The Insurance and Reinsurance Report

Court of Appeals Says No Martin Act Preemption of Breach of Fiduciary Duty and Gross Negligence Claims

Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc. (Crt. App. N.Y. Dec. 30, 2011)

Plaintiff guarantor, Assured Guaranty (UK) Ltd. (“Assured”), sued defendant investment management company, J.P. Morgan Investment Management, Inc. (“J.P. Morgan”), asserting causes of action for breach of fiduciary duty, gross negligence, and breach of contract.  The gravamen of the complaint was that J.P. Morgan mismanaged the investment portfolio of an entity whose obligations Assured guaranteed.  J.P. Morgan moved to dismiss the complaint on the grounds that Assured’s breach of fiduciary duty and gross negligence claims were preempted by the Martin Act.

The trial court dismissed the complaint in its entirety, finding that Assured’s breach of fiduciary duty and gross negligence claims were within the purview of the Martin Act and therefore prosecution of those claims would interfere with the Attorney General’s exclusive enforcement powers under the Act.  On appeal, the Appellate Division determined that nothing in the plain language of the Martin Act, its legislative history, or the relevant precedent supported the contention that the Act preempts otherwise validly pled common-law causes of action and reinstated Assured’s claims.

J.P. Morgan appealed to Court of Appeals on a certified question: whether the Martin Act preempts common law causes of action for breach of fiduciary duty and gross negligence?  The Act authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing securities products.  It was intended to give Attorney General broad regulatory and remedial powers to prevent fraudulent securities practices, including authority to commence civil or criminal prosecution. 

For the court, understanding the legislative intent behind the Act was essential to a determination of the certified question.  This was so because well settled law establishes that when the common law provides a remedy and another remedy is provided by statute, the statutory remedy is in addition to the common law remedy unless there is clear, specific and unambiguous legislative intent to the contrary.  The court noted that the plain language of the Act does not expressly mention or otherwise contemplate the elimination of common law claims and there is no legislative history of demonstrating a clear and specific legislative mandate to abolish preexisting common law claims.

The court distinguished the cases cited by J.P. Morgan, noting that the proffered cases stand for the proposition that a private litigant may not pursue a common-law cause of action where the claim is predicated solely on the a violation of the Martin Act and would not exist but for the statute.  Thus, an injured investor remains free to bring a common-law claim that is not entirely dependant on the Martin Act for its viability.  According to the court, “mere overlap between the common law and the Martin Act is not enough to extinguish common-law remedies.”  Therefore, the court held that Assured’s breach of fiduciary duty and gross negligence claims were not barred by the Martin Act.

For a copy of the decision click here

Matt Cabral and Michael Saltzman

Definition Contained In Statute Could Not Be Applied Retroactively For Sinkhole Damage

Bay Farms Corp. v. Great American Alliance Ins. Co.  (United States District Court, Middle District of Florida, December 7, 2011)  

The issue in this environmental coverage dispute was whether a 2011 amendment to the Florida statutory scheme governing sinkhole insurance which added a statutory definition of "structural damage" should be applied retroactively to the insurance policy.  In September of 2009, the policyholder submitted a claim under the Policy for sinkhole losses arising from damage to structures on the property.  The insurer contended that of the 26 buildings that have reportedly suffered damages due to sinkholes, "25 of the 26 buildings have relatively minor cosmetic cracking damage."

The Policy defined sinkhole loss as “loss or damage to Covered Property when structural damage to the building, including the foundation, is caused by settlement or systematic weakening of the earth supporting the building ...."  The Policy did not define the term "structural damage." Moreover, the Policy did not purport to incorporate by reference any existing statutory definitions nor did it include language expressly making changes to statutory definitions retroactively applicable to claims arising under the Policy.

