[00:00:01] Speaker 03:
All right, Mr. Sterringer will be responding.

[00:00:04] Speaker 03:
Mr. Christ, will you let us know how much time you plan to reserve for rebuttal?

[00:00:07] Speaker 03:
And you may proceed.

[00:00:09] Speaker 00:
Thank you, Your Honor.

[00:00:10] Speaker 00:
May it please the court?

[00:00:11] Speaker 00:
I am Tom Christ.

[00:00:12] Speaker 00:
I represent the defendant insurer.

[00:00:14] Speaker 00:
And if I may, I'd like to reserve five minutes for rebuttal.

[00:00:18] Speaker 03:
One moment.

[00:00:20] Speaker 03:
Kathy, I think we need to put 15 minutes on there.

[00:00:25] Speaker 03:
We've already cut you down.

[00:00:28] Speaker 03:
You may proceed.

[00:00:28] Speaker 03:
Go ahead.

[00:00:29] Speaker 00:
Thank you again.

[00:00:30] Speaker 00:
This is a dispute between two insurers about how to share the cost of a long-running and still ongoing cleanup of a polluted site.

[00:00:41] Speaker 00:
And the key fact is that for the longest time, for over a decade, the parties agreed on how to share those costs.

[00:00:51] Speaker 00:
And then the plaintiff

[00:00:53] Speaker 00:
went to court to seek a court-ordered allocation of the costs under a state law known by its acronym.

[00:01:02] Speaker 00:
O-E-C-A-A, and lawyers here pronounce that, O-W-E-K-A.

[00:01:08] Speaker 00:
So that- How about just the act?

[00:01:11] Speaker 01:
Pardon me?

[00:01:11] Speaker 01:
How about just calling it the act here?

[00:01:14] Speaker 00:
OK.

[00:01:15] Speaker 00:
The act.

[00:01:16] Speaker 00:
So that 10-year delay raises the main issue on appeal and the one I want to talk about first.

[00:01:22] Speaker 00:
The Act regulates insurance for environmental claims.

[00:01:27] Speaker 00:
And among other things, it creates a right of contribution between insurers covering the same loss, preempting any common law remedy.

[00:01:37] Speaker 00:
Because it's a statutory remedy, it is subject to Oregon's six-year limitation for claims based upon a statute.

[00:01:48] Speaker 00:
And the claim, the clock starts when the claim accrues, and a claim accrues when you can sue on it.

[00:01:57] Speaker 00:
So plaintiff could have brought a claim against my client in 2010.

[00:02:06] Speaker 01:
for the payments made then.

[00:02:08] Speaker 01:
And so the district court treated this as just every payment is a new claim, right?

[00:02:13] Speaker 00:
Yes, it did.

[00:02:14] Speaker 00:
And that's the error we're complaining about.

[00:02:16] Speaker 01:
Well, could I ask you?

[00:02:18] Speaker 01:
Actually, I'd like you to focus on something entirely different, Mr. Christ, which is this question about defense costs under the statute.

[00:02:26] Speaker 01:
Do you have the statute, the act in front of you?

[00:02:31] Speaker 01:
Could you look not at subsection five,

[00:02:34] Speaker 01:
But at subsection six, I didn't see this addressed in the briefs, but if an insured is an uninsured for any part of the time period included in the environmental claim, an insurer who otherwise has an obligation to pay defense costs may deny that portion of defense costs that would be allocated to the insured under subsection five of this section.

[00:03:01] Speaker 01:
looks to me like a pretty clear textual signal that defense costs are subject to subsection five.

[00:03:10] Speaker 01:
You agree?

[00:03:11] Speaker 00:
Yes.

[00:03:12] Speaker 00:
I think defense costs are subject to subsection five.

[00:03:15] Speaker 01:
I know you think that's the result.

[00:03:16] Speaker 01:
Do you think subsection six helps you?

[00:03:23] Speaker 00:
I hadn't looked at it before, but I think it does if only in the sense that it refers to defense costs.

[00:03:31] Speaker 00:
Right.

[00:03:33] Speaker 01:
Rather than trying to play games with what's a recovered damages and recoverable costs and all the kinds of textual debates that we saw in the briefs, why doesn't section six mean you win on that issue?

[00:03:50] Speaker 00:
Well, neither party discussed subsection six.

[00:03:53] Speaker 00:
But if you think that I went under that section, then I'm happy to talk about it.

[00:03:56] Speaker 00:
Can you speak into the mic a second so we can hear you?

[00:03:58] Speaker 00:
If you think I went under that subsection, I'm happy to talk about it now.

[00:04:01] Speaker 01:
This is a slow fastball right down the middle of the plate to you, OK?

[00:04:07] Speaker 00:
I'm glad you think so.

[00:04:09] Speaker 01:
But I'll be very interested to hear what opposing counsel thinks about that subject too.

[00:04:14] Speaker 01:
But then.

[00:04:20] Speaker 01:
I guess there's another question that wasn't really addressed in the briefs that I'd like to ask you about.

[00:04:25] Speaker 01:
That is 4D says, contribution rights under this section preempt all common law contribution rights, if any, buy-in between insurers for environmental claims.

[00:04:36] Speaker 01:
My question is, what role, if any, you think

[00:04:43] Speaker 01:
Oregon case law plays in our interpretation of this statute.

[00:04:48] Speaker 01:
In particular, the line of cases that say defense costs should be allocated in line with policy limits.

