A Toxic and Expensive Brew: Cross-Border Pollution Liability and Insurance Coverage Forum Shopping

On August 21, 2006, the British Columbia Supreme Court released lengthy and detailed reasons in the case of Lloyd’s Underwriters v. Cominco Ltd.

This is just one of several decisions, so far, in complex litigation before both Canadian and United States courts, regarding liability for decades of industrial pollution from Teck Cominco mining and smelting operations in B.C. which migrated across the border into Washington state, as well as insurance coverage for this and other pollution claims against Teck.

In general terms, the case concerns "forum shopping", a technique by which multi-national businesses, their insurers and other litigants seek to obtain tactical and substantive advantages in litigation. Such "races to the courthouse", in different jurisdictions, can add further expense to already complex and costly litigation, often without significant benefit to any party.

Specifically, the result of such "race" to Washington and B.C. courthouses in Lloyds v. Cominco is that Teck Cominco and its insurers are now involved in parallel lawsuits, in both jurisdictions, to determine insurance coverage for the alleged contamination of waterways in Washington, by industrial contaminants which migrated there from B.C. An expensive, as well as toxic, brew indeed.

Hopefully, however, there are lessons to be learned from the story so far, as told by B.C. Supreme Court Justice Davies. Judge Davies reasons may be summarized in parts, as follows:

• the liability issues: polluting activities in Canada, and contamination in the U.S.;

• the Washington state liability action, and Teck Cominco’s denial of jurisdiction;

• Teck’s insurance policies, and other pollution claims;

• the "race to the courthouse" to litigate insurance coverage in Washington and B.C., and the District Court’s decision allowing Teck to proceed with its U.S. coverage lawsuit;

• Judge Davies’ subsequent decision allowing the insurers to proceed with parallel coverage litigation in B.C.; and

• the criticism, in his reasons, of "forum shopping" by Teck in order to obtain a more favourable coverage ruling in Washington.

CROSS-BORDER POLLUTION LIABILITY ISSUES

Teck Cominco is a Canadian-based multi-national mining and smelting company. For a century, since 1906, Teck has operated a smelter in Trail, B.C.. During much of that period, and under government permits, Teck discharged a by-product called "barren slag" into the Columbia river, which flows south of the border and into the Pacific Ocean in Oregon. Since the construction of the Grand Coulee Dam along the Columbia, in Washington, slag has accumulated along the river, and especially in the reservoir, known as Lake Roosevelt. The Grand Coulee was completed in the 1940s, and the slag discharge ceased in 1996.

WASHINGTON LIABILITY ACTION

In 2003, the U.S. Environmental Protection Agency began administrative proceedings against Teck Cominco, to compel investigation and clean-up of contamination in the Columbia and Lake Roosevelt, at a cost estimated in the tens of millions of dollars. This was followed, in 2004, by a CERCLA (U.S. "Comprehensive Environmental Response, Compensation and Liability Act") lawsuit against Teck, which was filed by a group of native Indian tribes. The state of Washington was subsequently added as a plaintiff in the U.S. environmental action. Later in 2004, Teck unsuccessfully applied to dismiss the action on grounds that the U.S. District Court does not have jurisdiction over the matter, and is interfering with "the internal affairs of Canada".

INSURANCE POLICIES AND CLAIMS

Teck Cominco had insurance policies with various insurers dating back to 1958, the limits of which total more than $760 Million. Although Teck now has world-wide operations, it grew out of Canada, and most of its policies were purchased through Vancouver brokers, from Canadian insurers or subsidiaries. To date, Teck says it has spent in the order of $5,000,000 to investigate and defend the U.S. environmental action and related EPA proceedings.

In 2002, Teck notified one of its insurers, Lloyds, of various potential pollution liability claims. These included not just the EPA investigation of the Columbia River and Lake Roosevelt, but notices from the City of Vancouver with respect to clean-up of soil contamination associated with a lead alloys operation on Granville Street, and from a B.C. First Nation regarding health problems connected to a mercury mine at Pinchi Lake.

Teck has asserted that the contamination of the Columbia River and Roosevelt Lake by slag constitutes "property damage" arising out of an "occurrence" under the policies, and therefore that the insurers should defend and indemnify it in the U.S. environmental action, under their various policies. In response , the insurers have raised a host of coverage issues, including intentional or expected conduct, pollution exclusion clauses, misrepresentation and non-disclosure and late notice, among many others.

"RACE" TO COVERAGE COURTHOUSE

On November 23, 2005, two coverage actions were commenced.

First, Teck Cominco began proceedings to enforce coverage against its insurers in Washington Superior Court. By a quirk of Washington procedural law, the filing of this proceeding was effective as of one second after midnight that day. Second, Lloyds started the action in B.C. Supreme Court in which Judge Davies has since rendered his decision, on behalf of itself and most of the other insurers, seeking to uphold their denial of coverage for the U.S. environmental action. Under B.C. law, this filing was effective when it actually happened, approximately nine hours later, after the registry opened that morning. The "race to the courthouse" was underway.

