Background
Continental Casualty and Transportation Insurance Company, as “targeted” insurers for Schnitzer Steel Industries, paid defense costs related to Schnitzer’s potential liability for Portland Harbor Superfund Site cleanup. Continental then sought contribution from other insurers, including Employers Insurance Company of Wausau, under Oregon’s Environmental Cleanup Assistance Act (OECAA). Wausau had settled separately with Schnitzer.
The Oregon Supreme Court previously held that Wausau’s settlement with the insured did not bar Continental’s contribution claim. The case returned to the Court of Appeals to address remaining issues: whether certain costs—specifically statutory attorney fees and prejudgment interest—qualified as “recoverable costs” subject to allocation among insurers, and whether fee limitations applied to nonlocal counsel.
The Court’s Holding
The Court of Appeals reversed the trial court’s inclusion of $3.7 million in statutory attorney fees awarded under ORS 742.061 (penalties for failure to settle within six months). The court held that “recoverable costs” under ORS 465.480(5) means only “covered damages”—that is, defense or indemnity costs promised under the policies themselves. Statutory penalties for bad-faith failure to settle are not policy-based obligations and cannot be reallocated to non-settling insurers. The court reasoned that the legislature would logically impose this solo risk on the leading insurer to incentivize prompt settlement, rather than allow it to be shifted to other carriers through contribution.
However, the court affirmed the trial court’s inclusion of $2.8 million in prejudgment interest on unpaid defense bills. Because the duty to defend is a shared obligation among all insurers with coverage, prejudgment interest accruing on those defense costs qualifies as “recoverable costs” subject to allocation.
Regarding nonlocal counsel fees, the court found no error in the trial court’s determination that specialized California counsel’s higher rates were reasonable and necessary where no local attorneys possessed adequate Superfund litigation expertise, consistent with ORS 465.483(3)’s permission to use out-of-forum counsel when local counsel lacks requisite competence.
Key Takeaways
- Statutory attorney fees imposed for delay or failure to settle under ORS 742.061 are not “recoverable costs” in insurer contribution actions—they do not constitute shared policy obligations.
- Prejudgment interest on unpaid defense costs IS allocable among insurers because it accrues on a shared contractual duty to defend.
- Nonlocal counsel with specialized expertise may charge rates exceeding local market rates when local counsel cannot competently handle the claim’s complexity.
- The distinction between policy-based damages and statutory penalties is central to defining the scope of contribution rights under the OECAA.
Why It Matters
This decision clarifies the boundary between policy-based liabilities that are subject to equitable contribution and unilateral statutory penalties that attach to a single insurer’s conduct. Environmental cleanup claims often span decades and involve disputes over counsel selection, billing rates, and settlement decisions. By holding that bad-faith failure-to-settle penalties cannot be shifted to non-parties in contribution, the court creates a powerful incentive for targeted insurers to resolve claims promptly, protecting other carriers from liability for another insurer’s litigation decisions.
For environmental counsel and claims professionals, the decision underscores that “recoverable costs” in environmental contribution disputes is narrowly defined by policy terms, not expanded by statutes imposing collateral penalties. The affirmance of prejudgment interest and recognition of nonlocal counsel rates confirm that true defense costs—including time-value components and specialized expertise premiums—remain fully allocable among responsible insurers.