Opinion
Case No. 2:00CV499DAK
March 25, 2003
MEMORANDUM DECISION AND ORDER
Plaintiff Wyoming Alaska Company, Inc. ("WACO") and Defendant Commerce and Industry Insurance Company ("CI") have both moved for partial summary judgment in this insurance coverage action. The court held a hearing on these motions on March 13, 2003. At the hearing, Plaintiff was represented by Timothy C. Houpt and Ryan M. Hats, and Defendants were represented by Theodore A. Keyes. Having fully considered the motions, memoranda, affidavits, and exhibits submitted by the parties and the facts and law relevant to these motions, the court enters the following Memorandum Decision and Order.
BACKGROUND
From approximately 1984 until its closure in 1999, WACO operated a combination retail gasoline and convenience store known as the Trailside General Store in Homer, Alaska ("the Store"). The Store sold gasoline and included underground storage tank systems, gasoline storage tanks, piping, pumps and related equipment. WACO purchased Storage Tank Third-Party Liability, Corrective Action and Cleanup Insurance from CI for the policy period February 3, 1998 to February 3, 1999 ("the Policy"). The Policy provided coverage for releases of petroleum from underground storage tanks ("USTs") and above-ground storage tanks for claims made and reported during the one-year policy period or during the extended reporting period, if applicable. WACO decided not to renew the Policy upon its expiration on February 3, 1999.
Specifically, Section I of the Policy provides that
the Company agrees to pay on behalf of the Insured reasonable and necessary costs that the Insured is legally obligated to pay for Corrective Action due to Confirmed Releases resulting from Pollution Conditions from an Underground Storage Tank System which are unexpected and unintended from the standpoint of the Insured. The Pollution Conditions must commence on or after the Retroactive Date. . . . Claims reporting a Confirmed Release must first be reported to the Company, in writing, during the Policy Period or during the Extended Reporting Period, if applicable.
The policy also requires WACO to notify CI within seven days of learning of a claimed release.
The parties dispute whether a federal regulation promulgated by the Environmental Protection Agency, 40 C.F.R. § 280.97 (b)(2)(e), which has been adopted by Alaska in its Administrative Code, see 18 A.A.C. § 78.910, provides for an automatic extended reporting period that must be added to insurance policies or whether the extended reporting period is conditioned on whether the insurance company charges and the insured pays for the extended reporting period. One of the main reasons for this dispute is that the Policy provides for a twelve-month extended reporting period to be purchased within the terms of the Policy, the Certificate of Insurance attached to the Policy speaks of a six-month extended reporting period, and the regulation speaks of a six-month extended reporting period.
The Certificate of Insurance that CI issued to WACO, which was attached to the Policy at the time it was purchased, contains a provision identical to 40 C.F.R. § 280.97 (b)(2), and states that
The insurance covers claims otherwise covered by the policy that are reported to the Insurer within six months of the effective date of the cancellation or nonrenewal of the policy except where the new or renewed policy has the same retroactive date or a retroactive date earlier than that of the prior policy, and which arises out of any covered occurrence that commenced after the policy retroactive date, if applicable, and prior to such policy renewal or termination date. Claims reported during such reporting period are subject to the terms, conditions, limits, including limits of liability, and exclusions of the policy.
Section VI of the Policy provides terms under which the insured could purchase a twelve-month extended reporting period at the time of nonrenewal or cancellation of the Policy. On February 25, 1999, about three weeks after the Policy expired, CI's agent Sedgwick of Pennsylvania, Inc. sent a letter to someone in Wisconsin with unknown ties to WACO regarding WACO's entitlement to purchase the twelve-month extension per policy terms. However, there is no record of anyone at WACO or WACO's insurance agent receiving this message. In any event, WACO did not purchase the twelve-month extended reporting period available under Section VI of the Policy.