[00:05:00] Speaker 00:
Well, I think Oregon case law, common law case law is controlling on the issue

[00:05:10] Speaker 00:
of allocation of defense costs if, as my opponent claims and the trial court said, this statute doesn't govern that issue.

[00:05:20] Speaker 00:
I mean, the trial court's view was allocation under this statute doesn't involve, doesn't speak to the issue of defense costs, only to indemnity costs, and therefore I can ignore the factor of limits.

[00:05:36] Speaker 00:
My view is, of course, that's

[00:05:39] Speaker 00:
A misreading of the statute, I think the statute itself applies limits in time on risk.

[00:05:44] Speaker 00:
The two usual factors for a contribution claim, it applies them to both defense costs and indemnity costs.

[00:05:51] Speaker 00:
But if that's not true, then you... You have to go to the case law.

[00:05:55] Speaker 00:
You need some sort of way to allocate it, and you would revert back to the unpreempted Oregon common law, which I think is crystal clear.

[00:06:04] Speaker 00:
under Oregon common law, pre-OEKA, and including OEKA when it applies to environmental claims.

[00:06:09] Speaker 00:
So outside of OEKA, contribution is entirely based on limits, both defense costs and indemnity costs.

[00:06:17] Speaker 00:
That's clearly Oregon law, and in fact, this court on two occasions has said that is indeed Oregon law.

[00:06:23] Speaker 03:
Can I ask you a question about these limits?

[00:06:25] Speaker 03:
So I don't know that there's ever been insurance like this, but let's say there was insurance that said $100,000

[00:06:32] Speaker 03:
identity limit and a million dollars defense limit, right?

[00:06:37] Speaker 03:
I doubt they ever do that, but you had a different limit.

[00:06:41] Speaker 03:
What policy limit would you use if you were saying, say that we agreed with you that you should take into account policy limits, what policy limit would you use for figuring out

[00:06:55] Speaker 03:
When you put it into the math for the defense costs, so ignoring indemnity costs, what policy limit?

[00:06:59] Speaker 03:
Would you use the $100,000 indemnity cost limit, or would you use the million dollar defense cost limit?

[00:07:08] Speaker 00:
I will say I have never seen that.

[00:07:10] Speaker 00:
I mean, they never put limits on defense costs.

[00:07:13] Speaker 00:
I assume that if they did, the other thing is you have to look at the other policies and limits if they don't distinguish

[00:07:22] Speaker 00:
don't have separate limits for defense costs and indemnity.

[00:07:24] Speaker 00:
I'm not sure how you compare those two apples and oranges.

[00:07:26] Speaker 03:
Well, mathematically you could do it.

[00:07:27] Speaker 03:
Let's say you had one policy that had $100,000, and that $100,000 went to both defense and policy.

[00:07:35] Speaker 03:
So as soon as the insurance company had paid $100,000, including even if it was all defense costs, they're done, right?

[00:07:41] Speaker 03:
But you had another one that said, we're only going to pay $100,000 for indemnity, but we'll pay up to a million for defense costs.

[00:07:49] Speaker 03:
So assuming we need to take into account policy limits, what limits do we use?

[00:07:54] Speaker 00:
I think then you would use the specific limit.

[00:07:57] Speaker 03:
OK, so I think that's the right answer.

[00:08:00] Speaker 03:
It's got to be.

[00:08:01] Speaker 03:
And so effectively here, what are the policy limits for defense costs on both these insurance contracts?

[00:08:10] Speaker 03:
What are the policy limits for defense costs?

[00:08:12] Speaker 03:
Not indemnity, but for defense.

[00:08:14] Speaker 00:
They're unlimited.

[00:08:14] Speaker 03:
They're unlimited.

[00:08:15] Speaker 03:
With a small caveat that once you actually meet your indemnity, then you're done having to pay defense.

[00:08:26] Speaker 03:
But then the liability would not go to some other insurer, because you're not insuring at the same time.

[00:08:31] Speaker 03:
You're actually sequential.

[00:08:33] Speaker 03:
So the liability would go to the insured.

[00:08:37] Speaker 03:
So let's just assume for a second that they're unlimited.

[00:08:39] Speaker 03:
There's a little wrinkle, but they're limited.

[00:08:41] Speaker 03:
Why would we, even if we take into account policy limits, why wouldn't those policy limits be infinity for defense costs and therefore mathematically sort of fall out?

[00:08:53] Speaker 03:
I'm not sure it's helpful.

[00:08:54] Speaker 03:
You see where I'm going with that.

[00:08:55] Speaker 03:
I'm sure it's helpful for you to say policy limits should be included, unless your argument is that the policy limits for indemnity costs should be used to figure out the defense costs, in which case I want to know why we would ever do that.

[00:09:08] Speaker 03:
That doesn't make sense.

[00:09:12] Speaker 00:
I was trying to work within your hypothetical, but we're not.

[00:09:16] Speaker 03:
The only difference I've made to the hypothetical to make it real life is instead of being a million dollars to defense costs, it's now infinity.

[00:09:25] Speaker 00:
Again, we're not dealing with two policies that say that, and we are dealing with a statute that says limits, and it doesn't say

[00:09:35] Speaker 01:
But haven't the Oregon courts said repeatedly that we're going to allocate both indemnity, liability, and defense costs based on the degree of benefit and risk to the respective insurers?

[00:09:51] Speaker 00:
Yes.

