Opinion

Duke Energy Carolinas, LLC v. Ag Ins. sa/nv.

2020 NCBC 47

Court: North Carolina Business Court
Filed: Jun 5, 2020
Status: Published
Author: Louis A. Bledsoe, III
Cited by: 0 cases
Authority: More cited than 35.8%

remanding for entry of judgment for insured because ambiguous policy provision was required to be construed in favor of coverage

How later courts described this case

remanding for entry of judgment for insured because ambiguous policy provision was required to be construed in favor of coverage
rejecting contention that “ultimate net loss” provision’s reference to “adjudication or compromise” narrowed coverage obligation and finding coverage for environmental cleanup costs arising under statutory obligations and administrative agency negotiations
refusing to exclude equitable relief from “damages” under policy with “adjudication or compromise” clause in “ultimate net loss” provision
noting under Rule 56(c) that “the trial court could have granted plaintiff summary judgment based on the materials presented by defendant, even without plaintiff’s motion.”

Written by the judges who cited it.

The opinion

Duke Energy Carolinas, LLC v. AG Ins. SA/NV, 2020 NCBC 47.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

MECKLENBURG COUNTY 17 CVS 5594

DUKE ENERGY CAROLINAS, LLC

and DUKE ENERGY PROGRESS, ORDER AND OPINION ON MOTION

LLC,

OF DEFENDANTS ASSOCIATED

Plaintiffs, ELECTRIC & GAS INSURANCE

SERVICES LIMITED, BERKSHIRE

v. HATHAWAY DIRECT INSURANCE

COMPANY (F/K/A AMERICAN

AG INSURANCE SA/NV (f/k/a

L’Etoile S.A. Belge d’Assurances); et CENTENNIAL INSURANCE

al., COMPANY), AND TIG INSURANCE

COMPANY, AS SUCCESSOR TO

Defendants. RANGER INSURANCE COMPANY,

FOR PARTIAL SUMMARY

JUDGMENT REGARDING

COVERAGE FOR THE RIVERBEND

STEAM STATION

1. THIS MATTER is before the Court on the Motion of Defendants Associated

Electric & Gas Insurance Services Limited (“AEGIS”), Berkshire Hathaway Direct

Insurance Company (f/k/a American Centennial Insurance Company (“ACI”)), and

TIG Insurance Company, as successor to Ranger Insurance Company (“Ranger”),

(collectively, the “AEGIS Defendants”) for Partial Summary Judgment Regarding

Coverage for the Riverbend Steam Station (the “Motion”) filed November 27, 2019. 1

(ECF No. 588.)

2. Having considered the Motion, the briefs and related materials submitted

in support of and in opposition to the Motion, the arguments of counsel at the hearing

1 Defendants The Continental Insurance Company for London Guarantee and Accident

Company of New York (“Continental”) and Arrowood Indemnity Company (f/k/a Royal

Indemnity Company) (“Arrowood”) separately joined the Motion. (ECF Nos. 609, 613.)

Arrowood and Continental separately joined the AEGIS Defendants’ reply in further support

of the Motion. (ECF Nos. 720–21.)

on the Motion, and other appropriate matters of record, the Court DENIES the

Motion and GRANTS summary judgment for Duke on the issue presented on the

Motion for the reasons set forth below.

Pillsbury Winthrop Shaw Pittman LLP, by Mark J. Plumer, Matthew G.

Jeweler, Barry Fleishman, Aaron D. Coombs, William C. Miller, Jeffrey

W. Mikoni, and W. Kirk Gandy, and Hunton & Williams LLP, by A. Todd

Brown and Ryan G. Rich, for Plaintiffs Duke Energy Carolinas, LLC and

Duke Energy Progress, LLC.

Rivkin Radler LLP, by Alan S. Rutkin, George D. Kappus, Steven M.

Zuckermann, Greg E. Mann, and Gregory J. Klubok, and Goldberg

Segalla, by David G. Harris, II and David L. Brown, for Defendants

Associated Electric and Gas Insurance Services Limited, Berkshire

Hathaway Direct Insurance Company, and TIG Insurance Company.

Hinkhouse Williams Walsh LLP, by William C. Joern and Richard

McDermott, and Pope Aylward Sweeney & Stephenson, LLP, by Robert

Aylward, for Defendant Continental Insurance Company.

Freeborn & Peters LLP, by Bruce M. Engel, Patrick Frye, and Ryan G.

Rudich, and Bradley Arant Boult Cummings LLP, by Matthew S.

DeAntonio and Corby C. Anderson, for Defendant Arrowood Indemnity

Company.

Squire Patton Boggs (US) LLP, by Paul Kalish, for Defendants Allianz

Global Risks US Insurance Company, Allianz Underwriters Insurance

Company, and Fireman’s Fund Insurance Company.