In 2011, the Legislature for the first time adopted a definition of "structural damage" to be applied when interpreting insurance policies providing coverage for sinkhole losses.  Here, the court noted that the undisputed evidence demonstrated that absent the 2011 Amendment, the policyholder’s claim involved "structural damage" to covered property so as to fall within the definition of "sinkhole loss" in the Policy.   The insurer contended that the claim was not covered because the 2011 Amendment retroactively narrowed the scope of sinkhole coverage provided by the Policy

In deciding against the insurer’s interpretation of the applicability of the statute, the district court relied on the Supreme Court of Florida’s adoption of a two-pronged analysis for determining when a substantive statutory amendment should be retroactively applied as set forth in Menendez v. Progressive Express Ins. Co., 35 So.3d 873, 876 (Fla. 2010).  The insurer argued that the normal presumption against retroactive application of a statute did not apply because the 2011 Amendment was merely procedural or remedial, such that the 2011 Amendment was intended to "clarify" or "amend" a definitional provision in the statute. 

The court explained that while it was true that procedural or remedial statutes may operate retrospectively even absent a clear legislative intent, that was not the case with respect to amendments that constitute a substantive change, which create new rights or taking away vested rights.  That is, "if a statute accomplishes a remedial purpose by creating new substantive rights or imposing new legal burdens, the presumption against retroactivity would still apply."

As such, the court held that the technical definition of "structural damage" in the 2011 Amendment significantly narrowed the definition of "sinkhole loss," which in turn narrowed the policyholders’ rights under the Policy. Thus, the 2011 Amendment included a new definition of "structural damage" that was a substantive change adversely affecting the right of sinkhole policyholders.  As the policyholder had a vested contractual right to coverage for "sinkhole loss" as that term was understood when the Policy was issued, the definition of "structural damage" in the 2011 Amendment could not be applied retroactively to narrow the scope of coverage under the Policy.

For a copy of the decision click here

Tom Segalla and Paul Steck

CaseWatch: Insurance December 2011 Edition Now Available!

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Cases for the December 2011 Edition of CaseWatch: Insurance

Cases provided courtesy of LexisNexis.

All-Star Settlements Inc. v. Zurich Am. Ins. Co.

American Home Assurance Co. v. CAT Tech LLC

Apodaca v. Allstate Ins. Co.

Bradford Oil Company, Inc. v. Stonington Ins. Co., et. al.

Cacoperdo v. Hartford Life Ins. Co.

Caples v. US Foodservice, Inc.

Callon Petroleum Co. v. National Indem. Co.

Country Preferred Ins. Co. v. Whitehead

Creative Hospitality Ventures v. United States Liab. Ins. Co.

Crossmann Comm. Of North Carolina v. Harleysville Mut. Ins. Co.

C.R. Pittman Constr. Co., Inc. v. Nat’l Fire Insurance Co.

Dominick Servedio v. State Farm Insurance Company

Erie Ins. Exchange v. Imperial Marble Corp.

Essex Ins. Co. v. Harris

Evanston Ins. Co. v. American Guar. & Liab. Ins. Co.

Evanston Ins. Co. v. Douglas Heeder

Federated Serv. Ins. Co. v. Alliance Constr., LLC

Felman Production, Inc. v. Industrial Risk Insurers

Download Great Am. Assur. Co. v. Am. Cas. Co. of Reading

Indian Harbor Ins. Co. v. Satterfield & Pontikes Construction, Inc.

Harco Nat’l Ins. Co. v. Zurich Am. Ins. Co.

IRB-Brasil Resseguros S.A. v. National Indem. Co.

John Roach, Jr. v. Allstate Indemnity Co.

Jung v. Gen. Cas. Co.

Lafayette College v. Selective Ins. Co.

Liberty Ins. Underwriters Inc. v. Pacia

Md. Cas. Co. v. Express Prods.

Midwest Family Mutual Ins. Co. v. Wolters, et. al.

National Union Fire Ins. Co. v. Absolute Title Services, Inc.

Principal Life Ins. Co. v. DeRose

The Travelers Ins. Co. v. Maplehurst Farms Inc.

Town & Country Property LLC v. Amerisure Ins. Co.

Tyson Foods Inc. v. Allstate Ins. Co., et.al.

Westport Ins. Corp. v. VN Hotel Group LLC, et. al.

