The Insurance and Reinsurance Report

FLORIDA JURY AWARDS GLORIA ESTEFAN’S HOTEL CO. $ 6.7 MILLION FOR HURRICANE DAMAGE

Pin-Pon Corporation v. Landmark American Insurance Co. , case number 2009 0320 CA 03, consolidated with Pin-Pon Corporation v. Lexington Insurance Co., case number 31 2009 CA 01 2244, May 3, 2012 (Indian River County, FL)

Lexington Insurance Co. and Landmark American Insurance Co., were found by a Florida state jury to be liable to Gloria Estefan’s Pin-Pon Corp. in the amount of $6.7 million for failing to provide coverage for hurricane damage.

The insurers had made some payments, but the jury found that the insurers failed to provide the coverage that they owed for damage to the company’s Vero Beach hotel. Hurricane Frances hit the hotel in August 2004 and Hurricane Jeanne hit again in September 2004, causing extensive damage. The jury found that the insurer’s had failed to pay for building damages, code upgrade damages and costs while the hotel was unable to operate as repairs were being made.

Gloria Estefan’s hotel company had a primary policy with Lexington and an excess policy with Landmark at the time that the Hurricanes hit.  Both policies provided coverage for windstorm damage and business interruption coverage. The hotel company provided documentation of its losses but the insurers refused to pay the full amount. The insurers argued that the hotel company was renovating the hotel and much of the repairs and business interruption were due to the renovation and not the storm damage.

The jury found that the insurers were obligated to indemnify the hotel for the costs it incurred in having to restore the hotel before it could be renovated in the first place. Moreover, the jury found that the insurers had to indemnify the hotel for the damages it incurred in bringing the hotel up to code after the damage caused by the Hurricanes.

The hotel reopened in 2008, and the hotel company is going to seek prejudgment interest on the $6.7 million for the time between 2008 and this jury decision.

For a copy of the decision click here

Clay Waterman and Joanna Roberto

 

Fourth Circuit Certifies Pollution Exclusion Ambiguity To The Virginia Supreme Court

Travco Ins. Co. v. Ward

(Fourth Circuit, March 1, 2012)

This environmental coverage dispute resulted from a property loss involving Chinese Drywall installed in policyholder’s residence. Over time, the Chinese Drywall released sulfuric gas into the residence causing damage to the interior structures of the home. Defendant filed a lawsuit against several development and supply companies, alleging that they constructed his home with "inherently defective" drywall.  Thereafter, the insurer filed a declaratory judgment action seeking a declaration that, under the Policies, it had no obligation to provide coverage for the losses claimed by the policyholder. 

Based on a review of applicable Virginia law, the district court held that the policyholder’s residence and its components suffered a "direct physical loss" within the meaning of the Policy.  However, the court also concluded that four separate exclusions applied to the damage claimed. Specifically, the claimed losses were found to be excluded by the Policy's latent defect, faulty materials, corrosion, and pollutant exclusions.

As to the pollutant exclusion, the district court specifically rejected policyholder’s argument that Chinese Drywall was not a "contaminant" or a "pollutant" and further held “under Virginia law, pollutant exclusions are not limited to ‘traditional environmental pollution.’”  The court determined that there is no dispute that the Chinese Drywall has released reduced sulfur gases into the residence and that both state and federal authorities recognize reduced sulfur gases as pollutants.  Thus, the gases released in the home qualified as irritants and contaminants.

On appeal to the Fourth Circuit, the policyholder asserted that the district court erred in holding that the policy exclusions barred coverage for the claimed losses.  Specifically, the policyholder contended that Travco failed to meet its burden of establishing that the exclusions applied, and argued that the language in each of the exclusions at issue is not clearly or unambiguously defined.

Specifically, as to the pollution exclusion, the policyholder alleged that the meaning of “pollutant” is ambiguous under Virginia law, and was not intended to apply to product liability claims, but was intended to limit or exclude coverage for past environmental contamination.  The policyholder further noted that the district court relied on cases involving traditional environmental pollution and that there is a split in authority as to the scope of the pollution exclusion, generally.  The policyholder further argued that the issue is controlled by Unisun Ins. Co. v. Schulwolf, 53 Va. Cir. 220 (Va. Cir. 2000) wherein the Virginia Circuit Court declined to apply a pollution exception to a lead paint case, stating that “it is reasonable to conclude that the exclusion clause applies only to claims based on environmental pollution.”

The Circuit court, in certifying these questions to the Virginia Supreme Court, noted there is no clear controlling Virginia precedent to guide its decision on this appeal and the questions presented are purely questions of state law which have not been addressed by the Virginia Supreme Court.  In addition, the Fourth Circuit acknowledged the far-reaching impact of this decision and the state’s incentive for establishing how to interpret these standard exclusions in light of the number of consumers and insurers addressing similar drywall issues.  As such, the Fourth Circuit court held that, in light of the unusual nature of the losses involved, and because the questions are sufficiently unsettled, certification is warranted on the application of these four exclusions.

For a copy of the decision click here

Paul Steck and Michael Glascott

Insurer has a Duty to Defend Policyholder for Clean Air Act Violations

Louisiana Generating LLC et al v. Illinois Union Insurance Company, U.S. Dist. Ct. Louisiana, January 30, 2012

In this case, both parties made motions for summary judgment seeking a declaration on the insurer’s duty to defend the policyholder in the underlying suit. The suit was brought by the Federal Government against the policyholder for Clean Air Act violations. The underlying suit alleged that the policyholder, a subsidiary of NRG Energy Inc., made major modifications to a coal plant within notifying the government or obtaining the necessary permits. The federal government sought a mitigation plan and civil penalties for the harm done by the excess emissions caused by the illegal modifications to the plant.

The underlying action alleged that the major modifications to the plant resulted in increased emissions. The court first ruled that the underlying action fell under the policy’s coverage period and then ruled that the insurer had a duty to defend the policyholder as the allegations, on their face, were covered by the policy.

The insurer argued that the government allegations did not relate to covered claims as there was no property damage and no remediation demanded in the complaint. The court found that, although the insurer may ultimately prove otherwise, the air injury alleged in the action and the retrofitting sought in the action constituted remediation.

The court also found that the fines and penalties exclusion in the policy, which excluded coverage for criminal fines, did not apply because the penalties sought by the federal government were civil and not criminal penalties. The court thus found that the insurer owed a duty to defend.

The decision can be found here

Joanna Roberto and Paul Steck

Pollution Exclusion Does Not Bar Carbon Monoxide Claim

Scottsdale Ins. Co. v. Pursley (11^th Cir. (Ga.) Jan. 10, 2012)

The Eleventh Circuit recently held that the pollution exclusion in a CGL policy did not bar coverage for a wrongful death claim arising from carbon monoxide poisoning.

The decedent retained the insured to make repairs on his boat. When making the repairs, the insured neglected to cover the exhausts for the starboard engine. While the repairs were ongoing, the decedent stayed overnight on the boat and used a generator to power the air conditioner. The next morning, the decedent was found dead next to his bed. It was later found that uncovered exhaust vents emitted carbon monoxide into the cabin via the air conditioner.

The decedent’s widow and his estate sued the insured for wrongful death and property damage. The insured’s CGL carrier denied coverage on the ground that the policy’s pollution exclusion applied. The district court agreed and found that the pollution exclusion precluded coverage.

On appeal, the Eleventh Circuit noted that the carrier’s reliance on the Georgia Supreme Court’s holding in Reed v. Auto-Owners Ins. Co., 677 S.E. 2d 90 (Ga. 2008) was misplaced. In Reed, the Georgia Supreme Court found that a pollution exclusion in a landlord’s insurance policy precluded coverage for a claim arising from carbon monoxide poisoning. The Eleventh Circuit noted that in Reed, the insured owned the premises, whereas in the case before it, the insured did not. The distinction was an important one insofar as the exclusion at hand barred coverage only if a pollutant leaks “at or from any premises, site or location which is or was at anytime owned or occupied by or rented or loaned to any insured.” The Eleventh Circuit held that the pollution exclusion did not apply because the insured did not own the boat where the decedent died.

For a copy of the decision, click here

Carrie Appler and Jeffrey Kingsley

 

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

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

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

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

Cases for Fall 2011 Environmental Coverage Quarterly

Cases provided courtesy of LexisNexis.

AES Corp. v. Steadfast Ins. Co.

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

Canal Ins. Co. v. Montello, Inc., et al.

Colony Ins. Co. v. Wallace

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

Dragas Management Corp. v. Hanover Ins. Co.

Erie Ins. Exchange v. Imperial Marble Corp.

Evanston Ins. Co. v. Harbor Walk Dev., LLC

Gabarick v. Laurin Maritime Inc., et al.

Harleysville Mut. Ins. Co. v. Glenn A. Ford & Son Drilling Contr.

Jefferson Block 24 Oil & Gas, LLC v. Aspen Ins. UK Ltd.

Lancer Ins. Co. v. Garcia Holiday Tours et al.

Leprino Foods Co. v. Factory Mut. Ins. Co.

Macheca Transp. Co. v. Philadelphia Indemnity Ins. Co.

Markel Int. Ins. Co., Ltd. v. Florida West Covered RV & Boat Storage, LLC

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

Mitsui Sumitomo Ins. Co. of Am. v. Automatic Elevator Co.

Peabody Essex Museum, Inc. v. United States Fire Ins. Co.

State Nat’l Ins. Co. v. Settoon Towing, LLC

Travelers Ins. Co. v. Maplehurst Farms Inc.

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

Webb Operating Co. v. Zurich American Ins. Co.

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

 

Insurer Failed To Establish Applicability Of Pollution Exclusion Involving Restaurant Exhaust Fan Odors

Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co. (United States Court of Appeals, Second Circuit, November 4, 2011)

The issue in this coverage dispute was whether the policy’s pollution exclusion applied to cover alleged losses stemming from a restaurant’s exhaust fan that allegedly caused property damage and prohibited the use of an adjoining resident’s condominium.  Specifically, the policyholder restaurant brought an action against its insurer for a declaration that it must defend and indemnify it in connection with an underlying action seeking to recover for damages allegedly cause by smoke, exhaust, and odors emitted by the restaurant’s exhaust vent. 

On appeal, the insurer argued that it was not required to defend the restaurant in the underlying action on the ground that the pollution exclusion excluded coverage for damages caused by any waste, including odors, emitted into the atmosphere from a commercial exhaust vent. It further contended that the district court erred in construing the clause according to the "common speech" and "reasonable expectations" doctrines and that the odors constitute "pollution" under the New York City Administrative Code.

In assessing the validity of the exclusion, the court of appeals noted that the underlying complaint did not allege that the plaintiff was damaged by a "pollutant" or that the odors emitted from the restaurant’s exhaust vent constituted "pollution." Instead, it alleged that plaintiff "stopped using [his] living room because the odors permeating that room had become so overpowering as to make the room entirely unusable," and that he was damaged by the co-op board's failure to address his complaints. The insurer maintained that it was not required to defend the restaurant on the ground that plaintiff’s allegations fell within the pollution exclusion, which excluded coverage for "'property damage' . . . arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time . . . [a]t or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured."  The policy, in turn, defined "Pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste," with "[w]aste includ[ing] materials to be recycled, reconditioned or reclaimed."

The insurer further contended that that district court misapplied the "common speech" and "reasonable expectations" doctrines on the ground that "the term 'fumes' contained in the Policy's definition of 'Pollutant' is commonly defined as odorous." The court of appeals, however, noted that there is no dispute that the term "odors" was not included in the policy's definitions of "pollutants," and the term "fumes" was undefined. Moreover, the definitional list of "pollutants" set forth in the policy particularized "irritant or contaminant" by reference to "smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste," terms that connote traditional forms of environmental or industrial pollutants or contaminants.  Lastly, the court discounted the insurer’s argument that the New York City Administrative Code’s definition of air contaminant was applicable in this setting or was controlling in the interpretation of pollution exclusion clauses.  As such, the court affirmed the district court ruling holding that the insurer did not meet its burden showing the odors constituted “pollution.” 