Windels Marx Lane & Mittendorf LLP, by Eric J. Konecke, for Defendant

Allstate Insurance Company.

Jackson & Campbell PC, by Erin N. McGonagle, for Defendants AIG

Property Casualty Company, American Home Assurance Company, and

Lexington Insurance Company.

Hogan Lovells US LLP, by Alexander B. Bowerman, for Defendant

Assurances Générales de France.

Clausen Miller P.C., by Ilene Korey, for Defendant Old Republic

Insurance Company.

Karbal Cohen Economou Silk Dunne LLC, by Dena Economou, for

Defendants First State Insurance Company and Twin City Fire

Insurance Company.

White and Williams, LLP, by Shane Heskin, for Defendants Century

Indemnity Company, Federal Insurance Company, and Pacific

Employers Insurance Company.

Kennedys CMK LLP, by John D. LaBarbera, for Defendant United States

Fire Insurance Company.

Saiber LLC, by Michael J. Balch, for Defendant General Reinsurance

Corporation.

Bledsoe, Chief Judge.

FACTUAL AND PROCEDURAL BACKGROUND

3. This action focuses on whether Defendants—all insurers who issued excess

level insurance policies to Plaintiffs Duke Energy Carolinas, LLC (“DEC”) (formerly

Duke Power Company (“Duke Power”)) and Duke Energy Progress, LLC (formerly

Carolina Power & Light Company (“CP&L”)) (collectively, “Duke”)—are obligated to

compensate Duke for alleged liabilities linked to coal combustion residuals (“CCRs”),

i.e., coal ash, at fifteen Duke-owned power plants in North and South Carolina. This

Motion focuses on one such facility, the Riverbend Steam Station (“Riverbend”), near

Mount Holly, Gaston County, North Carolina.

4. The Court does not make findings of fact on motions for summary judgment;

rather, the Court summarizes material facts it considers to be uncontested. Hyde

Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C. App. 138, 142, 215 S.E.2d 162, 165

(1975).

5. DEC owns the Riverbend facility, which operated from 1929 to 2013. 2 Coal

ash generated from Riverbend was deposited into two ash ponds, or basins, for

disposal. (Mann Aff. Ex. A, at DUKE_CAIR_000253023; see also First Am. Compl

¶ 84, ECF No. 232.)

6. Following the February 2014 spill of coal ash into the Dan River at Duke’s

Dan River Steam Station in Rockingham County, the North Carolina General

Assembly passed the Coal Ash Management Act (“CAMA”), N.C.G.S. § 130A-309.200

et seq., in September 2014. S.L. 2014-122, 2014 N.C. Sess. Laws 122; (Mann Aff. Ex.

A, at DUKE_CAIR_000252978, 000253003; Mann Aff. Ex. E S.L. 2014-122 (S.B. 729),

ECF No. 591.5). Through CAMA, the North Carolina General Assembly required

Duke to take certain remedial actions at various specifically-identified power plants.

S.L. 2014-122 § 3(b); (see also First Am. Compl. ¶ 49). Of particular relevance here,

CAMA required Duke to take remedial action to “dewater and remove all CCRs from

impoundments” at Riverbend 3 and ultimately to close. 4

2 (See Aff. Greg E. Mann Supp. Mot. Partial Summ. J. Defs. AEGIS, Berkshire Hathaway

Direct Ins. Co. (f/k/a ACI), & TIG Ins. Co., Successor to Ranger, Regarding Coverage

Riverbend Steam Station [hereinafter “Mann Aff.”] Ex. A Excerpts Joint Factual Statement,

United States v. Duke Energy Carolinas, LLC, et al. (E.D.N.C. May 14, 2015), Case Nos. 5:15-

CR-62-H, 5:15-CR67-H, & 5:15-CR-68-H, at DUKE_CAIR_000253023, ECF No. 591.1; Mann

Aff. Ex. B Letter Duke Energy to N.C. Department Environment & Natural Resources, dated

May 4, 2015, at NCDENR0088379, ECF No. 591.2.)

3 (See Mem. Law Supp. Mot. Partial Summ. J. Defs. AEGIS, Berkshire Hathaway Direct Ins.

Co. (f/k/a ACI), & TIG Ins. Co., Successor to Ranger, Regarding Coverage Riverbend Steam

Station 4, 11 [hereinafter “AEGIS Defs.’ Supp. Br.”], ECF No. 589; see S.L. 2014-122

§§ 3(b)(2), 3(c)(2); see also First Am. Compl. ¶ 49.)

4 CAMA was amended to require ash ponds like the one at Riverbend to close by December

31, 2019. See N.C.G.S. § 130A-309.214.