On April 26, 1999, Mr. Reuel Call, the owner of WACO, and Ms. Bonita Blunk, then-former president of WACO, visited the Store. Call, now deceased, and Blunk, were told that the tanks were not operational. Call and Blunk told the Store Manager, Heather Hood, to transfer the remaining gasoline from Tank #2 to Tank #1. Hood called Petro Marine, who pumped approximately 5,000 gallons of fuel from Tank #2 to Tank #1 on April 26, 1999. The receipt from Petro Marine states that 5,007 gallons were pumped. The parties dispute whether Call and Blunk knew that the two tanks had been suspected of leaking fuel. Call testified that during the visit they were directed to the back of the Store because there had been reports of smelling gasoline fumes. On April 27, 1999, gasoline was observed seeping through the pavement outside the Store.
WACO does not dispute that gasoline was observed seeping through the pavement in late April 1999, however, it does dispute that this observation indicates that a major fuel leak occurred during late April 1999. As early as September 1998, there is testimony that there was a strong odor of gasoline in the downstairs bathroom at the Store. Although CI contests whether this odor of gasoline is related to the leakage relevant to this action, it does acknowledge that the fuel records for December of 1998 and January and February of 1999 show a fuel loss. WACO's fuel records indicate that "more than 3,000 gallons of fuel [we]re unaccounted for between January 1999 and March 1999." CI, however, claims that there is no reliable evidence that the USTs were leaking before February 3, 1999.
In March of 1999, Hood, at the direction of WACO, sold all the fuel in Tank #1 through normal fuel sales at the pump and shut down Tank #1. Between March 7, 1999, and April 26, 1999, Tank #1 was completely shut down. On March 21, 1999, the filler cap to Tank #2 was damaged when the pump man was chipping ice. This damage allowed water to enter Tank #2. A consultant examined Tank #2 and informed the store manager that there was ten inches of ice in the tank and that they would have to wait for the spring thaw to correct the problem. Tank #2 was shut down, but it was not emptied. From March 21, 1999, until April 26, 1999, Tank #2 sat dormant with more than 5,000 gallons of fuel.
WACO believes that gasoline was observed at the surface in late April of 1999 because of small leaks occurring throughout the winter and the spring weather conditions. The weather in Homer during the last week of April 1999 was mild, the winter was one of record snowfall, and the groundwater table at the Store was extremely high. Because petroleum released into groundwater floats on the top, any petroleum released into the ground during the winter of 1998/99 would have been very close to the surface in the spring of 1999.
On April 27 or 28, 1999, the landlord and Ms. Hood reported a release to the State of Alaska Department of Environmental Conservation ("ADEC"). Hood also contacted Steve Johnson at WACO's main office in Utah. Johnson told Hood to pump the unsold gas left in Tank #1 back into Tank #2. Hood complied and called Petro Marine to pump fuel out of Tank #1 and back into Tank #2. The receipt from Petro Marine states that 3,629 gallons of fuel were pumped back into Tank #2.
On April 29, 1999, WACO retained Alaska Lining Retrofit to conduct an emergency response action and a complete closure of the underground tank system at the Store. The contractor who pulled the tanks from the ground determined that the USTs themselves were sound and had no leak. The contractor determined that the leaks were in the turbines.
On May 4, 1999, ADEC sent a notice to WACO informing it of its statutory obligation to investigate and remediate the site. On May 14, 1999, WACO reported to CI that a leak of fuel had occurred at the Store on January 2, 1999, during the coverage period.
On June 4, 1999, AIG Technical Services, Inc. ("AIG"), agent for CI, acknowledged receipt of WACO's notice of claim and issued a reservation of rights letter indicating that CI required additional information in order to make a coverage determination. However, CI did not ask WACO for any information regarding an extended reporting period.
After six months of investigation, on November 29, 1999, AIG notified WACO that CI was accepting coverage for this claim under the Policy. However, AIG also stated in the November 29, 1999 letter that it reserved the right to modify, amend, or supplement the coverage position taken in the letter and the right to recoup costs paid should its investigation reveal that there was no coverage for the claim.
CI, through its agent AIG, approved a cleanup action plan and began making payments to contractors working to cleanup the site shortly after the November 29, 1999 letter was sent to WACO. After it began paying claim costs, AIG contends that it learned (1) that the release of gasoline was caused by the transfer of gasoline into a tank that WACO knew was leaking, (2) that WACO's representation that it had purchased an extended reporting period was false, (3) that WACO had received notice of the opportunity to purchase the extended reporting period but did not purchase it, and (4) that the State of Alaska had indicted WACO and Bonita Blunk on charges that they had polluted land unlawfully and with criminal negligence.
