NEW ORLEANS - The Fifth Circuit U.S. Court of Appeals ruled June 2 that combustible vapors from bottom sediment of petroleum storage tanks that caused an explosion fall within the pollution exclusion (Noble Energy Inc., et al. v. Bituminous Casualty Co., No. 07-20354, 5th Cir.; 2008 U.S. App. LEXIS 11757 Shepardize).

(Opinion available. Document #03-080605-101Z.)

The court affirmed that Bituminous Casualty Co. does not have an obligation to defend or indemnify Noble Energy Inc. for workers' injuries and deaths in connection with Bituminous' insured's disposal of waste from Noble's storage tanks.

Noble conducts petroleum exploration and production. It hired T&L Lease Services Inc. to collect and dispose of basic sediment and water (BS&W) from storage tanks near two petroleum wells. The agreement between Noble and T&L required T&L to name Noble as an additional insured under its commercial general liability policy issued by Bituminous.

Vapors

After T&L collected the BS&W, it hauled the material to a disposal facility. During the unloading process, T&L workers left the diesel trucks running. The trucks' engines began to race, and one engine exploded, causing a fire that engulfed both trucks. It was later determined that combustible vapors from the BS&W, which contained gas condensate, caused the engines to race, leading to the explosion and fire.

T&L and Noble were sued by surviving employees and estates of deceased employees. Noble's insurers paid $14.4 million, and Bituminous paid $5.6 million on behalf of T&L to settle the underlying suits. Noble and its insurers commenced an action seeking declaratory relief as to coverage.

The U.S. District Court for the Southern District of Texas ruled for Bituminous on the ground that it was not an additional insured and the pollution exclusion barred coverage.

On appeal, the Circuit Court panel of Circuit Judges Carolyn King, Jacques L. Wiener Jr. and Jennifer Walker Elrod upheld the determination that the exclusion applies but found it unnecessary to address Noble's additional insured status.

'Pollutant'

The appeals panel concluded that the underlying complaints' allegations that during the unloading process harmful and hazardous substances were released into the disposal facility and that BS&W is "unwanted waste material" and "hazardous oilfield waste" brings the underlying claims within the exclusion. According to the underlying allegations, the BS&W and the combustible vapors that emanated from it clearly qualify as a "pollutant," the panel held.

Given that the combustible vapors clearly fit the definition of "pollutant," which includes vapor, chemicals and waste, the appeals panel rejected the argument that the exclusion is inapplicable where the injuries resulted from BS&W acting not as a pollutant but as a flammable accelerant.

Furthermore, "Noble's alleged liability for the workers' deaths and bodily injuries indisputably arose out of the discharge, dispersal, release, or escape of the BS&W and its vapors," it remarked.

Distinguishing case law cited by Noble and its insurers, the panel said Bituminous' exclusion precisely defines "pollutant" and is a broad exclusion not limited to discharges "into or upon land, the atmosphere or any watercourse or body of water."

"Moreover, the Appellants fail to recognize (or refuse to acknowledge) that the hazardous quality of the vapors was the proximate cause of the explosion that killed or injured the workers," it explained.

Hostile-Fire, Into Environment

The panel rejected consideration of the insured's reasonable expectations absent ambiguity. It further held that the hostile-fire exception to the exclusion is not invoked in this case because it applies only if a pre-existing fire caused the pollution, not as in this case, where the pollutant directly caused the fire.

It rejected Noble's argument that the BS&W was not discharged, dispersed or released into the environment simply because it was confined within the area of its intended use. To the contrary, substantial case law holds that substances need not be released into the surrounding environment to qualify as pollutants with respect to the pollution exclusion, the panel said.

"Thus, a pollution exclusion clause applies whenever a pollutant causes harm by a physical mechanism enumerated in the policy, irrespective of where the injury took place or whether the pollutant was released into the environment," it said.

Thomas B. Alleman of Winstead in Dallas represents Bituminous. Robert H. Etnyre Jr. and Marcus R. Tucker of Royston, Rayzor, Vickery & Williams in Houston are counsel for Noble and its insurer, St. Paul Surplus Lines Insurance Co. Randy G. Donato of Donato, Minx & Brown in Houston represents Noble's insurer, Associated Electric & Gas Insurance Services Ltd.

(Trial court opinion available. Document #03-080605-021Z.)

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Texas Judge Rules Carbon Monoxide Injury Excluded

AUSTIN, Texas - A Texas judge ruled June 2 that the pollution exclusion bars coverage in connection with a tenant's exposure to carbon monoxide, rejecting challenges to the definition of "pollutant" and whether the gas was "discharged" (Nautilus Insurance Co. v. The Country Oaks Apartments Ltd., No. SA-07-CA-311-H, W.D. Texas).

(Opinion available. Document #03-080605-108Z.)

Senior U.S. Judge Harry Lee Hudspeth of the Western District of Texas ruled for Nautilus Insurance Co. on summary judgment with respect to coverage for a lawsuit filed against The Country Oaks Apartments Ltd.

'Discharge'

Nautilus refused to defend or indemnify Country Oaks. The underlying lawsuit was brought by a tenant alleging that her daughter suffered permanent and severe injury from exposure to carbon monoxide while the tenant was pregnant. The tenant alleged that while roofing work was being performed on the apartment complex, a vent meant to release carbon monoxide from the tenant's furnace was covered, allowing elevated levels of carbon monoxide to accumulate in the apartment.

Nautilus brought a declaratory judgment action, seeking to enforce the pollution exclusion in a commercial general liability policy issued to Country Oaks in 2001. The exclusion excludes coverage for bodily injury or property damage that "would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time."

Judge Hudspeth rejected Country Oaks' argument that the "emission" of carbon monoxide from a properly functioning furnace is not a "discharge" within the meaning of the exclusion. He said that "[t]o 'discharge' a pollutant means to emit it."

'But For' Causation

Country Oaks then argued that the child's injuries were not caused by a "discharge, dispersal, seepage, migration, release or escape" of carbon monoxide, but rather the lack of a dispersal, release or escape of carbon monoxide given that the covering of the roof vent allowed carbon monoxide to accumulate. The judge disagreed, citing the exclusionary language barring coverage for loss that "would not have occurred in whole or part but for" the discharge of pollutants.

"Thus, the clear language of the exclusion indicates that only 'but for' causation is necessary to trigger the exclusion; direct or proximate causation is not required. This conclusion is further supported by the fact that injury need only be caused 'in part' by the discharge of pollutants," he said.

A different result would be warranted if the exclusion contained "due to" or "caused by" language, he added. It is clear that the child's injuries would not have occurred but for the discharge of carbon monoxide from the furnace, he said. The initial discharge from the furnace and the subsequent accumulation of carbon monoxide combined to cause the injuries, he said. Because the two causes cannot be separated, the exclusion is triggered, he held.

'Pollutant'

He rejected the argument that carbon monoxide when discharged from a properly functioning furnace is not a pollutant because it does not irritate or contaminate. He found that the argument does not comport with the plain language of the policy and relevant case law on similar pollution exclusions.

He cited the Fifth Circuit U.S. Court of Appeals' rejection of this argument in American States Insurance Co. v. Nethery (79 F.3d 473, 476 Shepardize [5th Cir. 1996]) and a Texas appellate court's similar decision in Zaiontz v. Trinity Universal Insurance Co. (87 S.W.3d 565, 573 Shepardize [Tex. App. – San Antonio 2002]; See 5/21/02 Issue).

He also cited the Fifth Circuit's recent decision in United National Insurance Co. v. Hydro Tank Inc. (497 F.3d 445, 447 Shepardize [5th Cir. 2007]; See 5/1/08, Page 4 and 8/23/07 Issue) applying the exclusion to a situation where workers overcome by fumes fell into sludge in a refinery tank. The court was not persuaded by the argument that the sludge is not a pollutant when it is stored where it belongs.

John Tollefson and Stephen Melendi of Tollefson Bradley Ball & Mitchell in Dallas represent Nautilus. Jeffrey E. Dahl of Harkins, Latimer & Dahl in San Antonio represents Country Oaks.

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Circuit Court Affirms Coverage For Damage Due To Faulty Equipment

RICHMOND, Va. - In an unpublished opinion, the Fourth Circuit U.S. Court of Appeals affirmed May 21 that a commercial customer is entitled to recover under an insured's policy for property damage caused by an insured's defective anodizing line (Race City Fasteners Inc. v. Selective Insurance Company of South Carolina, No. 07-1528, 4th Cir.; 2008 U.S. App. LEXIS 10834 Shepardize; See 5/15/07 Issue).

(Opinion available. Document #03-080605-102Z.)

The appeals panel upheld a decision by U.S. Judge Richard L. Voorhees of the Western District of North Carolina that under Rhode Island law, Selective Insurance Company of South Carolina must pay damages for a judgment entered against its insured, Plasfab Inc., and in favor of Race City Fasteners Inc.

Anodizing Line

Race City anodizes engine parts designed for NASCAR racing. Plasfab designs, develops, fabricates and installs metal finishing systems. Race City purchased an anodizing line from Plasfab to anodize NASCAR racing engine pistons on a mass basis, at least 1,000 per week.

However, the line did not function as promised and produced only two anodized pistons per week. Race City sued Plasfab for breach of contract and breach of warranty. Selective refused to defend Plasfab. After obtaining a default judgment against Plasfab for $714,414, Plasfab filed for bankruptcy, and Race City pursued Plasfab's insurer.

Judge Voorhees ultimately ruled that damage to Race City's pistons from Plasfab's faulty anodizing line constitutes "property damage" caused by an "occurrence." He reasoned that the pistons constituted third-party property and that although the parties disputed whether the pistons were actually damaged, Race City's negligence allegation that the pistons were not anodized to specifications and rendered useless indicates that the pistons were necessarily or at least probably "damaged."

Chemical Alteration

Judge Voorhees explained that the anodizing process changes the surface of the pistons to harden it to withstand engine temperature and combustion. The thickness of that outer layer allegedly did not meet the specifications agreed upon by the parties. He said that where the anodizing line chemically altered the pistons in a way that did not meet specifications, those pistons were physically damaged. Also, because the pistons could not be used for their intended purpose, there was additionally a loss of use, he said.

Thus, because Race City's complaint alleged claims that might potentially be covered under the policy, Selective breached its duty to defend Plasfab, he ruled.

On appeal, Selective argued that the underlying complaint never directly alleges that pistons were physically damaged or failed to meet contract specifications. The appeals panel agreed with Race City's position that because anodizing metal is a physical process, it amounted to physical injury to tangible property of third parties when the pistons were anodized inadequately.

The panel noted that the pistons were no longer in their unanodized state such that they could be properly anodized and they were not anodized sufficiently to be of any use. The situation is analogous, it said, to a sign made for a customer with misspellings or incorrect information: the sign is damaged and of no use for its intended purpose.

Damages

The laws of North Carolina, where Race City's facility is located, and Rhode Island, where Plasfab's operations are located, provide that when an insurer breaches its duty to defend, it waives its right to rely on any coverage defenses and is then liable for the full amount of any judgment or settlement against its insured.

The panel rejected Selective's argument challenging whether Race City actually reimbursed its customers for damaged pistons. The panel said Selective had a duty to defend Plasfab regardless of Plasfab's ultimate liability to Race City. Unlike the insured in Seagate Technology Inc. v. St. Paul Fire & Marine Insurance Co. (73 F.3d 370, 1995 Shepardize, 9th Cir., unpublished; 1995 U.S. App. LEXIS 37729 Shepardize), it can be inferred that Race City incurred expenses caused by Plasfab's negligence in having to reimburse customers, it said.

The panel also rejected Selective's argument that the amount of recovery should be limited based on a Rhode Island statute allowing an insured, but not a stranger to the policy, to recover damages for the insurer's breach of contract for failing to defend. The panel said the Rhode Island Supreme Court has held that with respect to Rhode Island General Laws Section 27-7-2 Shepardize, which allows an injured party that has obtained a judgment against an insured to pursue the insured's insurer, an injured party stands in the shoes of the insured.

The panel comprised Circuit Judge William B. Traxler Jr., Senior Circuit Judge Clyde H. Hamilton and Senior Circuit Judge David R. Hansen of the Eighth Circuit U.S. Court of Appeals, sitting by designation.

Mark A. Michael and Robert C. Gunst Sr. of Charlotte, N.C., represent Race City. Susan K. Burkhart of Cranfill, Sumner & Hartzog in Raleigh, N.C., is counsel for Selective.

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Labeling Exclusion Does Not Preclude Coverage For Failure To Warn Claims, Panel Says

NEW ORLEANS - A policy's labeling exclusion cannot be used to preclude coverage for claims of misrepresentation and failure to properly advise consumers of the dangers of a diet drug because no nexus has been shown between the additional insured's labeling or other alteration of the product and the claimant's injury, the Fifth Circuit U.S. Court of Appeals said May 27 in reversing (Robert Weaver v. CCA Industries, No. 07-30597, 5th Cir.; 2008 U.S. App. LEXIS 11382 Shepardize; See 6/7/07 Issue).

(Opinion available. Document #13-080604-104Z.)

Robert Weaver sued CCA Industries Inc. in the U.S. District Court for the Western District of Louisiana after he allegedly sustained injuries from ingesting Permathene, a product formulated, labeled, marketed and sold by the company.

In 1995, Weaver began taking Permathene, an over-the-counter diet drug/appetite suppressant that contains phenylpropanolamine (PPA). Eleven days after he began taking Permathene, Weaver suffered a hemorrhagic stroke. Weaver contends that the PPA in Permathene caused his stroke.

Failure To Advise

Weaver alleged that CCA "manufactured, promoted and marketed products containing PPA directly to consumers by making representations regarding the safety of their products and misrepresentation or omissions regarding the risks of their products." Weaver further alleges that CCA "failed to properly advise consumers of the known risks of PPA."

Although Permathene is sold and marketed by CCA, it is manufactured by Phoenix Laboratories Inc. CCA provided a formula to Phoenix, which assembled the component Permathene ingredients in its factory and then shipped the products in bulk to CCA to be packaged and labeled. CCA marketed Permathene for sale to the general public at retail outlets.

CCA made demands on Phoenix's insurer, New York Marine and General Insurance Co. (NYMAGIC), for defense and indemnification of any damages it might have to pay to Weaver. NYMAGIC denied coverage under the claims-made products/completed operations liability insurance policy.

