Superior Court County: King. Superior Court Cause No: 91-2-20922-7. Date filed in Superior Court: July 25, 1994. Superior Court Judge Signing: Hon. Steven Scott.
Written by: Ellington, Concurred by: Webster, Kennedy
ELLINGTON, J. -- At issue in this appeal is insurance coverage for release of hazardous wastes from the Western Processing Superfund site in Kent, Washington. The jury concluded the insurer was prejudiced by delayed notice. Finding no evidence of actual prejudice, we reverse.
I. Hazardous Waste Liability
Canron is a Canadian corporation that manufactured galvanized steel products in Vancouver, British Columbia. In the 1970s and 1980s, Canron shipped byproducts of the galvanizing process, including "spent pickle liquor" containing zinc, to Western Processing for recycling and disposal. In 1983, the Environmental Protection Agency (EPA) closed the Kent facility and designated it a Superfund site under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The EPA found large quantities of zinc in the soil and groundwater.
On May 24, 1983, the EPA notified Canron it was a potentially responsible party (PRP) under CERCLA, and asked for records regarding shipments to Western Processing. Canron located records showing shipments beginning December 15, 1979, and notified the EPA of those shipments on June 2, 1983.
Between late April 1983 and July 1, 1983, the EPA attempted to prevent additional degradation of the soil and groundwater by removing some hazardous substances and stabilizing others. In January 1984, the EPA and the State of Washington Department of Ecology (DOE) notified Canron that Canron was potentially liable under CERCLA for releases of hazardous substances from Western Processing, and that if Canron failed to assume responsibility for cleaning up the site, the EPA and/or DOE would clean it up and sue Canron and the other PRPs to recover damages and costs.
In August 1984, Canron was sued by the United States, the State of Washington, a neighboring property owner, and (later) by co-defendants in the suit brought by EPA and DOE. Canron ultimately agreed to pay approximately $3,000,000 to settle the claims.
From January 1971 through January 1977, Canron was insured by Federal Insurance Company under policies which covered property damage caused by an "occurrence." The first policy provided coverage from 1971-1974; the second provided coverage from 1974-1977. In relevant substance, the policies were identical. The contracts defined "occurrence" as:
an event, or continuous or repeated exposure to conditions, which unexpectedly causes [property damage] during the policy period, provided the Insured did not intend or anticipate that [property damage] would result.
The policies required notice of any "occurrence":
Upon the happening of any occurrence, written notice shall be given by or on behalf of the Insured to [Federal] or any of its authorized agents, as soon as practicable after notice thereof has been received by its executive officers at the Insured's headquarters.
Both contracts excluded coverage for pollutants under some circumstances:
This policy does not apply to liability arising out of...the discharge, disposal, release or escape of any contaminant, pollutant, or irritant into or upon the land, the atmosphere, or any water course or body of water unless such discharge, dispersal, release or escape is sudden and accidental.
When Canron was first informed it was a potentially responsible party in relation to the cleanup at Western Processing, Canron did not advise Federal of the potential claim because Canron's records did not show deliveries during the periods Canron was insured by Federal. However, some time before May 1984, Canron received printouts from the EPA showing Canron had shipped its wastes to Western Processing as early as 1975. On May 15, 1984, Canron notified Federal of a potential claim related to the shipments going back to 1975, and on July 11, 1984, Canron informed Federal the EPA had sent a printout showing deliveries as early as 1972.
After an initial reservation of rights letter which raised (among other things) the delayed notice issue, Federal wrote Canron on February 27, 1985, and, "based on the allegations ... and the facts as we now know them," asserted defenses to coverage for the claims against Canron. Federal conducted no investigation of the site; its determination was based on policy exclusions and coverage definitions. On September 19, 1991, Canron brought suit for declaratory relief and damages, claiming Federal was obligated to indemnify Canron for all sums for which it was liable as a result of the contamination at Western Processing. Federal's defenses included lack of notice, absence of an occurrence, and the pollution exclusion clause.
The case was tried in May 1994; the jury returned a verdict in favor of Federal, finding that Canron failed to notify Federal of occurrences as required by the policies, and that Federal was prejudiced by Canron's delayed notice. The jury did not reach the other issues. Based on the verdict, judgment was entered dismissing Canron's coverage claims. Canron's motion for judgment notwithstanding the verdict was denied. This appeal and cross-appeal followed.
III. Delayed Notice - Prejudice
The policies required Canron to notify Federal of an occurrence "as soon as practicable." Canron does not dispute it delayed in notifying Federal of the post-1975 occurrences, since almost one year passed between the EPA's first communication to Canron and Canron's first notification to Federal.*fn1
Noncompliance with a policy provision does not deprive the insured of the benefits of the policy unless the insurer demonstrates actual prejudice resulting from the insured's noncompliance. The burden of proof is on the insurer; prejudice is ordinarily a question of fact. Oregon Auto Ins. Co. v. Salzberg, 85 Wash. 2d 372, 377, 535 P.2d 816 (1975).
Two issues arise on appeal relating to Canron's delayed notice.
A. Jury instruction. Canron claims the trial court erred in giving Federal's proposed instruction on the prejudice issue, and in failing to give the instruction proposed by Canron. Canron's proposed instruction permitted the jury to find prejudice only if the late notice "caused actual prejudice to Federal's ability to investigate and defend Canron in the underlying claims." However, actual prejudice is not so limited. Canron's instruction failed to recognize that late notice may affect the insurer's ability to prepare and present coverage defenses as well, not just defenses to Canron's liability in the underlying litigation. Canron's proposed instruction was inaccurate, and was properly refused. See Havens v. C & D Plastics, Inc., 124 Wash. 2d 158, 167, 876 P.2d 435 (1994).
The instruction actually given was generally correct, but confusing. The instruction referred not to actual prejudice, but to prejudice to Federal's "rights." The instruction concluded, "if you find that Canron failed to give the required notice and that Federal's rights were prejudiced by Canron's failure then Canron is not entitled to coverage." While the giving of the instruction was not an abuse of discretion, especially in the absence of a proposed proper alternative, Goodman v. Boeing Co., 75 Wash. App. 60, 75, 877 P.2d 703 (1994), affirmed, 127 Wash. 2d 401, 899 P.2d 1265 (1995), we are skeptical about a jury's understanding of the concept of prejudice to a party's "rights." Instructions on this issue would ideally offer a more definitive approach. See Hanson PLC v. Nat'l Union Fire Ins., 58 Wash. App. 561, 569-70, 794 P.2d 66 (1990). ...