7. The AEGIS Defendants seek dismissal of Duke’s Riverbend-based claims,

contending that Duke’s liability at Riverbend under CAMA falls outside the coverage

provided under the insurance policies the AEGIS Defendants issued to Duke Power

from 1979 to 1986 (the “Policies”). 5

8. Under the similar language contained in each of those Policies, the insurer

is to indemnify Duke (i.e., the “INSURED” under the Policies):

[F]or any and all sums which the INSURED shall become legally

obligated to pay as ULTIMATE NET LOSS by reason of the liability

imposed upon the INSURED by law or liability assumed by the

INSURED under CONTRACT . . . for damages because of BODILY

INJURY, PERSONAL INJURY or PROPERTY DAMAGE caused by an

OCCURRENCE.

(Mann Aff. Ex. L § I(a), ECF No. 591.12.)

9. “Ultimate net loss” is defined, in relevant part, as:

[A]ll sums which the INSURED shall become legally obligated to pay as

damages either by adjudication or compromise with the consent of the

COMPANY, after making proper deductions for all recoveries and

salvages collectible and for other insurance that is in excess of the

UNDERLYING LIMITS[.]

(Mann Aff. Ex. L § III(n)(1).)

10. The parties dispute whether CAMA’s requirement that Duke take remedial

action at Riverbend is a legal obligation imposed “by adjudication or compromise”

within the “ultimate net loss” definition and thus whether Duke’s remediation costs

pursuant to CAMA’s legislative mandate is covered under the Policies.

5 The Policies at issue on this Motion are identified in the attached Appendix A.

(See Mot.

Partial Summ. J. Defs. AEGIS, Berkshire Hathaway Direct Ins. Co. (f/k/a ACI), & TIG Ins.

Co., Successor to Ranger, Regarding Coverage Riverbend Steam Station 1, ECF No. 588;

Mann Aff. Exs. G–M, ECF Nos. 591.7–.13.)

11. After full briefing, the Court held a hearing on the Motion on March 12, 2020

(the “Hearing”), at which Duke, the AEGIS Defendants, and other appearing

Defendants were represented by counsel. At the Hearing, Duke argued that the

AEGIS Defendants raised new arguments in their reply brief to which Duke did not

have an adequate opportunity to respond. The Court permitted Duke to respond to

these arguments at the Hearing and to file a sur-reply to more fully present its

arguments for the Court’s consideration. Duke filed its sur-reply on March 23, 2020.

(ECF No. 723.)

12. The Motion is now ripe for resolution.

II.

LEGAL STANDARD

13. Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that any party is entitled

to a judgment as a matter of law.” N.C. R. Civ. P. 56(c). “An issue is ‘genuine’ if it

can be proven by substantial evidence and a fact is ‘material’ if it would constitute or

irrevocably establish any material element of a claim or a defense.” CSX Transp.,

Inc. v. City of Fayetteville, 247 N.C. App. 517, 521, 785 S.E.2d 760, 763 (2016) (quoting

Lowe v. Bradford, 305 N.C. 366, 369, 289 S.E.2d 363, 366 (1982)). “Substantial

evidence is such relevant evidence as a reasonable mind might accept as adequate to

support a conclusion . . . and means more than a scintilla or a permissible

inference[.]” DeWitt v. Eveready Battery Co., 355 N.C. 672, 681, 565 S.E.2d 140, 146

(2002) (citations and internal quotation marks omitted). The Court views evidence

in the light most favorable to the nonmoving party. Summey v. Barker, 357 N.C. 492,

496, 586 S.E.2d 247, 249 (2003) (citing Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d

829, 835 (2000)).

14. The moving party bears the burden of showing that there is no genuine issue

of material fact, Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 579, 573 S.E.2d

118, 124 (2002), and may meet this burden by proving that “an essential element of

the opposing party’s claim does not exist, cannot be proven at trial, or would be barred

by an affirmative defense, or by showing through discovery that the opposing party

cannot produce evidence to support an essential element of [its] claim[,]” Dobson, 352

N.C. at 83, 530 S.E.2d at 835 (citations omitted). If the moving party meets its

burden, “the burden shifts to the nonmoving party to produce a forecast of evidence

demonstrating specific facts, as opposed to allegations, showing that he can at least

establish a prima facie case at trial.” Gaunt v. Pittaway, 139 N.C. App. 778, 784–85,

534 S.E.2d 660, 664 (2000); see also N.C. R. Civ. P. 56(e) (“[A]n adverse party may not

rest upon the mere allegations or denials of his pleading, but . . . must set forth

specific facts showing that there is a genuine issue for trial.”).

III.