[00:09:52] Speaker 00:
And they also said that the limits is the best

[00:09:57] Speaker 00:
measure of what the benefit is, because the premium usually corresponds to the limits.

[00:10:03] Speaker 01:
Could I ask you, if we were to agree with you, Mr. Christ, that section 465.4805 in the act requires consideration of those factors in allocating defense costs, would the district judge on remand have discretion to give the policy limits a weight of zero?

[00:10:26] Speaker 01:
And why or why not?

[00:10:27] Speaker 00:
I think giving it the weight of zero is the same thing as not considering it at all.

[00:10:38] Speaker 00:
But I think that if you were to give some content to that, you would have to consider

[00:10:49] Speaker 00:
The case law that preceded the act and that still continues, at least outside environmental claims.

[00:10:58] Speaker 00:
The district court should conclude that when the legislature came up with limits in this statute, it must have been referring to using limits in the same sense that it has always been done in Oregon, which is to look at the indemnity limit and apply that.

[00:11:16] Speaker 03:
You say it's always been done.

[00:11:18] Speaker 03:
You're saying there's not insurance.

[00:11:20] Speaker 03:
I've got to assume that insurance companies figured out that this is not a good idea to have unlimited defense costs and so have issued policies now that their limit applies not just to the indemnity, but also applies to defense costs.

[00:11:36] Speaker 00:
I'm not aware of any insurance policy.

[00:11:38] Speaker 00:
I do a lot of insurance work.

[00:11:40] Speaker 01:
There's some wasting policies, right?

[00:11:42] Speaker 01:
Wasting policies where it's at one limit for combined indemnity and defense costs, right?

[00:11:47] Speaker 00:
Yeah, but not.

[00:11:47] Speaker 01:
We don't have that in this case.

[00:11:49] Speaker 00:
We don't have that in this case.

[00:11:51] Speaker 00:
And we don't have any Oregon case, I'm aware of, that was addressing how to allocate by limits when there is a wasting policy or whether there is a policy with a separate limit for defense costs.

[00:12:07] Speaker 03:
So okay, so that's actually it's kind of an important concession because as I understand The question that you've been being asked was what about these organ cases that You know these organ cases to say we need to look to the limits that are applying organ sort of common law how do they apply and say but if none of those cases actually deal with the

[00:12:30] Speaker 03:
The issue here, which is when you have a different limit for indemnity versus defense costs.

[00:12:38] Speaker 00:
That isn't the situation here.

[00:12:39] Speaker 00:
There is not.

[00:12:41] Speaker 00:
These are not policies with different limits for defense costs and indemnity.

[00:12:47] Speaker 03:
So what's the limit for indemnity?

[00:12:49] Speaker 03:
It's $100,000 and $500,000, right?

[00:12:52] Speaker 00:
From my client's policies, they were all $100,000 limits.

[00:12:55] Speaker 03:
What's the limit for defense costs?

[00:12:57] Speaker 00:
It's unlimited.

[00:12:59] Speaker 00:
There is no limit.

[00:12:59] Speaker 03:
So you told me there's not the case here, they're not different, and you just told me two different numbers.

[00:13:04] Speaker 03:
You said 500,000 and unlimited.

[00:13:08] Speaker 00:
Both policies only have a limit for indemnity.

[00:13:12] Speaker 00:
Neither one of them.

[00:13:12] Speaker 03:
So another way of characterizing that is that there is a different limit for defense costs.

[00:13:19] Speaker 00:
There's no limit for defense costs, which is a different limit.

[00:13:24] Speaker 01:
And that has been true in all of the Oregon cases dealing with mutually repugnant conflict clauses, right?

[00:13:34] Speaker 00:
Yes, including the Oregon cases that say when you're allocating defense costs, you allocate them by limits, meaning indemnity limits.

[00:13:42] Speaker 00:
Those were all cases that did not have a defense limit.

[00:13:45] Speaker 00:
They were all cases like these where when you defend, you defend until you pay your indemnity limit.

[00:13:52] Speaker 03:
So all those cases had unlimited defense also, just like this case?

[00:13:56] Speaker 00:
Yes.

[00:13:59] Speaker 03:
That's actually pretty important.

[00:14:00] Speaker 03:
All right.

[00:14:01] Speaker 03:
Well, we've taken you way down in your time, but I want to make sure that if you have any more questions.

[00:14:06] Speaker 03:
Just a second, please.

[00:14:08] Speaker 01:
I want to make sure we do have the right understanding here that an insurer has the option, despite these unlimited potential defense costs,

[00:14:23] Speaker 01:
The insurer can just pay the policy limits on indemnity and walk away from the defense, right?

[00:14:30] Speaker 01:
Usually.

[00:14:32] Speaker 00:
Usually, there are some restrictions.

[00:14:34] Speaker 00:
You can't, you know, toss your limits and leave the insurer in a precarious position.

[00:14:40] Speaker 00:
Right.

[00:14:40] Speaker 00:
Yeah.

[00:14:41] Speaker 00:
Before I retire, I do want to say something about the issue of the statute of limitations.

[00:14:46] Speaker 00:
The trial judge said that each payment that the plaintiff made over this 10-year period started the clock anew.

[00:14:53] Speaker 00:
Okay, that's just wrong.

[00:14:55] Speaker 00:
Its own judgment proves that's wrong.

[00:14:58] Speaker 00:
Its own judgment gave relief, both retrospectively and prospectively.