For a copy of the decision click here

Paul Steck and Sharon Angelino

Insurer Failed To Establish Applicability Of Pollution Exclusion In Chinese Drywall Class Action

Sua Ins. Co. v. S&O Invest. LLC (United States District Court, Southern District, Alabama, October 28, 2011)

The issue in this coverage dispute was whether the policy’s pollution exclusion applied to cover alleged losses from the use of Chinese Drywall in a housing tract and whether the insurer was obligated to defend or indemnify the policyholder in connection with the subsequent class action lawsuit under two policies. 

Here, the policyholder sought coverage based on products/completed operations ("PCO") rather than based on commercial general liability ("CGL"). While the claimants alleged that the PCO coverage was not part of Policy 2, the Court found nothing in the record supporting this contention, especially given that the declarations page of Policy 2 included a "products/completed operations aggregate limit" of $2 million.”  As such, the primary issue was whether the pollution exclusion applied to the PCO portion of the policy.  Here, the exclusion was set forth in an endorsement, which stated that it modified "Commercial General Liability Part" and replaces "Exclusion f. under Paragraph 2, Exclusions of Section 1 – Coverage A – Bodily Injury And Property Damage Liability."

Notably, Policy 1 contained an identical CGL coverage form, an apparently identical pollution exclusion located in sub-paragraph f of Paragraph 2's list of exclusions, and an apparently identical replacement pollution exclusion endorsement.  Policy 1 also contained a separate, ten-page "Products/Completed Operations Liability Form." The court noted that form did not reference a "Coverage A" as do the CGL forms, and its Exclusion f did not address pollution, but war.  Thus, the court reasoned that there appeared to be no defensible basis for arguing that the pollution exclusion endorsement in Policy 1 extended beyond the CGL form to the PCO form.

The insurer argued that the situation is completely different with respect to Policy 2 because it, unlike Policy 1, it contained no PCO form.  The court, however, held while Exhibit 9 to the plaintiff's motion for summary judgment included no such form, the insurer had not established that Exhibit 9 represented the entirety of Policy 2. Rather, it noted Exhibit 9 was “plopped in the record on its own,” without any affidavit or declaration from a representative of the plaintiff stating, much less swearing on personal knowledge, that Exhibit 9 is the entire policy.

The insurer argued in response that that no PCO form was needed for Policy 2 because the CGL form itself addressed PCO coverage. The court held that while plaintiff may be able ultimately to establish that Policy 2 contained no such form, it had yet to do so.  Therefore, the court denied summary judgment to the insurer as it “had not established a necessary predicate to its argument – as to which it bears the burden – that the pollution exclusion endorsement excludes coverage in this case.”

For a copy of the decision click here

Paul Steck and Jeffrey Kingsley

Organic Compound Maker Denied Coverage Based on Pollution Exclusion

Pekin Ins. Co. v. Pharmasyn, Inc. (Ill. Ct. App. Oct. 19, 2011)

An Illinois appellate court ruled last week that a policy’s pollution exclusion barred coverage to an insured organic compound maker for several personal injury lawsuits filed by individuals who either worked for or in the same building as the insured.

Several individuals filed suit against the insured, alleging that they were each occupants of a commercial building in which the insured, a producer of organic compounds, was located. The underlying complaint alleged that the plaintiffs were injured when the insured negligently allowed “dangerous and toxic substances, including, but not limited to, isocyanate chemicals” to be released “from open containers at the property, creating toxic fumes and seepage of hazardous material into the common areas, the environment, and into the premises occupied by the Plaintiffs.”

The insured tendered its defense and indemnity to its commercial general liability insurer, which agreed to defend pursuant to a reservation of rights. The insurer maintained, however, that coverage was excluded because the claims alleged “bodily injury” caused by pollution.

In the ensuing declaratory judgment action, the lower court agreed with the insurer’s position that the pollution exclusion barred coverage for the claims. The appellate court affirmed, finding that the policy’s exclusion for injuries resulting from the dispersion of a pollutant “[a]t or from any premises, site or location which is or was at any time owned or occupied by or rented or loaned to, any insured” applied. The court held that the policy language “at or from the premises” was not ambiguous and that the exclusion was sufficiently broad to bar coverage for pollution “at” the location of the insured’s business or pollution leaking “from” the location of the insured’s business. As a result, the court held that the insurer was not obligated to defend or indemnify the insured against the underlying personal injury actions. 

 For a copy of the decision, click here

Carrie Appler and Rick Cohen

Insurer Off The Hook For Greenhouse Gas Emissions Claim

The AES Corp. v. Steadfast Insurance Co.  Supreme Court of Virginia, September 16, 2011

On Friday, September, 16, 2011, the Virginia Supreme Court ruled in this declaratory judgment action that the insurer, Steadfast Insurance Co., did not owe policyholder, power provider The AES Corp., coverage against claims that the company’s greenhouse gas emissions destroyed the Alaskan village of Kivalina by contributing to global warming.

In a unanimous opinion, the court ruled that the claims were not covered by the policy because the village in the underlying action alleged that the release of the greenhouse gas by the company was intentional and knew or should have known that such intentional release of the gas would damage the village.

The underlying action was started by a federal suit filed in 2008 by Kivalina, a native fishing community.  The complaint alleged that AES and other companies of contributing to global warming, the effects of which have ruined its shoreline and made the area uninhabitable.  The insurer argued that it was not obligated to provide coverage to the policyholder because the damages sought in the underlying action were barred under its liability policy since they are alleged to be intentional conduct.  Meanwhile the policyholder contended that it is entitled to coverage because the complaint alleged both intentional conduct and negligence and argued that the consequences of its emissions were unintended. 

This is purportedly the first ruling to determine whether or not insurers are required to provider coverage for claims arising from global warning. 

“Even if AES were negligent and did not intend to cause the damage that occurred, the gravamen of Kivalina’s nuisance claim is that the damages it sustained were the natural and probable consequences of AES’ intentional emissions,” Justice Bernard Goodwyn said.

The underlying complaint plainly alleges that the policyholder intentionally emitted carbon monoxide and other greenhouse gases as part of its normal operations. Kivalina also pointed to extensive scientific consensus that the “natural and probable consequence” of the emissions was global warming, which caused the damages it suffered.

The other two justices, Justices Lawrence Koontz and Harry Carrico, concurred, saying the injury the village alleged did not arise from an accident or occurrence as defined under the liability policy.

“Where the harmful consequences of an act are alleged to have been eminently foreseeable, choosing to perform the act deliberately, even if in ignorance of that fact, does not make the resulting injury an ‘accident,’ even when the complaint alleges that such an action was negligent,” they said.

For a copy of the decision see here

Sarah Fang and Tom Segalla

District Court Grants Summary Judgment To Insurer Holding Environmental Claims Were Reported Outside Claims-Made Policy Term

Webb Operating Co. v. Zurich American Ins. Co. (United States District Court, Eastern District Michigan, July 18, 2011)

This environmental coverage dispute arose from an underlying property damage suit and environmental cleanup involving a leaking underground storage tank.  The insurer denied insured’s claim to defend or indemnify under the policy alleging that the claims were made outside the policy period. 

Specifically, the policyholder (Webb Operating Company) operated a gas station in Highland Park, Michigan and purchased "Storage Tank System Third Party Liability and Cleanup Policy" from Defendant Zurich American Insurance Company in 2002.  The policy covered clean up costs resulting from a leak or "release" of fuel from the underground storage tanks located on Plaintiff's property. The insurer sold Plaintiff policies on an annual basis and the policyholder renewed with Defendant every year since 2002. 

In June 2006, one of Webb’s underground storage tanks failed a "tank tightness" test during an inspection. The policyholder hired Huron Environmental L.L.C. ("Huron") to perform remediation services in connection with the failing tank. Webb and Huron decided to "close" the tank; however, the policyholder’s President decided not to submit Huron's bill ($8,050) to the insurer under the 2005-2006 Policy because the deductible was $5,000 and because he did not want a policy claim to raise premiums or affect future insurability.

Huron continued to monitor the tank and oversee remediation efforts at Webb’s gas station for the next three years. During this time, the cost of the remediation services grew to a point at which the policyholder became unable to pay. As a result, the policyholder filed a claim with the insurer sometime in October 2009 believing the loss was covered under the 2005-2006 Policy, or alternatively, under the 2009-2010 Policy.

The court determined that the policies in question were “claims-made” policies, and thus, coverage was unquestionably conditioned upon the policyholder filing a claim within the specifically defined reporting period and not upon the release simply occurring.  Moreover, the court held that under Michigan law, the insurer was not required to show prejudice on a claims-made policy.   Therefore, as it was undisputed that the policyholder discovered the release in 2006, but did not give the insurer notice of the claim until late 2009, there was no coverage for the release.  Likewise, the court rejected coverage under the 2009-2010 policy because it was the discovery of a release that triggered coverage, not the discovery of the costs to remediate.  Accordingly, the court held the insurer had no coverage obligations under either policy.

For a copy of the decision click here

Paul Steck and Tom Segalla

Partial Summary Judgment Granted To Policyholder Regarding Inapplicability Of Pollution Exclusion

Ruffin Road Venture Lot IV v. Travelers Property Casualty Co. of Amer. (S.D. Cal. June 20, 2011)

In this environmental coverage dispute, the policyholder Ruffin Road, initiated an action to recover the unpaid amounts allegedly owed to it under the policy as well as for attorneys fees and punitive damages based on its claim the insurer acted in bad faith.  Specifically, Ruffin Road discovered that a pipe running beneath the property had burst. Mud, rocks, and other debris were sucked into the pipe and circulated through the HVAC system, resulting in extensive damage.  Ruffin Road filed a claim with Travelers who paid $19,000 to cover the cost of excavating and repairing the broken water pipe. Travelers subsequently refused to pay the balance of Ruffin Road's claim, including the cost of repairing the HVAC system itself; the cleaning expenses for the interior of the building, which was damaged in the process of excavating the broken pipe; and the business income Ruffin Road claims it lost as a result of the incident. 

As to the issues regarding the removal of contaminants from the HVAC system, the policyholder claimed that coverage was extended under the provision granting “Additional Coverage” for “Pollutant Cleanup and Removal” contained in the policy.  The insurer objected to coverage on several grounds including Travelers’ claim that dirt and mud inside the HVAC system does not qualify as “pollutants,” citing California precedent holding that the pollution exclusion refers only to “environmental pollutants” and not dire and mud, which are ubiquitous.  In addition, the insurer highlighted an explicit exclusion in the policy for “contamination by other than pollutants” which it claimed more appropriately applied to the situation.

The court determined that this turned on the disputed meaning of the term “pollutants” and relied on the California Supreme Court holding in MacKinnon v. Truck ins. Exhc., 31 Cal. 4^th 635, 653 (2003), which held that an insurance pollution cases, the term “pollutant” should be interpreted as referring only to “conventional environmental pollution.”  Thus, after analyzing the provision and case precedent, the court determined that the policy’s inclusionary provision for “Pollutant Cleanup and Removal” was not applicable in the current situation, thereby declining to accept the policyholder’s view that a pollutant can be anything that makes something else unclean or impure, especially here, where the contamination existed in an internal closed system, as opposed to the environment.

The court concluded that because pollutants is most naturally understood as a reference to traditional environmental pollution, this provision regarding contamination is likewise to be viewed as contamination of the natural environment.  That is, the contamination specifically excluded in the policy refers to the introduction of some foreign substance in the land or water.  As such, the presence of debris inside the HVAC system would not be “contamination by other than ‘pollutants’ within the meaning of the policy, and therefore, partial summary judgment was granted to the policyholder.

For a copy of this decision click here

Paul Steck and Michael Saltzman

Pump Manufacturer Seeks Coverage for Asbestos Claims

Air & Liquid Systems Corp. v. Allianz Underwriters Ins. Co.  (W.D. Pa. February 24, 2011)

Air & Liquid Systems Corp. was covered by several excess policies between 1981 and 1984 that obligated insurers to pay defense and indemnity costs relating to lawsuits filed by plaintiffs who sued for asbestos-related injuries allegedly resulting from asbestos-containing component parts in the company’s centrifugal pumps, heat-exchange coils and air handling systems used in the construction, power generation and defense industries.  Eighteen insurers, including Federal Insurance Co., Allianz Underwriters Insurance Co. and Lloyd’s of London, have disputed coverage of the claims. 