Williams v. GEICO

December Edition of Reinsurance Review is now Available

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11th Circuit Upheld Award of Fees and Costs Despite Bifurcated Arbitration

White Spring Agric. Chems., Inc. v. Glawson Invs. Corp.  (11^th Cir. Fla. Oct. 17, 2011)

White Springs Agricultural Chemicals, Inc. (“White Springs”), a mining company, appealed the confirmation by the United States District Court for the Middle District of Florida of an arbitration award in favor of Glawson Investments Corp. (“Glawson”), a land owner, granting attorneys’ fees, expert fees, and prejudgment interest.  White Springs sought to vacate or modify the arbitration award under sections 10 and 11 of the Federal Arbitration Act (“FAA”).

White Springs and Glawson did business together pursuant to two agreements: an Operating Agreement and Settlement Agreement.  The agreements contained identical arbitration clauses.  When a property dispute arose between the parties Glawson filed a demand for arbitration with the American Arbitration Association (“AAA”).  It was stipulated that the arbitration would be divided into two parts: Phase I consisting of non-monetary claims and injunctive relief, and Phase II consisting of all other disputes and claims, including damages. 

The arbitration panel ruled in favor of Glawson on its Phase I claims.  Thereafter, in preparation for Phase II, the parties filed a joint list of issues to be resolved in Phase II.  Additionally, Glawson filed a separate motion seeking to clarify that it was also seeking attorneys’ fees as part of it damages in Phase II.  Over White Springs’ objection, the arbitration panel decided to allow evidence of attorneys’ fees and costs as damage elements in Phase II.  Ultimately, after hearing the Phase II claims, the panel determined that Glawson was entitled to attorneys’ fees and costs.  The District Court confirmed and White Springs appealed.

The court noted that sections 10 and 11 of the FAA provide the exclusive means by which a federal court may upset an arbitration panel’s award.  Section 10 empowers the court to vacate an arbitration award where the arbitrators exceed their powers, or so imperfectly execute them that a mutual, final, and definite award upon the subject matter submitted is not made.  Section 11 allows for modification of an award where the arbitrators have awarded upon a matter not submitted to them.  According to the court, because these sections are the exclusive means for upsetting an arbitration award, a panel’s incorrect legal conclusion is not grounds for vacating or modifying the award.

White Springs argued that the award must be vacated because it exceeded the powers of the arbitration panel.  The court took the position that because arbitrators derive their powers from the agreement between the parties, the court must look to the terms of the governing arbitration clause to determine the powers of the arbitration panel.  As between White Springs and Glawson, the governing clause allowed for awards of attorneys’ fees and costs.  In the court’s view, White Springs could not overcome the “high hurdle” necessary for vacating an arbitration award when there is a plain basis for the panel’s award in the parties’ agreement.

White Springs also argued that the issue of attorneys’ fees was not properly submitted to the panel.  There was no dispute that Glawson presented the issue to the arbitration panel in its motion prior to Phase II.  The court considered whether this motion effectively submitted that claim to the panel and ultimately concluded that the issue was properly submitted.  It was clear to the court that the panel plainly believed that the issue had been submitted and had reviewed the positions of Glawson and White Springs with respect to the issue before making its decision.

The court noted that the timing of Glawson’s request for attorneys’ fees is not determinative of proper submission.  It did not matter to the court that Glawson did not demand attorneys’ fees in its initial complaint.  Although the panel never explicitly ruled that the claim could proceed, it did grant the relief sought therein, which the court viewed as a strong indication that the panel had indeed consented to that claim.  It did not matter to the court that Phase I attorneys’ fees were sought in Phase II because the parties had stipulated that all other disputes would be resolved during Phase II.  For the court, the arbitration was continuous, and the parties’ agreement to conduct the arbitration in two distinct phases did not restrict the rights of either party to assert monetary claims in Phase II.