Defense Demand

CCA then filed a third-party complaint against Phoenix and against NYMAGIC for defense and indemnification. CCA asserts that Phoenix obtained claims-made liability insurance from NYMAGIC for CCA products. CCA asserts that the NYMAGIC policy, under its vendor endorsement, afforded liability coverage to CCA.

NYMAGIC moved for summary judgment, arguing that CCA is not covered under the policy because CCA was not a named insured under the policy. NYMAGIC further contends that CCA was excluded from coverage under the policy's vendor endorsement because CCA provided the formula Phoenix used to manufacture Permathene, CCA labeled or re-labeled Permathene for sale to the public and CCA extended an express warranty to the public without Phoenix's permission.

Judge Robert G. James determined that CCA was not a named insured under the policy and, therefore, cannot seek a defense or indemnification on that basis. The judge explained that the claims made against CCA were not made "solely with respect to" CCA's distribution or sale as required under the policy's vendor endorsement.

Policy Exclusions

The judge said even if he determined that CCA was an additional insured, the policy's express warranty exclusion, labeling exclusion and provision of ingredient exclusion preclude coverage for the claims.

The judge noted that CCA concedes that it did not have authority to provide a warranty to Weaver and that it labeled the Permathene. Further, the judge said it is undisputed that CCA placed a label on the product and said coverage is excluded for bodily injury or property damage arising from "products which after distribution or sale by the named insured have been labeled or relabeled or used as a container, part or ingredient of any other thing or substance by or for the vendor."

Finally, the judge explained that it is undisputed that CCA provided Phoenix with the formula used to manufacture Permathene, which triggers the provision of ingredient exclusion to preclude coverage. CCA appealed.

The appeals panel of Circuit Judges W. Eugene Davis and Leslie H. Southwick and U.S. Judge Dee Dodson Drell of the Western District of Louisiana, sitting by designation, vacated the ruling.

The panel first determined that CCA does qualify as an additional insured under the vendor endorsement.

No Nexus

The panel next determined that exclusion 1(b)(iv) is not applicable because no nexus has been shown between CCA's labeling or other alteration of the product and Weaver's injury. The panel explained that even though Weaver's claim based on a failure to warn theory has a nexus to CCA's relabeling of the product, there are a number of other recovery theories that have no nexus to the relabeling.

In addition, the panel said that the trial judge erred in finding that exclusion 2 applies to preclude coverage, noting that NYMAGIC's interpretation of the term "ingredient" is inconsistent with the commonsense meaning of that word. NYMAGIC argued that the formula provided by CCA to Phoenix was an ingredient. The panel explained that the formula or recipe for a product is different from the ingredients used to create the product.

"Exclusion 1(b)(iv) is inapplicable because there existed no nexus between the harm alleged in some of Weaver's claims and the alteration and relabeling of the product. Exclusion 2 is inapplicable because the formula for a product is not an 'ingredient' for purposes of making that product," the panel concluded.

Richard J Arsenault and Charles Michael Bollinger of Neblett Beard & Arsenault in Alexandria, La.; Gano D. Lemoine Jr. and Vance R. Andrus of Andrus Boudreaux in Lafayette, La.; Patti Durio Hatch of Walter C. Dumas & Associates in Baton Rouge, La.; and Timothy M O'Brien of Levin Papantonio in Pensacola, Fla., represent Weaver. Bruce A. Cranner and Karen C. Duncan of Frilot Partridge in New Orleans represent CCA. James R. Sutterfield and John Joseph Danna Jr. of Sutterfield & Webb in New Orleans represent NYMAGIC.

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Nevada High Court Finds Coverage Under Additional Insured Endorsement

LAS VEGAS - An additional insured endorsement that does not exclude specific losses provides coverage for an injury caused by the independent negligence of the additional insured as long as the loss relates to the named insured's operations performed for the additional insured's benefit, the Nevada Supreme Court said May 29, answering a certified question (Federal Insurance Co. et al., v. American Hardware Mutual Insurance Co., No. 46275, Nev. Sup.; 2008 Nev. LEXIS 38 Shepardize).

(Opinion available. Document #03-080605-104Z.)

American Hardware Mutual Insurance Co. issued a liability insurance policy to Clark Lift West Inc. American listed Southern Wine and Spirits of America Inc. as an additional insured because Clark Lift provided maintenance and repair services at Southern Wine's Sparks, Nev., facility. Southern Wine was covered for liability "but only with respect to liability arising out of [the named insured's] ongoing operations performed for that [additional] insured."

Shortly after American Hardware issued the insurance policy, a Clark Lift employee, Charles Pierce, was injured at the Sparks facility while acting within the course and scope of his employment. Pierce filed a personal injury complaint against Southern Wine, seeking to recover damages for Southern Wine's negligence in causing his injuries.

Defense Tendered

Southern Wine, through its general liability insurer, Federal Insurance Co., tendered defense of Pierce's personal injury action to American Hardware, seeking coverage under the additional insured endorsement.

American Hardware denied coverage on the basis that its additional insured endorsement did not cover the additional insured's direct acts of negligence and that coverage was triggered only when the alleged negligence could be imputed to the additional insured through the named insured's operations.

Federal Insurance and Southern Wine then filed a declaratory relief action, seeking a judicial determination and declaration that American Hardware had a duty to provide coverage to Southern Wine under the endorsement. The suit was removed to the U.S. District Court for the District of Nevada.

The District Court certified the following question to the Nevada Supreme Court: "Under Nevada law, does an additional insured endorsement provide coverage for an injury caused by the sole independent negligence of the additional insured?"

Certified Question

The Supreme Court answered the certified question in the affirmative, noting that absent an expressed intent to the contrary, an additional insured endorsement that covers liabilities arising out of a named insured's operations performed for the additional insured provides liability coverage regardless of fault as long as the loss sustained is connected to the named insured's operations performed for the additional insured's benefit.

In this case, the court said the additional insured provision in the American policy is ambiguous and must be construed in favor of coverage. The court explained that it is reasonable to interpret the language of the endorsement both in favor and against coverage for the additional insured's independent negligence.

"Applying our contract and insurance policy construction rules, under which we broadly interpret clauses providing coverage and generally interpret ambiguous terms in favor of the insured, we construe the endorsement here as providing coverage to the additional insured for its own independent negligence connected to the named insured's operations performed for the additional insured," the panel said.

Explicit Language

The court said that if an insurer wishes to limit coverage provided to an additional insured, it must include "explicit language that would exclude particular causes of losses suffered."

"Thus, we conclude that, when an additional insured endorsement simply covers liabilities arising out of operations of the named insured performed for the additional insured, that endorsement includes coverage for liabilities caused by the additional insured's direct negligent acts, so long as those acts are connected to the named insured's operations performed for the additional insured," the panel concluded.

Thierry V. Barkley of Thorndal Amstrong Delk Balkenbush & Eisinger in Reno, Nev., represents Federal and Southern Wine. Tiffinay Barker Pagni and Robert L. Eisenberg of Lemons Grundy & Eisenberg in Reno represent American Hardware.

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Assignee Of Additional Insured Entitled To Defense, Indemnity

DENVER - A Colorado judge ruled May 13 that an insurer has a duty to indemnify an additional insured and, thus, its assignee, where a policy's contractual liability exclusion and additional insured endorsement conflict (United Fire & Casualty Co. v. Boulder Plaza Residential LLC, et al., No. 06-37, D. Colo.; 2008 U.S. Dist. LEXIS 39537 Shepardize).

(Opinion available. Document #03-080605-106Z.)

U.S. Judge Wiley Y. Daniel of the District of Colorado ruled in favor of Boulder Plaza Residential LLC with respect to construction defects in the interior of a condominium complex. He held that United Fire & Casualty Co., which insured a flooring subcontractor, had a duty to defend and indemnify with respect to deficiencies in the floor.

Boulder Plaza hired McCrerey & Roberts Construction Co. (M&R) to build the interior of the project. M&R hired Summit Flooring to install hardwood floors. M&R was listed as an additional insured under Summit's commercial general liability policy with United Fire. United Fire refused coverage for M&R's claim for indemnity and a suit by the homeowners' association. Boulder Plaza then sued M&R and Summit. United Fire defended Summit but denied coverage to M&R and filed a declaratory judgment action.

Boulder Plaza and M&R settled, with M&R's claims against Summit and its insurer being assigned to Boulder Plaza.

Defense Owed

In March 2007, Judge Daniel ruled that United Fire had a duty to defend M&R, holding that it is reasonable to conclude from the underlying allegations that the damage to the floors occurred during Summit's improper installation of the wood floors, which is the basis of many of the claims against M&R.

The additional insured endorsement provides that coverage for property damage does not extend to damage occurring after work has been completed. The parties disputed whether the deficiencies and resulting conditions occurred during Summit's operations or after its work was completed.

In May 2008, Judge Daniel addressed United Fire's duty to indemnify. First, he ruled that M&R qualifies as an additional insured and a named insured under Summit's CGL policy with United Fire.

Indemnity, Insuring Agreements

Examining the construction contract between Boulder Plaza and M&R, which contained an indemnity agreement, he concluded that M&R agreed to indemnify Boulder Plaza for damages, losses and expenses resulting from any negligent acts in the performance of the work at the project. He held that the construction contract in an "insured contract" under the policy.

He looked to the insuring agreement, which provides coverage for damages because of property damage covered by the policy, to conclude that the policy covers the damage that occurred during the defective floor installation. Based on those two contracts, Judge Daniel held that United Fire has a duty to indemnify Boulder Plaza as assignee for M&R's liability assumed in the construction contract.

Conflicting Language

He then looked to the contractual liability exclusion in United Fire's policy. The exclusion is accompanied by an exception for damages for which the insured would be liable in the absence of a contract or agreement or assumed in an "insured contract."

He said the language of the additional insured endorsement is inconsistent with the contractual liability exclusion because the endorsement limits coverage to property damage arising from negligent acts by the subcontractor, Summit, which occurred while Summit was performing its work. Thus, he construed the conflict in favor of coverage to Boulder Plaza.

The amount of damages for United Fire's breach of its duties is undeterminable at this time, he said, because of fact issues regarding the extent to which M&R's primary insurers contributed to defense and indemnity and the apportionment of attorney fees.

Kevin Ahearn, Michael Drew and Elizabeth C. Moran of Pryor Johnson Carney Karr Nixon in Greenwood Village, Colo., represent United Fire. Boulder attorneys Judy Snyder, Justin Berg, George Berg Jr. and John Hunter III of Berg Hill Greenleaf & Ruscitti in Boulder and Robert D. Erben of Moriarty Leyendecker Erben are counsel for Boulder Plaza.

(Opinion in the duty to defend available. Document #03-080605-024Z.)

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Arkansas High Court Denies Reimbursement Of Defense Costs

LITTLE ROCK, Ark. - A majority of the Arkansas Supreme Court on May 29 denied reimbursement of defense costs to an insurer absent statutory or rule authority after success in a declaratory judgment action based on a unilateral reservation of rights (Medical Liability Mutual Insurance Co. v. Alan Curtis Enterprises Inc., et al., No. 07-991, Ark. Sup.; 2008 Ark. Sup. LEXIS).

(Opinion available. Document #03-080605-105Z.)

Certified Question

In a 4-2 ruling, the high court answered a certified question from the U.S. District Court for the Eastern District of Arkansas: After a court has declared that an insurer has no duty to defend or indemnify its insured, can the insurer rely on its reservation of rights letter to recoup its attorney fees and costs spent defending the underlying lawsuit?

The defense costs issue arises out of a declaratory judgment action initiated by Medical Liability Mutual Insurance Co. (MLMIC) with respect to a wrongful death and negligence action brought against its insured, a nursing home. The District Court ruled in September that the insurer has no duty to defend or indemnify the nursing home because the underlying claims are barred by the applicable statute of limitations.

MLMIC insured Evergreene Properties of North Carolina, which owned the Crestpark Inn nursing home, under a health care facility liability insurance policy and a supercover umbrella and excess liability policy.

Arkansas Statutes

Absent controlling precedent on the issue of reimbursement of defense costs, the District Court certified the matter to the state Supreme Court. The majority, consisting of Justices Tom Glaze, Don Corbin, Jim Gunter and Paul Danielson, declined to follow what it characterized as the majority and minority views on the issue of reimbursement. Instead, the majority looked to Arkansas case law prohibiting awards of attorney fees except where expressly provided for by statute, noting that Arkansas has followed the American Rule regarding attorney fees since before the Civil War, and Arkansas statutes.

The majority found only two statutes that could possibly provide the relief sought by MLMIC. However, one statute, Arkansas Code Annotated Section 23-79-209 Shepardize, provides fee awards only to insureds prevailing in litigation against their insurers. The other statute, Arkansas Code Annotated Section 16-22-308 Shepardize, is not specific to insurance matters or disputes. The majority said there is no breach of contract at issue or other scenario within Section 16-22-308 that would allow for an insurer to recoup attorney fees.

The majority considered the state's statutes to be the best guidance of public policy in Arkansas and found the General Assembly's silence on the award of attorney fees to insurers dispositive.

Dissent

Chief Justice Jim Hannah and Justice Robert Brown dissented, asserting that the American Rule has no bearing on the issue because this case does not concern the recoupment of fees from a losing litigant but whether the insurer's reservation of rights created an implied contract that obligated Evergreene to reimburse MLMIC for costs spent in defense of the wrongful death action against Evergreene.

No other jurisdiction has employed the American Rule in determining recoupment of defense costs based on a reservation of rights, they said.

"The upshot of this is that insurance carriers will be forced to defend all uncovered claims and incur that expense based on an insured's demand without hope of reimbursement. That runs directly counter to the prevailing view in most states. In addition, the majority leaves unanswered the issue of whether costs other than attorney's fees may be recouped by MLMIC," they remarked.

Representing MLMIC are Bonnie Johnson, David M. Powell and Jess L. Askew III of Williams & Anderson in Little Rock. Representing Curtis Enterprises and Evergreene are T. Paul Hendrick of Hendrick & Bryant in Winston-Salem, N.C., and Keith I. Billingsley of Bequette & Billingsley in Little Rock.

(Additional documents available: Petitioner brief. Document #50-080108-035B.

Respondents' brief. Document #50-080108-036B.