Based on these alleged misrepresentations, in February of 2000, MG informed WACO that there was no coverage because WACO had no right to an extended reporting period. CI stopped paying for the cleanup and in the fall of 2000, the State of Alaska took over the cleanup of the site. WACO then instituted the present action seeking coverage for the claim.
DISCUSSION Cross Motions for Summary Judgment
WACO asks this court to find that the insurance policy in question is subject to the extended reporting period specified in 40 C.F.R. § 280.97, Alaska Code 118 A.A.C. § 78.910, and the Certificate of Insurance attached to the policy. CI's cross-motion for summary judgment asks the court to declare that WACO was not entitled to an extended reporting period and that the claim at issue was not reported until after the insurance policy expired.
WACO claims that it is entitled to partial summary judgment on the notice-period issue for two reasons. First, WACO's Policy included a six-month extended reporting period pursuant to federal law and demonstrated in the Policy's Certificate of Insurance. Therefore, WACO claims it had until August 3, 1999 to provide notice to CI of a petroleum release occurring within the policy period and WACO's notice was timely sent May 14, 1999. Second, WACO contends that CI is estopped from denying that it granted WACO a six-month extended reporting period because CI issued the Certificate of Insurance stating that WACO had a six-month extended reporting period, the June 4, 1999 letter requesting additional information before a coverage determination could be made stated that WACO had a six-month extended reporting period, the November 29, 1999 letter stated that WACO's May 14, 1999 notice was timely under the six-month extended reporting period, and CI made payments, for a time, for cleanup work at the Store site. Third, WACO contends that CI has not demonstrated that it was prejudiced by WACO's alleged late notice.
1. Extended Reporting Period
For claims-made policies, federal regulations provide for underground storage tank insurance policies to have a six-month extended reported period. Under 40 C.F.R. § 280.93 (a), owners of UST systems must demonstrate financial responsibility. One of the methods for demonstrating financial responsibility is through purchasing a UST insurance policy. See 40 C.F.R. § 280.97. The regulations state that "[e]ach [UST] insurance policy must be amended by an endorsement worded as specified in paragraph (b)(1) of this section, or evidenced by a certificate of insurance worded as specified in paragraph (b)(2) of this section. Id. § 280.97(b).
CI argues that these regulations impose obligations on insureds, not insurers. To the extent that it must offer a six-month reporting period, CI contends that it offered the one-year extended reporting period under Section VI of the Policy, and WACO chose not to purchase it. WACO does not dispute CI's contention that insurance companies can charge an additional premium for the mandatory six-month extended reporting period. However, WACO asserts that the six-month extended reporting period required by federal law is different than the twelve-month extended reporting period available pursuant to Section VI of the Policy.
The court concludes that there is no indication that the twelve-month extended reporting period offered in Section VI of the Policy is the same as the federally mandated extended reporting period. The federal regulations mandate a six-month extended reporting period, not a twelve-month extended reporting period. Section VI does not reference 40 C.F.R. § 280.97 nor does it contain the required language. However, the Certificate of Insurance attached to the Policy when it was issued to WACO references 40 C.F.R. § 280.97, contains the required language of the regulation, and explicitly states that WACO had a six-month extended reporting period.
The court finds it irrelevant to the determination before it whether CI required an additional premium for the six-month extended reporting period contained in the Certificate of Insurance. While, the federal regulations contemplate that insurance companies will charge for the reporting period, they do not mandate that the insurer charge anything and do not state that the charge must be in addition to the policy's premium or whether it would be calculated into the overall cost of the premium. There is no evidence here to suggest that the six-month extended reporting period required WACO to pay an additional premium or that the cost of the six-month extended reporting period was not factored into the premium charged. Only the twelve-month extended reporting period in Section VI of the Policy required an additional premium and there is not basis for determining that the twelve-month reporting period was the only reporting period available to WACO.
