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Coffeyville Res. Ref. & Mktg., LLC v. Illinois Union Insurance Co.

United States District Court, D. Kansas

October 25, 2013


For Coffeyville Resources Refining & Marketing, LLC, Plaintiff: Arthur E. Rhodes, Constance L. Shidler, Lee M. Smithyman, LEAD ATTORNEYS, Smithyman & Zakoura, Chtd., Overland Park, KS; Douglas Y. Curran, Mark D. Hinderks, Scott C. Hecht, LEAD ATTORNEYS, Stinson Morrison Hecker LLP - Walnut, Kansas City, MO; Edmund S. Gross, LEAD ATTORNEY, CVR Energy, Inc., Leawood, KS; Lynn D. Preheim, LEAD ATTORNEY, Stinson Morrison Hecker LLP - Wichita, Wichita, KS; Thomas E. Birsic, LEAD ATTORNEY, PRO HAC VICE, K& L Gates LLP - PA, Pittsburgh, PA.

For Illinois Union Insurance Company, Defendant: Bryan P. Vezey, Joseph A. Ziemianski, Peter B. Magnuson, LEAD ATTORNEYS, PRO HAC VICE, Cozen & O'Connor - Houston, Houston, TX; Geron J. Bird, Scott R. Schillings, LEAD ATTORNEYS, Hinkle Law Firm LLC - Wichita, Wichita, KS.

For National Union Fire Insurance Company of Pittsburgh, PA, Defendant: Colleen A. Beverly, Mark W. Zimmerman, Timothy F. Jacobs, LEAD ATTORNEYS, PRO HAC VICE, Clausen Miller, PC - Chicago, Chicago, IL; Corlin J. Pratt, Terry L. Unruh, LEAD ATTORNEYS, Sherwood, Harper, Dakan, Unruh & Pratt LC, Wichita, KS.



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Before the court are the following:

Coffeyville's Motion for Summary Judgment (Doc. 419,420);

National's Response (Doc. 428);

Illinois' Response (Doc. 425);

National's Motion for Reconsideration (Doc. 417);

Illinois' Joinder in the Motion (Doc. 418);

Coffeyville's Response (Doc. 421);

National's Reply (Doc. 422); and

National's Motion to Strike (Doc. 430, 431);

Illinois' Joinder in the Motion (Doc. 434);

Coffeyville's Response (Doc. 436);

National's Reply (Doc. 437);

I. Plaintiff's Motion for Summary Judgment (Doc. 419).

Plaintiff argues that Illinois breached a duty to defend it on the underlying claims and, as a result, forfeited any right to challenge plaintiff's settlements with third parties. It further argues that Illinois and National are precluded by waiver and estoppel from contesting plaintiff's settlements and claim resolution methods. Plaintiff contends the court should approve its remediation expenses in accordance with the coverage determinations made by Judge Brown and should proceed to allocate coverage between the two defendants.

A. Uncontroverted Facts. The court finds the following facts to be uncontroverted for purposes of the motion for summary judgment.

On the evening of June 30, 2007, flooding from the Verdigris River reached plaintiff's oil refinery in Coffeyville, Kansas. On the following day, July 1, 2007, one of plaintiff's refinery tanks overflowed after plaintiff left a valve open and about 80,000 gallons of crude oil were released into the flood waters. The flood waters carried the oil into a portion of the town, causing widespread environmental contamination.

Plaintiff has incurred or will incur costs of over $58 million relating to the release. These include costs to investigate, contain, remove and remediate oil contamination, and to defend, adjust and resolve claims against plaintiff from the release.

At the time of the release, Plaintiff had insurance coverage under several policies, including the following. Liberty Surplus had in effect a policy which covered plaintiff for pollution legal liability, with an aggregate limit of $25 million. Illinois had in effect an excess policy covering plaintiff that followed form to the Liberty policy

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(with certain exceptions, including an exclusion for " clean up costs" ), with an additional $25 million in pollution coverage. National had in effect a commercial umbrella liability policy, with general liability for certain types of pollution, providing $25 million of coverage per occurrence.

On July 5, 2007, Danny Dunham filed a putative class action in U.S. District Court for the District of Kansas (Case No. 07-1186-JTM), seeking damages from oil contamination on behalf of himself and a class of plaintiffs similarly situated. On July 6, 2007, Western Plains Alliance filed a putative class action in the district court of Montgomery County, Kansas, asserting claims on behalf of all persons who owned property and all businesses within the area contaminated by the oil release.

On July 10, 2007, plaintiff executed an Administrative Order on Consent (AOC) with the Environmental Protection Agency to govern plaintiff's governmentally-imposed contamination removal and recovery responsibilities.

On July 16, 2007, plaintiff posted formal notices and made demand upon the insurers.

Illinois provided reservation-of-rights letters to plaintiff on July 24, 2007 (Doc. 371-7), July 24, 2007 (Doc. 371-8), and August 10, 2007 (Doc. 371-10). Among other things, Illinois asserted: that only Coffeyville Acquisition LLC was an insured under the policy; that plaintiff's planned purchase of residences was in lieu of non-covered " clean-up costs" that would otherwise be required and was therefore not " property damage" covered by the policy; that plaintiff's home purchase plan did not differentiate between uncovered flood damage and covered oil damage; that the extent " if any" to which the purchases may also constitute payments for property damage " has not been established" ; and the Illinois policy could not be implicated until Liberty's $25 limit and plaintiff's $1 million self insured retention (SIR) had been paid.

On August 1, 2007, plaintiff responded to Illinois that the purchase plan payments were not for flood damage because the purchase plan was substantially cheaper and more effective (e.g., by reducing additional property claims, bodily injury claims, and defense expenses) than would be a standard oil remediation of each property. In an August 10, 2007 response, Illinois noted plaintiff's request for immediate action but said it had not had sufficient time to assess the propriety of the plan. It also said it had not disclaimed coverage, but only retained its rights, and that it intended to work toward a prompt resolution of those claims that implicate the Illinois policy.

National issued reservation-of-rights letters on August 7, 2007 (Doc. 371-11), November 7, 2007 (Doc. 371-12), December 4, 2007 (Doc. 371-13), February 1, 2008 [to Liberty] (Doc. 371-14), and May 27, 2008 (Doc. 371-15). Among other things, National asserted: that it had no obligation to cover any clean-up costs incurred by plaintiff pursuant to the EPA Consent Order; that it had no obligation to provide coverage until the limits of both the Liberty and Illinois policies were exhausted; that National had no obligation to cover any payments made by plaintiff for claims of strict liability under K.S.A. ยง 65-6203 because such payments are excluded clean-up costs; that ...

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