Petitioner reply brief. Document #50-080108-037B.)

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Corrosion Exclusion Bars Coverage For Pipeline Remediation

DENVER - A Colorado judge on April 23 ruled that losses incurred in complying with a regulatory order to test and remediate a gas pipeline are excluded by a corrosion exclusion and that separate damage to the pipeline from a leak and related property damage do not exceed a deductible (MarkWest Hydrocarbon Inc., et al. v. Liberty Mutual Insurance Co., et al., No. 05-cv-01948, D. Colo.).

(Opinion available. Document #03-080605-107Z.)

Finding no coverage, Senior U.S. Judge Richard P. Matsch of the District of Colorado dismissed an action brought by MarkWest Hydrocarbon Inc. against its property insurers, Liberty Mutual Insurance Co., Birmingham Fire Insurance Company of Pennsylvania, Arch Insurance Co. and Ace American Insurance Co.

MarkWest Hydrocarbon Inc., MarkWest Energy Partners L.P. and MarkWest Energy Appalachia LLC operate a natural gas liquids (NGL) pipeline referred to as the Appalachian Liquids Pipeline System (ALPS), which was constructed and laid in 1957.

Valve Failure Vs. Corrosion

On Nov. 8, 2004, an incident involving a small leak of NGL resulted in an explosion and fire that caused injuries and destroyed five homes. After the incident, the U.S. Department of Transportation, Office of Pipeline Safety (OPS), immediately ordered MarkWest to shut down the ALPS pipeline and hydrostatically test it.

The insurers, which issued "all-risk" property insurance to MarkWest, denied coverage based on the corrosion exclusion, alleging that corrosion issues existed before the 2004 incident. MarkWest sued the insurers, asserting that the explosion and fire occurred because of valve failure and the resulting pressure spike rather than corrosion.

Judge Matsch ruled that summary judgment for the insurers must be denied with respect to the corrosion exclusion for the loss of property directly resulting from the explosion. There are conflicting expert opinions as to whether the leak was caused by a valve failure, and MarkWest demonstrated a triable issue of fact as to whether the loss would have occurred without the valve failure. The judge noted that the loss is, nonetheless, substantially less than the $250,000 deductible under the policy.

Regulatory Compliance

However, the primary claim for damages is the cost and losses incurred in complying with the OPS requirements. The OPS issued a corrective action order requiring MarkWest to take action with respect to the pipeline to protect public health and property. MarkWest informed OPS inspectors of 13 prior leaks on the pipeline, 11 of which were confirmed to be caused by corrosion. Though the cause of the 2004 incident was undetermined, the OPS was concerned about the age of the pipe and the history of leaks attributed to corrosion. The OPS later acknowledged that a particular valve may have played a part in the pipeline failure. It held a hearing to clarify corrective actions and issued a decision allowing an alternative to hydrostatic pressure testing.

The property insurance provided coverage for business interruption and, under a separate endorsement, covered the increased cost of repair or reconstruction of damage associated with a loss caused by an insured peril leading to the enforcement of any law or ordinance regulating construction or repair of damaged property. Judge Matsch said the endorsement would cover the losses associated with the OPS order if it is established that the losses were caused by the damage to the small segment of the pipeline at the site of the leak.

History Of Leaks

But he found that the basis of the OPS order was broader than the 2004 incident.

"The corrosion exclusion is applicable to the losses claimed as a result of compliance with the OPS requirements for shutdown, testing and remediation," the judge said.

"The [2004] incident was the cause of the OPS order only in the sense that it gave notice to the OPS that the pipeline had a history of leaks resulting from corrosion. The emergency order was issued before the OPS had any information concerning the possibility of a valve failure as a possible contributing cause of the leak. The only reasonable inference from reading the three OPS orders is that the investigation and remediation of the 65 mile segment was caused by the evidence of corrosion. The possibility of a valve failure was not a relevant factor. There was no order requiring inspection of the valves at the flow stations. The post-hearing decision was directed to corrosion on the pipeline as a[n] integrity threatening condition that must be eliminated," he explained.

MarkWest is represented by Edward M. Joyce and Helene Landau Cartaina of Heller Ehrman in New York and Thomas D. Leland and Leah E. Capritta of Messner & Reeves in Denver. The insurers are represented by Franz Hardy and John M. Palmeri of White & Steele in Denver and William Alexander Webster, David Stephen Evinger and Scott Gregory Johnson of Robins, Kaplan, Miller & Ciresi in Minneapolis.

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Deductible Applies To Each Building, Not Per Occurrence, Judge Says

MIAMI - A Florida judge ruled May 14 that a property policy's deductible applies to each building of a condominium complex, not per occurrence (Royale Green Condominium Association Inc. v. Aspen Specialty Insurance Co., No. 07-21404-CIV, S.D. Fla.; 2008 U.S. Dist. LEXIS 39362 Shepardize).

(Opinion available. Document #03-080605-022Z.)

U.S. Judge Marcia G. Cooke of the Southern District of Florida denied Royale Green Condominium Association Inc.'s motion for summary judgment regarding interpretation of deductible language in a policy issued by Aspen Specialty Insurance Co.

Royale Green submitted a damage claim to Aspen after Hurricane Wilma. Royale Green contends that Aspen provided only partial payment, which was based on the insured value of the properties, depreciation, assessed damages and the policy deductible. Royale Green hired its own adjuster to inspect and value the property.

'Per Building, Per Occurrence'

Seeking summary judgment, Royale Green contended that the deductible allows Aspen to deduct 5 percent of the total insured values of a building, or $100,000, whichever is larger, once for a claim caused by a single occurrence, regardless if the occurrence caused losses to multiple buildings.

Judge Cooke sided with Aspen, reading the "per building, per occurrence" language of the policy's deductible section to mean the deductible is to be applied to each building that suffered damage as a result of the occurrence. He admitted that the policy is not simple and requires analysis.

A table in the policy shows that losses caused by windstorm or hail carry a per-building and per-occurrence deductible of 5 percent of the total insured value or $100,000. However, the policy also provides that "The application of a 'per building' deductible . . . is intended to apply to the TIV (total insured values) of the entire building, inclusive of all buildings and contents."

No Ambiguity

Judge Cooke concluded that Royale Green's argument that the two provisions create ambiguity is not sufficient.

"The language of the special provision cannot be reasonably interpreted to mean anything other than that the 'per building' deductible is calculated based on the total insured value of the entire, individual building. The inclusion of the clause - 'inclusive of all buildings and contents' - appears to be nothing more than a scrivener's error. The secondary clause does not grammatically or logically follow the first clause, and it adds nothing to the meaning of the sentence," he explained.

He rejected Royale Green's attempt to turn the "per building, per occurrence" language of the policy in this case into "per location" language.

Deductible Not Exceeded

He agreed with Aspen that the deductible is 5 percent of the total insured value per building, with a minimum of $100,000. Five percent of total insured value per building, based on the $1,465,000 limit of insurance for each building, is $73,250 per building. Because $100,000 exceeds the 5 percent of total insured value, the $100,000 minimum is the applicable deductible per building, he held.

On May 21, Royale Green moved for reconsideration, asserting that at the time the policy was in effect, a Florida statute provided that the insurer was not permitted to offer Royale Green a deductible in excess of 5 percent of the insured value. Therefore, the court erred in construing the deductible portion of the policy in violation of the substantive law that was in full force and effect as of the effective date of the policy, it argues.

Geoffrey D. Ittleman of Hollywood, Fla., represents Royale Green. Janice Averill Kelly of Boehm Brown Fischer Harwood, Kelly & Scheihing in Orlando, Fla., represents the insurer.

(Motion for reconsideration available. Document #03-080605-023B.)

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Panel Affirms Place Of Contracting Central To Choice-Of-Law Test

ST. LOUIS - The Eighth Circuit U.S. Court of Appeals on May 23 affirmed that Missouri law applies to a construction defects coverage matter based on the substantial-contacts test, which results in no coverage under Missouri law (St. Paul Fire and Marine Insurance Co., et al. v. Building Construction Enterprises Inc., No. 07-2246, 8th Cir.; 2008 U.S. App. LEXIS 11073 Shepardize; See 5/8/07 Issue).

(Opinion available. Document #03-080605-103Z.)

Repair Costs

In April 2007, U.S. Judge Nanette K. Laughrey of the Western District of Missouri ruled that under applicable Missouri law, costs to repair construction deficiencies caused by a subcontractor's work are not an "occurrence" on the general contractor's policies.

The coverage issue concerns work done by Building Construction Enterprises Inc. (BCE), a Kansas corporation headquartered in Missouri. BCE contracted with the U.S. Army Corps of Engineers to build a training facility in Fort Riley, Kan. The design included underground support structures called duct banks that are used to house cable and electrical lines and must be able to withstand the weight of tanks and arms fire. Construction of the duct banks was conducted by BCE's subcontractors. The Corps found deficiencies in the duct banks' performance, and BCE began repairs. The Corps documented 11 construction deficiencies.

BCE sought coverage for the cost to repair the duct banks and for costs to replace landscaping and paving that was disturbed during the repairs. BCE was insured under two liability polices, one with St. Paul Fire and Marine Insurance Co. and one with Charter Oak Insurance Co. The insurers denied coverage, finding that there had been no "occurrence."

No 'Occurrence'

The insurers filed a declaratory judgment action in the District Court. The policies did not contain choice-of-law provisions. After determining that Missouri law governed, Judge Laughrey relied on American States Ins. Co. v. Mathis (974 S.W.2d 647 Shepardize [Mo. Ct. App. 1998]), in which the Missouri Court of Appeals found that failure to meet obligations under a construction contract were not an "occurrence" under a comprehensive general liability policy.

BCE appealed, arguing that the judge erred in applying Missouri law. BCE argued that the site of the alleged harm, Kansas, should be a controlling factor in the choice of law analysis.

But the appeals panel of Circuit Judges Michael J. Melloy, Raymond W. Gruender and Bobby E. Shepherd upheld the choice-of-law determination. The panel said the multifactored test in Missouri's Restatement (Second) of Conflict of Laws Section 188 controlled and required an analysis of both states' contacts with the case. As both courts noted, BCE operated in several states but only 10 percent of its activities took place in Kansas, while Missouri was the location of BCE's headquarters, insurance agent and the place of contracting with respect to the insurance policies.

The appellate panel explained that multiple-risk policies such as those at issue often will not have a principal location for the insured risk, especially where BCE had coverage areas defined as the United States and Canada.

Individual Construction Contracts

The panel said the multifactored test set forth in Section 188, rather than a more site-specific test in Restatement (Second) of Conflict of Laws Section 193, is more appropriate. The panel found no indication that the parties intended for a different state's laws to control interpretation of the policies for each individual construction contract to which BCE entered. The policies' term "designated contracts" appears in the section dealing with aggregate limits, and the term "described projects" appears in a section concerning deductibles, the panel noted.

"Neither policy, however, set forth a mechanism for Appellant to provide Appellees with copies of the written construction contracts or to inform Appellees of the sites of the work to be performed. Also, Appellant does not claim to have communicated information about its many written construction contracts to Appellees. Accordingly, while the policies demonstrate that the parties envisioned certain coverage limits or deductibles might apply on a project by project basis, there was no indication within the insurance policies or in subsequent documents that it was 'possible to predict with fair accuracy where the risk [would] be located, or at least principally located, during the life of the policy,'" the panel said, quoting Section 193.

St. Paul and Charter Oak are represented by Lee M. Baty and Theresa Otto of Baty, Holm & Numrich in Kansas City, Mo., and Lee H. Ogburn and Steven M. Klepper of Kramon & Graham in Baltimore. BCE is represented by Scott C. Lang of Long, Luder & Gordon in Overland Park, Kan.

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Asbestos Coverage Case Properly Transferred To Asbestos Judges

ST. PAUL, Minn. - The Minnesota Supreme Court on May 29 affirmed that an asbestos insurance coverage action concerning claims against 3M Co. was appropriately transferred to judges assigned to preside over asbestos litigation (In re Continental Casualty Co., et al., Continental Casualty Co. v. 3M Co., et al., No. A07-784, Minn. Sup.; 2008 Minn. LEXIS 279 Shepardize).

(Opinion available. Document #03-080605-025Z.)

An en banc panel of the high court determined that a 1987 order issued in In re Minnesota Asbestos Litigation (No. C4-87-2406, Minn. Dist., Ramsey Co.) is significantly broad and extends to all matters that arise from or seek recovery for the manufacture, distribution, use, or exposure to asbestos, which would include insurance coverage issues.

The high court said the Hennepin County District Court overseeing litigation commenced by Continental Casualty Co. and Continental Insurance Co. against 3M and other insurers correctly transferred venue of the coverage case to judges of the Ramsey County District Court overseeing asbestos litigation.

Common Issues

Continental filed its declaratory judgment action on Jan. 5, 2007. The high court said the coverage litigation concerning claims against 3M is contingent upon issues to be determined in the underlying litigation, such as whether and when the asbestos caused the injury. The timing of the injuries alleged will determine whether 3M was covered and how to allocate covered claims among the policies issued by the numerous insurers involved in the coverage litigation with 3M, it said.

Other issues such as the amount of exposure, connection of exposure to disease and nature of diseases will likely be litigated in the coverage litigation such that the coverage litigation arises from the manufacture, use or exposure to asbestos and asbestos-containing products, it said.

Douglas Skor of Larson King in St. Paul is counsel for 3M. Jeanne H. Unger of Bassford Remele in Minneapolis is counsel for Continental.

Counsel

Thomas S. Fraser of Fredrikson & Byron in Minneapolis represents ACE Bermuda Insurance Ltd. and CIGNA Insurance Co. of Europe SA-NV. Charles E. Spevacek of Meagher & Geer in Minneapolis is counsel for Aetna Casualty & Surety Co., St. Paul Surplus Lines Insurance Co., Travelers Insurance Co. and Travelers Property Casualty Corp.

Stephen J. Foley of Foley & Mansfield in Minneapolis represents AIG - Europe UK, AIU Insurance Co., American Home Assurance Co., Birmingham Fire Insurance Company of Pennsylvania, Granite State Insurance Co., Insurance Company of the State of Pennsylvania, Landmark Insurance Co., Lexington Insurance Co., National Union Fire Insurance Company of Pittsburgh Pennsylvania and New Hampshire Insurance Co.

