Court Rules that Tribes’ Natural Resource Damage Claims Were Brought on Behalf of the Government for Pollution Exclusion Purposes

A federal district court in Oregon has ruled that natural resource damage (“NRD”) claims asserted by a council that included Indian Tribes as members were brought on behalf of federal or state government authorities for purposes of a pollution exclusion.

The Case

In December 2000, the U.S. Environmental Protection Agency (the “EPA”) listed a stretch of the lower Willamette River near Portland, Oregon, on the National Priorities List as a federal Superfund Site (the “Site”). At that time, the EPA began contacting individuals or entities identified as potentially responsible parties (“PRPs”) of their possible liability for costs incurred in responding to the release, or threatened release, of hazardous material at the Site under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

In January 2008, The Marine Group, LLC, Northwest Marine, Inc., Northwest Marine Iron Works, and BAE Systems San Diego Ship Repair, Inc. (collectively, the “Insureds”), received correspondence from the EPA informing them they were being considered as PRPs with regard to the assessment, removal, and remediation of hazardous materials released at the Site (the “Environmental Claims”).

The Insureds also received a letter from the Portland Harbor Natural Resource Trustee Council (the “Council”) inviting them to participate in funding and implementing a natural resource damage assessment (“NRDA”). Members of the Council included the Confederated Tribes and Bands of the Yakama Nation, the Confederated Tribes of the Grande Ronde Community of Oregon, the Confederated Tribes of Siletz Indians of Oregon, the Confederated Tribes of the Umatilla Indian Reservation, the Confederated Tribes of the Warm Springs Reservation of Oregon, and the Nez Perce Tribe.

Between May and July 2008, the Insureds sent letters to their insurers demanding defense and indemnification of the Environmental Claims.

Coverage litigation ensued. After motions for summary judgment were filed, the court considered whether a Hazardous Substance Remedial Action Exclusion precluded defense of the Environmental Claims. For their part, the Insureds acknowledged that the Exclusion applied to claims brought by or on behalf of a federal, state, or local governmental authority, but argued that it did not exclude NRD claims asserted by Indian Tribes as national resource trustees under CERCLA.

The Court’s Decision

The court ruled in favor of the insurers.

In its decision, the court first found that the Tribes, asserting NRD claims as members of the Council, were properly characterized as federal or state governmental authorities for purposes of the Exclusion. The court observed that the Tribes’ participation in the Council not only benefited themselves, but also the federal and state agencies participating in the Council.

The court determined, alternatively, that the federal and state agency members of the Council were pursuing the claims of the Tribes with their consent. There was no NRD claim asserted individually by a Tribe, the court added. Accordingly, it ruled, the NRD claims fell within the “plain and unambiguous language of the Exclusion.”

The case is Century Indemnity Co. v. The Marine Group, LLC, No.: 3:08-CV-1375-AC (D. Ore. Sept. 11, 2015).

Comment: The Century Indemnity court addressed several other issues. One issue worth noting concerned the timing of payments for defense costs under an ultimate net loss policy.  The court found that the duty to indemnify defense costs, as opposed to the duty to defend, does not create a current obligation to pay the policyholder’s defense costs.  Where “ultimate loss” includes both defense and indemnity, the duty to pay defense costs arises only after the suit against the insured has been resolved by judgment or settlement.