[00:15:05] Speaker 00:
It gave relief for the payments that had been made, relief in the form of damages, and it also made a declaration about the payments going forward.

[00:15:17] Speaker 00:
It requires my client for the payments in the future to share on this allocation basis, as well as one in the past.

[00:15:24] Speaker 00:
Well, that very relief could have been requested by plaintiffs at any point in time from 2010 on.

[00:15:33] Speaker 03:
All right, so you're taking it clear down to your time.

[00:15:35] Speaker 03:
You have no time left for rebuttal.

[00:15:37] Speaker 03:
Make sure none of my colleagues have any further questions.

[00:15:41] Speaker 03:
We've got your argument on that last issue, I think, in the briefing.

[00:15:43] Speaker 03:
Thank you.

[00:15:53] Speaker 02:
Morning.

[00:15:54] Speaker 02:
May it please the court, counsel?

[00:15:57] Speaker 02:
Charles Robert Stehringer here for National Surety Corporation, the plaintiff in this case.

[00:16:05] Speaker 02:
I'd like to take the issues in the order that you took them, if I can, starting with Judge Hamilton's question about subsection six,

[00:16:14] Speaker 02:
of ORS 465.480.

[00:16:16] Speaker 02:
And I want to explain why that subsection is unhelpful to the decision that the court needs to make in this case today.

[00:16:33] Speaker 02:
Within ORS 465.480, there are two major topics.

[00:16:44] Speaker 02:
One of the topics relates to the relationship between an insured and an insurer.

[00:16:53] Speaker 02:
And it talks about the ability of the insured to require one of its insurers on an environmental claim to defend and indemnify with respect to all sums in the event of a claim that's covered by the act.

[00:17:12] Speaker 02:
In addition to that, there are provisions that provide rights to the insured that is the subject of that tender of the claim to proceed against other insurers in contribution.

[00:17:31] Speaker 01:
You just said the rights of the insured.

[00:17:32] Speaker 01:
I think you meant the rights of the insurer who receives that tender.

[00:17:37] Speaker 02:
Correct, Your Honor.

[00:17:38] Speaker 02:
I apologize.

[00:17:39] Speaker 02:
Thank you for correcting that.

[00:17:41] Speaker 02:
So yes, the insured has the right, once it has been put on the hook by its insured.

[00:17:49] Speaker 02:
Did I say it again?

[00:17:51] Speaker 02:
Yes.

[00:17:52] Speaker 02:
The insurer has the right, once it's been put on the hook by its insured, to proceed against other insurers that provide coverage on the same claim.

[00:18:05] Speaker 02:
The important thing for the court to understand in connection with subsection six is it is speaking to the relationship between the insured and the insurer and the rights of the insurer with respect to time periods when the insured is essentially self-insured.

[00:18:33] Speaker 02:
It's not speaking to the rights and obligations of co-insurers.

[00:18:39] Speaker 01:
Then why the reference to that would be allocated to the insured under subsection five of this section?

[00:18:46] Speaker 02:
That's because there is a factor in subsection five that was inapplicable here.

[00:18:57] Speaker 02:
And that is subsection five.

[00:19:01] Speaker 01:
Sure, but the hypotheticals are easy.

[00:19:04] Speaker 01:
Two insurers and one period in the relevant time of no insurance and self-insurance.

[00:19:12] Speaker 01:
You'd still allocate under section five, right?

[00:19:17] Speaker 01:
As between the two insurers.

[00:19:19] Speaker 02:
As between the two insurers, you would allocate under subsection five.

[00:19:25] Speaker 01:
And if you're gauging time on risk,

[00:19:28] Speaker 01:
Then you take you in essence take out you treat the Insured as if it were its own insurer for that relevant time right and do it when you're doing the math

[00:19:38] Speaker 02:
I think you're right, but the point is that subsection 6 is only speaking again to the relationship between the insured and the insurer.

[00:19:49] Speaker 01:
So in that, how does subsection 5 apply to the relationship between insured and insurer then?

[00:20:00] Speaker 01:
It doesn't.

[00:20:01] Speaker 01:
But subsection 6 says it does.

[00:20:04] Speaker 03:
In subsection 5, it's got to be referring to 5E, and 5E says, the insured shall be considered an insurer.

[00:20:11] Speaker 03:
So you're trying to say, well, that's about the relationship between an insured and an insurer.

[00:20:17] Speaker 03:
But when you refer back to what it's got to be referring to, which is subsection E of 5, it actually says the insured should be treated as an insurer.

[00:20:25] Speaker 03:
So I think it doesn't get you away from, I don't think it solves the problem for you.

[00:20:29] Speaker 02:
Yeah, I guess the best we can say is there is a lack of clarity here because I think the plain language of subsection six is talking about denying the portion of defense costs to an insured.

[00:20:47] Speaker 01:
And it would be allocated under subsection five.

[00:20:50] Speaker 01:
I'm not sure we're advancing the ball any further here.

[00:20:52] Speaker 01:
Understood.

[00:20:53] Speaker 01:
Let me ask you more generally, though.

[00:20:59] Speaker 01:
Simple hypothetical.

[00:21:01] Speaker 01:
An environmental risk that covers two years.

[00:21:05] Speaker 01:
First year, insurance company A issues a policy with a $100,000 limit.

[00:21:13] Speaker 01:
Second year, insurance company B issues an otherwise identical policy with a $900,000 limit.