John M. Anderson of Bassford Remele in Minneapolis represents American Excess Insurance Association, Federal Insurance Co. and International Surplus Lines Insurance Lines Insurance Co. Ted E. Sullivan of Minneapolis is counsel for Centennial Insurance Co. and Old Republic Insurance Co. Bryan C. Keane of Minneapolis represents Employers Insurance Company of Wausau. Thomas D. Jensen of Minneapolis is the attorney for Employers Mutual Casualty Co.

Jerome B. Abrams, Kevin R. Lewis and Paul R. Smith of Foley & Mansfield in Minneapolis represent Employers Reinsurance Corp. and Puritan Insurance Co.

Robert L. McCollum of McCollum, Crowley, Moschet & Miller in Minneapolis represents First State Insurance Co. and Twin City Fire Insurance Co. William L. Davidson of Minneapolis is counsel for Mutual Marine Office Inc. Paul R. Hannah of Kelly & Berens in Minneapolis represents Republic Western Insurance Co.

Dyan Jean Ebert of Quinlivan & Hughes in St. Cloud, Minn., represents Fairmont Premier Insurance and TIG/Transamerica Premier Insurance Co. Peter G. Vanbergen of Cousineau McGuire in Minneapolis is counsel for Zurich American Lloyds, Zurich American Insurance Co. and Zurich International Ltd.

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Insurer Disputes Coverage For Hydrochloric Acid Vapors, Contamination

FLINT, Mich. - An industrial insured's liability insurer is seeking a declaration that it is not liable in connection with a substantial leak of hydrochloric acid that contaminated the public sewer system in a Michigan town, giving rise to several lawsuits (Employers Mutual Casualty Co. v. Reilly Plating Co., No. 08-cv-12145, E.D. Mich., Southern Div.).

(Complaint available. Document #03-080605-026C.)

Employers Mutual Casualty Co. filed a declaratory relief action in the U.S. District Court for the Eastern District of Michigan on May 16 in connection with a leak at Reilly Plating Co.'s Melvindale, Mich., facility.

Spill, Vapors

On Oct. 16, approximately 500 gallons of hydrochloric acid leaked from a bulk acid tank on the roof of Reilly Plating's facility into an open-air containment basin. The hydrochloric acid and rainwater mixed to form an acidic cloud. Thousands of residents and three schools in the area around the facility were evacuated due to the amount of vapors emanating from the roof. The runoff from the rainwater mixing with the acid vapors ran into the Melvindale sewer system.

The insurer contends that its commercial general liability and umbrella liability policies do not afford coverage for the underlying claims. It further seeks a declaration that varying pollution exclusions in both policies preclude coverage. The policies were issued in April 2007.

Pollution Exclusions

The general liability section contains an exclusion relating to the release of pollutants "at 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 exclusion also applies to demands to test for or clean up "the effects of 'pollutants'" or claims or suits for damages because of testing for or cleaning up "the effects of 'pollutants.'"

The umbrella policy contains an absolute pollution exclusion barring coverage for "'contamination' of any 'environment' by 'pollutants' that are introduced at any time, any where, in any way; and any 'bodily injury,' 'personal injury,' 'property damage,' cause or other 'loss' or damage arising out of such 'contamination,' including, but not limited to, cleaning up, remedying or detoxifying such contamination."

The complaint was filed by Bruce A. Truex of Farmington Hills, Mich. Beth S. Gotthelf of Butzel Long in Bloomfield Hills, Mich., is the attorney for Reilly Plating.

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News From The LexisNexis Insurance Law Center

[Editor’s Note: The following items of interest appeared recently on theLexisNexis Insurance Law Center. Devoted to insurance litigation and the insurance industry, the Insurance Law Center is where you can connect with other insurance professionals to discuss the hottest issues. Become a regular contributor. Visit the center on the open Web for insurance-related headlines, discussion, expert commentary and more at: http://law.lexisnexis.com/practiceareas/insurance.]

Recent Expert Forum Posts

Reid L. Steinfeld On Interpreter Fees In California Workers' Compensation Cases

Posted by Reid L. Steinfeld
in-house counsel, Grant & Weber

This expert commentary written by Reid L. Steinfeld discusses California statutes, regulations and case law describing specific situations in which an interpreter may accompany an applicant and be paid, generally by the defendant's claims administrator. This commentary also discusses interpreters' qualifications, amount of fees and the consequences of delays in paying fees.

Interpreter's fees that are incurred for the "purpose of proving or disproving a contested claim" under Cal. Lab. Code § 4620 Shepardize(a) are included in that statute's definition of medical legal expenses, but only if the medical report associated with the interpreter's services "is capable of proving or disproving a disputed medical fact, the determination of which is essential to an adjudication of the employee's claim for benefits."

Medical-legal expenses include interpreter fees for services at medical examinations under Cal. Lab. Code § 4660 Shepardize(b)(1). Defendants must reimburse the applicant for medical legal expenses that were "reasonably, actually, and necessarily incurred."

Applicants attending hearings or conferences of the WCAB (Workers’ Compensation Appeals Board), including the Rehabilitation Unit, may request language assistance by requesting an interpreter, if the applicant has difficulty communicating in English. Qualified interpreters may interpret during WCAB hearings, depositions, and other settings determined by the WCAB or Administrative Director, Division of Workers' Compensation, State of California. Other settings are described as those that are "reasonably necessary to ascertain the validity or extent of injury to an employee who cannot communicate in English."

Interpreter fees to attend hearings, depositions, and other settings that are "reasonably, actually, and necessarily incurred" are allowed as costs under Cal. Lab. Code § 5811 Shepardize(b), "provided they are in accordance with the fee schedule set by the administrative director."

In several recent panel decisions, the WCAB has found employers/insurers liable for interpreter fees for services while attending medical appointments with applicant and applicant's treating physician.

Sonnenschein Nath & Rosenthal LLP On Bad-Faith Claims In New York Following Bi-Economy Market, Inc. v. Harleysville Insurance Co. And Panasia Estates, Inc. v. Hudson Insurance Co.

Posted by William Barker, Justin Kattan and Rachel Balaban
partners, Sonnenschein, Nath & Rosenthal LLP

Plaintiffs have long sought to recover in excess of policy limits against insurance carriers who are alleged to have handled or denied claims in bad faith. Until recently, the New York Court of Appeals has squarely rebuffed any such efforts. However, in its decisions in Bi-Economy Market, Inc. v. Harleysville Insurance Co., 2008 N.Y. Lexis 278 Shepardize (Feb. 19, 2008), and Panasia Estates, Inc. v. Hudson Insurance Co., 2008 N.Y. Lexis 275 Shepardize (Feb. 19, 2008), the Court of Appeals permitted insureds to seek consequential damages, in excess of policy limits, against an insurer that was alleged to have violated its insurance contract in bad faith.

In this Expert Commentary, partners of Sonnenschein Nath & Rosenthal LLP discuss Bi-Economy Market and Panasia Estates and the potentially significant shift in New York law signaled by these decisions. The authors write:

Based on these decisions, it appears that consequential damages will often, perhaps always, be recoverable if they result from failure to “evaluate a claim” in good faith, i.e. “honestly, adequately, and . . . promptly.” All insurance is designed to respond to some sort of “calamitous event” by indemnifying a resulting economic loss, and Bi-Economy Market suggests that this is enough to permit recovery of consequential damages for bad faith denial of benefits.

It is not clear whether this reasoning will be extended to permit recovery of emotional distress damages resulting from bad faith denial. But Bi-Economy Market suggests that it might be so extended.

But they see no reason to read these cases as retreating from New York’s existing high threshold for punitive damages.

The other major unresolved question is what will prove bad faith. The authors review existing New York law that, in the context of an insurer’s duty to settle claims against an insured, requires proof of “‘gross disregard’ of the insured’s interests — that is, a deliberate or reckless failure to place on an equal footing the interests of its insured.” They also review the law on bad faith in other states, which they find suggests that New York would likely apply the “gross disregard” standard (or some more demanding standard) to first-party bad faith claims and that, in any event New York is unlikely to adopt any less demanding standard than applied elsewhere.

Based on that analysis, the authors conclude: “Insurers facing New York bad faith claims should aggressively argue for the application of a demanding standard to putative bad faith claims. But carriers should also focus on demonstrating objectively reasonable grounds for delaying or denying payment, a showing that should preclude bad faith even under the least demanding of the standards commonly applied elsewhere. Such a focus may permit them to avoid entanglement in the issues left unresolved by Bi-Economy Market and Panasia Estates.”

Recent Insider Perspective Posts

Iowa Workers' Compensation — Interest On Penalty Award

Posted by H. Edwin Detlie
Attorney at Law

The latest buzz in Iowa workers' compensation law is the recent appeal decision of the Iowa Workers' Compensation Commissioner in Curl v. University of Iowa, filed May 16, 2008. In Curl, the commissioner affirmed the Deputy commissioner's assessment of a penalty under §86.13 of the Iowa Code for failure to pay permanent partial disability benefits. However, the deputy then ordered the employer to pay interest on the penalty award, which has never been done before.

Procedural Uniformity And EAMS

Posted by Robert K. Norton
Presiding Workers' Compensation Administrative Law Judge; DWC Bakersfield District Office

Within the next few months, California’s Division of Workers’ Compensation (DWC) will substantially change the adjudication of California workers’ compensation claims via the implementation of the Electronic Adjudication Management System (EAMS). While EAMS is primarily the DWC’s new case management system, it will change the handling of workers’ compensation claims in several ways. This post concerns one of them; the electronic imposition of statewide uniform procedures.

Equal Justice under Law is one of the primary objectives of American jurisprudence. We believe that similarly situated parties ought to be treated in substantially similar ways, particularly with respect to purely procedural requirements of general application. While some degree of uncertainty is an irreducible part of litigation, uniform procedural requirements reduce this uncertainty and create a sense of stability and predictability in the probable application of the rules of law. This sense of stability and predictability facilitates the setting of appropriate reserves, the voluntary furnishing of benefits, and meaningful settlement negotiations. Of course, absolute uniformity is impractical and, in many situations, undesirable. Within general procedural requirements, sound discretion exercised by magistrates enjoying judicial independence is needed to tailor the application of rules of law to particular factual situations and, we hope, render substantial justice.

Employee Buyouts Limited by Worker Mischaracterization Legislation Proposed By Sen. Obama

Posted by Robin E Kobayashi
LexisNexis Insurance Law Center Staff

Blog posted on behalf of Thomas A. Robinson, J.D.

In an advisory letter to his column's clients, David Broder, the dean of Washington political columnists, last week announced that he was taking a "buyout" offered by The Washington Post. Indicating that he will stay on as a "contract employee" and that his twice-weekly column would continue essentially unchanged, Broder, 78, and longtime writer for the Post, indicated that his column "will not change at all," that he would "continue to write from the same office in the Post newsroom," and that he would "continue to travel the country to wherever politics is happening."

Broder added that "[t]his change will allow me to focus entirely on the column, while freeing up the Post to use its budget for other news-section salaries and expenses." See http://www.politico.com/blogs/michaelcalderone/0508/WaPos_Broder_taking_buyout_becomes_contract_writer_in_09.html

The Broder announcement, accompanied as it was by a similar declaration from popular Post sports writer, Tony Kornheiser, is the latest in a series of business contractions announced by prominent newspapers. Times are tough. Efforts to cut employee-related expenses at many of the nation's daily fish wrappers are no longer news. While I'm not privy to the details of the Post-Broder scenario, if federal legislation proposed last fall by Senator Barack Obama ever becomes law, newspaper publishers and other employers may find it much more difficult to buy off employees and then construct arrangements whereby those former-employees continue their work.

Senator Obama's Federal Proposal [S. 2044]

The Obama bill (S. 2044: Independent Contractor Proper Classification Act of 2007- see http://www.govtrack.us/congress/bill.xpd?bill=s110-2044), introduced last September, doesn't actually target the newspaper industry. In the senator's cross-hairs are companies in commercial construction and transportation. In the construction business, for example, carpenters, drywall installers, roofers, and other tradespersons are often characterized as independent contractors, instead of employees. In the commercial freight world, many truck drivers are hired on as independent contractors in spite of the fact that they wear company uniforms, drive company trucks, and are subjected to strict scheduling requirements.

Recent Movers And Shakers Posts

Morrison Mahoney LLP Selected As Newest LexisNexis Expert Content Provider For Insurance

Posted by LexisNexis Insurance Center Staff

Morrison Mahoney LLP is the second firm to join the LexisNexis Expert Content Provider Program for Insurance, an exclusive new LexisNexis insurance content development initiative. Through this ECP program, LexisNexis is gathering an elite group of thought leaders in the practice of insurance law to develop cutting-edge content for its customers. The content authored by the firms selected for this ECP program will be featured on the new Insurance Practice Center, which is located on the Transactional Advisor tab on lexis.com. This content will also be featured within the New Appleman suite of products and on the LexisNexis Insurance Law Center on the free web. Morrison Mahoney has already contributed two chapters to the recently released New Appleman Insurance Law Practice Guide, and its attorneys have authored a number of LexisNexis Expert Commentary and Emerging Issues Commentary.

CNinsure Announces Acquisition Of Leading Insurance Agency And Expands Business To Guangxi Province

Posted by LexisNexis Insurance Center Staff

GUANGZHOU, China — CNinsure Inc. on May 5 announced the signing of definitive agreement to acquire 60 percent equity interests of Guangxi Xingfu Insurance Agency Co. Ltd., a leading insurance agency based in Guangxi Province. The acquisition also marks CNinsure's footprint in the 13th province.

Under the terms of the agreement, CNinsure will make an initial cash payment within 10 working days after register change with relevant authority and a deferred consideration, to be paid in 2009, is subject to adjustment based on Xingfu's financial performance in the calendar year 2008. The transaction is expected to close in the second quarter of 2008 subject to certain consents, authorizations and other customary closing conditions. Upon completion of the transaction, Xingfu's management team will continue to lead the company.

Gary Hirschkron To Head AXA Equitable Wholesale Life Insurance Unit

Posted by LexisNexis Insurance Center Staff

NEW YORK — Gary Hirschkron has been appointed president of AXA Partners, the life insurance business unit of AXA Distributors LLC., based in Farmington, Conn. The announcement was made May 5 by Jamie Shepherdson, executive vice president of AXA Equitable Life Insurance Company and president of AXA Distributors LLC, the company's proprietary life insurance and annuity wholesale distribution organization.