ANALYSIS 6

15. The AEGIS Defendants’ argument for dismissal on summary judgment is

straightforward. As succinctly stated in their reply: “The ULTIMATE NET LOSS

6 The AEGIS Defendants have asserted a timeliness objection to the Court’s consideration of

the information contained in Tabs 8 (pages from AEGIS Policy No. XL5128602P), 10 (Report

definition in the AEGIS [Defs.’] policies restricts coverage to liabilities incurred by

either ‘adjudication or compromise.’ Duke’s obligation to excavate [CCRs] at

Riverbend arose from neither, but rather from a direct legislative mandate.” (Reply

Br. Defs. AEGIS, Berkshire Hathaway Direct Ins. Co. (f/k/a ACI), & TIG Ins. Co.,

Successor to Ranger, Regarding Coverage Riverbend Steam Station 1 [hereinafter

“AEGIS Defs.’ Reply Br.”], ECF No. 712.) Contending that a “legislative mandate” is

not an “adjudication” or a “compromise” as a matter of law, the AEGIS Defendants

argue that the CCR remediation costs imposed on Duke through CAMA are not

covered under the Policies and therefore that Duke’s claim as to Riverbend must be

dismissed. (AEGIS Defs.’ Supp. Br. 5.) After careful consideration, the Court

disagrees.

16. As an initial matter, “[a]n insurance policy is a contract and its provisions

govern the rights and duties of the parties thereto.” C. D. Spangler Constr. Co. v.

Indus. Crankshaft & Eng’g Co., 326 N.C. 133, 142, 388 S.E.2d 557, 562 (1990) (citing

Fid. Bankers Life Ins. Co. v. Dortch, 318 N.C. 378, 380, 348 S.E.2d 794, 796 (1986)).

The Supreme Court of North Carolina has recently articulated the relevant standards

for the interpretation and construction of an insurance policy:

When interpreting an insurance policy, courts apply general contract

interpretation rules. See, e.g., Wachovia Bank & Tr. Co. v. Westchester

Fire Ins. Co., 276 N.C. 348, 172 S.E.2d 518 (1970). “As in other

contracts, the objective of construction of terms in an insurance policy is

to arrive at the insurance coverage intended by the parties when the

of Jeffrey W. Stempel), and 13 (Expert Report of John C. Evans) of the demonstratives

notebook Duke tendered to the Court at the Hearing. The Court finds it unnecessary to

consider any of the challenged exhibits in resolving the Motion and, therefore, in the exercise

of its discretion, sustains the AEGIS Defendants’ objection to these three demonstratives and

does not consider them on the Motion.

policy was issued.” Id. at 354, 172 S.E.2d at 522 (citing McDowell Motor

Co. v. N.Y. Underwriters Ins. Co., 233 N.C. 251, 63 S.E.2d 538 (1951);

Kirkley v. Merrimack Mut. Fire Ins. Co., 232 N.C. 292, 59 S.E.2d 629

(1950)). In North Carolina, determining the meaning of language in an

insurance policy presents a question of law for the Court. Id.

When interpreting the relevant provisions of the insurance policy at

issue, North Carolina courts have long held that any ambiguity or

uncertainty as to the words used in the policy should be construed

against the insurance company and in favor of the policyholder or

beneficiary. Id. If a court finds that no ambiguity exists, however, the

court must construe the document according to its terms. Id. (citing

Williams v. Nationwide Mut. Ins. Co., 269 N.C. 235, 238, 152 S.E.2d 102,

105 (1967)).

Ambiguity is not established by the mere fact that the insured asserts

an understanding of the policy that differs from that of the insurance

company. Wachovia Bank & Tr. Co., 276 N.C. at 354, 172 S.E.2d at 522.

Rather, ambiguity exists if, in the opinion of the court, the language is

“fairly and reasonably susceptible to either of the constructions for

which the parties contend.” Id. The court may not remake the policy or

“impose liability upon the company which it did not assume and for

which the policyholder did not pay.” Id.

If the policy contains a definition of a term, the court applies that

meaning unless the context requires otherwise. Id. However, if the

policy fails to define a term, the court must define the term in a manner

that is consistent with the context in which the term is used, and the

meaning accorded to it in ordinary speech. Id. (citing Peirson v. Am.

Hardware Mut. Ins. Co., 249 N.C. 580, 107 S.E.2d 137 (1959)).

Accardi v. Hartford Underwriters Ins. Co., 373 N.C. 292, 295, 838 S.E.2d 454, 456–

57 (2020).

17. Our Supreme Court has further explained that “[t]he various terms of the

policy are to be harmoniously construed, and if possible, every word and every

provision is to be given effect.” C. D. Spangler Constr., 326 N.C. at 142, 388 S.E.2d

at 563 (quoting Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 506, 246 S.E.2d 773,

777 (1978)); see also Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 364

N.C. 1, 9, 692 S.E.2d 605, 612 (2010) (same). In sum, the “intention of the parties as

gathered from the language used in the policy is the polar star that must guide the

courts[.]” Cowell v. Gaston Cty., 190 N.C. App. 743, 746, 660 S.E.2d 915, 918 (2008)

(quoting McDowell Motor Co., 233 N.C. at 253, 63 S.E.2d at 540). “[A] contract of

insurance should be given that construction which a reasonable person in the position

of the insured would have understood it to mean[.]” Grant v. Emmco Ins. Co., 295

N.C. 39, 43, 243 S.E.2d 894, 897 (1978).