[00:21:22] Speaker 01:
So you would agree with me, I trust, that indemnity ought to be allocated on a 90-10 basis between those two insurers?

[00:21:32] Speaker 02:
It would, under subsection five, you would include both the limits in the calculation and the time on the risk, which in your hypothetical is even.

[00:21:43] Speaker 01:
So that drops out.

[00:21:44] Speaker 01:
Do I go 50-50, do I go 90-10, or somewhere in between if I'm the judge?

[00:21:48] Speaker 02:
If we're talking about indemnity costs, you're likely talking about 90-10.

[00:21:53] Speaker 01:
Is that required, or just that's what judges usually do?

[00:21:57] Speaker 02:
That would be an appropriate exercise of discretion under the statute.

[00:22:03] Speaker 01:
And under those circumstances, under your position, the judge has to do a different calculation on defense costs and split them 50-50, right?

[00:22:14] Speaker 02:
The judge has the discretion to do so, yes, Your Honor.

[00:22:21] Speaker 01:
So why does the judge have to do two different calculations for indemnity costs and defense costs?

[00:22:29] Speaker 02:
I think that's taking us right back to the line of questioning that Judge Van Dyke had in recognizing that under these policies, which as Mr. Chris said and I agree, it is commonly the case that the policy limits apply only to indemnity and that defense costs are not so limited.

[00:22:53] Speaker 02:
They're limited in the way that the court has already acknowledged.

[00:22:58] Speaker 02:
I think that this issue is illustrated, I think, more clearly if we look at the facts of this case, where we're not talking about two policies that were just two policies that were adjacent to each other in time.

[00:23:21] Speaker 02:
In this case, we're talking about policies that covered a period of 15 years.

[00:23:25] Speaker 02:
from 1971 to 1987.

[00:23:28] Speaker 02:
And when I think about that, I think about a period of time from when I was two years old to when I was graduating from high school.

[00:23:38] Speaker 02:
A lot of things changed in that time frame, not the least of which was the time value of money.

[00:23:45] Speaker 02:
And so $100,000 in 1971 is very different from $100,000 in 1987.

[00:23:55] Speaker 01:
let alone 2024.

[00:23:57] Speaker 02:
Let alone 2024.

[00:23:59] Speaker 02:
And if the theory behind the common law rule that we've been talking about, the most frequently cited too in the Lam Weston case, if the theory there is that the policy limits are some sort of indicator of the

[00:24:19] Speaker 02:
the financial benefit that is reaped by the insurance company as a result of its policy, that breaks down entirely when you're talking about the types of claims that are common under the Act, which are these long-tail environmental claims that typically involve property damage that have extended over a long period of time and can implicate a lot of different policies issued at very different periods of time.

[00:24:49] Speaker 01:
So that's an interesting argument.

[00:24:53] Speaker 01:
Can you point us the cases that I'm looking at out of Oregon on this question?

[00:25:00] Speaker 01:
Oregon auto insurance from 1952 from the Ninth Circuit, Burnett from the Supreme Court of Oregon in 1970.

[00:25:10] Speaker 01:
I may have them out of chronological sequence here.

[00:25:13] Speaker 01:
Obviously, Lamb-Weston in 1959, Forest Industries Insurance in 86, et cetera.

[00:25:21] Speaker 01:
All of those, at least as I understand them, allocate

[00:25:24] Speaker 01:
defense costs based on indemnity limits in the policies, right?

[00:25:30] Speaker 01:
I believe that's correct.

[00:25:32] Speaker 01:
Can you point us to any Oregon cases that, and I mean Oregon state law cases, that go in a different direction on that, that go in your direction?

[00:25:44] Speaker 02:
I cannot.

[00:25:46] Speaker 02:
And the reason is that each of the cases that you've cited, which have been cited by Tig in this case, are cases where there were two insurers that provided overlapping coverage in a period of time that covered a single event.

[00:26:06] Speaker 01:
I understand you want to distinguish them on that basis, but I'm looking for some clue in Oregon law that endorses that distinction.

[00:26:14] Speaker 02:
To find that, I think I have to take you back to our federal courts that have been most prominent in the adjudication of claims under the act.

[00:26:23] Speaker 01:
So you're talking about the district court decisions, but... Applying Oregon law.

[00:26:28] Speaker 01:
By Oregon law, but seem to be going in a quite different direction for the most part.

[00:26:34] Speaker 02:
They are going in a different direction because they are recognizing that policy limits do not apply to defense costs in the same way that they apply to indemnity.

[00:26:49] Speaker 01:
Based on what in Oregon law?

[00:26:52] Speaker 01:
That's my problem.

[00:26:56] Speaker 02:
I understand that the problem, and Your Honor is correct, that none of us are able to point to a state law, a state court decision, a state appellate court decision that has had the opportunity yet

[00:27:12] Speaker 02:
to apply the Act and make the decision on whether a different rule should obtain in contribution actions that are brought under the Act.

[00:27:24] Speaker 01:
So that, I mean, what that sounds to me like is that you are trying to ask the federal courts to innovate under Oregon law.

[00:27:33] Speaker 02:
I would say the federal courts have already done that numerous times.

[00:27:37] Speaker 01:
Well, the district courts have.

[00:27:38] Speaker 01:
The question is whether that's a legitimate function for the federal courts.

[00:27:45] Speaker 01:
in applying Oregon law?

[00:27:47] Speaker 02:
Well, to some extent, the legislature made a decision to grant courts, whatever courts are applying the law, the discretion to make these decisions.