On February 24, 2011, Air & Liquid Systems Corp. and its parent, Ampco-Pittsburgh Corp., filed a lawsuit in the United States District Court for the Western District of Pennsylvania seeking a declaratory judgment that the insurers must defend and indemnify for the claims.  Plaintiffs also seek a declaration that Howden North America Inc., which acquired certain Ampco-Pittsburgh Corp. assets in 1993, has no right to coverage under the excess policies.  Plaintiffs allege that the claims for indemnity and defense that Howden North America Inc. submitted adversely affect plaintiffs’ right to the same recovery.

For a copy of the decision click here

Toni Frain and John Kuller

http://www.goldbergsegalla.com/attorneys/toni-l-frain

http://www.goldbergsegalla.com/attorneys/jonathan-m-kuller

Environmental Coverage Quarterly is now available

Goldberg Segalla’s Environmental Coverage Quarterly provides timely summaries of and access to the latest environmental coverage developments nationwide, and is published quarterly. Cases are organized by court and date. In addition, we provide the latest information regarding news in the environmental coverage industries. For a free copy, please click here.

 

If you have any questions or would like to receive the newsletter via email, please contact Toni Frain at tfrain@goldbergsegalla.com, Paul Steck at psteck@goldbergsegalla.com or Joanna M. Roberto at jroberto@goldbergsegalla.com.

Federal Court of Appeals Upholds Pollution Exclusion As Unambiguous Under Kansas Law

Union Ins. Co. v. Mendoza (United States Court of Appeals, Tenth Circuit, December 13, 2010)

This coverage dispute arises from an environmental exposure claim wherein third-party claimant, Karla Mendoza, appealed the district court’s grant of summary judgment in favor of Union Insurance in which it ruled that the accidental disbursement of anhydrous ammonia was excluded from coverage by Union’s pollution exclusion clause.

Mendoza, while working on a road-side construction crew, alleged personal injuries when she was inadvertently exposed to a mist of anhydrous ammonia fertilizer released by Union’s insured while the insured was plowing an adjacent field.  Relying on a pollution exclusion provision in the policy, Union denied coverage for the Mendoza lawsuit.  The district court granted Union’s motion for summary judgment ruling the insured’s accidental disbursement of ammonia was excluded from coverage by the pollution exclusion, as the language of the policy defining pollutant was not ambiguous and that anhydrous ammonia, while useful as a fertilizer in farming operations, is an  “irritant” and “contaminant.”

On appeal, Mendoza contended that the anhydrous ammonia was being used as a fertilizer and that under the circumstances, was not a pollutant.  She further contended that the definition of a pollutant in the exclusion was so overly-broad as to be ambiguous because any substance could conceivably meet the definition of a pollutant under the exclusion. In response, Union presented evidence that anhydrous ammonia has known hazardous effects, including respiratory tract, skin and eye burns, and contains components listed as a hazardous air pollutant under the Clear Air Act.  Further, Mendoza’s claims of burning in her eyes, throat, lungs and skin further established that the fertilizer is an irritant. 

The court of appeals noted that different courts interpreting the same definition of a pollutant in liability exclusion clauses have reached different conclusions as to the term’s meaning and whether it is deemed ambiguous.  Based on these conflicting interpretations, the court of appeals requested the Kansas Supreme Court to accept a certified question whether the exclusion is ambiguous under Kansas law.  Notably, however, after initially accepting certification, the Kansas Supreme Court declined to review, stating that in light of the recent Kansas federal district court decision in Gerdes v. American Family Mutual Ins. Co., 713 F. Supp. 2d 1290 (D. Kansas 2010), it would be improper to accept certification because there is now controlling Kansas precedent on the issue.  Specifically the Supreme Court noted that Gerdes acknowledged the precedential value of the holdings in Crescent Oil and Atlantic Avenue beyond the facts of those cases.  In Gerdes, the district court held that under Kansas law, and as articulated in Atlantic Avenue and Crescent Oil, the definition of a pollutant in a pollution exclusion clause is not so overly broad as to be ambiguous and is not subject to conflicting interpretations. Consequently, based on Gerdes, and the Kansas Supreme Court’s characterization of that decision, the court of appeals held that under Kansas law, the definition of a pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste” is not ambiguous and must therefore be enforced according to its terms.

For a copy of this decision click here

Paul Steck and John Kuller

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Kuller.html

 

District Court Finds Coverage For Drilling Firm For Remedial Costs In Drilling Relief Wells Under Policy Issued By Underwriters

Taylor Energy Co. LLC v. Underwriters At Lloyds   (United States District Court, Eastern District of Louisiana, October 29, 2010)

This environmental coverage case arises out of the collapse of an oil production platform owned by policyholder Taylor Energy and certain costs incurred by Taylor Energy as the result of oil seepage from 28 wells which were serviced by that platform but damaged during Hurricane Ivan. Taylor Energy had insured the structure and wells through defendants, Certain Underwriters at Lloyd's London ("Underwriters").

Underwriters moved for summary judgment concerning its rights and obligations under the Policy.  Specifically, Underwriters asked the Court to issue a declaration that Section IIC of the Policy held by plaintiff Taylor Energy "does not cover costs to drill relief wells" which Taylor Energy has been required by the United States to stop seepage from the wells. Thus, Underwriters maintained that Taylor Energy's breach of contract claim is without merit.  Likewise, Underwriters sought dismissal of Taylor Energy's statutory bad faith claims.

The insuring agreement contained coverage under four sections: Section I – Physical Damage/Removal of Wreck; Section II – Energy Exploration and Development Insurance; Section III - Oil Pollution Act Coverage; and Section IV - Loss of Production Income. The section in dispute was IIC, which involved coverage for Seepage and Pollution, Cleanup and Contamination.  Specifically, the question presented to the Court was whether the insuring language in Section IIC unambiguously provided coverage to Taylor Energy with respect to the drilling of relief/intervention wells to comply with the government’s specific order to take immediate remedial action to prevent further soil contamination and/or hydrocarbon seepage.

In August 9^th, 2005, Taylor Energy informed Underwriters that there would be leakage if the wells were not properly plugged and abandoned. Furthermore, Taylor Energy made clear in that letter that it believed that all of the coverages under Sections IIA, IIC and III were available to defray the cost thereof.  Underwriters paid about $166 million under the various coverages on the policy and thus the only coverage that had not been exhausted was that provided by the Section IIC coverage – Seepage and Pollution.   Consequently, the issue presented was whether the action taken by Taylor Energy to address the seepage from the wells was covered by Section IIC of the policy.

Underwriters considered the costs incurred for drilling relief wells outside the intended coverage under Section IIC because Underwriters did not consider the drilling of the intervention wells to be remedial measures for bodily injury or loss of, damage to or loss of use of property caused directly by seepage pollution or contamination arising from wells insured or costs for the removal, nullification or clean up of seepage or pollution emanating from the insured wells. Underwriters viewed the clear intent of the Policy was that the relief wells are control of well operations covered under Section IIA which explicitly states: "Relief Wells are automatically held covered under this section subject to notice to Underwriters as soon as possible and rates to be established by Underwriters.”

Further in July 2009 Underwriters officially declined the claim for coverage under Section IIC noting that “the Policy Language clearly contemplates that until hydrocarbons escape from the insured wells, they are not yet seeping, polluting or contaminating substances and therefore, no coverage is afforded under Section IIC for costs incurred to stop such a flow of such substances. Rather, the intent of the Policy is that efforts to stop the flow from any well (including relief wells) are control of well operations covered under Section IIA. The limit of coverage under Section IIA has now been exhausted.”

In evaluating the coverage issues, the court noted that in the first instance, the Section IIC is styled, "SEEPAGE AND POLLUTION, CLEANUP AND CONTAMINATION" indicating that the title of the provision is for BOTH seepage and pollution. The act of seepage must have some bearing on coverage. Indeed, the costs that Taylor Energy has incurred are as a result of seepage from these wells.  Moreover, the court concluded that Underwriters’ interpretation that Section IIC is only applicable for cleanup of the after-effects of the seepage, rather than covering actions to prevent seepage or pollution was strained and unsupported by the plain language of the policy. Specifically, the court held that the primary remedial measure or corrective action for seepage is to stop that seepage. Thus, the "cost of remedial measures" "caused by seepage" would include the cost of drilling the relief/intervention wells required to stop the seepage as underscored by the governmental orders.  There was simply no question that Taylor Energy was required by law to pay for the cost of remedial measures (that is the drilling of these wells based on the decision sanctioned by the United States government under the law) to counteract the seepage. If the wells were not seeping, there would be no need for remedial measures. Once Taylor Energy incurred such costs, Underwriters was legally obligated to indemnify.

For a copy of the decision click here 

Paul Steck and Tom Segalla

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Insurer Owes No Duty to Defend or Indemnify in Liquid Fertilizer Spill

Evanston Ins. Co. v. G&T Fabricators Inc. (E.D.N.C. September 23, 2010)

Allied Terminals Inc. (“Allied”) hired G&T Fabricators Inc. (“G&T”) to repair an above-ground storage tank at its facility in Chesapeake, Virginia.  G&T was required to have general liability insurance coverage of at least $1 million.  G&T purchased this coverage from Evanston Insurance Company.  In November 2008, an accident caused the tank that was being repaired to spill 2 million gallons of liquid fertilizer.  G&T filed a claim and the insurer rescinded the policies, refunding the premiums paid. The insurer filed a declaratory judgment action seeking an order directing that it had no duty to defend or indemnify the company because its executive made misrepresentations in its policy applications.

The United States District Court for the Eastern District of North Carolina granted the insurer’s motion for summary judgment that it owed no duty to defend or indemnify and that the policies were properly rescinded.  The court noted that the company’s executive admitted to the court that he misrepresented the nature of his business in the application for the insurance policy.  Despite providing answers to the contrary on the policy applications, the executive was exposed to chemicals during his work at the Allied facility, G&T was operating under a guarantee or hold-harmless agreement with Allied  and the executive was performing alterations on the tank.  According to the underwriters’ undisputed testimony, neither of the policies would have been issued had any one of these questions been answered truthfully.  The court rejected Allied’s argument that the insurer was estopped from rescinding the policies because the insurer had no duty to investigate G&T’s business or the truth of the applicant’s statements.

Accordingly, the court held that the insurer owed no duty to pay or indemnity costs to G&T for claims stemming from the fertilizer spill at the Allied facility.

For a copy of the decision, click here 

Toni Frain and Joseph Oliva

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Oliva.html

case provided courtesy of Lexis. 

Is This Summer's Oil Spill a Market-Changer?

The oil spill in the Gulf has dominated the news over the summer, and the impact is far-reaching. One of the areas of concern is whether the incident will have a lasting market-changing effect on the insurance industry, on consumers and the parties involved. Dan Gerber, Chair of the Global Insurance Practice Group at the firm Goldberg Segalla spends a few minutes on USLAW Radio discussing the topic. Click below to download the podcast.

Uslawradio083110

Fifth Circuit Affirms Summary Judgment For Insurer In Hurricane Katrina Coverage Litigation

Bayle v. Allstate Insurance Co.

(United States Court of Appeals, Fifth Circuit, August 11, 2010)

 

This property insurance coverage matter addressed a recurring question encountered in Hurricane-related property insurance disputes: i.e., where the parties agree that both covered risks and non-covered risks caused some of the damage, which party must bear the burden of identifying the discrete items of property that were damaged and proving what portion of the damage was caused by the excluded risk?  Specifically, the parties disagreed whether it is the insurer or the insured who must bear the burden of proving that the damage to the policyholder’s home from Hurricane Katrina was caused by an insured risk (wind) or by an non-insured risk (flood) when both wind and flood contributed to the overall damage to the property.

