law Div. 1970);. see Linden Motor Freight Co. v. Travelers Ins. Co., 40 N.J. 511, 193 A.2d 217 (1963). Further, under the definition of ‘occurrence’ contained in the policy, whether the occurrence is accidental must be viewed from the standpoint of the insured, and since the oil spill was neither expected nor intended by Lansco, it follows that the spill was sudden and accidental under the exclusion clause even if caused by the deliberate act of a third party.” Id. 350 A.2d at 524.

That court concluded that coverage under the comprehensive general liability policy extended to statutory liability for damages to the environment. Id. at 524. The insurer was required to reimburse Lansco for its costs to clean up the spill. Id. at 525; see also Chemical Applications Company, Inc. v. Home Indemnity Company, 425 F.Supp. 777 (D.Mass.1977).

Compass contends that the intent of its policy is to pay only damages for which the State is legally liable and that the State is not legally liable for the costs of cleaning up the property of a third party because no notice of claim has been filed against the State as required by law.¹ Compass also contends that, in any event, the State cannot be held liable under the Wyoming Governmental Claims Act.²

There is no question that the highway department had the legal liability to clean up the oil spill. The department of environmental quality, established by the Wyoming Environmental Quality Act,³ has the obligation to promulgate rules and regulations necessary to prevent, reduce, and eliminate waste. Tri-State Generation and Transmission Association, Inc. v. Environmental Quality Council, Wyo., 590 P.2d 1324 (1979). In carrying out this obligation, the department prepared and put into effect Chapter IV, Section 5.c of its Water Quality Rules & Regulations, which provides that a person⁴ owning oil which is discharged is responsible for the cleanup of the discharged oil. The act and the rules and regulations promulgated to carry out the purpose of the act make it clear that the State is obligated to pay for these damages without there being a judicial determination of that fact.

Compass contends that no right of subro-gation exists in favor of one insurer against another insurer of the same insured. Assuming, arguendo, that Compass is correct, we fail to see how this provides any comfort to Compass. The learned trial judge in his wisdom wisely side-stepped this problem and ordered that the caption of the case be amended, substituting Cravens as the real party in interest in place of the State of Wyoming. This order was in accord with Compass’ third defense which alleged that Cravens, not the State of Wyoming, was the real party in interest.

We agree with Compass that Cravens does not have a right of subrogation on the basis of Compass being at fault for the oil spill. Cravens’ action, however, is not on the basis of Compass’ negligence. To the contrary, the action is for reimbursement on the theory that Compass, rather than Cravens, should have indemnified the State for the clean-up costs.

Compass’ contention that the State cannot be held liable because it is immune from strict liability by virtue of § 1 — 39—102(b), W.S.1977, of the Wyoming Governmental Claims Act is without merit in this instance. This subsection provides in part:

“This act does not impose [or] allow the imposition of strict liability for acts of governmental entities or public employees.” (Emphasis added.)

There is not a scintilla of evidence in the record indicating that a governmental entity or an employee of the State was in any way responsible for the oil spill. The evidence is that the oil spill was caused by unknown third persons.

Compass’ contention that there is no legal liability because no formal claims were filed is also without merit.⁵ 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 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.

Because the Compass policy does cover the oil spill, we reach the second question: Does Cravens have a right to reimbursement from Compass?

Compass argues that Cravens voluntarily indemnified the State for the cost of the cleanup, that Cravens is liable because its policy has a debris removal clause, and that, if Cravens is entitled to contribution from Compass, it should be on the basis of the amount of the coverage provided by each policy. Cravens in turn argues that it was not a volunteer because it wanted to avoid a potential bad faith claim and that, even if the debris removal clause in its policy does apply, it still is not responsible for all the clean-up costs because of the “other insurance,” “escape,” and “super escape” clauses in its policy.

The primary coverage language in the property insurance policy issued by Cravens provides in relevant part:

“Subject to the terms, conditions and exclusions hereinafter contained, this Policy insures all Property (including improvements and betterments) of the Insured * * * against ALL RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE * * * J}

The Cravens policy also contains a debris removal clause:

“This Policy also covers, within the sum insured, expenses incurred in the removal of debris of the property covered hereunder which may be destroyed or damaged by a peril insured against.”

The Compass policy, in addition to its primary liability coverage language, contains an exclusion for pollution coverage:

“This insurance does not apply:

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“(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidentally’ (Emphasis added.)

It also includes an exclusion for damage “to property owned or occupied by or rented to the insured.”

