West Bay Exploration v. AIG Specialty Agencies

West Bay Exploration (WBE) (plaintiff), an oil and gas producer operating in Michigan, used a process to remove water vapor from natural gas. Due to concerns that the water might contain carcinogens, during this process water was discharged into a drum, instead of into the air. In an August 1984 report, the Michigan Department of Natural Resources (MDNR) revealed that these carcinogens were found in oil field-associated water brines. A tested aquifer was deemed unsafe for human consumption. On October 31, 1985, the MDNR sent WBE a “Letter of Noncompliance” notifying WBE that the MDNR suspected that WBE had improperly disposed of these carcinogens. On February 19, 1986, the MDNR notified WBE that WBE was required to coordinate with the MDNR and remediate the carcinogen contamination within 40 days. WBE had general-liability insurance policies with International Surplus Lines Insurance Company, Great Southwest Fire Insurance Company (Southwest), and Zurich American Insurance Company of Illinois (Zurich) (defendants). Language in the policies required that, if there were an occurrence, WBE give the defendants written notice “as soon as practicable.” WBE’s failure to give notice would deprive WBE of any course of action against the defendants for coverage. Two years after the MDNR notification, on October 27, 1987, WBE sued its insurers including all of the defendants except Southwest and Zurich. Zurich and Southwest as defendants were added in an amended complaint. In its suit, WBE sought a declaratory judgment that the defendants were jointly and severally liable for WBE’s remediation costs. The defendants moved for summary judgment, claiming that WBE had failed to give the defendants written notice “as soon as practicable” and therefore failed to satisfy a condition precedent to the defendants’ duty under the insurance contracts. The trial court granted the defendants’ motion for summary judgment. WBE appealed.