In Land O’ Lakes, Inc. v. Employers Mutual Liability Insurance Co. of Wisconsin, No. 12-1752, 2013 U.S. App. LEXIS 18036 (8th Cir. Aug. 29, 2013) (applying Minnesota law), the United States Court of Appeals for the Eighth Circuit affirmed a district court’s holding that a six-year statute of limitations barred a policyholder’s breach of contract claim on the duty to defend because the policyholder filed suit more than six years after the insurers denied coverage for a potentially responsible party (PRP) issued by the United States Environmental Protection Agency (EPA). The court also held that the owned property exclusion excluded any indemnity obligation because the clean-up ordered by the EPA was limited to property owned by the policyholder.
Land O’ Lakes arose out of an environmental pollution claim. In 1982, the policyholder, Land O’Lakes, acquired a company that had operated an oil refinery in Oklahoma. Id. at *3. In 1998, the EPA determined that the refinery had released hazardous materials and began to clean-up the refinery site. Id. In 2001, the EPA sent a letter to the policyholder advising the policyholder that it was a PRP for the site’s clean-up costs. Id. at **3-4.
The policyholder sought a defense and indemnity from two insurers, Wausau and Travelers, for the PRP letter under commercial general liability (CGL) policies. Id. at **5-6. In 2001, both insurers declined to provide a defense or indemnity. Id. In 2002, the policyholder sent a letter challenging Wausau’s decision. Id. at *5. The policyholder took no further action against Wausau for the next six years. Id. at **5-6. The policyholder did not respond to Travelers’ denial and took no further action against Travelers for the next seven years.
In February 2008, the policyholder received a second PRP letter from the EPA. After the policyholder sent it to the insurers, they again denied any duty to defend or indemnify. Id. at **7-8. In 2009, the policyholder filed a breach of contract suit against the insurers seeking reimbursement for defense costs and a declaration that the insurers must indemnify it for the clean-up costs. Id. at *9.
The insurers moved for summary judgment, and the district court ruled in their favor. Id. The district court held that the policyholder’s duty to defend breach of contract claim was barred by Minnesota’s six-year statute of limitations for contract suits. Id. The court concluded that the 2001 PRP letter constituted a suit under the CGL policies triggering the insurers’ duty to defend, and, thus, the limitations period began to run when the insurers denied coverage in 2001. Id. With respect to the duty to indemnify, the district court held that the owned property exclusion precluded coverage for the clean-up costs because the EPA did not require the clean-up of any property owned by a third-party.
The policyholder appealed to the Eighth Circuit. The policyholder argued that the 2001 PRP letter was not a suit triggering a duty to defend because the letter did not seek damages caused by property damage and, consequently, the statute of limitations could not begin running when the insurers denied coverage for the 2001 letter. Id. The court rejected this argument, holding that the 2001 PRP letter marked the start “of an adversarial administrative process that ultimately sought to impose liability…” Id. at *13. Alternatively, the policyholder argued that the 2008 PRP letter was a new action independently requiring defense and indemnity from the insurers. Id. at *15. The Eighth Circuit disagreed and stated that the 2008 PRP letter was “simply a continuation of the claims made by the EPA in the 2001 PRP Letter.” Id.
The policyholder next argued that the owned property exclusion - which excludes coverage for damage to a policyholder’s own property - did not relieve the insurers of their duty to indemnify. Id. at *17. The court explained that under Minnesota law “the owned-property exclusion precludes coverage for costs incurred by an insured to remediate contamination that is ‘confined to the insured’s property and unrelated to preventing off-site contamination.’” Id. at *18 (citing Domtar Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 734 (Minn. 1997)). If, however, there is actual injury to third-party property and an existing threat to third-party property, Minnesota law provides that the owned property exclusion would not bar coverage. Id. at *19 (citing Domtar, 563 N.W.2d at 734).
The policyholder contended that in the 1970s the refinery contaminated waterways that belonged to third-parties, thus satisfying the requirement of actual injury to third-party property and triggering coverage for its current clean-up costs. Id. at *20. The Eighth Circuit, as did the district court, held that there was no actual injury to third-party property damage because there was no “causal relationship” between the EPA’s current clean-up activities and the 1970s waterways contamination. Id. at *22.
The Eighth Circuit also rejected the policyholder’s argument that the owned property exclusion should not apply because there was a “threat to the general environment.” Id. The court reasoned that including the general environment as third-party property would effectively eliminate the owned property exclusion because “every blade of grass on every plot of land is both the property of the land’s owner and a part of the ‘environment.’” Id. at *24 (citation omitted). Thus, threat of damage to the environment generally is not evidence of an existing threat to third-party property. Id.
Land O’ Lakes establishes that, for purposes of applying a statute of limitations, the statute runs from the date the insurer first denies the claim. The decision also confirms that receipt of multiple EPA PRP letters is not in itself evidence of separate claims that would each independently begin the tolling of a statute of limitations. Additionally, the decision shows that if there is no actual or threatened injury to third-party property, the owned property exclusion bars coverage.