[00:27:59] Speaker 02:
And this goes back, I think, to your honor's question about what happens if on remand this court decides that the factors need to be applied here, the subsection five factors need to be applied.

[00:28:11] Speaker 02:
would it be within the court's discretion to allocate zero weight to policy limits?

[00:28:19] Speaker 02:
The legislature did provide the courts, whatever courts are adjudicating these issues, the discretion to do that.

[00:28:29] Speaker 03:
These organ cases, so we've got federal courts, district courts applying

[00:28:38] Speaker 03:
I believe this statute that's at issue in this case.

[00:28:41] Speaker 03:
And that's where you're saying the majority of those support you.

[00:28:45] Speaker 03:
And I think what I was hearing is that there is cases applying the common, the cases that

[00:28:52] Speaker 03:
are looking at the policy limits for indemnification for these overlapping policies.

[00:28:58] Speaker 03:
Are these applying this statute, or are they applying the common law?

[00:29:01] Speaker 02:
Those are applying the common law.

[00:29:03] Speaker 03:
So I thought your answer to what Oregon law supports you would have been the law of the legislature passed.

[00:29:12] Speaker 02:
Well, I think I understood the question to be whether there was any appellate authority on that, but your honor is correct.

[00:29:19] Speaker 03:
Yeah, because those other cases are not applying this statute.

[00:29:24] Speaker 02:
That is correct.

[00:29:25] Speaker 02:
And that was my point, which is that there has not been an opportunity yet for an Oregon state appellate court to interpret the act on this question.

[00:29:37] Speaker 03:
Is it accurate to say

[00:29:39] Speaker 03:
That the lay of the land as far as the law here is that we have organ cases that have That say that you take into account the identity policy limits in In figuring out how you're going to allocate on overlapping claims overlapping policies that you're going to take the identity policy limits even for defense costs and

[00:30:02] Speaker 03:
applying their common law.

[00:30:04] Speaker 03:
And then you have federal district courts, I think go both ways if I remember right, but the majority go your way in saying that the policy limits don't count because effectively the policy limit is infinity for those defense costs.

[00:30:22] Speaker 03:
And that's basically what we have before us, right?

[00:30:25] Speaker 02:
That is completely accurate.

[00:30:26] Speaker 02:
The only thing I would add to that is the additional point that with these common law applications, we're talking about accidents that are single point in time events rather than the sort of long tail.

[00:30:41] Speaker 03:
I understand that.

[00:30:42] Speaker 03:
I think it's very powerful the fact that they're overlapping.

[00:30:45] Speaker 03:
What is the single event, reimbursing for a single event as opposed to damage that in theory here happened over possibly decades?

[00:30:55] Speaker 03:
Why does that make a difference?

[00:30:56] Speaker 02:
It makes a difference again because the whole theory behind

[00:31:02] Speaker 02:
this common law rule is that you can use the policy limits as a gauge for what the economic benefit would be under the policy.

[00:31:16] Speaker 02:
And so if everything is happening within a narrow window of time, the policy that's issued and the event that happens,

[00:31:26] Speaker 02:
then that theory has some power that you would expect there to be some correlation between the policy limits and the economic benefit to the insurers that should be accounted for, but that breaks down when you're talking about policies over time and property damage that occurs over time.

[00:31:46] Speaker 01:
What does that break down?

[00:31:47] Speaker 01:
I mean, the insurers are the huge beneficiaries of inflation, right, when you're reaching back 30, 40 years with policies, right?

[00:31:59] Speaker 02:
I'm sorry, could you say that again, Your Honor?

[00:32:00] Speaker 01:
The insurers are the beneficiaries of inflation.

[00:32:04] Speaker 01:
If your client issues a $100,000 policy in 1980,

[00:32:10] Speaker 01:
and doesn't have to pay the policy.

[00:32:12] Speaker 01:
Maybe they have to pay the full policy limits, but they don't pay them until 2024.

[00:32:18] Speaker 01:
The policy limits aren't indexed to inflation, are they?

[00:32:24] Speaker 02:
They're not.

[00:32:24] Speaker 02:
And I think that that's part of the point in that you would expect a policy limit at a lower amount, more distant in time.

[00:32:34] Speaker 02:
Right.

[00:32:35] Speaker 01:
Why would that?

[00:32:38] Speaker 01:
Why would that argument not be something that, in essence, could be custom tailored to the different policy limits and the different time periods in an environmental case, as opposed to saying ignore policy limits altogether in dealing with defense costs?

[00:33:00] Speaker 02:
My answer to that is that the statute grants a fair amount of discretion to the courts to craft an allocation process or method that accounts for all of these factors.

[00:33:20] Speaker 02:
And what the court did here is perfectly consistent with what courts commonly do in these circumstances.

[00:33:30] Speaker 02:
And that was within the court's discretion to do so.

[00:33:33] Speaker 01:
Courts outside of Oregon, and in this case, based on a misreading of the Oregon statute.

[00:33:39] Speaker 02:
Well, in my view, I understand you may disagree.

[00:33:43] Speaker 02:
Correct.

[00:33:43] Speaker 02:
Because we didn't get a chance to talk about the fact that subsection five is only talking about covered damages, the allocation of covered damages.

[00:33:53] Speaker 02:
And that, I think, is a complete answer to.

[00:33:57] Speaker 03:
Let me ask you.

