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Flathead Lake oil spill

Ron Kohler, left, and his son Robert survey the beach in front of Ron Kohler's home on Flathead Lake in 2008. A fuel spill on Highway 35 just up the hill and a little south of Kohler's home contaminated the springs on the property and gas fumes permeated his house. A major effort was under way to filter the runoff and spring water before it reached Flathead Lake.

How much is a secondary insurance company required to pay when its client creates an environmental catastrophe at Flathead Lake and contaminates the private property of four homeowners? 

That question was debated Friday morning before the Montana Supreme Court during the annual Montana Bar Association meeting.

Washington, D.C., attorney Jonathan Hacker represented Westchester Surplus Lines and argued the company's coverage was capped at $4 million in legal fees – an amount exhausted two years after the accident. 

"They already got from the excess insurance everything that they contracted for, everything they paid premiums for was in single aggregate of $4 million," Hacker told the Supreme Court justices and a conference room full of attorneys.   

The case involves Keller Transport, the secondary insurance company and four property owners affected by the April 2, 2008, spill.

A Keller truck was speeding when it failed to navigate a turn on Montana Highway 35 north of Polson. The truck overturned, spilling 6,380 gallons of gasoline into Flathead Lake, permeating the wells and groundwater of the properties nearby.

Kalispell attorney Roger Sullivan, representing the homeowners and Keller's insurance company, said some of the gasoline remains on the homeowners' properties to this day – seven years after the accident.  

"It leaves us with one coverage untapped," Sullivan contended. "(Westchester) withdrew its defense and it completely denied the excess coverage beyond $4 million and breached the contract." 

The homeowners initially sued the trucking company in Lake County, but the case never made it to trial.

Instead, the trucking companies and the homeowners settled on $13 million in compensation, with the agreement that homeowners would collect the money from the truckers' insurance companies.

The argument now is whether Westchester must contribute to the settlement. 

The primary insurer, Carolina Casualty, has since settled, and Westchester maintains it has gone above and beyond the requirements listed in its policy with the $4 million it has already paid for the company's legal defense.

In a declaratory judgment motion filed in Missoula District Court, Westchester asked Judge Ed McLean to rule on what is actually owed to the insured and the homeowners in terms of their policy.

McLean ruled that Westchester was liable up to $8 million for the accident, and said that Westchester assumed and then breached its duty to provide legal defense to the trucker when it abruptly ended its defense in 2010.

In its appeal to the Montana Supreme Court, Westchester pointed to the detailed language of its policy and asked the justices to rule in its favor. Alternatively, it asked the court to send the ruling back to Missoula District Court with a mandate that the lower court hold a trial. 

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