Hirschkron has held a leadership position in AXA Partners since 2006, serving as managing director. He joined AXA Equitable in 2002 as senior vice president and actuary in life marketing and product development. In that role, he worked with product management and pricing to analyze competitive position, research market trends, and seek and incorporate sales distribution feedback to develop a product from concept to launch. He also led a sales support team, helping producers understand how to best position AXA Equitable products.

Aon Given Saudi Arabian License

Posted by LexisNexis Insurance Center Staff

RIYADH, Saudi Arabia — (Business Insurance) Aon Corp. has been awarded a license by the Saudi Arabian Monetary Authority.

[To view the full articles and posts, visit http://law.lexisnexis.com/practiceareas/insurance].

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Insurance Coverage For Lead Paint Claims:

A Policyholder’s Perspective

By

John E. Heintz,

Richard D. Milone

and

Elissa O. Tomanda

[Editor’s Note: John E. Heintz and Richard D. Milone are partners and Elissa O. Tomanda is an associate in the Washington, DC law firm of Kelley Drye & Warren LLP. Mssrs. Heintz and Milone and Ms. Tomanda represent policyholders in addressing a wide variety of insurance issues, including insurance coverage for lead paint claims and other toxic torts claims. The views expressed in this article are solely those of the authors and do not necessarily reflect the views of Kelley Drye & Warren LLP or any of its clients. Copyright 2008 by the authors. Responses to this article are welcome.]

I. Introduction And Overview

The recent onslaught of lawsuits relating to lead products has made lead one of the fastest growing sources of claims in the field of toxic torts. Claims are typically brought for bodily injuries sustained by individuals who have allegedly ingested lead-based paint products and/or for the potentially massive costs of removing or abating lead paint products from structures to which they have been applied. Class action lawsuits are common, and such claims are typically asserted against landlords and manufacturers of lead-containing products. The number of cases that have been filed, in addition to those anticipated over the coming years, have caused practitioners and commentators alike to call lead “the asbestos of the twenty-first century.”

As lead-related claims mount, manufacturers and other defendants are turning to Comprehensive General Liability (“CGL”) insurance carriers for coverage of defense costs and indemnification of any liabilities they may incur as a result of judgments and settlements. Coverage is typically sought under both the bodily injury and property damage portions of CGL policies.

In recent years, a body of case law applying CGL policies to lead paint claims has begun to develop. The majority of these cases have been decided in favor of the policyholder, and these cases have established that insurers have a duty to defend lead-related claims under standard CGL policies. The landmark 2006 decision, State of Rhode Island v. Lead Industries Association, Inc., et al., has promoted extensive litigation over the next major insurance question: the extent to which CGL insurers must provide indemnification for the liability imposed in a case of this nature.

On February 22, 2006, after a months-long trial in that case, brought by the state of Rhode Island against several former producers of lead pigment, the jury returned a verdict against three of the defendants — The Sherwin-Williams Company, NL Industries, Inc., and Millennium Holdings, LLC.1 The jury found that the presence of lead-based paint in buildings and homes throughout Rhode Island constitutes a “public nuisance,” that the defendants caused or substantially contributed to that nuisance, and that the defendants should be required to help eliminate that nuisance.2

The Rhode Island defendants filed motions with the court seeking a new trial, which were denied in an opinion issued by the trial court on February 26, 2007. In denying those motions, the trial judge ruled: (1) that the cumulative presence of lead paint in private buildings in Rhode Island is a public nuisance; and (2) that a manufacturer of lead pigment could be held liable for that public nuisance if it sold and promoted lead pigment in Rhode Island through national advertising and distribution agreements authorizing sales in Rhode Island, even if there was no evidence of actual sales in Rhode Island.3

The case has proceeded to its next phase, which will determine the scope of the remedy to be awarded, and the parties have submitted to the court competing plans for abatement. The principal relief that the state of Rhode Island seeks is funding for the costs of removing the lead hazard from properties throughout the state and the costs of lead-related medical testing and education programs for Rhode Island citizens. Simultaneously, the Rhode Island defendants are appealing the jury verdict to the Rhode Island Supreme Court, and a decision from that court is expected some time this summer.

Before this verdict, the Rhode Island defendants and other former producers of lead pigment had successfully defended numerous lawsuits for nearly twenty years. Those companies routinely defeated those lawsuits long before they went to trial. Since the Rhode Island verdict, those companies have continued to defeat other lead-related cases brought against them.

It remains to be seen whether, or to what extent, the recent verdict in Rhode Island has changed the legal landscape for former producers of lead pigment. What we do know is that, since 1999, there has been a marked increase in lawsuits related to lead-based paint, particularly suits brought by governmental entities and based on a public nuisance theory, like the one brought by the state of Rhode Island. Other governmental entities have brought claims against former lead pigment producers, alleging public nuisance and other theories of liability. Individual claimants also have continued to file bodily injury claims against those former producers and other companies. In addition, there has been a steady stream of claims against landlords who rent dwellings that contain lead-based paint.

Plaintiffs have also filed lawsuits against a wider range of defendants than those that the State of Rhode Island sued. All of the Rhode Island defendants are alleged to have once produced lead pigment that was used in paint. Now, plaintiffs have branched out beyond the “front line” defendants and have sued paint companies that did not produce lead pigment themselves, but produced and sold paint that incorporated lead pigment produced by others.

All of this increased litigation has confirmed that lawsuits related to lead-based paint have joined asbestos-related litigation as one of the major battlegrounds in the area of toxic torts. It is unclear whether plaintiffs will also attempt to sue contractors that previously used lead-based paint in their businesses. In the asbestos battles, plaintiffs first sued former producers of asbestos-containing materials, but later also sued contractors that had installed asbestos-containing products.

For the companies already facing lead-related suits, it has been clear to them for some time that they are in a major battle. No one is sure how much money, if any, the Rhode Island defendants ultimately will have to pay in that case, nor is it clear whether other lead-related lawsuits will lead to similar results. Some of the highest estimates, which the Rhode Island defendants and other former producers dispute, claim that those companies could pay billions of dollars as a result of those types of claims.4 Regardless, the cost of defending those claims is significant, and the risk of adverse outcomes is real.

Due to the upsurge in litigation related to lead-based paint, former lead pigment and lead paint producers, as well as landlords, are turning to their Comprehensive General Liability (“CGL”) insurance policies to provide coverage for both the costs of defending those lawsuits and for any liabilities that those companies may incur as a result of judgments and settlements. Insurers have tried to establish that there is no coverage for lead-related claims, or that coverage for such claims is significantly limited, just like they did in the context of asbestos claims and environmental pollution claims.

During the past fifteen years, however, a favorable body of case law applying CGL policies to lead-related claims has developed. The majority of those cases establish that lead-related claims are covered under CGL policies.5 Companies need to be aware of the major issues and decisions so that they do not forfeit their rights.

Case law that has developed to date has shown that in most instances — although not always — the analysis applied to CGL coverage for asbestos claims and environmental liabilities can be applied to lead paint coverage questions. This article will use both lead and asbestos coverage decisions, in addition to basic principles of insurance law, to analyze the issues that arise in cases seeking CGL coverage for lead-related claims.

II. Insurance Coverage Fundamentals

A. Basic Insuring Agreement And Duty

To Defend Provisions In CGL Policies

With minor and immaterial differences in the precise language used, CGL policies typically promise that the insurers will:

pay on behalf of the insured ‘all sums’ which the insured shall become legally obligated to pay ‘as damages’ because of:

(a) ‘bodily injury’ or ‘property damage’ caused by an ‘occurrence’ . . . .

Under typical policies, an “occurrence” is an event that “unexpectedly” causes bodily injury or property damage “during the policy period.”6 This language is the source of an insurer’s obligation to pay settlements reached by, or judgments entered against, policyholders in underlying tort claims. This obligation often is referred to as the “duty to indemnify.”

Typical CGL policies further promise that:

the insurance company shall have the right and . . . the duty to defend any suit against the insured seeking damages on account of such injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent . . . .

This language is the source of an insurer’s obligation to pay defense costs incurred by companies defending toxic tort claims such as lead paint claims. This obligation often is referred to as the “duty to defend.”7

Each of these two types of coverage — the duty to indemnify and the duty to defend — is important. Obtaining reimbursement for defense costs, for example, often can have a more immediate and greater impact on a company’s finances than obtaining coverage for a potential judgment or settlement that has not occurred yet.

The two types of coverage also are subject to potential limitations. Insurers consistently raise a litany of defenses based on their interpretations of CGL policy language. Each of the phrases quoted above, including “bodily injury,” “property damage,” “as damages,” and “occurrence,” has been the subject of extensive litigation between corporate policyholders and their insurers. This article focuses on how courts have resolved such disputes.

B. General Principles Of Insurance

Contract Interpretation8

To establish its entitlement to coverage, a policyholder need only demonstrate that its losses are within the policy’s grant of coverage.9 The burden then shifts to the insurer to establish that a purported policy limitation or exclusion diminishes or eliminates coverage.10 In evaluating whether those burdens have been met, the following well-established rules apply:

1. Clear Policy Language Must

Be Interpreted According

To Its Plain Meaning

Where the language of an insurance contract is clear and unambiguous, courts must interpret it in accordance with its plain meaning.11 Courts determine a policy’s plain meaning, in part, by “the reasonable expectation and purpose of the ordinary businessman.”12

2. Ambiguous Policy Language Is

Construed In Favor Of The Policyholder

If policy language is reasonably susceptible to two or more meanings, then it is ambiguous, and courts generally construe the ambiguity in favor of the policyholder and against the insurer.13 This principle exists because insurers typically are the drafters of standard form policies such as CGL policies, and it is incumbent upon the drafter to make the terms clear; convoluted or confusing terms are the problem of the insurer — not the insured.14

Therefore, “to sustain its construction of the contract, the insurer has the burden of establishing not only that the words used in the policy are susceptible of its chosen construction, but also that such construction is the only construction that can fairly be placed on the language in question.”15 These principles apply even when the policyholder is a large and sophisticated business that was capable of bargaining, or even did bargain, over some policy terms.16

3. The Insurer Bears The Burden Of

Proving That A Claim Is Subject To

A Limitation Or Exclusion In The Policy

An insurer bears the burden of proving that a particular claim is subject to a limitation or to an exclusion in the policy.17 This burden is a high one; in order to show that a purported exclusion applies in a particular case, an insurer must show that the language is “subject to no other reasonable interpretation.”18

This principle applies to language that has the effect of excluding coverage even if the language is not labeled as an exclusion in the policy.19 Moreover, if at the time of contracting the insurer was aware of policy language that would have made an exclusion or limitation clear, a court will not find such an exclusion or limitation by implication.20

4. These Principles Require That

Insurance Policies Be Construed

Broadly In Favor Of Coverage

Courts should construe policy language in accordance with the reasonable expectations of the insured when it entered into the contract.21 In applying the “reasonable expectations” doctrine, the inquiry is whether “an ordinary business man in applying for insurance and reading the language of these policies when submitted, would not have thought himself covered against precisely the damage claims now asserted.”22 Moreover, “[t]he reasonable expectation of the insured may be given effect even if careful examination of the policy provision might negate that expectation.”23

C. The Duty To Defend

Under the law of virtually all jurisdictions, an insurer’s duty to defend is broader than its duty to indemnify. Standard CGL policies obligate insurers to defend lawsuits against their insureds if the lawsuits allege any claim that potentially could be covered by the policies, regardless of whether or not the claim ultimately turns out to be covered.24 That is, an insurer must defend its policyholder whenever the allegations of an underlying lawsuit raise even the possibility that bodily injury and/or property damage occurred during the insurer’s policy period, even if the proof later adduced during the underlying lawsuit does not support a finding of actual injury or damage during the policy period.

Any doubts as to whether the allegations of the underlying claim raise the possibility of coverage must be resolved in favor of finding a duty to defend.25 The mere presence of uncertainty gives rise to a duty to defend, because it means that the insurer cannot preclude the possibility of a covered claim.26

Moreover, “where a complaint states a claim that is partially or arguably within policy coverage, the insurer has an absolute duty to assume the defense of the entire action.”27 So long as at least one claim contained within an underlying complaint is potentially covered by the policy, the insurer must defend the entire action even though the remaining allegations/claims are indisputably not covered.28

Thus, an insurer is relieved of its duty to defend only when there is no possibility of coverage under the policy, based on the allegations in the complaint.29 The insurer must show that the allegations of the underlying complaint are entirely outside of the policy’s coverage, and that the allegations, read as a whole, are subject to no other interpretation.30

The duty to defend also generally extends to a policyholder’s appeal of an adverse trial court judgment. An insurer cannot terminate its duty to defend by simply tendering its policy limits to the policyholder after a large adverse judgment.31

Based on these principles, it is fair to say that the duty to defend provides a form of “litigation insurance.”32 This litigation insurance covers the defense of lead paint claims, and numerous courts, including those hearing the coverage disputes of at least three of the alleged lead pigment defendants, have issued favorable duty to defend rulings.33

D. The Duty To Indemnify

The duty to indemnify depends, to a large extent, on the findings of the jury or court in the underlying action against the policyholder. If the jury or other fact-finder in an underlying tort action awards damages against the policyholder based upon a finding of property damage and/or bodily injury, the policyholder is not required to prove independently, or even to admit, that property damage or bodily injury did, in fact, occur in order to obtain indemnification from its insurer.34

A contrary rule would create an impossible Catch-22 for the policyholder: to obtain indemnity coverage, the policyholder would be required to concede its liability for underlying claims. Such a concession, however, might jeopardize the outcome of those cases, and might cause the insurer to deny coverage by claiming that the policyholder failed to cooperate in defending the underlying actions.35 Policyholders, therefore, may obtain indemnification by showing that a settlement or judgment against them was the result of claims that, based on the evidence in the underlying lawsuits, fall within the provisions of their CGL policies.

III. Analysis Of Major Coverage Issues

As noted, when examining the duty to indemnify, courts look at whether the policyholder became obligated to pay “damages” as a result of “bodily injury” or “property damage” that “unexpectedly” occurred “during the policy period.” When examining whether a duty to defend exists, courts look at whether the underlying tort complaint contains allegations that at least permit the possibility that the policyholder may become liable for “damages” as a result of “bodily injury” or “property damage” that “unexpectedly” occurred “during the policy period.” We now look at each of these requirements more specifically.