For a copy of the decision click here

Jeffrey Kingsley and Troy Bataille

 

Circumstantial Evidence Insufficient to Establish Coverage - Insured Liable for Prorated Share

Fulton Boiler Works Inc. v. American Motorists Insurance Co., et al., 2011 U.S. Dist. LEXIS 141884 (Dec. 9, 2011)

Liability for underlying asbestos claim alleged against an insured must be prorated according to the time that each defendant insurer provided coverage during the period in which the injury-in-fact occurred the U.S. District Court for the Northern District of New York recently decided.   

The plaintiff/ insured originally filed suit against American Motorists Insurance Co. and American Manufacturers Mutual Insurance Co. (collectively, AMICO) and OneBeacon Insurance Co., alleging breach of contract and seeking a declaration that coverage is owed for thousands of underlying asbestos claims arising out of the insured’s manufacturing of boilers. After additional policies were discovered, AMICO filed a third-party complaint against Employers Insurance Company of Wausau, Nationwide Mutual Insurance Co. and The Travelers Cos. Inc., seeking a declaration that they must contribute to the defense of the underlying claims.

After the Court determined that all of the insurers had a duty to pay the underlying defense costs because the allegations in the complaint could result in a covered liability, multiple motions were filed seeking a declaration that the plaintiff be obligated to pay a pro-rata share of indemnity costs related to years it was allegedly uninsured.

In response, the policyholder maintained that it could not be allocated a share of indemnity costs because it never intentionally elected to forgo insurance coverage for asbestos risks.

The policyholder argued that workers compensation records establish that it had purchased general liability insurance coverage from Travelers for 1960-1969 and OneBeacon for 1972, 1973, and 1975. This conclusion was based on the plaintiff’s assertion that it purchased all of its insurance coverage (liability, auto, property, and workers compensation) from the same carrier. Despite plaintiff’s efforts, the evidence adduced showed that the plaintiff in fact purchased multiple policies from multiple insurers. Therefore, the workers compensation records did not provide any indication as to which insurer, if any, provided general liability coverage to the plaintiff for the allegedly uninsured period. In addition, the Court gave little weight to the self-serving testimony of the plaintiff’s current and former executives who maintained that it was always the custom, practice, and philosophy of the company to purchase proper insurance coverage.

Accordingly, the Court determined that coverage was not established by clear and convincing evidence and  liability for each underlying asbestos claim must be prorated according to the time each defendant insurer provided coverage during the overall time period the injury-in-fact was occurring. The Court held that the policyholder may be allocated a share of indemnity for any period of time it assumed the risk and elected not to purchase insurance or purchased insufficient insurance.

For a copy of the decision click here

Dan Gerber and Matt Cabral

Cases for Reinsurance Review - December 2011 Edition

Cases provided courtesy of LexisNexis

IRB-IRB-Brasil Resseguros S.A. v. National Indemnity Co.

Utica Mutual Reinsurance Co. v. INA Reinsurance Company, nka R&Q Reinsurance Company

Travelers Cas. & Surety Co. v. Century Indemn. Co.

Mount Mansfield Ins. Group, Inc. v. American Int’l Group, Inc

ERISA Putative Class Action over Defective Database Dismissed as Untimely

Koberg v. John Alden Life Ins. Co. U.S. Dist. Ct. (Mont.) Dec. 8, 2011

The District Court of Montana dismissed a putative class action against insurer John Alden last Thursday citing the Policy’s 3-year statute of limitations. The plaintiff brought suit against the insurer alleging it had used a defective database that produced inaccurate calculations for reimbursement of health care charges. Plaintiff was insured under an ERISA-governed employee welfare benefit plan that included medical coverage.

In 2005, the insured incurred more than $20,000 in health care costs of which he agreed to pay $4500 as required by the policy and submitted the remaining amount to the insurer. The insurer refused to pay the remaining amount, on the basis that the charges exceeded the prevailing rate in the locality as determined by the Ingenix database. The insured retained counsel and filed an internal appeal in 2006. During this appeal process the insured was informed of the insurer’s process in determining the reimbursement amount and of his right to file an ERISA action after exhaustion of the internal appeals process.