18. Here, the policy language states, in relevant part, that the AEGIS

Defendants will indemnify “any and all sums” which Duke “shall become legally

obligated to pay as ULTIMATE NET LOSS by reason of the liability imposed upon

[Duke] by law or liability assumed by [Duke] under CONTRACT . . . for damages[.]”

(Mann Aff. Ex. L § I(a) (emphasis added).) “Ultimate net loss” is defined as “all sums”

which Duke “shall become legally obligated to pay as damages either by adjudication

or compromise[.]” (Mann Aff. Ex. L § III(n)(1) (emphasis added).) The Policies do not

define the phrase “either by adjudication or compromise” or the specific words

“adjudication” and “compromise.”

19. Relying on various dictionary definitions of “adjudication” and “compromise”

in use at the time the Policies were issued, 7 the AEGIS Defendants contend that an

“adjudication” requires an adjudicatory proceeding and a “compromise” refers to two

sides settling a matter through mutual concessions, neither of which occurred here.

7 See The American Heritage Dictionary 79, 303 (2d College ed. 1982); The American Heritage

Desk Dictionary 13, 214 (1981); Webster’s New Collegiate Dictionary 15, 232 (1977); Webster’s

New Collegiate Dictionary 15, 230 (1979). (ECF Nos. 591.14–.17.)

(AEGIS Defs.’ Supp. Br. 9.) As further support for their position that no compromise

occurred, the AEGIS Defendants argue that a 2014 letter from Duke’s CEO Lynn

Good to then-North Carolina Governor Pat McCrory and three pre-CAMA rate case

documents demonstrate that before CAMA was passed Duke intended to take the

actions CAMA later required; hence, no “compromise” was reached. 8 (AEGIS Defs.’

Supp. Br. 13–17; Mann Aff. Exs. C, T–V, ECF No. 591.3, 591.20–.22.)

20. In opposition, Duke relies on different dictionary definitions of the same

terms, 9 including those defining “adjudicate” as “to pass judgment on” and defining

“compromise” as “to adjust or settle by partial mutual relinquishment of principles,

position, or claims.” 10 More persuasively, Duke further contends that the phrase

“either by adjudication or compromise” expansively “describes the broad spectrum of

8 The AEGIS Defendants’ latter argument fails based on the evidence. Although the AEGIS

Defendants contend that Good’s letter committed Duke to close the Riverbend ash basins,

(AEGIS Defs.’ Supp. Br. 4), that letter’s language only provided “recommendations for near-

term and longer-term actions at [Duke’s] ash basins in North Carolina[,]” (Mann Aff. Ex. C

Letter Lynn Good to Governor Pat McCrory, dated March 12, 2014, ECF No. 591.3). Duke’s

witnesses similarly testified that the letter reflected recommendations, not binding

commitments. (See Duke’s Opp’n Br. Ex. 9 Excerpts Dep. Tr. – Lynn Jones Good Jan. 14,

2020, at 100:6–16, ECF No. 670.1; Duke’s Opp’n Br. Ex. 10 Excerpts Dep. Tr. – John H.

Elnitsky, II Jan. 8, 2020, at 155:6–19, ECF No. 670.1; Duke’s Opp’n Br. Ex. 11 Excerpts Dep.

Tr. – David B. Fountain Nov. 15, 2019, at 204:20–205:8, ECF No. 670.1.) In addition, while

Duke’s pre-CAMA rate case statements may evidence an intent to close its ash basins at some

undetermined time, they do not suggest an intention to take the specific remedial action

required under CAMA—i.e., excavation.

9 See The Random House Dictionary of the English Language (1973); Webster’s Third New

International Dictionary of the English Language Unabridged (1986). (ECF No. 670.2.) Duke

also relies upon a definition in the current version of the Merriam-Webster Online Dictionary,

but the Court disregards that definition because Duke has not offered evidence that this

definition was in use at the time the Policies were issued.

10 (See Duke’s Opp’n Mot. Partial Summ. J. Defs. AEGIS, Berkshire Hathaway Direct Ins.

Co. (f/k/a ACI), & TIG Ins. Co., Successor to Ranger, Regarding Coverage Riverbend Steam

Station 12–13 [hereinafter “Duke’s Opp’n Br.”], ECF No. 670.)

legal liabilities the insurer promised to pay—from compromise, at one end of the

spectrum, to adjudication, at the other” and is not intended to limit the insurer’s

broad agreement to indemnify to only two specific sources of legal liability. (Duke’s

Opp’n Br. 7–10.)