 

The policyholder sued Allstate alleging that the insurer failed to indemnify them adequately for wind caused structural damage to their property and that the insurer wrongly employed the “actual cash value” of the property rather than the “building structure reimbursement” standard to calculate the dollar amount of damage caused by wind.  The district court granted summary judgment to the insurer and the Court of Appeals affirmed, noting that prior case precedent controlled the burden-shifting arguments.

 

Specifically, the court held that Dickerson v. Lexington Insurance Company, 556 F3d 290 (5^th Cir. 2009)does not stand for the proposition advanced by the policyholder that the insurer alone must bear the burden of producing evidence to segregate covered losses from excluded losses, at least not at the summary judgment stage.  The court also noted that both the policyholder and Allstate appeared to confuse the burden of persuasion with the burden of production, stating:

As the Louisiana Supreme Court made clear in Jones, 870 So.2d 1002 (La. 2004), and as our reasoning in Dickerson reflects, the insured must carry the burden of persuasion to establish that any uncompensated (or under-compensated) damage was caused by a covered peril. Simply put, this is what is meant by the rule that the insured must prove coverage under the policy.  Then, if the defendant-insurer wishes to avoid liability by relying on a policy exclusion from coverage, it has the burden of persuasion to establish that the uncompensated or under-compensated damage is subject to an exclusion.

The court held that contrary to Allstate's contention, there is nothing in Louisiana law to suggest that these respective burdens of persuasion shift between the parties. What does shift--but only during the summary judgment stage--is the burden of production. Because at trial the defendant-insurer has the ultimate burden of persuasion that the exclusion is applicable, a defendant-insurer that moves for summary judgment must bear the burden of producing evidence to make out a "prima facie" case that the cause of the uncompensated or under-compensated damage was excluded from coverage. If the defendant-insurer does so, "the burden shift[s] to the [insured] to present evidence demonstrating there remain[s] a material issue of fact." 

 

The court again reiterated that “as Jones makes clear, this simple, burden-shifting minuet arises from the effect of summary judgment on the burdens of production and not any shift between the parties' respective burdens of persuasion.” Because Dickerson addressed the sufficiency of the evidence adduced at trial, it was not concerned with the shifting of the burdens of production that characterizes summary judgment.

 

In applying the foregoing to the subject case, the court noted that because the insurer moved for summary judgment, and because Allstate would have had the burden of proving at trial that flood, not wind, caused the uncompensated or under-compensated damage claimed by the policyholder, Allstate had the burden of producing evidence in support of its motion to establish that there existed no issue of material fact regarding the cause of the uncompensated or under-compensated damage for which the policyholder sought indemnification. Unlike the insurer-defendant in Jones, however, Allstate did not contest that a covered peril (wind) caused some of the damage to some of the policyholder’s property; the question was which particular items of property were damaged by wind. The court further noted that complicating Allstate’s task, however, was the fact that at no point did the policyholder identify which particular damaged items had gone uncompensated or under-compensated under their homeowners policy's coverage for structural damage. They simply presented the court with a line-item cost estimate to repair all the damage to their property, without even attempting to explain which portion or portions of those costs are attributable to wind-caused damage.

 

Consequently the court held that as the movant for summary judgment, Allstate had the burden of proving the applicability of any exclusion from coverage and that Allstate properly supported its motion for summary judgment with specific evidence (its adjusters' and expert's reports, and the policyholder’s deposition testimony) that addressed the various items of damage incurred by the policyholder’s property and the cause of each item's damage, as well as the particular amounts it paid to the policyholder for wind-damage to those items. At that juncture, the burden of production shifted to the policyholder to put forward evidence of specific facts sufficient to demonstrate the existence of uncompensated items of damage that were caused by wind, or of any deficiency in its quantum of the damages paid by Allstate to indemnify the policyholder for wind-caused damage. They failed to do so, and therefore, the district court's grant of Allstate’s motion for summary judgment was affirmed.

 

For a copy of the decision click here

 

Paul Steck and Daniel Gerber

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Fifth Circuit Affirms Bar of Recovery To Insured Under Its Environmental Policies Based On Prior Recovery Under Its Many CGL Policies

RSR Corp et. al. v. International Insurance Co.

(United States Court of Appeals, Fifth Circuit, July 26, 2010)

 

 

This complex insurance coverage matter arises from a CERCLA cost recovery action stemming from a lead smelter operation on Harbor Island, near Seattle Washingtonoperated by plaintiff-insured RSR Corp.  The insurer sued RSR Corp. and its subsidiaries seeking a declaration that International had no obligation to RSR Corp. under four Environmental Impairment Liability policies.  RSR also purchased many (at least 53) Comprehensive General Liability policies from many other insurance companies covering multiple sites, including the Harbor Island site.  Some of those policies contained exclusions for environmental claims, with exceptions for “sudden and accidental” events. Other CGL policies excluded environmental claims, that had exceptions to those exclusions for hostile fires; and still others did not exclude environmental claims, but only covered accidents and occurrences. Over a ten-year period RSR entered into 36 separate settlement agreements with its CGL carriers from which it received an aggregate payment of $76 million. 

 

In the present action, International claimed that Condition 8 of its environmental policies regarding “other insurance” precluded coverage of RSR’s Harbor Island claims because RSR had already been fully compensated for this liability through its settlements with the CGL insurers and that no recovery was available on the Harbor Island claim due to the Texas common law “one satisfaction” rule.  The district held that the terms of Condition 8 of the environmental polices prevented RSR from recovering because it had already recovered fully for the cleanup costs of the Harbor Island site from its settlements with its CGL insurers.  The Court of Appeals affirmed the lower court decision finding that the Supreme Court of Texas would apply the presumption that settling plaintiffs were in a better position than nonsettling defendants to insure that the settlement award was allocated between actual and punitive damages and that the nonsettling parties should not have been penalized for events over which they had no control to the corporation's settlements with its CGL insurers.  The CGL settlements yielded over $ 76 million in proceeds, all of which had to be allocated to the Harbor Island liabilities before the corporation could collect on its environmental policies. Because the Harbor Island alleged liabilities only totaled $ 13.1 million, the corporation could take nothing under the environmental policies.  Thus, the district court did not err in finding that Condition 8 barred all recovery on the environmental policies.

 

For a copy of the decision click here

 

Paul Steck and Tom Segalla

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Court Dismisses Insurer’s CERCLA’s Cost Recovery Subrogation Claims

Chubb Custom Ins. Co. v. Space Systems/Loral, Inc. et. al. (United States District Court, Northern District of California, July 13, 2010)

This CERCLA cost recovery action was initiated by the insurer seeking recovery of costs incurred on behalf of one of its insured. Chubb alleged that defendants were jointly and severally liable for clean-up costs incurred in response to releases of hazardous substances at location owned by Chubb’s insured. Specifically, the action involved five properties in Palo Alto, California. Chubb alleged that the site is part of a larger, forty-seven acre site that was owned and occupied by Ford Aerospace.

In August 2003, Chubb’s insured (Taube-Koret) was named as a discharger with respect to the site by the California Water Quality Control Board and was held strictly liable for complying with certain Cleanup Orders issued by the board. Taube-Koret made claims pursuant to an insurance policy issued by Chubb for response costs and attorney fees incurred in connection with the investigation and cleanup of Site. Pursuant to the terms of the insurance policy, Chubb paid $2,400,000 for its insured’s response costs. Thereafter, Chubb filed the instant action alleging defendants bear the responsibility for the cleanup and sought recovery of the cost on behalf of its insured. Defendant’s filed motions to dismiss the complaint on numerous procedural and substantive grounds, including challenges to Chubb’s subrogation claims under CERCLA §112(c).

Ford Motor first contended that Chubb lacked standing to bring a Section 112(c) claim because it did not allege that any payments Chubb made to its insured constitute "compensation pursuant to" CERCLA. It argued that an example of a party that would have standing is "an insurance company that settles and pays on behalf of a potentially responsible party ('PRP') with an insurance policy, claims made by the government in an action brought against the PRP under CERCLA Sections 106 or 107(a)." Moreover, Ford claimed that the complaint alleged only that Chubb made payments pursuant to an insurance policy and the policy obligated Chubb to pay money subject to terms that have nothing to do with CERCLA; noting the coverage provisions of the policy do not even mention CERCLA, much less restrict themselves to payments made "pursuant to the statute."

The court disagreed with Ford that that the plain language of the statute supports its interpretation. Rather, the court was persuaded by Chubb's argument that Section 113(f)(1) is evidence that Congress knew how to require a prior Section 106 or 107(a) claim with respect to contribution and could have done the same for Section 112(c) subrogation claims if it so intended. Notwithstanding this interpretation, the court found that Chubb failed to properly plead its standing. Specifically, the court noted that while a Section 112(c) plaintiff is not required to show that the compensation it paid relates to a CERCLA claim that already has been resolved through settlement or litigation, a plain reading of Section 112(a) requires plaintiffs to plead that the compensation was paid for damages or costs resulting from a CERCLA violation. The court further held that while the complaint comes close to doing so, "Chubb never explicitly sufficiently ‘connects the dots’ between its payments to its insured under the insurance policy, the costs its insured incurred, and the alleged CERCLA violations." As such, the court ruled that, Chubb had not pled standing to bring its CERCLA subrogation claim under Section 112(c).

The court further held that Chubb failed to meet the ripeness and statute of limitations requirements to support its CERCLA subrogation claims. Likewise, Chubb failed in asserting its Section 107(a) claims Ford and the remaining defendants. As such, the court granted defendants’ motions to dismiss with leave to amend the complaint within thirty days of the Order.

For a copy of the decision click here

Paul Steck and Tom Segalla

Case provided courtesy of Lexis

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Coal Plant Operator and Insurer Settle Dispute Over Coverage for Coal Dust Pollution

Grizzly Processing LLC v. Wausau Underwriters Ins. Co. (E.D. Ky. June 30, 2010)

In March 2010 we reported on Grizzly Processing LLC v. Wausau Underwriters Ins. Co.   In that case, Grizzly Processing LLC (“Grizzly”) was sued in state court by ninety plaintiffs alleging the company contaminated their homes with coal dust and other pollutants in Floyd County, Kentucky.  Plaintiffs also alleged damages from plant noise, including blast operations, violations of certain environmental regulations, and violations of the Kentucky Surface Mining Act.  Plaintiffs sought compensatory damages including diminution in the value of their residences, costs of repair, medical expenses, and damages for pain and suffering.

Wausau Underwriters Insurance Company (“Wausau”) issued four policies between 2006 and 2008, two commercial general liability and two umbrella excess liability policies, to Grizzly.  All four of the policies contain an exclusion barring coverage for the “contamination” of “pollutants” and any injury or property damage that arose out of that contamination.  On the basis of these exclusions, Wausau refused to pay Grizzly’s defense costs in the underlying litigation.

Grizzly commenced a declaratory judgment action in state court, and Wausau removed the suit to federal court.  Wausau moved for summary judgment on the basis of the exclusions.  The court addressed only Wausau’s liability for coal dust because in its motion, Wausau did not address whether it is liable for plaintiffs’ other claims in the underlying litigation, noting that some of those claims may not have been asserted until after Wausau filed its motion. 

The United States District Court for the Eastern District of Kentucky granted Wausau’s motion.  With respect to coal dust, the court held that the policies explicitly excluded coverage.  The court noted that “[a]s to whether coal dust is included in the definition of pollutant, each of the insurance policies defines a ‘pollutant’ as an ‘irritant’ or ‘contaminant’”.  The court held that “[t]here can be no doubt that ‘coal dust’ is an irritant or contaminant.”  The court also noted that federal regulations identify coal dust as a “contaminant”, stating, “Congress has recognized that coal dust inhalation causes permanent damage.”  Additionally, the court noted that the Sixth Circuit “has determined that coal dust is clearly a pollutant for purposes of an insurance exclusion.”

Accordingly, the court granted summary judgment to Wausau, finding that plaintiffs’ claims in the state court action that they were damaged by “coal dust” were not reasonably susceptible of an interpretation that they were covered by the terms of the insurance policies at issue.