CI argues that WACO could not have possessed a six-month extended reporting period because it is contained in the Certificate of Insurance attached to WACO's Policy and the Certificate of Insurance cannot change the terms of the Policy. Under Utah law, the court looks to the four corners of the contract to determine the intent of the parties. Perkins v. Great-West Life Assurance Co., 814 P.2d 1125 (Utah Ct.App. 1991). If an insurance policy is clear and unambiguous, the words are given their plain and ordinary meaning. Id. Courts that have looked at this issue have distinguished between an endorsement, which is usually used to modify the terms of a policy, and a certificate, which serves as evidence of the purchase of insurance and describes the insurance purchased. continental Cas. Co. v. Signal Ins. Co., 580 P.2d 372, 376 (Ariz.Ct.App. 1978).
In Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882 (10th Cir. 1991), the Tenth Circuit noted that the majority view is that where a certificate expressly indicates that it is not to alter the terms of the policy, the certificate will not effect a change in the policy. However, the Mountain Fuel court found that the certificate before it was unusual because the certificate expressly stated that it did not amend or alter the terms of the policy "except as set forth above." The court found the language "except as set forth above" to indicate an intent to incorporate the terms of the certificate into the underlying contract.
In this case, the Certificate of Insurance does not expressly state that it does not alter or amend the terms of the Policy. The Policy provides that its terms cannot "be waived or changed, except by endorsement." The Certificate also expressly states that claims reported during the extended reporting period are "subject to the terms, conditions, limits including limits of liability, and exclusions of the policy." However, that language occurs in the paragraph creating the six-month extended reporting period, and the entire paragraph creates a six-month reporting period not provided for in the Policy. The issue is whether the paragraph creating the six-month extended reporting period demonstrates an intention to amend the Policy.
As in Mountain Fuel, the Certificate of Insurance in this case is not the usual certificate of insurance. To fully understand the intent of the Certificate of Insurance it is necessary to construe it in light of the regulatory context in which it is governed. In 1988, the EPA made a six-month extended reporting period "mandatory for all claims-made contracts used to demonstrate" financial responsibility. See "Underground Storage Tanks Containing Petroleum — Financial Responsibility Requirements and State Program Approval Objective," 53 Fed. Reg. 43322, Part III.H.4.g. (October 26, 1988). This requirement is demonstrated in Section 280.97, which states that "[e]ach insurance policy must be amended by an endorsement worded as specified in paragraph (b)(1) of this section, or evidenced by a certificate of insurance worded as specified in paragraph (b)(2)." 40 C.F.R. § 280.97. It is important to note that the regulation requires mandatory language under paragraph (b)(1) for amendments made through endorsements and requires mandatory language under paragraph (b)(2) for amendments made through the use of a certificate of insurance. The Certificate of Insurance in this case uses the language of paragraph (b)(2) and then expressly certifies "that the wording of this Instrument is identical to the wording in 40 C.F.R. § 280.97 (b)(2)." By stating that it was in compliance with Section 280.97(b)(2), CI acknowledged that it intended to amend the policy through the certificate of insurance rather than by endorsement. This certification demonstrates that CI intended to comply with Section 280.97(b)'s requirement to amend the policy through the use of the Certificate of Insurance, and it would be unreasonable for this court to read the provision of the Policy stating that it can only be modified by an endorsement to trump this clear intention to amend the Policy. Therefore, the court concludes that there was an intent to incorporate the terms of the Certificate of Insurance into the underlying contract, and WACO is entitled to the six-month extended reporting period contained in the Certificate of Insurance.
Because WACO possessed a six-month extended reporting period, its May 1999 notice was timely brought within the six-month period and WACO is entitled to partial summary judgment on the notice issue. It is, therefore, unnecessary for the court to determine whether CI should be equitably estopped from denying that WACO's policy does not contain a sixmonth extended reporting period. It is further unnecessary to address whether CI was prejudiced by WACO's alleged late notice. The disputed issues regarding whether the timing and cause of the release for which WACO made its claim occurred during the policy period is not before the court on this motion. Accordingly, WACO's motion for partial summary judgment is granted and CI's cross-motion for summary judgment is denied.
CONCLUSION
For the reasons stated above, WACO's Motion for Partial Summary Judgment is GRANTED and CI's Cross-Motion for Summary Judgment is DENIED.