6:01-cv-01420 | W.D. La. | Jul 6, 2009
RECEIVED
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ATES DISTRICT COURT
DISTRICT OF LOUISIANA
LAFAYETTE DIVISION
IN THE MATTER OF THE COMPLAINT OF CIVIL ACTION 01-1420
TAIRA LYNN MARINE
VERSUS CHIEF JUDGE HAIK
MAGISTRATE JUDGE HILL
JUDGMENT
Before the Court are a Motion for Summary Judgment by Zurich Insurance Company, XL
Specialty Insurance Company and National Union Insurance Company of Louisiana against
WQIS (Doc. #751) and a Motion for Summary Judgment by WQIS seeking to dismiss the
claims of Zurich, XL, and National Union (Doc. #750). The Motions raise the same issues. At`ter
full consideration of the issues presented, the Court finds as follows:
On July 19, 2001, a tank barge owned by Kirby lnland Marine, Inc. (“Kirby”) pushing a
towboat owned by Taira Lynn Marine (“Taira Lynn”) collided With the Louisa Swing Bridge at
Cyprelnort Point, Louisiana. The collision caused the discharge of 3,000,000 pounds of propane
propylene into the environmentl The situation resulted in the evacuation of a five mile radius of
the bridge and declarations of states of emergency from both St. Mary and Iberia Parishes.
Following the incident, numerous law suits/claims Were tiled.
Taira Lynn had various insurance policies in place at the time of the incident-a “Prirnary
Hull, l\/lachinery, etc. Protection & lndemnity Policy” (“P&I Policy”) issued by Zurich Insurance
Company and XL Spec-ialty Insurance Company; a pollution policy issued by Water Quality
Insurance Syndicate (“WQIS”); and an excess policy issued by National Union Insurance
Company of Louisiana (“National Union”). The issues raised in the instant motions deal
exclusively with insurance disputes
XL and Zurich claim they exhausted their policy limits through defense costs and
settlement payments, but argue the claims alleged included some which fell within the coverage
offered by WQIS. These insurers further contend that WQIS Wrongfully denied coverage and
reimbursement of such costs. They seek reimbursement of $324,847.30 in defense costs through
subrogation of Taira Lynn’s rights. Further, the inaction by WQIS allegedly resulted in National
Union, the excess carrier, undertaking the payment of defense costs and settlement expenses on
behalf of Taira Lynn Marine. National Union seeks reimbursement of all defense costs and
expense payments in the amount of $1,612,097.77.
WQIS COVERAGE
WQIS argues that the incident at the center of this case was neither an OPA, nor a
CERCLA event. That is, it does not fall within the coverage offered under Article A of the
WQIS Policy for liability under the Oil Pollution Act (“OPA”) or Article B, liability under the
Comprehensive Environmentai Response, Compensation, and Liability Act (“CERCLA”), which
offer $5 million and $10 million in coverage, respectively As the policy was not triggered under
either of those Articles, WQIS claims its policy limits were exhausted through the payment of
settlement and defense costs which totaled over $l million.
This Court agrees that the discharge of the propane propylene compound does not qualify
as an OPA event. However, the Court finds it does fall under CERCLA as a hazardous
substance, triggering coverage under Article B of the WQIS Policy. It is clear nom the record
that the propane propylene that was released during the incident not only entered the air, but also
covered the water, land, and all items in the surrounding area. Article B of the WQIS Policy
provides as follows:
This Article provides coverage for specified liabilities arising from the release or
threatened release of a hazardous substance, as follows:
(3) Liability to a third party arising from the sudden, accidental and unintentional
discharge, spillage, Ieakage, emission or release of a hazardous substance into or
upon the navigable waters of the United States or adjoining shorelines for
damages, as follows:
(a) injury to, or economic losses resulting from, the destruction of or
damage to real property, personal property or natural resources;
(b) loss of subsistence use of natural resources that have been injured,
destroyed, or lost; or
( c) liability to a third party for loss, damage, cost, liability, or expense
Which Would have been recoverable by such a third party under Article B of Part l
had the third party been an Assured under this poliey; and
(4) Costs and expenses incurred by the Assured for actions taken with the prior
approval of WQIS to avoid or mitigate the liabilities insured against under this
Article B or Part I.