To counter Compass’ assertion that clean-up costs are “debris removal” costs and not “damages” to property, Cravens contends that the discharged oil caused injury to property and that the amount expended for clean-up costs is the proper measure of damages. We agree with Cravens that the discharged oil caused injury to the property covered by the oil. We also agree with Cravens and the court in Lansco, Inc. v. Department of Environmental Protection that the proper measure of property damage is the cost of cleaning up the oil when there is no residual damage to the property.

General principles of construction will be followed when interpreting conditions of an insurance agreement. Commercial Union Insurance Company v. Stamper, Wyo., 732 P.2d 534 (1987). Two basic standards of construction applicable in Wyoming are:

1.. “ ‘Such [insurance policy] contracts should not be so strictly construed as to thwart the general object of the insurance. Miles v. Continental Casualty Company, Wyo., 386 P.2d 720, 722 [ (1963) ].’ ” Id. at 539, quoting McKay v. Equitable Life Assurance Society of United States, Wyo., 421 P.2d 166, 168 (1966).

2. “ ‘The intention of the parties is the primary consideration and is to be ascertained, if possible, from the language employed in the policy, viewed in the light of what the parties must reasonably have intended. Wilson v. Hawkeye Casualty Co., [67 Wyo. 141], 215 P.2d [867,] 873-875 [ (1950) ].’ ” Id. at 539, quoting McKay v. Equitable Life Assurance Society of United States, 421 P.2d at 168.

We stated in Wilson v. Hawkeye Casualty Co., 67 Wyo. 141, 215 P.2d 867, 874 (1950), quoting McGrail v. Equitable Life Assur. Soc. of United States, 292 N.Y. 419, 55 N.E.2d 483, 486 (1944):

“ ‘Consistently followed in this State has been the rule that the policy must be construed reasonably and that it must be given a practical construction, not thereby with the result that there is a revision of the policy or an increase of the risk and thus an extension of the resulting liability, but for the purpose of determining what the parties must reasonably have intended by its terms when the policy was written by defendant and accepted by the plaintiff.' ”

It is clear to this Court that the intent of the Cravens policy is to pay for damage to property of the State and that the intent of the Compass policy is to pay for damage to property of others caused by an incident neither expected nor intended; i.e., an occurrence. The trial court correctly found that Compass had the primary responsibility for the damage to the property of others. We will not now dissect the respective policies in an attempt to determine who wins the battle of the forms with respect to other insurance clauses.

The combination of Compass’ refusal to pay a claim for which it was primarily responsible and Cravens’ good faith effort to settle the claim with minimal inconvenience to its insured resulted in the inequitable result of Compass paying nothing for a claim covered by its policy.

Compass also claims that Cravens acted as a mere volunteer when it paid the State’s claim and that, under the holding of Commercial Union Insurance Company v. Postin, Wyo., 610 P.2d 984 (1980), Cravens is not entitled to reimbursement from anyone. We disagree that Cravens acted as a mere volunteer. The test for voluntary payment by an insurer was addressed in Commercial Union Insurance Company v. Postin, 610 P.2d at 990, wherein the holding in Wyoming Building & Loan Ass’n v. Mills Const. Co., 38 Wyo. 515, 269 P. 45, 60 A.L.R. 418 (1928), was reaffirmed that, an insurer who acts in good faith to discharge a disputed obligation does not become a mere volunteer if it is ultimately determined that the insurer’s policy did not apply.

The trial court’s judgment carries with it the finding that Cravens’ payment was “ ‘in good faith’ ” and “ ‘under a reasonable belief that it [was] necessary’ ” so as to not defeat the right to reimbursement. Commercial Union Insurance Company v. Postin, 610 P.2d at 990. However, we cannot ignore the uncontradicted evidence that the discharged oil was also on State property and that the cost of cleaning up the oil on this property was $8,821. The State property is insured by Cravens and excluded from the coverage provided by Compass. Accordingly, we remand to the district court with directions that the judgment entered against Compass be reduced by $8,821 plus the interest charged thereon.

Affirmed in part and reversed in part.

URBIGKIT, J., files a dissenting opinion.

1 . Section 1-39-113, W.S.1977.

2 . Sections 1-39-101 through 1-39-120, W.S. 1977.

3 . Section 35-ll-103(a)(i), W.S.1977.

4 . As set out in § 35-ll-103(a)(vi), W.S.1977:

"'Person' means an individual, partnership, firm, association, joint venture, public or private corporation, trust, estate, commission,

board, public or private institution, utility, cooperative, municipality or any other political subdivision of the state, or any interstate body or any other legal entity[.]” (Emphasis added.)

5 . The limitation language in the Compass policy states:

"The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of accident."

And:

"No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all of 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.”