By Cara Cookson
Bradford Oil Company, Inc. v. Stonington Insurance Company, 2011 VT 108
The Anglo-French billionaire Sir James Goldsmith once said, “[i]f you pay peanuts, you get monkeys.” The SCOV used a few more paragraphs and a bit more law to tell the Agency of Natural Resources—and by extension, the plaintiff-passive-polluter—basically the same thing in today’s case of how to allocate damages for a hazardous waste clean-up. The SCOV concluded that the defendant-insurance company is only responsible for paying a small fraction of the remediation costs represented by the sliver of time during which the plaintiff-polluter was buying coverage.
The story begins with three leaky underground storage tanks. Somewhere between the New Frontier of the early 1960s and the Disco era of late 1970s, these tanks began releasing fuel into the ground at a gas station owned by plaintiff. This plaintiff owned the property during the more important moments in this case, we’ll assume it had no idea what was going on under there. (Although, like Pet Rocks, those leaky underground storage tanks were all the rage back then.) More recently, the environmentally-enlightened State of
created the Vermont Petroleum Cleanup Fund (VPCF). With so many of these mini-hazardous waste sites dotting the state and threatening village groundwater supplies, the state took a Superfund-esque approach by cleaning first and taking names (and money) later. Vermont
In 1997, someone discovered the site in question when the three leaky tanks were dug up from the ground. In walked ANR, who placed the site on the Vermont Hazardous Waste Sites List, waved its wand (or its baton, as the case may have been,) and sent plaintiff-passive-polluter off to investigate, clean it up, and send the bill back to the VPCF for reimbursement. VPCF reimbursed most of these costs. Ironically, cleaning up a hazardous waste site is the easy part after all.
Now, for the litigation. Five years ago, in 2006, plaintiff sued the defendant-insurance-company to establish coverage under four commercial general liability policies that it bought during a three-and-a-half year period from 1994 to 1997. The State, of course, hopped along for the ride and then took the reins in order to seek reimbursement for the VPCF. And so . . .
“But, wait . . . three-and-a-half years?” you say. “Haven’t these things been leaking since Linda Carter was flying around in go-go boots with a gold lasso?” Well done. That’s what the SCOV said, too. (Albeit a bit less colorfully.)
Defendant-insurance company reluctantly agreed that cleaning up this type of contamination was covered under the policies, but it refused to pay the total cost of remediation. After all, the insurance company was only making paper for three and a half years. This allocation method is called “time-on-the-risk,” meaning that the insurance company is only liable for damages in proportion to the time it has assumed the risk. The insurance company argued—and the trial court and the SCOV agreed—that with an occurrence-based policy* such as this one, the insurance company should only be on the hook for 4/27 of the costs. After all, this fraction represents the amount of time that defendant agreed to assume the risk out of the total time that plaintiff owned the contaminated property.
Here, the State pulls out its Prosser and points to the phrase, “JOINT AND SEVERAL LIABILITY.” In other words, if you’re around when it breaks—and you agreed to pay for it—you bought it and you bought all of it. According to the State, even if only one insurance company can be found at time of the suit, that company stays on the hook for everything. That lucky insurance company is free to go hunting for contributions, wherever they might be found, but it shouldn’t be able to simply allocate its risk and leave the remainder unpaid. You might picture this hunting excursion as one of those old Elmer Fudd cartoons, because basically, it would involve hunting the plaintiff-passive-polluter-rabbit that paid for the clean-up, that got reimbursed for the clean-up, that sued the company, that brought in the State (who got a judgment against the company), that then had to go hunting for the rabbit. The company also might go hunting for another insurer, but that’s a cartoon for another day.
The SCOV delves into the relative merits of the various allocation methods as it considers the State’s arguments, but fundamentally, the court errs on the side of allowing insurance companies to chose-its-own-risk, meaning that for occurrence-based policies, an insurance company is only liable according to the relative time it spends accepting the risk by covering the insured.
The SCOV was unpersuaded by the argument that because station owners face joint and several liability for violating the underlying hazardous waste statute, the companies that insure them should be held to the same standard. Likewise, the SCOV rejects the argument that the VPCF should be repaid simply because it is the VPCF and performs an important function by getting rid of pollution quickly and cost-effectively. And so, the State likely is stuck with 23/27ths of the remediation costs. Oh, that rabbit!
*Insurance 101, courtesy of the SCOV: In simple terms, imagine there are two kinds of insurance policies. “Occurrence-based” policies “provide coverage only for injury or property damage which occurs during the policy period.” “Claims-made” policies “restrict coverage to claims made during the policy period without regard to the timing of the damage or injury.” As we’ll see, plaintiff-passive-polluter bought the wrong policy for a claim of unlimited coverage.