[00:33:58] Speaker 03:
So there's been some talk, and we've taken you over, but I want to hear your answer to this.

[00:34:02] Speaker 03:
And I also want to hear your answer to it, too.

[00:34:05] Speaker 03:
The Make sure I remember my question here There's there's been talk about the fact that The policy whatever your company got paid is Reflects and it kind of makes intuitive sense reflects the policy limits.

[00:34:26] Speaker 03:
So if you sell a insurance coverage that has a hundred thousand dollar policy limit and

[00:34:32] Speaker 03:
and versus an insurance policy that has a half a million dollar policy limit, presumably you're going to charge significantly more for the half a million.

[00:34:41] Speaker 03:
So that's, I think, the idea.

[00:34:42] Speaker 03:
And this seems like, in these common law Oregon court cases, they refer to that concept, I believe.

[00:34:50] Speaker 03:
But if you're offering a policy that covers, arguably, one way to characterize it would be two different things, identity and what the other is,

[00:35:02] Speaker 03:
The defense costs.

[00:35:03] Speaker 03:
The defense costs.

[00:35:04] Speaker 03:
And what you're effectively giving is a limit for the one and no limit for the other.

[00:35:09] Speaker 03:
Then economically it seems to me like any economist would tell you that unless they're making a mistake that that's all priced in.

[00:35:15] Speaker 03:
And so both policies are essentially the same.

[00:35:19] Speaker 03:
the $100,000 and $500,000 as far as defense costs.

[00:35:23] Speaker 03:
They're providing a finish.

[00:35:23] Speaker 03:
So that's priced in at some amount.

[00:35:25] Speaker 03:
And then on top of that, you stack on whatever your price risk is for $100,000 and then a little bit more for your $500,000.

[00:35:32] Speaker 03:
So this whole idea that this is priced into the policy sort of ignores the fact that unless they're acting irrationally, these insurance companies have exactly the same limit

[00:35:44] Speaker 03:
priced in for their unlimited defense costs.

[00:35:49] Speaker 03:
So since they're allowing unlimited defense, why doesn't that price argument from an economic perspective mean that if you're relying on it being priced in, why wouldn't that mean that a court applying these factors could say, I'm going to take into account the policy limits of

[00:36:09] Speaker 03:
of the defense costs here as a separate because it's presumably been priced in.

[00:36:15] Speaker 03:
And so I'm going to basically make those policy limits the same if they're both infinity.

[00:36:22] Speaker 03:
And there'll be some different because of the indemnity, but that's not an issue in this case because you don't disagree that indemnity should be split separately using a different ratio.

[00:36:31] Speaker 02:
Right.

[00:36:33] Speaker 02:
I think that what it comes down to is the understanding that in the end, especially with these types of claims that involve enormous sums of money, much of which are defense costs,

[00:36:48] Speaker 02:
that the fact that the policy limits don't apply to those defense costs make it illogical to apply the policy limits in allocation of the defense costs.

[00:37:10] Speaker 02:
I think that's the logic.

[00:37:12] Speaker 03:
I hear you there.

[00:37:13] Speaker 03:
And when you say illogical, I was also asking,

[00:37:17] Speaker 03:
There's this economic argument, so to speak, that's been made in the Oregon state precedents that we've talked about.

[00:37:27] Speaker 03:
And that is this commonsense notion that policy limits are reflected usually in the amount of premium.

[00:37:32] Speaker 03:
So if I give you an insurance policy for a billion dollars and somebody else gives you an insurance policy for $100, I'm going to be getting a whole bunch more.

[00:37:39] Speaker 03:
So it only makes sense that we should share.

[00:37:41] Speaker 03:
But from an economic perspective, it seems like,

[00:37:46] Speaker 03:
Just like you said, logically, it seems like economically, that should be pried.

[00:37:51] Speaker 03:
The unlimited defense cost should be priced in also, correct?

[00:37:56] Speaker 02:
And your honor, I think that is probably why it was that this court determined in one of the, I think it's Northwest Pipe case, that it was a proper exercise of Judge Brown's discretion to essentially do that.

[00:38:17] Speaker 02:
But again, it comes back to our standard of review here and the fact that these are discretionary decisions that are

[00:38:26] Speaker 02:
put in the hands of judges to decide based on the facts and circumstances in front of them and so for example but the judge here said the statute prohibits me from considering

[00:38:42] Speaker 01:
policy limits in allocating defense costs.

[00:38:44] Speaker 02:
Well, correct.

[00:38:45] Speaker 01:
That's a legal issue.

[00:38:48] Speaker 02:
The judge here decided that, and this is based on the point we haven't been able to talk about today, that subsection five only applies to covered costs by its own terms

[00:39:02] Speaker 02:
which has to be interpreted to mean indemnity costs and not including defense costs.

[00:39:10] Speaker 02:
So yes, Judge Hernandez decided here that subsection five was inapplicable and he said... But Judge Brown, for example, in Northwest Pipe, viewed that differently and we affirmed, right?

[00:39:24] Speaker 02:
This court affirmed based on the exercise of discretion on the part of Judge Brown, yes.

[00:39:31] Speaker 03:
All right, well, we've taken you way over.

[00:39:32] Speaker 03:
Do my colleagues have any additional questions?

[00:39:35] Speaker 03:
I'll stop.

[00:39:36] Speaker 03:
Yeah, it was a very interesting case.

[00:39:37] Speaker 03:
Why don't we put three minutes on?

