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Paul Oil Co. v. Federated Mutual Insurance Co.

September 08, 1998


Before: Stephen Reinhardt, John T. Noonan, and David R. Thompson, Circuit Judges.

The opinion of the court was delivered by: Noonan, Circuit Judge:


D.C. No. CV-95-05308-OWW

Appeal from the United States District Court for the Eastern District of California Oliver W. Wanger, District Judge, Presiding

Argued and Submitted July 16, 1998

San Francisco, California

Opinion by Judge Noonan

Paul Oil Company, Inc. (Paul Oil), a California corporation, appeals the grant of summary judgment against it in its suit against Federated Mutual Insurance Co. (Federated), a Minnesota corporation. The district court, after first denying Federated's motion for summary judgment, reconsidered, finding that Paul Oil's attempt to defeat the motion had depended upon a sham. The district court also denied Paul Oil's offer of additional testimony on the ground that Paul Oil had been disingenuous as to the availability of the witness whose testimony it belatedly attempted to offer. Affirming the district court, we write to call attention of the duties of counsel to the court.


Paul Oil is a family-owned business whose president and CEO since 1974 has been Ross Barton Paul (Bart Paul). The company is a jobber of Shell Oil products. In 1985 it leased property on Highway 99 in Livingston, California from Leonard and Shirley Blevins. The property had previously been used for a convenience store and gas station. It contained one underground gasoline storage tank holding 8,000 gallons, two tanks holding 5,000 gallons and a 4,000 gallon tank holding diesel fuel.

On May 24, 1986 Paul Oil entered into several insurance contracts with Federated, including a pollution liability insurance policy. On the first page of the policy in type much larger than the rest of the text a heading announced: "THIS IS A CLAIMS MADE POLICY - PLEASE READ CAREFULLY." The first paragraph under this heading said the company would pay compensatory damages for bodily injury or property damage provided that "(1) such bodily injury or property damage is caused by a pollution incident which commences subsequent to the retroactive date shown in the declarations of this policy; and (2) the claim for such damages is first made against the insured during the policy period and reported to the company during the policy period or within fifteen days after its termination." The policy continued: "A claim shall be deemed to have been made only when suit is brought or written notice of such claim is received by the insured." The "retroactive date" was the same as the date the policy was entered into, May 24, 1986.

Federated issued similar policies to Paul Oil for May 24, 1988 through May 24, 1989 and for May 24, 1989 through August 1, 1989 when Paul Oil cancelled.

Paul Oil tested the tanks on the property and in June 1986 found a leak in a supply line between the tank and a pump. It was due to a faulty pipeline coupling. Paul Oil replaced the coupling and cleaned out the soil. The company notified the Merced County Environmental Management Department, which approved its handling of the problem. The amount of soil removed was approximately five cubic yards. Paul Oil was receiving deliveries three times a week and doing from 60,000 to 80,000 gallons of business per month. It kept a tight inventory control of the gasoline in the tanks by doing daily stickings. The company was unaware of any other leaks or losses from the tanks. Occasionally there were small losses when a driver drove away from a pump with the nozzle from the tank still in his car.

In 1989 the California Department of Transportation began studies for a bypass in Livingston and made an environmental investigation that revealed at least 20,000 gallons of petroleum product in the ground that apparently had come from the site occupied by Paul Oil. On November 14, 1990 the district attorney of Merced County notified Paul Oil and prior occupiers of the site of alleged code violations that had caused the problem. In 1992 Paul Oil was sued by the Bergers, adjacent land owners, who asserted that their land had been contaminated from the Paul Oil site. In 1994 the California Regional Water Quality Control Board sent Paul Oil a ...

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