Later in 2009, the insured learned of a settlement between the New York Attorney General’s Office and United Healthcare in a lawsuit concerning the database. The insured then filed this lawsuit in March 2011 asserting five ERISA causes of action, a declaratory judgment claim, and state law claims arising out of the insurer’s method of reimbursing policyholders for healthcare services. The court focused on the tardiness of the action finding that the Policy’s three-year statute of limitations was reasonable.

The insured argued that the three-year period should be tolled, or that the insurer should be equitably estopped from raising the defense because it prevented him from filing within the deadline by its affirmative misrepresentations. The court stated that the insured had not met its burden to show any “active conduct by the defendant above and beyond the wrongdoing upon which the plaintiff’s claim is filed.” The court found that there was no allegation that the insurer had lulled the insured into delaying his legal action and therefore, no basis for equitable estoppel.

The court then discussed the insured’s argument that his claim did not accrue until 2009 because he lacked “actual knowledge” of the insurer’s violation until he learned of the settlement regarding the database. The court stated that the insured had ignored contrary mandatory authority from the Ninth Circuit which holds that “actual knowledge” requires only knowledge of all the relevant facts, not that the facts establish a cognizable legal claim under ERISA. The court dismissed the insured’s ERISA claims and the declaratory judgment claim on the basis that they were untimely filed and also dismissed the remaining state law claims as being preempted by ERISA.

For a copy of the decision click here

Sarah Delaney  and Michael Saltzman

Fourth Circuit Requires Causation in ERISA Breach of Fiduciary Duties Suit

Plasterers’ Local Union No. 96 Pension Plan v. Pepper (U.S. Ct. of Apps., 4th Cir., Dec. 1, 2011)

Former trustees of Local Union 96 appealed a district court ruling that they had breached their fiduciary duties regarding investment of plan assets as required under ERISA section 1104(a)(1)(B) and (C). The former trustees presented evidence that in the 1970’s and 80’s the predecessor plan fund had lost substantial amounts of funds and therefore, in 1987 the board implemented the plan with the primary objective to avoid any further losses. From 1992 to 2005 the Plan assets were invested entirely in $90,000 CDs and on-to-two-year Treasury bills. The district court held that the former trustees had failed to investigate its investment options and also failed to diversify its investments. After finding a breach of fiduciary duties to investigate and diversify, the district court turned immediately to damages. The district court awarded damages for a three year period of $432,986.70, $337,935.01 in fees, and $20,014.47 in costs.

The former trustees appealed citing error due to the district court’s failure to make a finding that they held objectively imprudent investments. The Fourth Circuit agreed, stating that a breach of the fiduciary duty to investigate or diversify does not automatically equate to causation of loss and therefore liability. The district court erred in that it did not first determine whether the investments were imprudent and then as required by ERISA, make an independent finding of causation of loss resulting from the breaches identified. The court stated that the failure to investigate alternative options or to diversify does not mean that their actual investments were necessarily imprudent. The Fourth Circuit vacated and remanded the decision with directions to the court that in analyzing the prudence of the former trustees’ actions the court will need to make factual findings of the circumstances that informed the decisions including the Plan’s size and type, the Plan member’s demographics, and the Board’s goals and objectives. The Fourth Circuit stated no opinion on the issue of who has the burden of proving causation although it noted that the circuits are split.

The Fourth Circuit also rejected the district court’s calculation of damages and failure to articulate a reasoned basis for awarding damages based on a three-year period instead of the former trustees urged six year basis. The Court found that the different time periods would result in significantly different awards and therefore “picking a time period out of the air” is clearly not a reasoned basis. Notably, if the six-year period was used, the investments outperformed the expert’s model and so no damages where incurred by the Plan. Additionally, the Court rejected the award of attorney’s fees and costs instructing the district court on remand to first conduct the Hardt analysis and then apply the general guidelines in Quesinberry. The Court cited error in the district court’s finding that an insurance policy would pay the fee award, and so the “Former trustees thus were able to pay any such award” because the policy was not in the record, nor was any evidence of its terms presented.