A “hazardous substance” under CERCLA includes:
(A) any substance designated pursuant to section 1321§|))(2[§A) of Title 33, (B)
any element, compound, mixture, solution, or substance designated pursuant to
section 9602 of this title, (C) any hazardous waste having the characteristics
identified under or listed pursuant to section 3001 of the Solid Waste Disposal
Act [42 U.S.C.A. § 6921] (but not including any Waste the regulation of which
under the Solid Waste Disposal Act [42 U.S.C.A. §L901 et seq.] has been
suspended by Act of Congress), (D) any toxic pollutant listed under section
1317§2) of Title 33, (E) any hazardous air pollutant listed under section 112 of the
Clean Air Act [42 U.S.C.A. § 74 ].2], and (F) any imminently hazardous chemical
substance or mixture with respect to which the Administrator has taken action
pursuant to section 2606 of Title 15. The term does not include petroleum,
including crude oil or any fraction thereof which is not otherwise specifically
listed or designated as a hazardous substance under subparagraphs (A) through (F)
of this paragraph, and the term does not include natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas). (42 U.S.C. section 9601(14))
Title 42 section 9602 states, “The Administrator shall promulgate and revise as may be
appropriate, regulations designating as hazardous substances, in addition to those referred to in
section 9601(14) of this title, such elements, compounds, mixtures, solutions, and substances
which, when released into the environment, may present substantial danger to the public health
or welfare or the environment...The Administrator may determine that one single quantity shall
be the reportable quantity for any hazardous substance, regardless of the medium into which the
hazardous substance is released.”
The amendments to the Clean Air Act enacted in 1990 included a regulatory programs for
the prevention of the release of hazardous substances Included in the listing of toxic and
flammable substances under 40 C.F.R. section 68.130 are both propane and propylene. They are
both listed at a threshold quantity of 10,000 pounds. ln the instant case, over 3,000,000 pounds
of propane propylene, was released into the environment This number is far beyond the 10,000
pound threshold set forth by the Environmental Protection Agency (EPA). To find that propane
propylene, which contains both propane and propylene, is not a hazardous substance simply
because propane and propylene are listed individually, and not as a compound, by the EPA would
be nonsensical. That would be to find that a whole is not made up of its individual parts, which
this Court is not willing to do. Additionally, to find that the release of 3,000,000 pounds of
substances listed as toxic and flammable do not qualify as “hazardous” also defies reason.
3,000,000 pounds of propane propylene released into the environment and affecting land, air, and
water certainly presents a substantial danger to the health and welfare of the environment
Further, the Court finds the exceptions for petroleum, natural gas, natural gas liquids, liquefied
natural gas, or synthetic gas do not apply. Although WQIS strongly argues the case for finding
the propane propylene at issues falls outside of coverage, the Court disagrees The substance
released during the collision was not an oil and certainly does not qualify as a natural gas.
Additionally, propane propylene is not a synthetic gas that is usable for fuel. It is, quite clearly, a
“hazardous substance” as anticipated by CERCLA.
Additionally, WQIS has admitted in various documents throughout the record that the
incident involved the release of a hazardous substance and has paid in settlement under Article B
of the policy, CERCLA coverage For example, WQIS stated in Record Document 129,
“Because the WQIS policy provides coverage to Taira Lynn for specified liabilities arising from
the release of a hazardous substance, including liability to a third party such as Kirby for payment
of costs and expenses incurred by the third party for removal, response or remedial action under
Section 107(a)(1) of CERCLA, WQIS subsequently negotiated with Kirby to settle its
pollution/emergency response costs claimed in Taira Lynn’s limitation action”. The Court can
not and will not simply disregard those statements or admissions, as has been requested, because
a different position is now more favorable to WQIS. In any event, had WQIS not admitted
CERLCA coverage, the same finding would have been made. The admission is merely further
evidence of CERCLA application It is hereby held that coverage under Article B of the WQIS
policy is applicable
DEFENSE COSTS
The WQIS policy provides indemnity to its Assured for “such amounts as the Assured
shall have become liable to pay and shall have paid in its capacity as owner and/or operator of the
vessel...” and for reimbursement of “certain other costs and expenses as described below, which
the Assured shall have incurred in its capacity as owner and/or operator of the Vessel,..” Defense
costs are covered if incurred by the Assured with the “prior consent of WQIS for investigation of,
or defense against, any liabilities” covered under Articles A and B of the Policy. The Court
clarifies that the policy does not state “prior written consent” as argued by WQIS.