A. What Constitutes ‘Bodily Injury?’

CGL policies typically define “bodily injury” to include “bodily injury,” “sickness,” “disease,” and “disability,” including “death at any time resulting therefrom.”

1. Claims By Individual Plaintiffs

There never has been serious dispute that underlying lawsuits that allege lead-poisoning or other harm to individuals on account of exposure to lead-based paint allege “bodily injury,” as defined in CGL policies. In prior litigations between NL Industries and some of its insurers, as well as between Millennium and some of its insurers, several of those insurers conceded that the underlying lead paint claims at issue fell within the policies’ definitions of “bodily injury.”36 Courts also have ruled that such claims allege “bodily injury,” “sickness,” “disease,” or “disability” within the meaning of CGL policies.37

2. Claims By Governmental Entities

In some underlying lawsuits, cities, counties, states, and other governmental entities seek reimbursement for claims brought against them by individuals who allege that they suffered personal injuries from lead-based paint inside government-owned properties. Those governmental entities, such as Rhode Island, sometimes also seek abatement of the hazards allegedly posed by lead paint in public and private buildings, as well as reimbursement for funds spent to provide medical screening to residents within their jurisdictions. All of those claims allege “bodily injury” within the meaning of CGL policies.

In the first scenario, coverage still exists even though the lawsuits against the former producers of lead-based paint are brought not by the allegedly injured citizens themselves, but rather by governmental entities that are seeking reimbursement for government money paid to those citizens. Courts consistently have held that such claims fall within the scope of CGL policies’ “bodily injury” coverage.38

Similarly, courts have recognized that claims to recover the costs of medical screening, which often are called “medical monitoring” claims, are claims for “damages” on account of “bodily injury,” and fall within the meaning of a CGL policy.39

In light of the recent Rhode Island verdict and other “public nuisance” cases brought by governmental entities, those favorable insurance coverage decisions are very important to policyholders facing those types of lead paint lawsuits. The State of Rhode Island’s lawsuit, for example, seeks to implement a medical screening program as part of the remedy for the alleged “public nuisance” that the jury found in February 2006. Under the medical monitoring case law just discussed, the Rhode Island defendants should be able to obtain coverage under their CGL policies for any monies paid to fund such a program.

3. Relation To Claims For

Property Damage

Because injuries caused by exposure to lead-based paint fall within the CGL policies’ definition of “bodily injury,” lawsuits seeking to alleged lead-based paint hazards, in order to avoid further exposure, may constitute claims for “bodily injury.” In prior litigation involving NL Industries, the court held that because the removal of lead-based paint from properties was undertaken to prevent future personal injuries, such costs could constitute claims for “bodily injury.”40

B. What Constitutes ‘Property Damage?’

CGL policies typically define “property damage” as “injury to or destruction of tangible property . . . includ[ing] damage resulting from loss of use of tangible property damage[d] or destroyed and all other indirect and consequential damage for which legal liability exists in connection with such damage to or destruction of tangible property of others.”

The crucial issue in determining whether lead paint claims are covered under the “property damage” provision in CGL policies is whether the presence of lead-based paint in a building constitutes “property damage” to that building. This issue is crucial because most lead paint lawsuits allege that the mere presence of lead-based paint in buildings causes ongoing damage to those properties, and thus the lawsuits typically seek abatement as a remedy for this ongoing harm.41

Courts consistently have held that standard CGL policies cover such claims. For instance, in Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s London, the court found that the underlying claims at issue, which sought to recover the costs of removing lead paint from properties, “fall within the London Market Insurers’ coverage for ‘property damage’ because harm has been done to HANO’s [Housing Authority of New Orleans] buildings which requires remedial steps to make them safely habitable.”42 Likewise, in NL Industries, Inc. v. Commercial Union Insurance Co., the court held that claims seeking the removal of lead-based paint from buildings are claims for “property damage.”43 The court in Millennium Chemicals, Inc. v. Lumbermens Mutual Casualty Co. reached the same conclusion.44

These cases are consistent with a body of case law that states that the incorporation and presence of a defective or dangerous material in or on a structure constitutes “property damage” within the meaning of CGL policies.45 In the asbestos context, for example, courts overwhelmingly have held that the presence of asbestos in buildings constitutes “property damage.”46

Once again, given the recent Rhode Island verdict and other similar cases currently ongoing, these favorable decisions regarding “property damage” are critical to policyholders. The jury in Rhode Island found that the mere presence of lead-based paint in buildings and homes throughout Rhode Island constitutes a “public nuisance,” and that the defendants should be required to abate that nuisance. Under the cases just discussed, the defendants in Rhode Island should be able to show that the jury’s verdict falls within the definition of “property damage” in their CGL policies. The Rhode Island defendants therefore should be able to obtain coverage under their CGL policies for any monies paid to fund the abatement of lead-based paint from properties in Rhode Island, assuming that those companies also can establish that such monies are “damages” within the meaning of their CGL policies.

C. What Constitutes ‘Damages’ On

Account Of Property Damage?

CGL policies cover “all sums [that] the insured shall become legally obligated to pay ‘as damages’ because of property damage” (emphasis added). Insurers often have asserted that monies paid to help fund abatement programs, such as the proposed abatement of lead-based paint in Rhode Island, are not legal “damages” within the meaning of CGL policies. Instead, those insurers contend that any such monies constitute non-covered “equitable” relief.

The majority of courts have rejected this argument, primarily in the context of disputes over coverage for environmental pollution claims. Those courts have held that dollars spent to help clean up existing environmental contamination are covered “damages.”47

Courts have reached this conclusion even though in many instances the clean-up costs at issue were incurred in response to directives from government agencies, or were the result of a court entering injunctive/equitable relief, rather than a money judgment, in the underlying tort action.48 The rationale for these coverage decisions has been that, regardless of how the remedy is fashioned in the underlying lawsuit, the policyholder is still paying money to repair damage that has occurred.49 The few cases that have supported insurers’ contrary view are at odds with well-established rules of contract construction, and subsequent decisions have repudiated many of those cases.50

Consistent with the majority of decisions, the court in NL Industries held that costs associated with removing lead-based paint are “damages” within the meaning of CGL policies.51 More recently, the court in Millennium Chemicals likewise found that such abatement costs, including the specific abatement costs at issue in Rhode Island, are “damages” resulting from “property damage.”52

D. Coverage For ‘Public Nuisance’ Claims

Brought By Governmental Entities,

Such As The State Of Rhode Island

Since the Rhode Island verdict in February 2006, the insurers of the Rhode Island defendants have asserted that their CGL policies do not cover any monies that the defendants ultimately may have to pay in Rhode Island or in similar “public nuisance” cases. The insurers assert that a “public nuisance” claim is an uncovered type of liability that was not at issue in prior governmental entity claims, which were found to contain sufficient allegations of “damages” resulting from “property damage” and “bodily injury.”

The insurers note that, unlike prior governmental entity lawsuits, the state of Rhode Island is not seeking compensation solely for injuries to the state itself, such as the costs of abating lead-based paint from state-owned properties. Rather, the insurers note, the state is seeking, pursuant to its “police power,” reimbursement for monies that it voluntarily has chosen to spend in order to protect public health. Insurers may liken the Rhode Island public nuisance verdict to recent handgun public nuisance cases, arguing that coverage is unavailable in both instances because they call for injunctive relief rather than specific damages.

The court in Millennium Chemicals rejected this same argument in the context of determining the insurers’ duty to defend the Rhode Island lawsuit and similar claims:

[Insurers] contend that suits by the State of Rhode Island and County of Santa Clara are not suits for bodily injury or property damage within the meaning of CGL policies because they have been brought by governmental bodies to protect public health. Certainly such actions are designed to detect and remediate alleged hazards in buildings which have suffered property damage by incorporation of lead paint products.53

The insurers’ argument should not succeed any more in the context of the duty to indemnify. Regardless of the theory of liability used to pursue the lawsuit, e.g., strict products liability, negligence, duty to warn, conspiracy, or public nuisance, the underlying harm alleged and the remedy sought remain the same — namely the harm to property and health allegedly caused by the presence of lead-based paint, and the requested abatement and medical monitoring programs to address that harm. As noted, that relief constitutes “damages” on account of “bodily injury” and “property damage” within the meaning of CGL policies.

E. Figuring Out Which Policies Apply —

Which Policies Are ‘Triggered’ By Claims

Alleging Damages On Account Of

Bodily Injury Or Property Damage?

One of the recurring issues in insurance coverage litigation is figuring out which policies apply to the claims at issue. Because lead paint lawsuits seek “damages” caused by “bodily injury” and “property damage,” as those terms are used in standard CGL policies, the question becomes whether the injury or damage occurred “during the policy period.”54 The answer to this question depends on when, for insurance coverage purposes, courts deem bodily injury and property damage to occur.

This determination affects which policies, based on their policy periods, have to respond to particular underlying tort claims. The determination also tells us whether some or all of the injury or damage occurred during periods when the policyholder did not have any insurance coverage.

The determination often is referred to as the “trigger” of coverage because it tells us which policy or policies, if any, are “triggered” by an underlying tort claim. This determination is particularly important in the context of so-called “delayed discovery” claims, like lead paint claims and asbestos claims. In the context of such claims, the alleged injury or damage usually does not become manifest, and therefore a lawsuit usually is not filed, until long after the alleged injury or damage begins (even though injury and damage may be occurring during the intervening periods).

1. Overview Of Approaches To

The Trigger Issue

Courts have adopted four fundamental approaches to the trigger of coverage for delayed discovery (or “long-tail”) claims such as lead-paint claims and asbestos claims. The first approach, which generally is the most favorable to policyholders, is the so-called “continuous trigger.” This approach presumes that once the injury or damage begins, it continues without interruption, until the injury or damage is fixed or otherwise remedied. For bodily injury claims, this approach provides coverage from any policy that was in effect from the date of a claimant’s first exposure to a product or substance, such as lead paint or asbestos, through the date of the claimant’s death or the date of the claimant’s lawsuit, whichever is earlier. For property damage claims, this approach provides coverage from any policy that was in effect from the date that lead-based paint first was applied to a building through the date that the paint was removed, or “abated,” from the property.55

In contrast, under the “exposure trigger” sometimes used for bodily injury claims, courts presume bodily injury to occur only during periods of actual exposure to the product or substance. Under this approach, only claims that involve exposure to asbestos or lead paint during an insurer’s policy periods will trigger that insurer’s policies. In the property damage context, the analogous trigger is the so-called “installation” trigger, under which courts presume property damage to occur only during periods when the product or substance was incorporated into a property. Under this approach, only those claims that involve installation of asbestos or application of lead-based paint during an insurer’s policy periods will trigger that insurer’s policies.

At the other end of the spectrum, a few courts have adopted the “manifestation” trigger. Under this approach, courts presume bodily injury to occur only when a claimant first is diagnosed with, or otherwise manifests, a lead-related or asbestos-related injury. Under this approach, only claims that involve manifestations of injury during an insurer’s policy period will trigger that insurer’s policies. For property damage claims, only those policies in effect when building residents discover the alleged toxic hazards are triggered by such claims.

Finally, the “injury-in-fact” approach requires a court to determine the dates or periods when injury or damage actually occurs as a factual matter. For asbestos and lead paint claims, the injury-in-fact trigger may yield, as a practical matter, a continuous trigger. As we discuss below, courts addressing the issue of trigger for bodily injury claims in the lead paint context have treated the injury-in-fact and continuous triggers as being equivalent from a practical standpoint.

Subject to principles of allocation discussed below, once a policy is triggered by virtue of the fact that at least some injury or damage occurred during the policy period, the policy must cover the underlying tort liability, even if some bodily injury or property damage also occurred outside of that policy period.56

2. Trigger For Lead Paint

Bodily Injury Claims

To determine which policies are triggered by a claim alleging bodily injury from lead-based paint, asbestos, or other allegedly hazardous materials, many courts apply the “continuous trigger” rule.57 Thus, for lead paint bodily injury claims, policyholders often can obtain coverage from any policy that was in effect from the date of a claimant’s first ingestion of (or other exposure to) lead-based paint, up through the date of the claimant’s death or the date of claim, whichever is earlier.

Importantly, the “injury-in-fact” trigger, which is followed by some New York courts, leads to the same result. “Injury-in-fact” can occur at any point along a continuum, from the point of initial exposure through death, so long as actual injury occurs during each period.58

This principle was most recently confirmed in 2006 by Maryland’s highest appellate court and intermediate appellate court. Those courts held that, when applied to lead paint bodily injury claims, the continuous trigger and the injury-in-fact trigger operate, as a practical matter, in the same fashion.59 The courts based their decisions in large part on evidence that was submitted regarding how human exposure to lead, and the resulting presence of lead in the bloodstream, causes injury.60

To the extent that insurers have argued for either an exposure trigger or a manifestation trigger in the context of lead paint bodily injury claims, those arguments are inconsistent with the Maryland cases and other cases analyzing trigger for lead paint bodily injury claims. Maryland’s appellate courts noted this very point, and consequently rejected the adoption of a manifestation trigger for lead paint bodily injury claims.61

3. Trigger For Lead Paint Property

Damage Claims

Courts have not directly resolved the issue of which trigger should govern in the context of coverage for lead paint property damage claims. Many courts, however, apply the continuous trigger to claims involving property damage allegedly caused by other products or substances, such as hazardous waste and asbestos.62 The rationale for those decisions is that “law [that was] developed in the context of insidious diseases [such as those allegedly caused by asbestos and lead-based paint] should be transported to the property damage context . . . when the facts support the analogy — when . . . injury is in fact continuously occurring.”63

Based on this reasoning, a continuous trigger likely would apply to lead-related property damage claims if plaintiffs ever succeed in imposing liability in such claims. Those plaintiffs typically contend that lead paint property damage progresses over time, just like asbestos-related injury or environmental contamination allegedly do. The claimants typically allege that as time passes lead-based paint inevitably begins to flake, chip, and peel due to ordinary human activity and deterioration inside properties. The claimants further allege that the danger from lead-based paint therefore continues as time passes, and thus so does the need for abatement.