On June 30, 2010, the court signed an order dismissing the case as the parties resolved the remaining claims.  Settlement details were not included in the court filings.

For a copy of the Order click here

Toni Frain and Joseph Oliva

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Oliva.html

 

Eleventh Circuit Upholds Denial of Coverage in $75M Toxic Tort Suit

Continental Cas. Co. v. City of Jacksonville

(11^th Cir. (Fla.) June 24, 2010)

 

The Eleventh Circuit upheld a district court’s ruling that Century Indemnity Company is not obligated to defend or indemnify the Duval County School Board in a toxic tort suit filed by thousands of Jacksonville, Florida residents for property damage and emotional distress arising from the construction of a school on a contaminated site in 1957.  

 

The School Board purchased land once used as a landfill, built a school on it, and allowed housing developments to be built near it. In the ensuing toxic tort action, the claimants accused the School Board of building schools on the polluted land without warning families. The underlying complaint did not allege that the School Board discharged the pollutants onto the land. Century, one of the School Board’s insurers, denied coverage based on the policy’s pollution exclusion.

 

The Eleventh Circuit held that the pollution exclusion barred coverage for the claim, stating, “we conclude that, even if [the School Board] is not itself a polluter, the exclusion applies; the provision is not about who caused the pollution, but is about pollution and its effects underlying a claim.” The court further noted that the claim “arose out of the discharge of pollutants into or upon the land” even if the School Board did not place the pollutant into or upon the ground.

 

For a copy of the case, click here

 

Carrie Appler and Michael Saltzman

 

http://www.goldbergsegalla.com/attorneys/Appler.html

http://www.goldbergsegalla.com/attorneys/Saltzman.html

Court Granted Insurer Summary Judgment On Applicability of Pollution Exclusion

Devcon Intl. Corp. v. Reliance Ins. Co. et. al. (United States Court Of Appeal, Third Circuit, June 8, 2010)

This environmental coverage dispute arises from an alleged nuisance caused by the policyholder, Virgin Islands Cement, wherein large quantities of dust from an airport construction project allegedly contaminated plaintiffs’ drinking water and caused breathing disorders and other unspecified physical, emotional, and psychological damage. The residents also claimed that emissions from construction vehicles were causing similar health problems.

The policyholder tendered to Reliance, who agreed to defend under a reservations of rights. Thereafter, the policyholder commenced the instant declaratory judgment action seeking a ruling on the insurer’s obligation to defend and indemnify under the policy which the lower court held in the insurer’s favor.

On appeal the policyholder argued that the scope of the pollution exclusion was ambiguous, claiming that the purpose of the exclusion was to preclude coverage for catastrophic environmental pollution akin to the dumping of hazardous waste and thus it was not applicable to the present construction-related claims. Alternatively, the policyholder argued that it reasonably believed that the insurance policy would provide coverage for construction-related harms such as those caused by dust and engine fumes, and urged coverage under the doctrine of reasonable expectations.

The Court of Appeals held that under its precedent in Reliance Ins. Co. v. Moessner, 121 F3d 895 (3d Cir. 1997), it rejected the "environmental catastrophes" argument, rather concluding that the exclusion "admits no ambiguity" as it clearly states that the exclusion applies to the escape of pollutants "at any time" and contains no language limiting its scope to strictly environmental claims. Moreover, the court affirmed the lower court holding in favor of the insurer based on the pollution exclusion, which expressly excludes coverage for injuries that result from the release of any "solid … irritant or contaminant." The court noted that plaintiff in the underlying action alleged that particulate dust generated at the airport caused a variety of personal and property injuries. Those injuries were directly caused by the dust which the exclusion places outside the policy’s coverage. Consequently, the court concluded that the exclusion was not ambiguous and that the policy provided no insurance coverage where bodily injury or property damage resulted form airborne solids and fumes, such as the dust and engine exhaust complained of in the underlying action.

For a copy of the decision, click here

Paul Steck and Jonathan Kuller

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Kuller.html

Case published courtesy of Lexis

Delaware Supreme Court Rules that $239 Million in Claims Constitute One Occurrence

Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co.

(Del. June 3, 2010)

 

DuPont manufactured Delrin, which was used in polybutylene plumbing systems in residences across the United States and Canada until 1989.  The pipe fittings were susceptible to damage because they could not withstand chlorine, soluble metals, mechanical stresses and certain pHs.  Homeowners sued DuPont for property damages they sustained, claiming that the material was defective.  Between 1989 and November 2007, DuPont paid over $239 million for liabilities relating to this material. 

 

Over ten years ago, DuPont filed suit seeking coverage from its insurers for these liabilities.  DuPont recovered $111.7 million from fifteen different insurance carriers.  However, its claims against Stonewall Insurance Co. remained.

 

Stonewall Insurance insured DuPont through two policies issued in 1985.  The first allowed $1 million in excess coverage beyond a $50 million per occurrence self-insured retention.  The second provided a $4 million layer of excess insurance.  Stonewall Insurance argued that that the Delrin liabilities were the result of 469,000 occurrences at individual locations.  Alternatively, Stonewall Insurance argued that the liabilities resulted from two occurrences defined by the type of damage suffered, either chemical degradation or the systems’ inability to handle mechanical stress.  Under this interpretation of “occurrence”, DuPont would have to pay $50 million per occurrence before being able to collect from Stonewall Insurance Co.

 

The Delaware Supreme Court rejected Stonewall Insurance’s argument.  The court stated: “[s]uch an interpretation would produce an absurd, unacceptable result that would render meaningless the excess insurance purchased by DuPont and deprive DuPont of the protection for which it paid.” 

 

The court found in favor of Stonewall Insurance, however, with respect to prejudgment interest.  The trial court calculated prejudgment interest from the day DuPont filed its complaint against the insurers in 1999.  The Supreme Court ruled, however, that interest did not begin to accrue until DuPont served a demand letter on Stonewall Insurance in August 2006.  The Supreme Court remanded the issue regarding interest calculation to the lower court.

 

For a copy of the decision click here 

 

Tom Segalla and Toni Frain

 

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/Frain.html

Breaking News on Deepwater Horizon Coverage Issues: Excess Insurers Sue Over Oil Spill Liabilities

On May 21, 2010, several insurers that issued excess liability insurance policies to Transocean Ltd. filed a declaratory judgment action in the United States District Court for the Southern District of Texas against BP PLC and its subsidiaries seeking a judgment that they have no obligation to cover pollution claims arising out of the Gulf of Mexico oil spill. 

On April 20, 2010, the Deepwater Horizon rig owned by Transocean Ltd. and under contract to BP PLC exploded, causing a massive oil leak that has resulted in more than 130 lawsuits by property owners, shareholders, workers, and the commercial fishing industry, $800 million spent on cleanup and $30 million in paid claims.  On May 14, 2010, BP PLC provided notice of claim to the insurers, which include Certain Underwriters at Lloyd’s, London; Axis Specialty Europe Ltd.; Arch Insurance Co., Ltd.; Berkeley Insurance Co.; Houston Casualty Insurance Co.; National Union Fire Insurance Co. of Pittsburgh, Pa.; Navigators Insurance Co.; Infrassure Ltd.; Great American Insurance Co. of New York; Liberty Mutual Insurance Co.; New York Marine and General Insurance Co.; Valiant Insurance Co.; Max America Insurance Co.; XL Specialty Insurance Co.; and Zurich American Insurance Co.   Transocean’s drilling agreement with BP requires additional insured protection in favor of BP.  Article 24.1 addressed Transocean’s pollution-related liabilities to BP and provides that Transocean “shall assume full responsibility for . . . and hold [BP] harmless from demand or liability for pollution or contamination, including control and removal thereof, originating above the surface of the land or water from spills, leaks or discharges of fuels . . . in the possession and control of [Transocean].”  Article 24.2 of the agreement sets forth BP’s pollution-related liabilities to Transocean, stating that BP assumes full responsibility for and holds Transocean harmless from pollution claims “arising out of or connected with operation under this contract hereunder and not assumed by Transocean.” 

The excess insurers claim that the liabilities BP faces for pollution emanating from BP’s well are not within the scope of the additional insured protection because they are emanating from below the surface and from BP’s well.  Accordingly, the excess insurers seek declarations that BP assumed full responsibility in the drilling contract for any and all liabilities arising out of or related to the release of oil from its well, that the insurers have no obligation to BP under any of the policies for pollution liabilities, and that BP is not entitled to coverage under any of the policies for current or future pollution liabilities.

For a copy of the complaint click here

Toni Frain and Tom Segalla

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Court Denied Policyholder Claims For Additional Insurance Coverage For Debris Removal and Pollution Clean-up

Whitt Machine, Inc. v. Essex Ins. Co. (United States Court of Appeals, Sixth Circuit, May 13, 2010)

This environmental coverage dispute resulted from a fire loss at a building owned by the policyholder.  The insurer paid the policy proceeds for the direct loss of the building, however, policyholder refused insurer’s offer to pay an addition coverage amount under the debris removal coverage provision of the policy as the actual costs exceeded the offered amount.  The policyholder also claimed that the policy provided additional coverage for pollutant and clean-up and removal.  

The court held that the policy language was clear, and when viewed in the larger context, the applicable coverage provision, “like all of Section A coverage, is subject to Section C, which states the Limits of Insurance,” further noting that this is true even though, like the other parts of Section A the specific debris removal coverage section does not explicitly state that it is subject to the limits in Section C. Likewise, the court concluded that language of the policy also unambiguously showed that the policy did not provide additional coverage for pollution removal costs based on the corresponding endorsement.  Specifically, the court noted that the endorsement stated it “does not cover loss or damage caused directly or indirectly by the release or discharge or dispersal of toxic or hazardous substances, contaminants, or pollutants.”  Thus, the court held that the language excludes coverage because the loss or damage was caused, at least in part, directly or indirectly, by the release, discharge or dispersal of asbestos.  Moreover, the fact that the fire was also a cause of the damage did not make the endorsement inapplicable. 

For a copy of the decision click here

Paul Steck and Jeffrey Kingsley

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Georgia Court Finds That Natural Gas Not a "Pollutant"

Barrett v. National Union Insurance Company
(Ga.App. May 11, 2010)

A Georgia Court of Appeals has ruled that natural gas is not a pollutant within the meaning of a CGL policy.  An employee of a gas-line installation contractor suffered brain damage while working with natural gas lines.  According to the decision, the employee suffered injury because he was wearing a plastic rain poncho and natural gas accumulated over 2+ hours he was working with the gas line. As a result of exposure to the accumulated gas, he sustained a serious brain injury.

The primary insurer acknowledged coverage, but the excess insurer denied citing the pollution exclusion.  The trial court found in favor of the excess insurer, citing a case which held that the pollution exclusion unambiguously excluded coverage for carbon monoxide exposure. The Georgia Court of Appeals reversed. The Barrett court held that notwithstanding the holding applying the exclusion to carbon monoxide, the exclusion was ambiguous as it applied to the facts case.  Based upon the facts presented, it was not alleged that the release of the gas caused the damage, but rather the negligence of the insured allowed the accumulation and it was the lack of oxygen, not the presence of gas, that caused the damage. The court also held that it was against public policy to allow a insurer to sell a policy that excluded coverage for the insured's main operations.

For a copy of the decision, click here

Sarah Delaney and Jeffrey Kingsley

cases provided courtesy of Lexis 

Court Decides Multiple Coverage Issues In Complex Refinery Oil Spill Case

Coffeyville Resources Refining & Marketing, LLC. v. Liberty Surplus Ins. Corp. et. al.(United States District Court, District of Kansas, May 3, 2010)

This complex environmental coverage matter arose out of a flood of the Verdigris River on June 30, 2007. During the flood, a large amount of crude oil from policyholder’s oil refinery was released into flood waters and was carried into Coffeyville, Kansas, resulting in widespread environmental damage to downstream homes and businesses. The policyholder alleged that as a result of this oil pollution release and resulting environmental contamination, it incurred more than $50,000,000 to investigate and remediate the contamination, and resolve claims arising from the spill. 