21. The AEGIS Defendants’ construction has obvious appeal when

“adjudication” and “compromise” are considered as standalone terms and their

standard dictionary definitions are applied. See C. D. Spangler Constr., 326 N.C. at

152, 388 S.E.2d at 568 (“[T]his Court has used standard, nonlegal dictionaries as a

guide.” (internal quotation marks omitted)). Perhaps recognizing that appeal, Duke

does not argue that the passage of CAMA alone was an “adjudication” or

“compromise” 11 under the Policies, (Mar. 12, 2020 Hearing Tr. 164:23–165:8, ECF No.

749; Duke’s Opp’n Br. 22–23), and it is undisputed that CAMA’s passage was not

procured through an adjudicatory proceeding or a settlement of competing claims.

That alone, however, does not resolve the Motion as the AEGIS Defendants contend.

22. To the contrary, as Duke correctly notes, under North Carolina law, an

insurance contract “must be interpreted as a whole, and individual provisions within

a[n insurance] contract must be interpreted within the context of the entire contract.”

Fulford v. Jenkins, 195 N.C. App. 402, 408, 672 S.E.2d 759, 763 (2009); see also State

v. Philip Morris USA Inc., 359 N.C. 763, 773, 618 S.E.2d 219, 225 (2005) (“Intent is

derived not from a particular contractual term but from the contract as a whole.”).

11 Rather, Duke contends that its legal obligations arose from the passage of CAMA and its

implementation by the North Carolina Department of Environmental Quality (“DEQ”). Duke

argues that CAMA’s implementation constituted an “adjudication” or “compromise” under

the “ultimate net loss” definition in the Policies. (Duke’s Opp’n Br. 22–23.)

23. Here, the Court finds Duke’s construction reasonable and concludes that the

phrase “either by adjudication or compromise,” read in the context of the definition of

“ultimate net loss” and within the Policies as a whole, may be understood by a

reasonable person in the position of an insured as describing the entire range of legal

liabilities involuntarily imposed on the insured and not as a limitation on coverage to

only those legal actions that may be termed either an “adjudication” or a

“compromise.” As a result, although Duke’s legal liability was legislatively imposed

through CAMA rather than through an adversarial court or dispute resolution

process, a reasonable insured could understand that the Policies’ broad insuring

agreement to pay “all sums which the INSURED shall become legally obligated to

pay . . . for damages” included an obligation to pay all legally coerced damages and

that the phrase “by either adjudication or compromise” was not intended to limit the

sources from which legally coerced damages could be imposed to obtain coverage.

24. This construction finds support in the Supreme Court of North Carolina’s

decision in C. D. Spangler Construction Co. In that case, which involved standard-

form language, the insurer agreed to “defend any suit against the insured seeking

damages on account of . . . property damage[.]” C. D. Spangler Constr., 326 N.C. at

153, 388 S.E.2d at 569 (emphasis omitted). In seeking to avoid a duty to defend, the

insurer argued that agency actions requiring cleanup of hazardous waste were not

“suits,” id., and that state-ordered environmental cleanup costs were not “damages,”

id. at 146–7, 388 S.E.2d at 565. Relying on broad dictionary definitions of these

nontechnical terms, the Supreme Court disagreed, rejecting the insurer’s narrow

construction that a “suit” must be limited to a “court proceeding,” id. at 154–55, 388

S.E.2d at 570, and that the term “damages” includes only “compensation recovered

by a third party in an action at law for injuries sustained by the third party at the

hands of the insured[,]” id. at 147, 151–52, 388 S.E.2d at 565, 568–69. The Court

emphasized that if the insurer intended the narrow readings it sought, “it should

have so indicated in the policy[,]” id. at 151, 388 S.E.2d at 568, and concluded that,

based on its review of the policy as a whole, each term could be understood by a

reasonable insured to include state-ordered environmental cleanup costs, id. at 152,

388 S.E.2d at 569.

25. Similarly here, the phrase “by adjudication or compromise” need not be read

as narrowly as the AEGIS Defendants contend. Indeed, the phrase appears in the

“ultimate net loss” definition—a term focused on the calculation of the amount

payable for qualifying occurrences rather than the scope of coverage in the first

instance—and identifies what a reasonable insured could fairly understand are

opposite ends of the spectrum of the ways an involuntary obligation to pay money

could be legally imposed. Read in context 12 and within the Policies as a whole, the

phrase could be understood by a reasonable insured at the time the Policies were

issued as expressing the full range of possible sources of legally imposed liability, not

as a binary choice excluding other unnamed but contemplated sources of legal

liability.

12 See Woods, 295 N.C. at 506, 246 S.E.2d at 777 (“If no definition is given, non-technical

words are to be given their meaning in ordinary speech, unless the context clearly indicates

another meaning was intended.”).