[00:39:39] Speaker 03:
We may go over, but I want to have us control it.

[00:39:41] Speaker 02:
Thank you.

[00:39:42] Speaker 02:
We ask that the court affirm.

[00:39:43] Speaker 01:
Thank you.

[00:39:43] Speaker 01:
For the visiting students, you may not have expected as much

[00:39:47] Speaker 01:
energy directed to this question of insurance law, as you're seeing from everyone.

[00:39:51] Speaker 01:
But we'll get to the environmental stuff again in a few minutes.

[00:39:56] Speaker 03:
And I expect all of these students to grow up and be insurance agents and insurance lawyers because of the excitement of this issue.

[00:40:03] Speaker 03:
Go ahead.

[00:40:03] Speaker 03:
You may proceed.

[00:40:04] Speaker 00:
Thank you, Your Honor.

[00:40:05] Speaker 00:
I think the argument to this point has focused the issue for you at least on the allocation question.

[00:40:11] Speaker 00:
It is clear that under Oregon common law,

[00:40:15] Speaker 00:
you allocate defense costs and indemnity costs by indemnity limits.

[00:40:20] Speaker 00:
That's the rule here.

[00:40:22] Speaker 00:
That's the rule pre-OECA.

[00:40:23] Speaker 00:
It's the rule that still applies outside insurance cases governed by OECA.

[00:40:27] Speaker 00:
So I think the issue then becomes for you, when the legislature said, sorry, the act, when the legislature said you allocate by limits, were they thinking of something else?

[00:40:41] Speaker 00:
Were they thinking

[00:40:44] Speaker 00:
No, we are now going to separate defense costs and indemnity costs when we use the term limits.

[00:40:50] Speaker 01:
Let me ask you, Mr. Christ, go back to that example that I gave your colleague, two years with a 90-10 difference on indemnity limits, but equal time on risk.

[00:41:02] Speaker 01:
Under the Act,

[00:41:04] Speaker 01:
Would the required allocation be 90-10 for both, 50-50 for both, or some more case-specific equitable allocation that might fall somewhere in the middle?

[00:41:18] Speaker 00:
I think what it would be is it wouldn't be 50-50, because that would be simply time on risk allocation.

[00:41:27] Speaker 00:
And it couldn't be simply 90-10, because that would be simply a limits allocation.

[00:41:34] Speaker 00:
So, you would try and do something like what the judge did do here with indemnity is an average of the things so that you bring both factors into play.

[00:41:47] Speaker 01:
But there's not a simple mathematical formula for it.

[00:41:49] Speaker 00:
There's not a simple mathematical formula.

[00:41:55] Speaker 03:
Can I get your view on the, as I understand it, one of the main rationales that these common law cases relied on for why it makes sense to take into account the policy limits is the commonsense notion that when you're buying insurance, the insurance is going to cost more if it's got a higher policy limit.

[00:42:15] Speaker 03:
But if you've got basically two-part insurance, which is what sounds like we have here, which has got a policy limit for one part but an unlimited limit for the other part,

[00:42:25] Speaker 03:
Doesn't it make sense that that's sort of priced into the insurance?

[00:42:29] Speaker 03:
And so the part that's unlimited for both insurances is going to share that.

[00:42:35] Speaker 03:
That's already going to be priced in.

[00:42:36] Speaker 03:
In other words, if you were to buy some insurance that said, you're going to get a billion dollars of coverage for one thing, and the other one is like $100.

[00:42:45] Speaker 03:
of coverage for the second aspect and the other type insurance, the other company is going to give you $200.

[00:42:51] Speaker 03:
The driver of the cost of that insurance is going to be that billion dollars coverage in both insurance, right?

[00:42:57] Speaker 00:
Exactly.

[00:42:58] Speaker 00:
I have a million dollar auto policy and I just bought a car from my daughter and she's going to have a $50,000 policy.

[00:43:06] Speaker 00:
I'm paying way more.

[00:43:08] Speaker 00:
because I have a higher indemnity limit and she has a much lower one.

[00:43:13] Speaker 00:
But both insurance companies have the same obligation to defend each.

[00:43:18] Speaker 00:
If either of us gets sued, we both get unlimited defense costs.

[00:43:22] Speaker 00:
That is indeed priced in there.

[00:43:25] Speaker 00:
The one thing that makes a difference in the price of the policy is the indemnity limit.

[00:43:31] Speaker 00:
And that is why the Oregon Supreme Court, when it said, we are going to allocate defense costs and indemnity costs both by limits, is because that's the one factor that varies between the different types of policy, the indemnity limit.

[00:43:47] Speaker 00:
And I don't know where I am time-wise.

[00:43:51] Speaker 03:
Well, I just want to probably, I think we've heard a lot.

[00:43:53] Speaker 03:
I want to see if my colleagues have any further lines of inquiry.

[00:43:59] Speaker 03:
We also thank you both for your briefing on this case.

[00:44:01] Speaker 03:
It was very good.

[00:44:02] Speaker 03:
So just because we didn't get to something today doesn't mean we're not very aware of it.

[00:44:07] Speaker 03:
Anything else?

[00:44:08] Speaker 03:
All right.

[00:44:09] Speaker 03:
Well, I think we've heard from both of you.

[00:44:11] Speaker 03:
Thank you very much for your argument.

[00:44:12] Speaker 03:
And this case is submitted as of today, which brings us to our last case.