The policyholder filed the instant coverage action, seeking coverage from four of its insurers for the above-referenced remediation costs.  Two of the insurers, Liberty Surplus Insurance Company ("Liberty") and Illinois Union, issued pollution legal liability policies to the refinery.  The other two insurers, National Union and Westchester Fire Insurance Company issued general liability policies to the refinery. The refinery policyholder claimed the insurers breached their obligations to indemnify it under various liability insurance policies issued.  Thereafter, policyholder settled with Liberty, and as a result, coverage under the Liberty pollution policy was exhausted.  Policyholder, however, continued the action against the remaining insurers asserting that the Illinois Union policy was immediately excess to the Liberty policy.  Illinois Union denied this allegation and asserted that the National Union policy was primary excess.  

After an extensive analysis and discussion, the court held The Illinois Union policy coverage was triggered by exhaustion of the Liberty policy and the $1 million SIR applicable to the Liberty policy. Thus, the Illinois Union policy was primary coverage with respect to the release from the refinery. As to property damage costs that were  within the scope of coverage of both the Illinois Union and National Union policies, the National Union policy was excess, and was not triggered until all applicable coverage under the Illinois Union policy was exhausted.   The further court held that the Illinois Union coverage for property damage claims, when considered with that policy's exclusion of clean-up costs, would lead a reasonable insured to believe that the exclusion applies only to clean-up costs that result solely from obligations under environmental laws. Thus, the exclusion did not limit or effect the policy's coverage for property damage settlements. To the extent restoration or repair costs for property were an allowable measure of property damages, the Illinois Union policy provided coverage for reasonable settlement of property damage claims based on such costs, even if such restoration costs overlap with "clean-up cost" obligations under environmental laws. The court noted that Restoration costs are ordinarily an allowable measure of property damages if they do not exceed the pre-injury fair market value of the property. In the case of residential property, such costs are allowable as damages in excess of fair market value so long as they are not "wholly disproportionate" to the value of the property.   Also, the court held that several cost categories identified by the policyholder fell within the scope of Illinois Union's coverage, including investigative and administrative expenses, alternate living expenses, automobile damage, damage to personal property, bodily injury claims, purchase of oil-impacted business and residential properties, business interruption expenses, agricultural damage, and veterinary fees. There are genuine factual issues in the record, however, concerning the extent of such losses.  

With respect to the refinery’s claimed costs for categories such as demolition and removal of purchased structures ($ 6.9 million) and oil removal from or disposal of impacted property ($ 15.9 million), the court held that the refinery did not show, as a matter of law, that such costs were paid in settlement of claims for property damage, as distinct from payment of obligations under environmental laws. Thus, the policyholder bore the burden of showing more likely than not that payment of such costs actually resulted from settlement of its property damage liability to third-party property owners on their claims. The same was true with respect to expenses associated with those costs, such as laboratory sampling and litigation support costs. To the extent the policyholder shows the requisite connection to settlement of property damage claims, the costs fell within the (now) primary coverage of the Illinois Union policy.   Also, the court held that the uncontroverted facts established that the release of crude oil from the refinery was "abrupt and neither expected nor intended by the Insured" within the meaning of the National Union policy.  

Additional significant holdings from the court included:  

• The treatment of governmentally-mandated "clean-up costs" under Endorsement 28 to the National Union policy was deemed ambiguous. The court determined that because the policy's coverage for "damages" could reasonably be construed to include all clean-up costs incurred by the policyholder due to an obligation to remedy harm to third-party property, the ambiguous allowance for coverage of "third party clean-up loss, cost or expense" in Endorsement 28 should be construed to provide coverage to the refinery for its cost of cleaning up third party property, even if its obligation to do so was based solely on a governmental order or requirement.  Additionally, the policyholder’s release of crude oil from its sewer system and the release of diesel oil were both determined to be within the scope of coverage under the National Union policy.

 

• With respect to "clean-up costs" that were within the scope of National Union coverage but excluded by the Illinois Union policy, National Union's coverage was excess only of a $ 5 million SIR. Because there was no other applicable insurance to cover such costs, National Union was obligated, upon exhaustion of the $5 million SIR, to "drop down" and cover such costs.

 

• Illinois Union's coverage for loss from property damage included third-party "business interruption expense" and residential "additional living expense" paid by the refinery in settlement of property damage claims.

 

• Illinois Union's coverage for loss from property damage included any payments by plaintiff to settle claims of liability under K.S.A. § 65-6203(a)(1) for actual damage to property. With respect to settlement of any claim seeking clean-up of affected property pursuant to 65-6203(a)(2), Illinois Union's coverage applied as well.

 

• The policyholder did not show as a matter of law that none of its remaining costs are based solely on government-mandated remediation. Thus, summary judgment was inappropriate on several matters, including whether any allocation can be made to account for non-covered flood damage to real property, the cost-effectiveness of plaintiff's residential purchase program, the extent to which costs allegedly associated with that program are within the scope of Illinois Union's property damage coverage (or alternatively National Union's coverage of clean-up costs), and the appraisal of fair market values for pre-flood and post-flood properties.

 

• The Illinois Union policy provided coverage for the policyholder’s defense and claims resolution costs associated with property damage claims. The record did not establish the extent of plaintiff's losses attributable to property damage, and thus did not show the extent of defense and adjustment costs owing under the Illinois Union policy; and lastly,

The National Union policy did not promise indemnification of the policyholder’s defense and investigative expenses when National Union does not have a duty to defend.

For a copy of the decision click here

Jeffrey Kingsley and Paul Steck

Case provided courtesy of Lexis

Chartis Sued Over Coverage for Sulfuric Acid Leak

Blackwater New Orleans v. American International Specialty Lines (E.D.Louisiana, May 7, 2010) 

In February 2009, Blackwater New Orleans LLC, a chemical storage company, discovered a sulfuric acid leak in an above-ground storage tank at its Westwego, Louisiana facility.  The company transferred the remaining contents of the tank to a second tank, which also began to leak.  The company then moved the acid to barges owned by a third party.    Westwego’s city attorney sent the company a letter demanding cleanup pursuant to city and state environmental codes.  Chartis Specialty Insurance Co. (“Chartis”) denied coverage for transfers of certain products, labor and equipment costs, and costs for materials related to cleanup.  

On May 7, 2010, the company filed a declaratory judgment action in the United States District Court for the Eastern District of Louisiana seeking a judgment that Chartis is obligated under a pollution legal liability select policy to pay for any costs, including labor, required by environmental cleanup regulations.  The policy defines cleanup expenses as “reasonable and necessary expenses, including legal expenses incurred . . . for the investigation, removal, remediation . . . or disposal of soil, surfacewater, groundwater or other contamination . . . to the extent required by environmental laws.”   The complaint also asserts causes of action for breach of contract and violation of a Louisiana statute requiring prompt payment of claims.  The complaint seeks full coverage and attorney’s fees. 

For a copy of the complaint click here

Toni Frain and Jeff Kingsley

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Court Holds That Injuries To Two Children Constituted One Occurrence In Lead Poisoning Case, Thus Limiting Recovery To Single Occurrence Coverage Amount

Allstate Ins Co. v. Bonn et. al.

(United States District Court, District of Rhode Island, May 3, 2010)

 

This environmental coverage matter arose from a complaint against landlords of a residence alleging that the tenant’s two daughters were exposed to lead paint and suffered lead poisoning during their tenancy at property owned by the policyholder landlords.  The insurer sought a declaration that its liability for claims asserted by the tenants in the underlying complaint is limited to the total amount of $100,000.  The tenants sought to establish that coverage under the policy extended to $100,000 for each child for a total sum of $200,000. 

 

Specifically, tenants argued that (1) their children's lead poisoning was the result of multiple occurrences; (2) the Policy language was ambiguous and should be construed in favor of the insured; (3) the "cause theory" mandates a finding of multiple occurrences; (4) precedent exists for awarding each child injured by a single occurrence the full policy limit; and (5) restricting the children's remedy to a single policy limit is against public policy.

The court, however, held that the policy language was clear.  It provided that the total liability under Coverage X was limited to $100,000, "[r]egardless of the number of . . . injured persons [or] claims." The court further held that the "plain and ordinary meaning" of that provision is that, regardless of whether damages resulting from one loss involve a single injured person or many, the insurer is obligated to pay no more than $100,000 total under the policy .

Further, the court concluded that the policy defined "one loss" as "[a]ll bodily injury, personal injury and property damage resulting from one accident or from continuous or repeated exposure to the same general conditions." (emphasis added in original). The policy terms "all bodily injury [and] personal injury" clearly encompassed the lead poisoning suffered by both daughters as a result of continuous or repeated exposure to the same existing and continuing conditions at the subject property, i.e. the presence of lead in the residence.   Consequently the court held that the injury, although tragically suffered by both minor children, constituted only "one loss" under the unambiguous language of the policy.  Lastly, the court also discredited plaintiffs “cause theory” as the court concluded that the children’s injuries were the result of a single occurrence as defined under the policy.

For a copy of the decision click here

Tom Segalla and Paul Steck  

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html 

case provided courtesy of Lexis 

Cases for Environmental Coverage Quarterly - May Edition

Here are the cases cited in this month's edition of the Environmental Coverage Quarterly.  If you would to receive this publication directly to your email account, please contact Toni Frain at tfrain@goldbergsegalla.com.  Cases provided courtesy of Lexis.

Aggio v. Estate of Aggio

Aspen v. Dune Energy

Bernstein v. Bankert

Boston Gas v Century Indemnity

Chubb Custom Ins v Space Systems

Douglas Ridge Rifle Club v. St Paul Fire & Marine Ins. Co.

Dutton-Lainson v The Continental Ins

Griffith Oil v National Union Fire

Grizzly Processing LLC v Wausau Underwriters

Jefferson Block 24 Oil & Gas LLC v. Aspen Ins. UK Ltd

Mastec Inc. v. US Fire Ins Co

Mid Continent Casualty v Eland Energy

Milwaukee Metro Sewerage Dist v. Amer Intl Specialty Lines Ins Co

National Casualty Ins. Co. v. Orion Transport Inc.

Nationwide Mut. Ins. Co. v. Boyd Corp.

Steadfast Ins Co v AES Corp

Travelers Indemnity Co. v. La Fonciere Compagnie

Application of Boston Gas Damages Apportionment Method Leads To 80% Jury Verdict Ruling for Plaintiff Insured In Environmental Coverage Dispute

Maestranzi Brothers, Inc. v. American Employers’ Ins. Co. et. al. (Massachusetts Superior Court, Essex District, April 9, 2010)

This environmental coverage matter arises from a dispute over the division of damages for long-term environmental claims stemming from pollution clean-up costs at an EPA Superfund site.  The jury returned a verdict in favor of the plaintiff in the amount of $120,000 finding that the insurer breached both its duty to defend and its duty to indemnify.  However, the damages returned related only to the issue of indemnification.  The jury found that the defendant had failed to prove that a significant portion of the pollution at the site was not the result of a “sudden and accidental” discharge.  The verdict figure equaled the amount previously paid by the insured to satisfy an EPA demand for clean-up costs. 

In determining the proper apportionment of damages, the court applied the approach outlined in the Supreme Judicial Court's recent decision of Boston Gas Company v. Century Indemnity Company, 454 Mass. 337, 910 N.E.2d 290 (2009) which outlined the general method of apportioning damages between insurers and insureds in complex disputes where the timing and extent of environmental damage are difficult to determine.  Specifically, the Superior Court noted that in Boston Gas, the Supreme Judicial Court adopted a "time on the risk" pro rata method of damages for "long-tail claims" resulting from long-term or progressive environmental damage.  In doing so the court further explained, that the fairest assessment of damages would be to pro-rate the damages by determining the “time on the risk” divided by the years during the “triggered period.” (i.e., determining the triggered policies that had time on the risk and divide that by the total number of years of triggered coverage). 