26. If the AEGIS Defendants intended to limit their coverage obligation to

exclude governmental mandates like CAMA, they should have done so expressly and

not attempt now to use the “ultimate net loss” definition as their instrument to

purportedly restrict coverage. See C. D. Spangler Constr., 326 N.C. at 152–53, 388

S.E.2d at 569 (“When an insurance company, in drafting its policy of insurance, uses

a ‘slippery’ word to mark out and designate those who are insured by the policy, it is

not the function of the court to sprinkle sand upon the ice by strict construction of the

term.” Rather, “[a]ll who may, by any reasonable construction of the word, be

included within the coverage afforded by the policy should be given its protection.”

(quoting Ins. Co. v. Ins. Co., 266 N.C. 430, 437–38, 146 S.E.2d 410, 416 (1966))).

27. Decisions from other jurisdictions endorsing coverage for non-judicially-

imposed environmental cleanup costs provide further support for this construction.

See, e.g., Cent. Ill. Light Co. v. Home Ins. Co., 795 N.E.2d 412, 422–24 (Ill. App. Ct.

2003) (rejecting contention that “ultimate net loss” provision’s reference to

“adjudication or compromise” narrowed coverage obligation and finding coverage for

environmental cleanup costs arising under statutory obligations and administrative

agency negotiations), aff’d, 821 N.E.2d 206 (Ill. 2004); see also, e.g., Farmland Indus.,

Inc. v. Republic Ins. Co., 941 S.W.2d 505, 507–09 (Mo. 1997) (refusing to exclude

equitable relief from “damages” under policy with “adjudication or compromise”

clause in “ultimate net loss” provision); Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d

507, 510, 516 (Wash. 1990) (refusing to limit “damages” to legal damages imposed by

a court under policy with “adjudication or compromise” clause in “ultimate net loss”

provision). 13

28. Accordingly, the Court concludes that the phrase “by adjudication or

compromise” in the “ultimate net loss” definition in the Policies is “fairly and

reasonably susceptible to either of the constructions for which the parties contend[,]”

rendering the phrase and definition ambiguous. Wachovia Bank & Tr., 276 N.C. at

354, 172 S.E.2d at 522.

29. Where, as here, policy language is ambiguous, our Supreme Court

implements the following rules of construction:

This Court resolves any ambiguity in the words of an insurance policy

against the insurance company. We do so because the insurance

company is the party that selected the words used. Furthermore, this

Court construe[s] liberally insurance policy provisions that extend

coverage so as to provide coverage, whenever possible by reasonable

construction, and we strictly construe against an insurance company

those provisions excluding coverage under an insurance policy[.]

Buzz Off Insect Shield, 364 N.C. at 9–10, 692 S.E.2d at 612 (citations and internal

quotation marks omitted). The parties vigorously dispute whether Duke should have

the benefit of these rules of construction here. 14

13 The only case advanced by the AEGIS Defendants for their construction of the disputed

policy language is Plantation Pipe Line Co. v. Associated Electric & Gas Insurance Services

Ltd., CIVIL ACTION NO. 1:09-CV-1260-SCJ, 2011 U.S. Dist. LEXIS 160367, at *22 (N.D.

Ga. Dec. 2, 2011). The case is of limited relevance, however, because the federal court there

concluded only that the plaintiff had not shown as a matter of law that its voluntary, agency-

supervised environmental cleanup efforts were a “compromise” under the AEGIS policy at

issue. See id.

14 Duke strongly objects to the AEGIS Defendants’ introduction of new affidavits and

extrinsic evidence concerning the drafting of the Policies in light of Defendants’ refusal to

produce any such evidence during discovery on relevance grounds and the Court’s earlier

conclusion in this litigation that “[i]f the policies are held to be ambiguous, ambiguity will be

construed in favor of coverage, and thus [in] Duke’s favor, where possible. Defendants’

30. Duke contends that it should, arguing that all of the evidence shows that

the Policies were standard-form insurance agreements drafted or adopted by the

AEGIS Defendants without participation or input from Duke. The AEGIS

Defendants contend otherwise, arguing that the Policies do not contain “standard-

form insurance industry language” and, relying on Joyner v. Adams, 87 N.C. App.

570, 577, 361 S.E.2d 902, 905–06 (1987), and Fountain Powerboat Indus., Inc. v.

Reliance Ins. Co., 119 F. Supp. 2d 552, 555 (E.D.N.C. 2000), that Duke is a

sophisticated policyholder that had an opportunity to provide input regarding the

AEGIS policy form at annual policyholder workshops, precluding application of the

rule of construction construing policy language against the insurer as drafter and in

favor of the policyholder, (AEGIS Defs.’ Supp. Br. 17–18; AEGIS Defs.’ Reply Br. 11–

13).