Former producers of lead-based paint vigorously dispute those contentions. But if claimants succeed in imposing liability on the basis of this theory, then the cases discussed above indicate that a continuous trigger should apply in any coverage dispute with insurers. This trigger would encompass all points from the application of lead-based paint through the time when the paint is abated.

Insurers, however, have argued that the installation trigger should apply to lead paint property damage claims. In arguing for such a trigger, insurers have relied upon some decisions that have applied an installation trigger to asbestos-related property damage claims.

Those cases, however, actually applied an injury-in-fact trigger. The courts simply ruled that, in the context of asbestos-related property damage, the injury-in-fact trigger yields, as a practical matter, an installation trigger. Those courts reached those decisions based upon an analysis of specific evidence that was presented regarding how the presence of asbestos in buildings causes property damage. Thus, in one of the cases that insurers often cite, Stonewall Insurance Co. v. Asbestos Claims Management Co., the court held that an installation trigger applied to asbestos-related property damage claims, based upon a finding that there was insufficient evidence that any property damage occurred after installation.64 Specifically, the policyholder failed to show that each release of asbestos fibers “more likely than not” caused property damage.65

Insurers argue that this conclusion transfers seamlessly to the lead paint context. But as noted earlier, underlying claimants are asserting and attempting to prove that lead-related property damage continues over time. If claimants ever succeed in imposing liability on this basis, such a result would be sufficiently different from the Stonewall situation that insurers likely would have to indemnify former lead paint producers on the basis of a continuous trigger.

Under these circumstances, reliance on Stonewall and similar cases does not seem appropriate in the lead paint context. Rather, as with bodily injury claims, the injury-in-fact trigger for property damage claims may yield, as a practical matter, the equivalent of a continuous trigger.66

4. Trigger’s Lack Of Impact On

Insurers’ Duty To Defend

As noted earlier, an insurer’s duty to defend is determined not by whether there actually was injury or damage during the policy period, but by whether the allegations of the underlying lawsuit are broad enough to create the possibility that injury or damage occurred during the policy period. In most circumstances, the allegations of underlying lead paint lawsuits are broad enough to permit proof of injury or damage during many policy periods regardless of which trigger is adopted. Therefore, insurers typically have a duty to defend regardless of the potentially applicable trigger.

For this reason, in prior coverage litigation between the Rhode Island defendants and their insurers regarding the duty to defend lead paint claims, courts have found it unnecessary to adopt a trigger. Those courts found that the insurers had a duty to defend under any of the potentially applicable triggers.

In the bodily injury context, for example, some lawsuits have failed to specify when individuals were exposed to lead-based paint or when the individuals were diagnosed with lead-related injuries. Those lawsuits instead have made broad allegations, such as “[d]uring all or part of the period from 1900 through the present,” the “Plaintiffs inhaled or otherwise came into contact with injurious amounts of Defendants’ lead,” and that they consequently “have received permanent and painful past, present and future injuries and damages.”67

This lack of particularity makes it impossible for insurers to preclude the possibility of coverage for those types of complaints under their policies. The court in Sherwin-Williams reached this conclusion with respect to the underlying bodily injury claims then at issue:

Furthermore, the “personal injuries” creating the basis for coverage arguably or potentially occurred during the term[s] of the London Market Insurers’ policies. Although the dates of occurrence are unclear from the information provided in the complaints, so little information is provided that it cannot be proved that the injuries occurred outside the policy period[s]. Because doubts in the pleadings must be resolved in favor of the insured, the London Market Insurers must provide a defense.68

The court in Millennium Chemicals reached the same conclusion.69

Similarly, in the property damage context, courts have found it unnecessary to choose a trigger of coverage when determining the duty to defend. In Sherwin-Williams, the court concluded that regardless of the trigger selected, the allegations of the underlying lawsuits were broad enough to permit proof of any of those “triggering” events during the insurers’ policy periods:

The “property damage” in [the governmental entity claim] also arguably or potentially arose during the period of the London Market Insurers’ policies. A number of actions or events conceivably could trigger coverage under the policies for lead paint contamination — e.g., the application of the paint to the buildings’ walls or the realization of harm by the buildings’ residents. However, the Court need not choose a coverage triggering action or event at this point because, regardless of the trigger chosen, the information provided in the complaints is too vague [for the insurers] to rule out the possibility of coverage under the London Market Insurers’ policies.70

The courts in NL Industries and Millennium Chemicals reached the same conclusions.71

Most lead paint lawsuits that contain property damage claims do not allege specific dates when lead paint was applied or discovered within buildings. The vast majority of those lawsuits instead make general allegations that lead paint was applied within buildings throughout a period of several decades and that the damage is continuing through the present.

Under the cases just discussed, insurers must defend those lawsuits. The broad allegations of the lawsuits permit proof of any coverage-triggering event during virtually all policy periods, whether that event is application or abatement, or anything in between.

F. ‘Allocation’ — What Is The Scope Of

An Insurer’s Duty To Pay Under

A Triggered Policy?

When claims have triggered more than one policy, a court must determine how to apportion, or allocate, coverage responsibilities among those triggered policies. This issue requires courts to interpret the CGL policy provision that obligates insurers to pay “all sums” that the insured becomes legally obligated to pay as damages on account of bodily injury or property damage during the policy period.

Courts follow three fundamental approaches to this allocation question. The contract-based “all sums” rule provides, based on the policy language, that each triggered policy is responsible for “all sums” that are attributable to the injury or damage in question, even if some of the injury or damage occurred in other policy periods. Each triggered policy is responsible for all of the policyholder’s liability for damages resulting from the bodily injury or property damage, subject only to each policy’s limit of liability and to each insurer’s right to seek contribution from other insurers that also have triggered policies.

This approach means that a policyholder may choose any triggered policy or policies to pay a claim in full. The targeted insurer may then bring contribution claims against other insurers in an effort to spread the obligation to other triggered policies. But the targeted insurer may not spread any amounts to the policyholder to account for “uninsured” or “self-insured” periods, including periods in which coverage is exhausted or excluded, or periods that are covered by insolvent insurers.

By contrast, under the “pro rata” approach, courts spread the damages proportionately across the entire triggered period — i.e., the entire period during which bodily injury or property damage has occurred. Each triggered policy is responsible only for a pro rata share of the damages, usually based on the amount of time during the triggered period that the policy was in effect, or “on the risk.” In other words, the amount of time that an insurer’s policies were in effect is the numerator, and the entire triggered period is the denominator. If any part of the injury or damage occurred during periods for which there is no coverage, then the policyholder is responsible for the pro rata shares attributable to those periods.72

Finally, some courts have followed a hybrid approach, sometimes referred to as the “modified all sums” approach. This approach allows pro-rata allocation between insurers based on their time “on the risk,” but the rule prohibits allocation to the policyholder for uninsured periods. Under this model, the amount of time that an insurer’s policies were in effect is the numerator, and the full amount of insured periods (as opposed to the entire triggered period) is the denominator.

Numerous courts that have decided the allocation issue, including numerous state supreme courts and federal courts, have adopted the pure “all sums” approach. Those courts have ruled that each triggered policy provides full coverage up to the limits of that policy, and that the policyholder may choose any one of the triggered policies to pay its claim in full. 73 Other courts have followed the modified all-sums approach, allowing allocation between insurers, but not to the policyholder for uninsured periods.74

A few jurisdictions do generally follow the “pro rata” approach to allocation.75 It is important, however, to make two observations regarding those decisions. First, given that insurance coverage issues, like allocation, are matters of state law, it is significant that the majority of state supreme courts that have decided the allocation issue have adopted either the pure all sums approach or the modified all sums approach. This divergence among states regarding allocation is only one example of why disputes over which state law governs, a topic beyond the scope of this article, are so important. Second, in at least some jurisdictions that generally follow the pro rata approach (such as New York), courts still follow at least a modified all sums approach when it comes to allocating insurers’ obligations to reimburse defense costs (as opposed to insurers’ obligations to pay judgments or settlements).76

G. ‘Punitives’ — Are Insurers Obligated To

Cover Punitive Damages?

Whether CGL policies cover an insured for punitive damages awarded in an underlying matter depends heavily on the law being applied, which varies by jurisdiction. In most states, punitive damages can be awarded upon proof that the defendant’s conduct was grossly negligent or willful and wanton. The standard may be more stringent, requiring proof that harm was intended, depending on which individual state is in question. Although the court declined to allow the issue of punitive damages to reach the jury in the case brought by the State of Rhode Island, it is not clear whether such damages could be awarded in future governmental entity lawsuits against former lead pigment or paint manufacturers.

Courts in the majority of jurisdictions have held that insurers must provide coverage for punitive damages.77 It seems that in the better-reasoned decisions, courts have analyzed the facts necessary to support punitive damages in the underlying action and allowed coverage for grossly negligent, reckless, or wanton behavior, but excluded it where the harm was intended.78 Courts in a few jurisdictions, however, have held that punitive damages are not covered due to state public policy considerations.79 In those jurisdictions, some courts have nonetheless allowed coverage for punitive damages when addressing the issue under another state’s law that does not prohibit such coverage.80

An analysis of the availability of coverage for punitive damages must also take the policy language into consideration. Some CGL policies contain express exclusions of coverage for punitive damages.81 Even in instances where the policy language expressly provides for coverage of punitive damages, state law and public policy prohibiting such coverage may trump that language.82 As discussed below, where punitive damages are awarded based upon a finding of intent to harm, coverage may be barred under the so-called “expected or intended” exclusion.

H. Dealing with Insurance Policy Exclusions

— Insurers’ Affirmative Defenses

Another recurring issue in insurance coverage litigation is dealing with insurance policy exclusions, oftentimes set forth by insurers as affirmative defenses to coverage.

1. Was The Property Damage Or

Bodily Injury ‘Expected Or

Intended’ By The Policyholder?

Under the definition of “occurrence” in standard CGL policies, bodily injury or property damage must be “unexpected” and “unintended” from the standpoint of the insured. In the context of disputes over coverage for toxic tort claims, including lead paint claims, insurers often have argued that the injury or damage was not “unexpected” and “unintended” within the meaning of the “occurrence” definition. In making this argument, insurers have relied on allegations (and sometimes evidence) in the underlying lawsuits that the policyholder was aware of the dangers posed by its product, but continued to manufacture, market, and distribute the product anyway.

Most courts have rejected this type of argument by insurers. The court in Millennium Chemicals ruled that the CGL policies at issue cover lawsuits in which the claimants allege that the defendants (or their alleged predecessors) sold lead-based paint despite knowing the dangers of the product:

[D]efendants rely on policy provisions which define an “occurrence” as an accident or tortious event which unexpectedly or unintentionally causes injury during the policy period. However, a party can intend to sell a deleterious product without specifically intending to cause bodily injury or property damage. Thus, an allegation that a policy holder knew of potential dangers and proceeded in conscious disregard of those risks is not enough to preclude coverage within an ‘expected or intended’ definition.83

This decision is consistent with case law on this issue generally. Courts typically have not precluded coverage for intentional torts unless the policyholder commits an intentional act and specifically intends the resulting harm to the injured party.84 So strong is the presumption against barring coverage that even in cases where policyholders intentionally have shot at underlying claimants with firearms (and thus faced potential criminal consequences), courts have refused to bar coverage absent a showing that the policyholder actually intended to injure the claimant.85 Thus, insurers should not be able to avoid coverage for lead paint claims based on the “expected or intended” defense.

Another consideration when addressing the expected or intended exclusion is whether the court in the underlying action considered and awarded punitive damages. As noted above, punitive damages may be awarded in most jurisdictions when it can be shown that the defendant’s conduct was grossly negligent or willful and wanton, but other jurisdictions require proof that the defendant intended the harm. Where punitive damages are awarded below, insurers may argue that coverage is barred under the expected or intended exclusion.

Likewise, where the court below expressly finds insufficient evidence to support punitive damages, policyholders may argue that the expected or intended exclusion cannot apply per se. Few courts have reached the issue, but the Georgia Court of Appeals has held that the burden of proof for punitive damages is substantially higher than that generally applicable to civil actions, and that the expected or intended exclusion does not require an action that rises to the level of conduct required to support punitive damages.86 Thus a finding below of insufficient evidence to award punitive damages did not per se avoid application of the expected or intended exclusion.

While the Georgia Court of Appeals views the standard for punitive damages as requiring more egregious conduct than required for the expected or intended exclusion, there appears to be some disagreement nationally as to what level of conduct is legally equivalent to intentional misconduct within the context of the expected or intended exclusion. Some courts hold that willful or wanton misconduct, sufficient to award punitive damages, and intentional misconduct, sufficient to find that damages were expected or intended, are equivalent.87 Others find intentional acts more egregious than willful and wanton misconduct.88 And finally, some find that willful or wanton misconduct is the more egregious standard.89

Although courts have not reached a uniform position on the issue, it appears that in most states, where punitive damages require a willful or wanton act, a finding of insufficient evidence to award punitive damages below will permit the policyholder to avoid application of the expected or intended exclusion per se, so long as the court views willful or wanton as less egregious than or equal to intentional behavior.

2. Does The ‘Sistership’ Or ‘Business

Risk’ Exclusion Bar Coverage?

The standard “sistership” or “business risk” exclusion bars coverage for:

Damages claimed for the withdrawal, inspection, repair, replacement or loss of use of the named insured’s products or work completed by or for the insured or for any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.

In two different suits between former producers of lead-based paint and their insurers, courts have held that this exclusion does not apply to claims seeking removal of lead-based paint from properties.90 Those courts found that the exclusion is intended to apply only where the policyholder is called upon to withdraw a current product from the market due to an internal defect discovered in a single unit of the product.91 As the court in Millennium Chemicals noted, typical lead paint property damage lawsuits do not fall into this category:

The lawsuits involved are not demanding a product recall or withdrawal from the market of current products. Rather, this litigation calls for the repair or remediation of the lead based products by abatement or removal from the buildings involved. This is an attempt to remedy property damage to a structure which has incorporated the offending product. The Court does not find the Sistership Exclusion applicable to the litigation in question.92

Courts that have addressed the sistership exclusion in the context of asbestos-related property damage claims have reached the same conclusion.93 Therefore, insurers should not be able to avoid coverage for lead paint claims based on the “sistership” exclusion.

3. Does The ‘Pollution Exclusion’

Bar Coverage?