In undertaking this assessment of damages the court first determined the “time on the risk.”  Noting that it was agreed by the parties that as the first shipment of waste oil to the site by the insured was in 1982, the 1981-1983 policy was the policy initially triggered by the PRP letter announcing the EPA discovery of groundwater pollution.  Thus, the triggering event was the 1982 shipments.  There was also agreement that the subsequent policies (1984- 1987) were triggered by the ongoing shipments and ongoing pollution and that time on the risk ended in 1990 when the policies then contained an absolute pollution exclusion.  Thus, the numerator in the equation was 8 years (1982 – 1990).   The denominator, constituting the total number of year of triggered coverage (i.e., the total years the risk/damage/claim existed regardless of who was the insurer), proved more problematic for the court.  After considering a number of possible alternatives that were deemed purely fortuitous or happenstance, the court settled on a “fairer approach” that consisted of the period when the first occurrence triggered the liability (i.e., the 1982 shipments).  The court noted that the previous alternatives did not achieve the purposes of the Boston Gas approach to promote "judicial efficiency, engender stability and predictability in the insurance market, provide incentive for responsible commercial behavior, and produce an equitable result." Id. at 366. Far from being predictable and equitable, the alternative approaches encourage speculation, unfairness to a company that did not even exist before 1965, and a windfall to the insurance company.

Likewise, the alternatives ignored a key component of the Boston Gas decision - the insurer should only be responsible for "occurrences" under the particular policy.  The court thereafter determined that the end date for the years of triggered coverage was when the insured had its last contact with the polluted site. In this case, that was the date of the last shipment, i.e. 1992. The court noted that this approach best approximated the Boston Gas case which assumed that the triggered period of years ended when Boston Gas sold or abandoned the polluted site and best approximated the "fact-based allocation" praised in Boston Gas. Thus, given the facts of this case, the fairest "triggered period of years" was from 1982 to 1992.   Given these determinations, the court concluded that the pro rata equation was eight years over ten years. In other words, the insurer was responsible for paying 8/10ths (or 80%) of the jury's verdict with interest to run on that portion of the verdict from the date of breach (i.e., the deadline date set by EPA for the settlement payment, August 4, 2004).

A copy of the decision can be found here

Paul Steck and Tom Segalla

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

case provided courtesy of Lexis 

Court Holds Insurer Obligated To Continue Reimbursement Of Defense And Investigation Costs Despite Policy Limits On Indemnity For Oil Spill Claims

American Commercial Lines LLC v. Water Quality Ins. Syndicate (United States District Court, Southern District of New York, March 29, 2010)

This coverage action addressed the extent to which the insurer’s policy covers the insured’s investigation and defense costs involving a maritime accident and oil spill on the Mississippi River in July 2008.  Specifically, the accident occurred when an unmanned barge sank and released approximately 300,000 gallons of fuel oil into the river. 

As a result of the accident the insured, as owner of the barge, was sued for the clean-up costs. The policy issued by WQIS required the insurer to (1) indemnify ACL for “such amounts as it shall have become liable to pay and shall have paid for pollution response or damages” as owner or operator of the barge, and (2) reimburse ACL for “certain other costs and expenses” including costs associated with the discharge of oil (Coverage A), the discharge of hazardous substances (Coverage B), and investigation and defense (Coverage C).  In ruling against the insurer, the court held that the policy language was unambiguous and that the provision, on its face, contained no temporal or quantitative limit on the reimbursement obligation.

Thus, the insurer’s argument that its obligation to make payments for investigation and defense costs under Coverage C ended because payments under coverages A& B met the policy limits was deemed meritless. As such, the court ordered that the insurer was obligated under the policy to reimburse ACL for costs incurred in the investigation and defense of all claims asserted against it regardless of whether other indemnity limits under the policy have been reached.

A copy of the decision click here

Paul Steck and Tom Segalla

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Third Circuit Affirms Denial of Contribution Claim In Environmental Lawsuit

Great Northern Ins. Co. v. Greenwich Ins. Co.

(3^rd Cir. (Pa.) March 24, 2010)

 

Atlas Resources owned and operated several natural gas wells.  A February 2004 blowout at one of the wells resulted in insurers with the Chubb Group of Insurance Co. (“Chubb”), including Great Northern Insurance Company and the Federal Insurance Co., paying more than $1.6 million in cleanup costs and property damage.  The insurers filed suit against Greenwich Insurance Company (“Greenwich”), which also insured Atlas Resources, demanding equitable contribution.

 

The United States District Court for the Western District of Pennsylvania granted judgment in Greenwich’s favor, ruling that Chubb was not entitled to contribution under Pennsylvania law unless it could show that the payments it made were made on behalf of Atlas Resources, as opposed to its parent company. 

 

Plaintiff appealed, arguing that the lower court erred in disregarding Atlas Resources’ drilling contract with Gene D. Yost & Sons Inc., which contained an assumption of liability clause requiring Atlas Resources to indemnify for claims arising from its drilling.  Plaintiff argued that this clause proved Atlas Resources was liable for the damage caused by the blowout.

 

The Third Circuit disagreed, stating that this clause did not prove that the payments that plaintiff made were made on behalf of Atlas Resources.  It merely provided a basis for Atlas Resources’ liability.  It remained possible, however, that plaintiff paid nothing on behalf of Atlas Resources.  Accordingly, the contractual indemnification argument “gets us no further into the second element of an equitable contribution claim.”  Plaintiff also argued that the lower court’s ruling essentially handed significant authority to claims adjusters by making it their job to allocate liability in insurance claims.  The court rejected this argument as well, stating that “[a] claims adjuster’s determination of respective liability, while certainly helpful, would not have been the only evidence that might have aided the district court.”  Evidence of the insureds’ comparative negligence, a mutual insured’s acknowledgement of shared liability, or even an effort to reduce general allegations to specific quantities might guide a court’s analysis.  The court held that a claim for equitable contribution calls upon the power of the court to design a remedy that is fair.  Fairness cannot be fashioned from speculation.

 

Accordingly, judgment for Greenwich was proper.  A copy of the decision can be found here.

 

Toni Frain and Jeff Kingsley

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Court Denied Summary Judgment to Insurer As Plaintiffs’ Claims Against Polluting Corporation Were Not Time-Barred By Indiana Code

Bernstein v. Bankert et. al.

(United States District Court, Southern District of Indiana, March 16, 2010)

 

Plaintiffs’, as Trustees of a pollution site, sought to recover environmental response costs from defendants under CERCLA and sought declaration against various insurance companies regarding coverage under their policies.  One of the insurers moved for summary judgment contending that plaintiffs’ claim are time barred by Indiana Code 23-1-45-7, as the action was not filed within two years after the dissolution of the company causing the release.  Thus, the insurer claimed it had no coverage obligations because there was no longer any liability based on the expiration of the statute of limitations.  The insurer also contended that its insurance coverage for the site had already been conclusively determined in previous litigation which barred the litigation res judicata. 

 

The court held that the polluting company was not voluntarily dissolved under the code but administratively dissolved under a different statutory provision. Thus, the court determined that the company was not entitled to the benefit of the two-year statute of limitations set forth in the code because no notice of its dissolution was given to its creditors.   The court also held that an issue of fact remained as to the scope of the prior judgments obtained in the prior action and thus the court was unable to find whether res judicata applies.

 

For a copy of the decision click here

 

Paul Steck and Tom Segalla

 

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/Steck.html

Insurer Not Liable for Damages from Coal Dust Pollution

Grizzly Processing LLC v. Wausau Underwriters Ins. Co.

(E.D. Ky. March 11, 2010)

 

Grizzly Processing LLC (“Grizzly”) was sued in state court by ninety plaintiffs alleging the company contaminated their homes with coal dust and other pollutants in Floyd County, Kentucky.  Plaintiffs also alleged damages from plant noise, including blast operations, violations of certain environmental regulations, and violations of the Kentucky Surface Mining Act.  Plaintiffs claim seek compensatory damages including diminution in the value of their residences, costs of repair, medical expenses, and damages for pain and suffering.

 

Wausau Underwriters Insurance Company (“Wausau”) issued four policies between 2006 and 2008, two commercial general liability and two umbrella excess liability policies, to Grizzly.  All four of the policies contain an exclusion barring coverage for the “contamination” of “pollutants” and any injury or property damage that arose out of that contamination.  On the basis of these exclusions, Wausau refused to pay Grizzly’s defense costs in the underlying litigation.

 

Grizzly commenced a declaratory judgment action in state court, and Wausau removed the suit to federal court.  Wausau moved for summary judgment on the basis of the exclusions.  The court addressed only Wausau’s liability for coal dust because in its motion, Wausau did not address whether it is liable for plaintiffs’ other claims in the underlying litigation, noting that some of those claims may not have been asserted until after Wausau filed its motion. 

 

The United States District Court for the Eastern District of Kentucky granted Wausau’s motion.  With respect to coal dust, the court held that the policies explicitly excluded coverage.  The court noted that “[a]s to whether coal dust is included in the definition of pollutant, each of the insurance policies defines a ‘pollutant’ as an ‘irritant’ or ‘contaminant’”.  The court held that “[t]here can be no doubt that ‘coal dust’ is an irritant or contaminant.”  The court also noted that federal regulations identify coal dust as a “contaminant”, stating, “Congress has recognized that coal dust inhalation causes permanent damage.”  Additionally, the court noted that the Sixth Circuit “has determined that coal dust is clearly a pollutant for purposes of an insurance exclusion.”

 

Accordingly, the court granted summary judgment to Wausau, finding that plaintiffs’ claims in the state court action that they were damaged by “coal dust” were not reasonably susceptible of an interpretation that they were covered by the terms of the insurance policies at issue.

 

A copy of the decision is attached here 

 

Toni Frain and Tom Segalla

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

 

Case provided courtesy of Lexis. 

Insurers Not Responsible for Gulf of Mexico Oil Spill

Jefferson Block 24 Oil & Gas LLC v. Aspen Ins. UK Ltd.

(E.D. La. January 29, 2010)

 

In November 2008, plaintiff filed a lawsuit claiming that defendants were obligated to reimburse it for nearly $3 million in cleanup costs relating to an oil spill in the Gulf of Mexico.  The leak occurred on November 2007 while plaintiff was testing a recently acquired pipeline.  Plaintiff responded to the leak from November 2007 until April 2008.  Plaintiff and its insurers disputed whether the pipeline constituted a covered facility under the terms of the Oil Pollution Act policy.

 

The court decided the insurers’ summary judgment motion under New York law.  The court held that the federal Oil Pollution Act requires an offshore facility that has an oil spill discharge of more than 1,000 barrels to establish and maintain $10 million worth of insurance.  More than 75% of the pipeline in question is located outside of leases listed by plaintiff on forms related to the insurance policy.  Accordingly, the court held that the policy did not unambiguously and clearly cover the losses with respect to the specific 16-inch pipeline at issue, finding the meaning of “location” to be ambiguous.

 

Finding the policy terms ambiguous, the court looked to extrinsic evidence of the parties’ intent.  The court noted that plaintiff did not include the facility in its coverage forms because it wished to minimize the insurance premium that it would have to pay.  The court held that the normal presumption in favor of the insured where the policy was ambiguous did not apply, because plaintiff, not the insurer, was responsible for filling out the forms.

 

The court granted summary judgment in favor of the insurers, finding nothing in the record suggesting that either party expected the policy to provide broader coverage than what was necessary.

 

A copy of the decision can be found here

 

Toni Frain and Thomas Segalla

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Travelers Reaches Settlement With Reinsurer

The Travelers Indemnity Company v. La Fonciere Compagnie D’Assurances, et al.

(D. Conn. December 30, 2009)

 

Travelers Indemnity Co. (“Travelers”) issued primary, umbrella and excess insurance policies to The Goodyear Tire and Rubber Company (“Goodyear”) in the late 1970s.  Travelers was reinsured by La Fonciere Compagnie D’Assurances (“La Fonciere”), Phoenix Greece Ins. Co. S.A. (“Phoenix”), and Assurance Generales de France S.A. (“AGF”) for a portion of the risk associated with its policy covering Goodyear.

