Superior Court of Pierce County. Superior Court Docket No. 93-2-00497-0. Date Filed In Superior Court: December 17, 1993. Superior Court Judge Signing: Thomas Felnagle.
Written By: Turner, J. Concurred IN By: Houghton, A.c.j., Bridgewater, J.
The opinion of the court was delivered by: Turner
TURNER, J. -- In this declaratory judgment action, the jury returned a verdict in favor of Pederson's for the cost of cleaning up contamination caused by an underground gasoline storage tank. On appeal, the insurer argues that the trial court erred in denying its motion for a directed verdict, in instructing the jury, in failing to reduce the verdict, in awarding prejudgment interest, and in denying a motion to vacate an attorney fees award in favor of the insured. Transamerica failed to convince the jury that Pederson's actions caused it actual and substantial prejudice. Giving great deference to the jury's role as the finder of fact, we affirm.
Pederson's Fryer Farms, Inc., (Pederson's) commenced this declaratory judgment action against Transamerica Insurance Company (Transamerica). Pederson's sought to recover expenses for cleaning up contamination from an underground gasoline storage tank. The tank was on Pederson's property when Pederson's purchased it in 1981. A few of Pederson's employees testified that Pederson's used the tank for four to six months during 1981- 1982. During that time, gasoline was disappearing from the tank.
In 1989, Pederson's received notice from the Department of Ecology (DOE) that all underground storage tanks must either be certified or removed. Pederson's elected to remove the fuel tank. When the tank was removed, Pederson's discovered that the bottom had holes in it. Pederson's informed DOE of the leak and hired a contractor to remove the contaminated soil. The contractor hired PLSA Engineering & Surveying (PLSA) to evaluate the contamination and assist in the cleanup. The PLSA engineer, Brad Card, determined the soil was contaminated by aged gasoline.
Pederson's worked with DOE to establish a cleanup plan and understood from their communications that it was obligated to clean up the contamination. During excavation of the contaminated soil, engineer Card discovered that groundwater had also been contaminated.
In April 1991, engineer Card reported that the cleanup was complete. By letter dated April 9, 1991, Pederson's notified Transamerica of its claim for the cleanup costs. Transamerica had issued general liability policies to Pederson's covering the years 1981 to 1985. Pederson's claimed that the groundwater was contaminated and gasoline had migrated from the tank to adjoining property during the policy period.
After investigating information provided by Pederson's, Transamerica denied coverage. Pederson's threatened to sue its insurers. Two other insurers settled with Pederson's for approximately $32,000. Pederson's subsequently sued Transamerica to recover costs expended in the cleanup. The jury rendered a verdict in favor of Pederson's. Transamerica appeals, contending that the trial court erred in many respects.
Denial of Motion for Directed Verdict At the close of Pederson's case, Transamerica moved for a directed verdict, which was denied. Transamerica argues that it was entitled to a directed verdict on two grounds. First, it asserts that Pederson's failed to comply with coverage terms. Second, Transamerica claims that Pederson's failed to show that property damage was covered by the policy.
In reviewing a denial of a motion for directed verdict, this court employs the same standard as the trial court. Peterson v. Littlejohn, 56 Wash. App. 1, 8, 781 P.2d 1329 (1989).
A directed verdict . . . is appropriate if, when viewing the material evidence most favorable to the nonmoving party, the court can say, as a matter of law, that there is no substantial evidence or reasonable inferences to sustain a verdict for the nonmoving party. . . .
The inquiry on appeal is limited to whether the evidence presented was sufficient to sustain the jury's verdict.
Industrial Indem. Co. of the Northwest, Inc. v. Kallevig, 114 Wash. 2d 907, 915-16, 792 P.2d 520 (1990).
A. Prejudice as a Matter of Law
Transamerica claims that Pederson's breached the insurance contract by: (1) failing to notify Transamerica of an occurrence as soon as practical; (2) making voluntary payments for cleanup of the contamination; (3) destroying physical evidence of the contamination; and (4) failing to assert defenses to the obligation to clean up the contamination. Transamerica asserts that Pederson's breaches prejudiced it to such an extent that its duty to pay insurance proceeds was discharged.
Even where an insured breaches the insurance contract, the insurer is not relieved of its duty to pay unless it can prove actual and substantial prejudice caused by the insured. See, e.g., Oregon Auto. Ins. Co. v. Salzberg, 85 Wash. 2d 372, 376-77, 535 P.2d 816 (1975); Pulse v. Northwest Farm Bureau Ins. Co., 18 Wash. App. 59, 60-61, 566 P.2d 577, review denied, 89 Wash. 2d 1011 (1977), and cases cited therein. Whether an insured breached its obligations under the insurance contract and whether the insurer was prejudiced thereby are factual determinations to be resolved by the trier of fact. Salzberg, 85 Wash. 2d at 377; Felice v. St. Paul Fire & Marine Ins. Co., 42 Wash. App. 352, 358, 711 P.2d 1066 (1985), review denied, 105 Wash. 2d 1014 (1986); Pulse, 18 Wash. App. at 62. Prejudice is presumed only in extreme cases. Salzberg, 85 Wash. 2d 372, 535 P.2d 816; Felice, 42 Wash. App. 352, 711 P.2d 1066; Pulse, 18 Wash. App. at 62. For example, in Thompson v. Grange Ins. Ass'n, 34 Wash. App. 151, 660 P.2d 307, review denied, 99 Wash. 2d 1011 (1983), the policy required notice of a claim to be given "as soon as practical." The plaintiffs did not notify the insurer of its claim for almost five years. Nevertheless, this court affirmed a finding that Grange was not prejudiced by Thompson's delay, stating: "Despite the statute of limitation now barring the pursuit of any claim against the tortfeasor, Grange never demonstrated that such person had any assets it might have recovered." Thompson, 34 Wash. App. at 163-64. Because Grange failed to establish actual prejudice, it was obligated to pay the insurance proceeds.