For a copy of the decision click here

Sarah Delaney and Dan Gerber

Insolvent Insurer Off the Hook in Benzene Actions

Jones v. Golden Eagle Ins. Co. (Cal. Ct. App. Nov. 28, 2011)

A California appellate court recently ruled that an insolvent insurer was not obligated to share in the defense or indemnity of its bankrupt insured where multiple personal injury claimants failed to comply with the Insurance Commissioner’s directives requiring submittal of a proof of loss.

Several individuals sued Calsol, Inc. and other defendants in separate lawsuits, alleging harm from exposure to Safety-Kleen 105 Solvent, a product used in connection with mechanical repairs. Safety-Kleen 105 consisted largely of mineral spirits, a chemical mixture containing benzene. Calsol supplied the mineral spirits to the manufacturer of Safety Kleen, but had since fallen into bankruptcy. The bankruptcy court granted the plaintiffs relief from the automatic stay to pursue their claims against Calsol, but only to the extent any judgment could be enforced only against Calsol’s insurers, not Calsol itself.

Golden Eagle insured Calsol for several years before it was placed in conservatorship in 1997. As provided in California’s Insurance Code, the insurance commissioner established an administrative procedure to handle claims against the assets of Golden Eagle. Per this procedure, counsel representing the commissioner sent a letter to the plaintiffs’ counsel, advising them to complete and return a sworn proof of loss. The commissioner denied the plaintiffs’ claims after they failed to complete and return the proofs of loss within the time allotted.

Several insurers that also insured Calsol during the relevant exposure period filed claims in Golden Eagle’s conservatorship proceeding, seeking a joint defense commitment with respect to the plaintiffs’ claims. The commissioner denied the request. The insurers then filed an application for an order to show cause in the court in charge of supervising Golden Eagle’s plan of rehabilitation.

The appellate court affirmed the lower court’s denial of the order to show cause. In so ruling, the appellate court rejected the insurers’ argument that while the plaintiffs’ claims against Golden Eagle may have been extinguished, their claims against Calsol were not. According to the insurers, because Calsol continued to be liable to the plaintiffs on the claims that were covered by Golden Eagle policies, Golden Eagle’s obligation under its Calsol policies to provide a defense to those claims was not extinguished by the plaintiffs’ failure to file their proofs of loss. The court noted that the plaintiffs’ claims were only nominally against Calsol because the bankruptcy court permitted the actions only to the extent the plaintiffs could recover against the insurers. As a result, the court held that Golden Eagle was not obligated to defend or indemnify Calsol and, therefore, did not have to share in the insurers’ defense costs.

For a copy of the decision, click here

Carrie Appler and Joanna Roberto

Exclusion Denied for Use of the word "Included" in Declaration Page

Johnson v. Conn. Ins. Guar. Ass'n, 302 Conn. 639 (Conn. 2011)(November 8, 2011)

Plaintiff executor of decedent's estate sought a declaratory judgment to determine whether a policy issued to defendant medical group covered the estate's claims for medical malpractice. The policy contained an exclusion from corporate coverage liability based on injury arising solely out of acts or omissions in the rendering of professional services by any paramedical for which a premium charge was shown on the declarations page. 

The trial court rendered judgment in the estate’s favor, determining that the exclusion plainly did not apply focusing on the fact that the paramedical in questions was not a named insured, a dispositive fact in a question of coverage in Connecticut Medical Ins. Co. v. Kulikowski, 286 Conn. 1, 942 A.2d 334 (2008). The trial court further concluded that the exception did not apply because "the premium charge for paramedicals …was listed as 'included' and there were no paramedicals identified in or premium charges for paramedicals listed on [the] declaration pages.”

The insurer appealed, claiming that the insurance policy unambiguously indicated that the paramedical exclusion was applicable to the plaintiffs' claims. The insurer argued that the exclusion applies to paramedical employees as a class, as long as there is a premium shown for that class on the declarations page; and such a premium is shown on the declarations page in the word "included". The insurer asserted that the trial court improperly determined that the paramedical had to be named on the declarations page in order for the exclusion to apply. The association conceded that the policy was intended to cover the type of claim alleged in the underlying malpractice action but contended that, because that coverage existed only under the section for Paramedical Employee Liability, the plaintiffs' failure to name the paramedical as a defendant resulted in there being no coverage under the policy to shield the policyholder from liability.