On November 28, 2005, Teck Cominco filed materials in the Washington coverage action for an injunction to prohibit the insurers from proceeding in any other court - i.e. continuing with the B.C. coverage action. Before that application could be heard, however, Lloyds' obtained from Judge Davies an order temporarily enjoining Teck from proceeding with its injunction application in Washington.

Between December 2005 and January 2006, the Washington coverage action was moved from Washington Superior Court to U.S. District Court. On May 1, 2006, Judge Suko of the U.S. District Court ruled that he had, and would accept jurisdiction over Teck’s claims for coverage regarding the U.S. environmental action. Then, on August 21, 2006, after several more days of hearing, and further, written argument, Judge Davies weighed in, on the BC side of the border.

RESULT OF DECISION: TWO COVERAGE ACTIONS

The bottom-line of Judge Davies decision is that the B.C. Supreme Court has also accepted jurisdiction over the coverage issues between Teck Cominco and its insurers. The result, for now at least, is that two parallel actions are proceeding, to resolve the same 'toxic' coverage dispute, in both B.C. and Washington state. Teck wants to litigate coverage in Washington since it thinks the court there will be more generous in its interpretation of the insurance policies. The Insurers, on the other hand, prefer B.C. for exactly the opposite reason. It will be interesting to see what the eventual outcome is.

REASONS: CRITICISM OF FORUM SHOPPING

Cases like Lloyds v. Cominco, which have cross-border aspects, may be subject to the jurisdiction of courts in more than one country, province or state. Under B.C.'s new Court Jurisdiction and Proceedings Transfer Act ("CJPTA"), courts have a discretion to accept or decline jurisdiction if another court would be a more appropriate forum. This discretion is subject to a list of factors which includes the comparative convenience and expense to the parties of litigating in one forum or another, the law to be applied and the desirability of avoiding multiple proceedings and conflicting decisions.

Using typically restrained judicial language, Judge Davies described the "[m]ost important…" reason for his decision as follows:

"…I am satisfied that [Teck Cominco] has engaged in inappropriate forum shopping in an attempt to avoid adjudication of the subject matter of the disputes in British Columbia which is the forum most connected with [Teck] and the Policies it seeks to have interpreted in favour of a jurisdiction with at best a tenuous connection to the parties and the Policies.

"In my opinion, [Teck]'s assertion that it seeks to have Washington State law applied to the interpretation of the policies because it is "more developed" is a thinly disguised ruse to obtain interpretation of coverage issues under a system of law that none of the parties to the Policies ever intended or expected would govern that interpretation. Those conclusions are reinforced by [Teck]’s continued forceful denial in the U.S. Environmental Action that its Canadian operations at Trail, British Columbia, can or should be the subject of the extra-territorial application of CERCLA."

Judge Davies conclusion was also reinforced and underscored by the following considerations and his related comments:

• "Aside from the existence of the U.S. Environmental Action as a proceeding requiring the attendance of [Teck] in the District Court in Washington State, all factors that the comparative convenience analysis required by [the CJPTA] point to British Columbia as the more convenient forum in which to resolve the insurance issues…"

• Although Teck had submitted that most of the relevant witnesses and documents were located in Washington,

  "…I am satisfied that [Teck] has sought to divert attention from central issues of disclosure, risk assessment and policy interpretation (all of which tend to emphasize the importance of witnesses in British Columbia or elsewhere), to peripheral coverage issues that involve Washington State witnesses and that are more properly the substance of the U.S. Environmental Action than insurance coverage proceedings."

• In addition to the U.S. environmental action, the coverage proceedings will also involve the B.C. claims regarding Teck’s Vancouver and Pinchi Lake operations.

• "[Teck] admittedly seeks to secure what it considers will be an interpretation of the Policies in Washington State that is more favourable to [its] interests than it would likely obtain in British Columbia."

• But "it is highly probable that the court ultimately determining the issues amongst the parties will be required to apply the laws of British Columbia to the interpretation of the Policies."

• Indeed, "it would be unreasonable to apply the laws of Washington State to the interpretation of the Policies."

• The submissions by Teck in the jurisdictional application in U.S. District Court, to the effect that the B.C. courts would likely to defer to an acceptance of jurisdiction in Washington, were "unfortunate" and tended to "over-simply and distort" the issues and merits of their position.

It will be interesting to see how Judge Suko, as well as the parties, respond to such comprehensive and emphatic reasons. In the meantime, it seems clear that winning a "race to the courthouse" in another jurisdiction will not preclude the issue being litigated in B.C. depending on which jurisdiction the relevant factors favour.

If you have any questions about this decision, or other insurance, environmental, or cross-border liability issues, please contact Neo Tuytel (tel: 604.643.3180, email: njt@cwilson.com ), Jon Hodes (tel: 604.643.3168, email: jlh@cwilson.com ) or any other member of the Clark Wilson LLP Insurance Practice Group.