31. The Court finds the AEGIS Defendants’ contentions without legal or factual

support. First, the AEGIS Defendants’ reliance on Joyner and Fountain is

unpersuasive. In Joyner, a case outside the insurance context, the court declined to

construe contractual language against either party where (i) the parties “were at

arm’s length and were equally sophisticated,” (ii) the record showed that the parties

previous interpretations of these provisions is not relevant to the Court’s determination of

ambiguity or, if necessary, the Court’s subsequent construction of the policy.” (Sur-Reply Br.

Opp’n Mot. Partial Summ. J. Defs. AEGIS, Berkshire Hathaway Direct Ins. Co. (f/k/a ACI),

& TIG Ins. Co., Successor to Ranger, Regarding Coverage Riverbend Steam Station 8–11,

ECF No. 723 (quoting Duke Energy Carolinas, LLC v. AG Ins. SA/NV, 2018 NCBC LEXIS

54, at *22 (N.C. Super. Ct. June 4, 2018)).) Although the Court is sympathetic to Duke’s

objection, the Court overrules Duke’s objection solely for the purposes of this Motion, because,

as explained in the text, the new evidence, even if considered, does not support the AEGIS

Defendants’ contention that the rule of construction construing policy language against the

insurer is not properly applied on the facts here.

had “bargained from essentially equal positions of power” and had participated in a

“fairly protracted negotiation process” with the provision at issue “undergoing

particular scrutiny[,]” and (iii) “[n]othing in the record” established that one party

had drafted the language but instead, “the language was assented to by parties who

had both the knowledge to understand its import and the bargaining power to alter

it.” 87 N.C. App. at 577, 361 S.E.2d at 906. Similarly, in Fountain, a decision in

which the trial court declined to construe policy language against the insurer but

which no North Carolina state court has ever cited, the policy at issue had been

actively negotiated by the insured, the individual negotiators were identified, and

there was unrebutted testimony that “no part of the policy was non-negotiable.” 119

F. Supp. 2d at 555.

32. In contrast to Joyner and Fountain, the AEGIS Defendants have failed to

offer evidence showing that Duke actively negotiated the Policies here, including

specifically the policy provisions at issue on the Motion. At most, the AEGIS

Defendants’ evidence shows that (i) in 1980 Duke requested that certain unrelated

language in one policy remain the same when the insurer changed from AEGIS to

ACI, (ii) a Duke representative attended an annual policyholder meeting in 1981

where unrelated policy provisions may have been discussed at a workshop the Duke

representative may have attended, and (iii) a Duke senior executive served on

AEGIS’s Board of Directors at some unspecified time. 15

15(See Aff. Greg E. Mann Supp. Reply Mot. Partial Summ. J. Defs. AEGIS, Berkshire

Hathaway Direct Ins. Co. (f/k/a ACI), & TIG Ins. Co., Successor to Ranger, Regarding

Coverage Riverbend Steam Station Exs. E, F, G, ECF Nos. 713.5–.7; Aff. George Keefe Supp.

Defs.’ Mot. Partial Summ. J. Regarding Coverage Riverbend Steam Station ¶ 6, ECF No. 715;

33. None of this purported evidence shows that Duke had any role, much less

an active role, in negotiating the Policies or, in particular, the specific policy language

relating to ultimate net loss that is at issue on the Motion. To the contrary, the

undisputed evidence shows that the policy language at issue on the Motion was

drafted by others in the insurance industry 16 and included in the Policies by the

AEGIS Defendants without participation or input from Duke. 17

34. Accordingly, the AEGIS Defendants’ effort to avoid North Carolina’s rules

of construction for ambiguous insurance policies fails. See, e.g., Newport Assocs. Dev.

Co. v. Travelers Indem. Co., 162 F.3d 789, 794 (3d Cir. 1998) (“The dispositive

question is not whether the insured is a sophisticated corporate entity, but rather

whether the insurance contract is negotiated, jointly drafted or drafted by the

insured.” (quoting Pittston Co. v. Allianz Ins. Co., 124 F.3d 508, 521 (3d Cir. 1997));

AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1265 (Cal. 1990) (construing policy

against insurer even though the insured “unquestionably possesse[d] both legal

Aff. Frank Tierney Supp. Defs.’ Mot. Partial Summ. J. Regarding Coverage Riverbend Steam

Station ¶ 8, ECF No. 714.)

16 See, e.g., Robert Benjamin Berry, Umbrella Liability Insurance Appendices G–H (1961)

(reproducing 1958 and 1959 Continental Casualty Company form policies); Yvonne R.

Paretzky, Guide to the London Insurance Market 191 (1988) (reflecting presence of

“adjudication or compromise” clause in London form policies from 1971). (See ECF No. 670.1;