In Pulse, 18 Wash. App. 59, 566 P.2d 577, the insureds defended a suit for property damage caused by their cattle. The insureds were found liable and asked the insurer to pay the judgment. The insurer moved for summary judgment claiming the insured violated the insurance policy by failing to cooperate or give proper notice. The Court of Appeals reversed the grant of summary judgment, ruling that "prejudice will be presumed only in extreme cases and is . . . an issue upon which one claiming prejudice has the affirmative burden of proof." Pulse, 18 Wash. App. at 62.
Washington courts have found prejudice as a matter of law in only a few cases and then only when a trial on the insured's liability had already occurred or was impending. Sears, Roebuck & Co. v. Hartford Acc. & Indem. Co., 50 Wash. 2d 443, 313 P.2d 347 (1957); Felice, 42 Wash. App. 352, 711 P.2d 1066. *fn1 For instance, in Sears, the court found the insurer was prejudiced as a matter of law where the insured gave notice a week before trial, even though it was sued thirteen months beforehand. The court noted that the purpose of the notice requirement is to allow the insurer to prepare a defense and control the litigation. Sears, 50 Wash. 2d at 451. Similarly, in Felice, 42 Wash. App. 352, 711 P.2d 1066, the court held the insurer was prejudiced as a matter of law by an insured's noncompliance with the notice provision. Felice did not inform his insurer of an action until after judgment and only one day remained to appeal. The insurer denied coverage because late notice precluded it from investigating the case. The Court of Appeals affirmed summary judgment in favor of the insurer. Felice, 42 Wash. App. at 360.
1. Breach of Notice Provision
Transamerica failed to show that Pederson's breach of the notice requirement caused it actual prejudice. The record reveals that Pederson's likely discovered in late 1990 or early 1991 that contamination from the gasoline leak spread to adjacent property or groundwater. *fn2 Before such discovery, Pederson's had no reason to contact its insurer as it had not encountered any property damage covered by its Transamerica insurance policy, which covered only liability to third parties. Pederson's notified Transamerica of its claim on April 11, 1991. Transamerica fails to indicate how this delay hampered its ability to investigate, evaluate or defend against the State's assertion that Pederson's was required to remedy the contamination. Also, Pederson's did not deprive Transamerica of its right to control the litigation, as no action was filed against Pederson's.
Moreover, Transamerica failed to show that it could validly have disputed Pederson's liability for the cleanup had it been informed of the occurrence earlier. The Model Toxics Control Act (MTCA) provides in RCW 70.105D.040 that "the owner or operator of the facility" is "strictly liable, jointly and severally, for all remedial action costs and for all natural resource damages resulting from the releases or threatened releases of hazardous substances." See also Weyerhaeuser Co. v. Aetna Cas. & Sur. Co., 123 Wash. 2d 891, 874 P.2d 142 (1994); Car Wash Enter., Inc. v. Kampanos, 74 Wash. App. 537, 544, 874 P.2d 868 (1994). The only defenses are those listed in RCW 70.105D.040. Subsection (3) provides that a person is not liable if he or she can establish that the release was caused solely by an act of God, an act of war or an act or omission of an unrelated third party. RCW 70.105D.040(3)(a). The statute also provides that an owner or purchaser of a facility may be entitled to the so called "innocent purchaser defense." To be entitled to this defense, an owner must establish that at the time the facility was acquired: (1) the person had no knowledge or reason to know that any hazardous substance had been released or disposed of on, in, or at the facility; and (2) the person undertook all appropriate inquiry into the previous ownership and uses of the property, consistent with good commercial or customary practice, in an effort to minimize liability. Furthermore, the person must have in no way caused or contributed to the release or threatened release of a hazardous substance at the facility. RCW 70.105D.040(3)(b).
In the present case, Pederson's was strictly liable for the cost of cleanup. The record does not indicate that any of the defenses apply. We fail to see how earlier or timely notice would have allowed Transamerica to establish that the release was caused "solely" by an act of God, war, or an act or omission of a third party. Also, the "innocent purchaser defense" does not apply; it cannot be said that Pederson's in no way caused or contributed to the release of a hazardous substance at the site. Pederson's was using the fuel tank and noted an unexplained loss of gasoline. This circumstantially establishes that the fuel tank was leaking at that time. Further, there is no evidence that Pederson's conducted appropriate inquiries prior to purchasing the property so as to limit its liability. Transamerica produced no expert testimony to show the approximate date of release could be determined by examining the soil or the holes in the fuel tank. If it had, then actual prejudice might have been inferred from the delay in notice and the consequent inability to examine physical evidence of the release. "It is clear, however, that the insurer must demonstrate some concrete detriment resulting from the delay which harms the insurer's preparation or presentation of defenses to coverage or liability." Cannon v. Federal Ins., 1996 WL 376668 * 3 (Wn. App. Div. I).
We do not see how Transamerica could have presented a successful "innocent purchaser defense" had it been notified of the occurrence earlier. Transamerica had ample opportunity to interview Pederson's personnel. Its investigation disclosed no evidence that Pederson's had knowledge of any pre-acquisition release of contamination, or that Pederson's conducted appropriate inquiries into previous ownership and uses of the property. The delay did not impair Transamerica's ability to make these investigations. Whatever investigations Transamerica ...