WQIS argues that it does not owe any more money under the policy for a number of
reasons. First, it claims it did not consent to the retention of Liskow and Lewis to represent Taira
Lynn. Whether WQIS consented to such representation in correspondence or not has no bearing
The fact of the matter is that WQIS denied coverage to its insured, Taira Lynn, and, once it did
so, Taira Lynn was within its right to secure defense counsel without the blessing of WQIS. If it
ultimately turns out that coverage is due under the WQIS policy, as is the case here, then the
insurer is bound by the terms of its policy. However, once WQIS denied coverage and the right
to secure counsel arose in favor of Taira Lynn, the “prior consent” language of the policy became
inoperable Consequently, Taira Lynn was not required to seek prior consent in order to collect
what it is due under the insurance policy.
As to the reimbursement, WQIS claims Taira Lynn did not incur any costs and expenses
as XL and Zurich paid directly and no money came out of Taira Lynn’s pocket. As such, WQIS
does not owe reimbursement because the policy does not provide for reimbursement to another
insurance company, but to its Assured. Additionally, no bills Were presented to WQIS for
reimbursement prior to the filing of the instant motions. The Court agrees with WQIS that it
does not owe reimbursement to other insurance companies if their policies were properly in play
and they made payment. However, to any extent the WQIS policy should have been liable rather
than the XL, Zurich or National Union policies, reimbursement would be owed because the costs
paid were those incurred by Taira Lynn for its defense and owed by WQIS. As to the timing of
reimbursement, the Court finds that, as the WQIS policy does not specifically provide for when
the incurred costs/expenses should be paid, then payment is due immediately upon the Assured
incurring them. The Court notes for the record, however, that the policy does not state that
reimbursement is due for expenses “as incurred” as argued by XL, Zurich, and National Union.
WQIS denied coverage to Taira Lynn and, consequently, was not provided with invoices for
defense costs. WQIS can not now fall back on the presentation of invoices, or lack thereof, as an
excuse to avoid liability for any duty owed.
WHAT IS OWED?
After full consideration of the XL and Zurich policy and the WQIS policy, and taking into
account the entirety of this situation, including the position changes and legal game playing that
has taken place throughout the course of this case, it is hereby held that:
XL and Zurich and WQIS all owed coverage to the insured, Taira Lynn. The difference
being that, under the WQIS policy, there was no duty to defend; instead, WQIS owed
reimbursement to Taira Lynn for the costs of defense While the XL and Zurich policy was in
play, it owed Taira Lyrm a defense and coverage of the costs involved. However, when the limits
of that policy were reached, the costs of` that defense should have fallen to Taira Lynn and were
subject to reimbursement by WQIS. They were, instead, assumed by National Union, as the
excess carrier, because WQIS denied coverage lt has been established that WQIS wrongfully
did so and that coverage was due under Article B of the policy. Consequently, WQIS owes no
money through reimbursement or any other theory to XL and Zurich. The Zurich and XL policy
was in effect and owed Taira Lynn up to its limits. lt is further held that all damages arising out
of the one accident will be counted together for the purpose of determining when the limits were
reached as that is provided for in the XL/Zurich policy and the Court finds it is a fair application
in this specific case.
However, WQIS does owe National Union the amount it paid for Taira Lynn as it is a true excess
policy which was not yet in effect because the WQIS policy, a primary policy, owed coverage
As the limits under Article B of the WQIS policy would not have been reached through the
amounts paid as presented to the Court, the National Union excess policy was never triggered
The amounts paid by National Union would have fallen to Taira Lynn, and been subject to
reimbursement by WQIS, had National Union not stepped in as the excess carrier. Therefore,
WQIS, the primary insurer whose policy provided coverage before any excess policy, owes
National Union $1,612,097.77.
Based on the foregoing, it is hereby ORDERED, ADJUDGED, and DECREED that the
Motion for Summary Judgment by XL, Zurich, and National Union (Doc. #751) is GRANTED
in part and DENIED in part, and the Motion for Summary Judgment by WQIS (Doc. #750) is
DENIED. lt is FURTHER ORDERED that WQIS shall pay the amount of $l,612,097.77 to
National Union Insurance Company of Louisiana for coverage it owed to its insured as the
primary policy which was paid by National Union as the excess carrier.
THUS DONE and SIGNED on this
RI'CH RD T'. HXIK, sR.,"“JUDGE
UNITE srATEs DisTRICr CoURT
WESTERN DISTRICT 0F LoUisIANA