The Connecticut Supreme Court concluded that the policy did not unambiguously manifest a clear intention to exclude coverage for the insured. Even if the exclusion referred to paramedicals as a class, the policy did not unambiguously show a premium charge for that class on the declarations page. Accordingly, the policy exclusion was inapplicable to the insured's coverage for claims brought against it predicated solely on liability that it may incur. Judgment was properly granted in favor of the estate.

For a copy of the decision click here

Matt Cabral and Anthony Golowski

 

Insurer Failed To Establish Applicability Of Pollution Exclusion Involving Construction Debris Disposal

Sierra Recycling & Demolition, Inc. v. Chartis Specialty Lines Ins. Co.

(United States District Court, E.D. California, November 3, 2011)

 

The issue in this environmental coverage dispute was whether the policy’s pollution exclusion applied to cover alleged losses stemming from the disposal of certain hazardous debris.  Specifically, a third party hired plaintiff policyholder to transport construction debris from a demolition site.  The policyholder hauled the construction debris from the site to Metropolitan Recycling Center, a private company which is not owned, leased or rented by the policyholder.  Prior to transportation, policyholder Sierra removed from the debris materials it deemed hazardous.  The policyholder transported approximately 300 tons of construction debris to the Metropolitan facility, which is not a landfill, as all materials must be sold, recycled or otherwise transferred to other facilities.  Subsequently, Metropolitan informed Sierra that a sample collected from the debris pile indicated elevated levels of lead and zinc. 

 

The issue was whether Exclusion U of the policy barred the policyholder’s claim for the cleanup costs. The insurer contended that the exclusion unambiguously barred Sierra’s claim because Sierra’s “final disposal” of the debris was at Metropolitan, a site Sierra did not own, lease or rent.  The insurer asserted that Exclusion U applied unambiguously to any site, not only landfills, where the insured ultimately disposes its materials.   The policyholder, however, contended that Exclusion U is ambiguous and did not bar its claims because “final disposal” was limited to the final disposal of material in landfills, not the final disposal as to the insured. 

 

Exclusion U states: This insurance does not apply to … “U” Non-owned Site Disposal – Bodily injury, property damage or environmental damage arising from the final disposal of material and/or substances of any type (including but not limited to any waste) at any site or location which is not owned, lease or rented by you. 

 

Sierra further argued that Metropolitan is a recycling facility, not a landfill site, and all material on its site must be sold, recycled, or otherwise transferred to other facilities.  Sierra specifically emphasized the interpretation of the word “final” in “final disposal” asserting that the plain language in the exclusion excludes coverage for a materials’ final disposal site, i.e., a landfill, not a processing facility such as Metropolitan.  In contrast, the insurer argued that interpreting the policy as a whole, Exclusion U was intended to exclude the insured’s final relinquishment of debris or waste, whether at a landfill or otherwise not owned, leased, or rented by the policyholder.  In supporting its interpretation, the insurer emphasized the phrase “any site or location” in the exclusion.  Also, the insurer highlighted the phrase “including but not limited to any waste” as it would be unnecessary to include it if the exclusion was intended to only cover landfills.  Lastly, the insurer argued that if Sierra wanted policy coverage for non-owned facilities it could have secured same under Coverage D of the policy.

 

While the court determined both interpretations to be reasonable, the court held that the exclusion was ultimately ambiguous. Specifically, the court held that defendant did not meet its burden under the law to make Exclusion U plain and clear, noting that the exclusion was neither plain or clear whether it is limited to Sierra’s final disposal of material, whether it includes disposal at non-owned landfills, or whether it would include a recycling processing facility such as Metropolitan.  Therefore¸ it could not preclude the policyholder’s claim.

 

For a copy of the decision click here

 

Paul Steck and Tom Segalla