 

Goodyear became liable for environmental claims.  Travelers initially denied coverage, but reached a settlement with Goodyear after Goodyear commenced a declaratory judgment action against it.  Pursuant to that settlement, Travelers made installment indemnity payments to Goodyear through March 2006.

 

In 2009, Travelers commenced an action against its reinsurers seeking reimbursement for these payments.  Travelers claimed that it provided precautionary notice to the reinsurers about the environmental claims in 1988.  From 1988 until Travelers executed the settlement agreement with Goodyear, Travelers provided periodic reports to the reinsurers of developments relating to the environmental claims and coverage action.  In early 2005, Travelers forwarded a detailed letter to the reinsurers advising them of the settlement with Goodyear and notifying them that Travelers would bill the reinsurers for their responsible percentages of the loss.

 

In April 2006, Travelers prepared a detailed letter to the reinsurers advising them of the installment payments and enclosing its first reinsurance billings for the reinsurers’ shares of those loss payments.  Travelers prepared another reinsurance billing in November 2006.  Travelers also presented the April 2006 and November 2006 reinsurance billings to the reinsurers through an intermediary in February 2007.  In its complaint, Travelers claimed that the reinsurers refused to pay any of the amounts owed and demanded by Travelers in breach of the reinsurance agreements.  Travelers claimed that La Fonciere owed more than $958,000, Phoenix owed more than $940,000 and AGF owed more than $428,000. 

 

In October 2009, Travelers reached a confidential settlements with AGF and La Fonciere.  On Wednesday, December 30, 2009, Travelers filed a motion to dismiss its suit against Phoenix with prejudice simply stating that the two parties resolved the dispute between them.  No settlement figures were disclosed in the court filing.

 

For a copy of the complaint, click here

 

Toni Frain and Joe Oliva

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Oliva.html

Summary Judgment Sought for Insurers’ Delay in Asserting Defenses

Hinkle v. The North River Ins. Co.

(D. Alaska December 4, 2009)

 

The owners of property on which a dry cleaning business was operated seek a declaratory judgment against the prior owners’ insurers, preventing them from denying coverage for claims plaintiffs made against the prior owners to recover for costs the state of Alaska assessed against plaintiffs to clean up the property.

 

In 1999, the insurers agreed to defend the prior owners under a reservation of rights, saying they could not locate the policies, but reserved all rights and defenses available to the insurers under the policies.  However, in 2008, the insurers issued a supplemental reservation of rights agreeing to continue defending the prior owners, but raising four new defenses:  that the contamination was not an “occurrence”; that it might have happened after the coverage period: that a pollution exclusion precludes coverage; and that an exclusion for damage to a property “owned or occupied” by the insured bars coverage.

 

On December 4, 2009, plaintiffs filed a motion for partial summary judgment barring the insurers from denying coverage under the primary policies because the insurers waited eight years to raise the additional defenses.  Additionally, plaintiffs argue that the insurers are estopped from raising coverage defenses under the umbrella policy other than the claim that there is no evidence showing the policy exists.

 

For a copy of the motion click here

 

Toni Frain and Thomas Segalla

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

 

 

Pennzoil to Pay $2M Deductible for Each Pollution-Related Condition Alleged in Four Underlying Complaints

Pennzoil-Quaker State Co. v. American Int’l Specialty Lines Ins. Co.

(S.D. Tex. Sept. 4, 2009)

Pennzoil-Quaker State Company sued its insurer, American International Specialty Lines Insurance (“AISLIC”) alleging breach of contract and a violation of Chapter 542 of the Texas Insurance Code. Pennzoil obtained a claims-made pollution legal liability policy from AISLIC for its Shreveport, Louisiana facility. In 2001, residents who lived near the Shreveport facility sued Pennzoil, alleging that Pennzoil released various pollutants into the air and groundwater surrounding the refinery, causing physical injury, mental distress, and property damage.

Pennzoil tendered its defense to AISLIC, which denied coverage for one lawsuit based on late notice. AISLIC acknowledged coverage for the four remaining complaints. It took the position, however, that the remaining complaints alleged separate pollution conditions each subject to the policy’s $2 million deductible. Pennzoil objected, claiming that the remaining complaints had a causal connection because the releases alleged originated from the same refinery, affected the same group of people (nearby residents), contained benzene, caused exposure to airborne or waterborne contaminants, and were all allegedly caused by Pennzoil’s failure to properly train its employees and maintain its equipment.

 

The District Court for the Southern District of Texas held that the underlying complaints did not allege injury or damage arising from “the same, related or continuous” pollution conditions and, therefore, that Pennzoil was obligated to pay more than a single $2 million deductible. In so ruling, the court stated that the proper focus was not on the alleged “overarching cause,” i.e., the negligent employee training or maintenance equipment, but rather on the specific event that caused the loss. The court noted that the underlying suits alleged distinct kinds of emissions and releases with distinct causes. One underlying complaint alleged injury and damage arising resulting from a January 18, 2000 fire and explosion in a specific unit of the refinery, allegedly due to a corroded hear exchanger in that unit. Another discrete release of pollutants occurred on November 4, 2002, almost two years later.

 

For a copy of the decision, click here

 

By Carrie P. Appler and Thomas F. Segalla

 

http://www.goldbergsegalla.com/attorneys/Appler.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

U.S. Supreme Court Bars New Manville Asbestos Claims Against Insurer

Travelers Indem. Co. v. Bailey

(S. Ct. June 18, 2009)

 

The Supreme Court upheld a long-standing agreement among insurers, policyholders, and some claimants that allowed Travelers, an insurer of John-Manville Corp., to contribute insurance proceeds to a trust in exchange for immunity from future claims. The arrangement became a model for more than 40 other asbestos cases. Plaintiffs, however, sued Travelers, arguing that it broke consumer protection laws as well as common law by conspiring to hide the dangers of asbestos and failing to warn the public. The issue was whether the injunction barred state-law actions against Travelers based on allegations either of its own wrongdoing while acting as Manville’s insurer or of its misuse of information obtained from Manville as its insurer. The court held that the terms of the injunction barred the actions and that it was too late for plaintiffs to challenge the orders setting up the trust.

 

For a copy of the decision click here

 

By  Carrie P. Appler

 

http://www.goldbergsegalla.com/attorneys/Appler.html

 

50 State Comprehensive Toxic Tort Trigger-of-Coverage Report

With the dramatic increase in silica-related claims, it is essential that insurance carriers and insureds re-visit coverage issues unique to toxic tort actions.  It has been reported “at least 1.7 million U.S. workers are exposed to respirable crystalline silica in a variety of industries and occupations, including construction, sandblasting and mining.”  Below please find a comprehensive 50 state report detailing the current status of the trigger of cover rules in various jurisdictions throughout the United States.

 Download Trigger.of.Coverage

 

by Thomas F. Segalla and Susan E. Van Gelder

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/VanGelder.html

 

Chinese Drywall Insurance Coverage Litigation Begins

As claims mount and federal and state agencies have begun a quest to determine who is responsible for the Chinese drywall fiasco, insurance disputes regarding coverage for the claims are beginning to make their way through the courts. In March 2009, the first complaint regarding homeowner’s insurance for drywall claims was filed.  Two Florida policyholders sued their homeowners’ insurer, seeking coverage for property damage resulting from Chinese drywall in their home.  See Baker v. American Home Assurance Company, filed in the United States District Court for the Middle District of Florida under No. 09-cv-188.   In a bare-boned complaint, the policyholders alleged that they notified their insurer of a loss in December 2008 resulting from the gases emitted by drywall. It goes on to allege that the insurer verbally denied the claim based on “contaimination,” but that no formal declination has been issued. In its answer, the insurer denied coverage based upon the pollution exclusion, the wear and tear exclusion, and the faulty materials exclusion.  It also asserted the claim fell outside the policy period.  It appears the insurer is asserting that the damage occurred at the time the drywall was installed, not the time it began to emit noxious odors.

Insurance disputes relating to contractor’s CGL policies are also on deck.  In April 2009, one of the principal defendants in Florida’s Chinese drywall litigation, Lennar Corporation, was widely reported to state that it believed that its insurance would cover the drywall claims. The insurer has not commented. At the exact same time, however, in the Eastern District of Virginia, the insurer of another homebuilder commenced a declaratory judgment action seeking a declaration that it did not owe defense or indemnity to its insured for Chinese drywall based on the pollution exclusion and the work-product exclusions. Builders Mutual Insurance Company v. Dragas Management Corporation, 2:09-cv-185. 

Meanwhile, on the civil litigation front, actions are being taken to pave the way for a slew of litigation by or on behalf of homeowners affected by Chinese drywall. Senators Mary Landrieu, D-La. and Bill Nelson, D-Fla, continue to voice concerns regarding Chinese drywall at the federal level.  Federal agencies have begun investigating the drywall itself, and it has been reported that a number of federal agencies are currently developing procedures for air-quality tests. New Orleans Times-Picayune reported on June 7, 2009 that Sen. Landrieu’s staff said that the federal tests could lay the groundwork for the CPCU to bring a civil action against the drywall manufacturers, and last week, in Louisiana, State Senator Julie Quinn, R-Metairie, sponsored legislation that would allow consumers in that state to sue the seller of the drywall for all damages and attorneys fees.  Currently, such suits are not possible under Louisiana law.

 

The Judicial Panel on Multidistrict Litigation ruled on June 15, 2009 that 10 actions involving claims relating to Chinese drywall be transferred to the Eastern District of Louisiana and assigned to Hon. Eldon E. Fallon.  The claims had be filed in the Southern District of Florida, the Middle District of Florida, the Northern District of Florida, the Eastern District of Louisiana and the Southern District of Ohio.

 

Finding the claims involved common issues of fact, the JPML noted that there is no clear focal point for the litigation, and that transferring the litigation to the Eastern District of Louisiana would “serve the convenience of the parties and witnesses” and allow for efficient administration of the litigation.   Regarding its assignment of the cases to Judge Fallon, the JPML noted that he has extensive experience in multidistrict litigation “as well as the ability and temperament to steer this complex litigation on a steady and expeditious course.”

Related cases have been filed in the Southern District of Alabama, and the Eastern District of Virginia, but were not included in the order.  The defendants in the Eastern District of Virginia action opposed inclusion in the multidistrict litigation, and asked any transfer of the action be considered at a later date.  The JPML granted that request.

Download Baker complaint by clicking here.

Download Builder's Mutual complaint by clicking here

Download Multi-District Litigation Order Consolidating Chinese Drywall Litigation here

By Sarah J. Delaney and Daniel W. Gerber

http://www.goldbergsegalla.com/attorneys/Delaney.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Court Finds That Insurer Has a Duty to Defend Under Claims-Made Pollution Liability Policy

N. Yamhill Station, LLC. v. Great American Alliance Ins. Co.

(District Court, Oregon, May 21, 2009)

 

Effective October 6, 2006, plaintiffs’ gas station was covered by a pollution liability policy.  In November 2006, a leak in a gasoline storage tank was discovered.  The insurer denied coverage because the leak commenced before the inception date of the policy.  However, the court disagreed, holding that the underlying complaint could be reasonably interpreted as alleging that an environmental incident occurred after the inception date of the policy.  Plaintiffs alleged multiple releases that occurred some time between July 2006 and November 2006.  Because some of the releases may have occurred after October 6, 2006, summary judgment in favor of the insurer was inappropriate

 

By Toni Frain

 

http://www.goldbergsegalla.com/attorneys/Frain.html

Carbon Monoxide Discharged from Furnance is “Pollutant” Released into Atmosphere

Nautilus Insurance Company v. Country Oaks Apartments, Ltd.  (Click on the Case Name for full decision)

(5^th Cir. ( Texas), April 22, 2009

The vent to a furnance was accidently blocked, causing the carbon monoxide that would otherwise have been discharged into the atmosphere to be dispersed into an apartment.  The carbon monoxide consistuted a “pollutant” within the meaning of the absolute pollution exclusion and its discharge from the furnance constituted discharge into the “atmosphere."

 

By Daniel W. Gerber and Jeffrey L. Kingsley

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html