Beginning in 1970, standard CGL policies incorporated the following qualified pollution exclusion:

This policy shall not apply . . . to any liability of any insured arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, solids, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water unless such discharge, dispersal, release or escape is sudden and accidental.

More recent policies may have the more stringent, “absolute pollution exclusion,” which does not contain the exception allowing coverage for “sudden and accidental” discharges.

Some insurers have attempted to apply the pollution exclusion to lead paint claims and asbestos-related claims. The insurers’ theory is that asbestos and lead-based paint are “toxic chemicals,” and/or “irritants, contaminants, or pollutants” that are “release[d] . . . into the atmosphere,” because asbestos and lead-based paint must be airborne (however briefly) before they are inhaled or ingested.

The majority of courts to decide the issue have rejected this theory. Most courts have concluded that lead-based paint is not a pollutant within the meaning of the pollution exclusion.94 In fact, in a prior coverage litigation that both Millennium and The Glidden Company brought against their insurers regarding those insurers’ duty to defend, the court rejected the insurers’ argument that the pollution exclusion barred coverage.95 Several courts likewise have rejected the notion that asbestos is a pollutant within the meaning of the pollution exclusion.96

Other courts have ruled that although lead paint and asbestos may be “pollutants,” their presence in properties does not constitute a “release” or “discharge” into the “atmosphere or any watercourse or body of water.”97 Thus, the pollution exclusion would not defeat coverage under those decisions either.

A small minority of courts have held that the pollution exclusion encompasses lead-based paint. Those decisions, however, are at odds with recent decisions that limit the application of even the “absolute pollution exclusion” to cases involving true environmental pollution.98

In the few jurisdictions where courts have found that the pollution exclusion encompasses lead paint, policyholders that have policies containing the qualified exclusion, as opposed to the absolute exclusion, may still be able to defeat application of the exclusion under the exception that provides coverage for “sudden and accidental” discharges. Some courts have held that the “sudden and accidental” language merely restates the “unexpected and unintended” requirement in the definition of “occurrence.”99 Based upon the decisions, holding that the “expected and intended” defense does not defeat coverage for lead paint claims, policyholders may also be able to defeat pollution exclusion defenses under this rationale. Further, policyholders may be able to benefit from the fact that other courts have held that the phrase “sudden and accidental” is ambiguous, and then used the ambiguity as grounds for construing the phrase in a manner that provides coverage.100

It should be noted that some policies specifically include lead paint exclusions, which arguably render disputes over the pollution exclusion (and other exclusions) moot. These lead paint exclusions, however, are not as common in CGL policies as asbestos exclusions.

IV. Pointers For Protecting Your

Company’s Interests

Regardless of whether your company has been named in a lead paint lawsuit yet, there are steps that all companies can, and should, take now to put themselves in the best possible position to secure insurance coverage if and when the need arises. The pointers listed below are broad and generic by necessity; for the necessary detail and the comprehensive implementation of these pointers, companies should consult with experienced insurance coverage attorneys.

First, companies should collect, organize, and safeguard all of their CGL policies, going as far back in time as possible. Second, companies should start to review and analyze their CGL policies to determine the amounts of coverage available in their liability insurance program. This process should include, among other things, an analysis of the policy limits in each policy and an identification and analysis of the insurers in the program. A comprehensive review and analysis of a company’s insurance program will help determine, among other things, the following information:

• total amount of available policy limits;

• whether any insurers are insolvent or in precarious financial condition, and thus whether there are any actual or potential gaps in the coverage;

• facts that could affect which state’s law will apply to the interpretation of the policies, such as where the policies were brokered and where they were delivered when they were issued; and

• whether there are missing policies for which secondary evidence, such as correspondence with brokers and receipts for premium payments, will be necessary.

Policyholder attorneys and consultants have developed sophisticated “policy archeology” tools to help locate historical policies and secondary evidence of missing policies.

Third, companies should determine whether the payment of any prior claims has exhausted any policies and whether there are any prior settlement agreements with any insurers, such as settlements resolving coverage for environmental pollution claims. Insurers sometimes use such settlements to argue that the policyholder already has released some of the coverage in its insurance program. Companies also should be careful in negotiating any future insurance coverage settlements, so as to avoid affecting coverage for lead-related liabilities.

Fourth, if and when companies are served with lead paint lawsuits, the companies promptly should give notice of those lawsuits to their insurers, absent relatively rare, case-specific circumstances that might justify refraining from giving such notice. Companies also should take reasonable steps to keep their insurers apprised of the status of the underlying lead paint lawsuits.

Finally, companies should review prior corporate transactions involving their companies and related entities. Reviewing your company’s corporate history will help determine:

• whether the company may be vulnerable to an insurer argument that the company is not insured under historical policies that otherwise cover lawsuits and potential liabilities arising out of the historical operations that give rise to the lawsuits;

• whether your company may have rights to coverage under historical policies issued to another, formerly-related entity; and

• whether another company may claim shared rights to coverage under your company’s policies.

Companies also should carefully analyze the insurance coverage implications of any future corporate transactions that they may be contemplating.

V. Conclusion

Insurance companies have consistently tried, and likely will continue their efforts, to avoid coverage for defense costs and potential liabilities associated with lead paint lawsuits. When insurance companies took a similar approach in response to environmental and asbestos-related lawsuits, the insurers largely were unsuccessful. The case law that has developed to date indicates that insurance companies likely will also be unsuccessful in their effort to avoid coverage for lead paint lawsuits. Companies dealing with such lawsuits should not take coverage denials from their insurers at face value and instead should aggressively pursue their rights to coverage under their CGL policies.

Endnotes

1. Two additional defendants, ConAgra Grocery Products Company and Atlantic Richfield Company, obtained a pre-trial summary judgment and a favorable jury verdict, respectively, based on legal issues that are not relevant to this article. Another Rhode Island defendant, E.I. du Pont de NeMours and Company (“DuPont”), settled with the state of Rhode Island in Fall 2005, shortly before the start of the trial.

2. In general terms, a “public nuisance” usually is defined as “an unreasonable interference with a right common to the general public.” See Restatement (Second) of Torts § 821B (2006). Circumstances that may justify a finding of a public nuisance include: whether the conduct involves a significant interference with the public health or the public safety, and whether the conduct is of a continuing nature or has produced a permanent or long-lasting effect that, as the actor knows or has reason to know, has a significant effect upon the public right. See id. Shepardize

3. Court’s Decision, Rhode Island v. Atlantic Richfield Co., C.A. No. 99-5226, 1, 10-18, 29-30.

4. Julie Creswell, The Nuisance That May Cost Billions, N.Y. Times, April 2, 2006, § 3 (Money and Business), at 1.

5. Since lead paint claims started in the late 1980s, alleged former manufacturers of lead pigment or lead-based paint, including Sherwin-Williams, NL Industries, The Glidden Company, and Millennium Holdings (and its affiliates), have litigated extensively with their respective insurers regarding those insurers’ duty to pay for the costs of defending lead paint lawsuits. These former producers have achieved favorable results in those cases. See Millennium Chems. Inc. v. Lumbermens Mut. Cas. Co., No. 411388 (Ohio Ct. Com. Pl. May 8, 2002), reported in Mealey’s Litigation Reports — Insurance (May 21, 2002) (“Millennium Chems.”); Glidden Co. v. Lumbermens Mut. Cas. Co., No. CV 215106 (Ohio Ct. Com. Pl. May 26, 1993); NL Indus., Inc. v. Commercial Union Ins. Co., Civ. No. 90-2124, 1991 U.S. Dist. LEXIS 21869 Shepardize (D.N.J. July 11, 1991) (“NL I”), rev’d on other grounds, 65 F.3d 314 Shepardize (3d Cir. 1995); NL Indus., Inc. v. Commercial Union Ins. Co., 926 F. Supp. 446 Shepardize (D.N.J. 1996) (“NL II”); Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s, London, 813 F. Supp. 576 Shepardize (N.D. Ohio 1993). However, because of the absence of a settlement or adverse verdict in any case before the February 2006 Rhode Island verdict, these companies only recently have started to litigate with their insurers regarding the insurers’ duty to cover any judgments or settlements that might arise from lead paint claims. Several other former producers are currently litigating over their insurers’ duty to cover defense costs and judgments or settlements. For example E.I. Du Pont DeNemours and Company and American Cyanamid have coverage cases pending in Delaware and New Jersey state court, respectively. There have, however, been cases between landlords and their insurers regarding the duty to cover judgments or settlements arising out of the landlords’ renting of dwellings containing lead-based paint. This article examines key decisions from these prior litigations.

6. Some policies, instead of using the word “unexpectedly,” state that the injury or damage must be “neither expected nor intended from the standpoint of the insured.”

7. “Primary” insurance policies, which respond after the insured has satisfied any deductibles, typically provide limitless coverage for defense costs, as long as the primary insurer has not paid its policy limits to cover judgments or settlements. By contrast, excess and umbrella policies, which sit above primary policies, sometimes do not contain “duty to defend” language, and sometimes place a limit on the amount of defense costs that the insurer will pay.

8. Although the following principles are followed in almost all jurisdictions, states nevertheless often reach conflicting results on various coverage issues. Thus, the outcomes of insurance coverage disputes often depend on which state’s law applies to the particular insurance policies at issue. The determination of which state’s law will apply often depends on a variety of “choice of law” factors, including, but not limited to, where the policy was brokered and executed, where the policyholder and insurer were incorporated and had their principal places of business at the time of contracting, and the location of the operations that give rise to the underlying tort claims.

9. See Morgan Stanley Group Inc. v. New Eng. Ins. Co., 225 F.3d 270, 276 Shepardize (2d Cir. 2000); ABM Indus., Inc. v. Zurich Am. Ins. Co., No. C05-3480SBA, 2006 U.S. Dist. LEXIS 67884, at *18-19 Shepardize (N.D. Cal. Sept. 11, 2006); Sharonville v. Am. Employers Ins. Co., 846 N.E.2d 833, 838 Shepardize (Ohio 2006).

10. See Morgan Stanley, 255 F.3d at 276 Shepardize; ABM Indus., 2006 U.S. Dist. LEXIS 67884, at *18-19 Shepardize.

11. See, e.g., Landpen Co. v. Md. Cas. Co., No. 03 Civ. 3624RJHHBP, 2005 U.S. Dist. LEXIS 2145, at *12 Shepardize (S.D.N.Y. Feb. 15, 2005); U.S. Fid. & Guar. Co. v. Annunziata, 492 N.E.2d 1206, 1207 Shepardize (N.Y. 1986); Cunningham v. Universal Underwriters, 120 Cal. Rptr. 2d 162, 168 Shepardize (Cal. Ct. App. 2002); Ledyard v. Auto Wonders Mut. Ins. Co., 739 N.E.2d 1, 3-4 Shepardize (Ohio Ct. App. 2000).

12. MDW Enters., Inc. v. CNA Ins. Co., 772 N.Y.S.2d 79, 82 Shepardize (N.Y. App. Div. 2004) (quoting Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 457 N.E.2d 761, 764 Shepardize (N.Y. 1983)); see also Cumberland Mut. Fire Ins. Co. v. Murphy, 873 A.2d 534, 538 Shepardize (N.J. 2005).

13. See MDW Enters., 772 N.Y.S.2d at 82 Shepardize; Annunziata, 492 N.E.2d at 1207 Shepardize; see also Gaetan v. Firemen’s Ins. Co., 695 N.Y.S.2d 608, 610 Shepardize (N.Y. App. Div. 1999); Tri Town Antlers Found., Inc. v. Fireman’s Fund Ins. Co., 550 N.Y.S.2d 953, 955 Shepardize, aff’d, 559 N.E.2d 1283 Shepardize (N.Y. 1990); Safeco Ins. Co. of Am. v. Robert S., 28 P.3d 889 Shepardize (Cal. 2001); Talbert v. Cont’l Cas. Co., 811 N.E.2d 1169, 1172 Shepardize (Ohio Ct. App. 2004).

14. New Castle County v. Nat’l Union Fire Ins. Co., 174 F.3d 338, 343 Shepardize (3d Cir. 1999) (citation omitted); see also MDW Enters., Inc., 772 N.Y.S.2d at 83 Shepardize (“If CNA and Valley Forge wanted to exclude coverage for arson they should have said so clearly, and could easily have done so . . . .”); Ploen v. Aetna Cas. & Sur. Co., 525 N.Y.S.2d 522, 527 Shepardize (N.Y. Sup. Ct. 1988) (“[I]f defendant had wanted to exclude any business activity of the insured, it should have said so.”)(emphasis in original); Oot v. Home Ins. Co., 676 N.Y.S.2d 715, 719 Shepardize (N.Y. App. Div. 1998) (“If defendant intended to exclude from coverage former attorneys who have been disbarred, it should have stated that exclusion unambiguously.”); Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878, 888-89 (Cal. 1995).

15. 2-6 Appleman on Insurance § 6.1 (2d ed.); see also U.S. Fid. & Guar. Co. v. Fireman’s Fund Ins. Co., 896 F.2d 200, 203 Shepardize (6th Cir. 1990).

16. See Morgan Stanley, 225 F.3d at 279 Shepardize; see also Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1533-34, 1544 Shepardize (2d Cir. 1997); Westchester Resco Co. v. New Eng. Reins. Corp., 818 F.2d 2, 4-5 Shepardize (2d Cir. 1987) (per curiam); Reliance Ins. Co. v. Moessner, 121 F.3d 895, 905 Shepardize (3rd Cir. 1997).

17. See Cont’l Cas. Co. v. Rapid-Am. Corp., 609 N.E.2d 506, 512 Shepardize (N.Y. 1993); Ploen, 525 N.Y.S.2d at 524-25 Shepardize; Seaboard Sur. Co. v. Gillette Co., 476 N.E.2d 272, 275 Shepardize (N.Y. 1984); Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989, 999 Shepardize (2d Cir. 1974); ABM Indus., 2006 U.S. Dist. LEXIS 67884, at *18-19 Shepardize.

18. Seaboard Sur. Co., 476 N.E.2d at 275 Shepardize (internal citations omitted); U.S. Fid., 896 F.2d at 203 Shepardize; McCarthy v. N.Y. Prop. Ins. Underwriting Ass’n, 551 N.Y.S.2d 120, 121 Shepardize (N.Y. App. Div. 1990).

19. See, e.g., Mazzuoccolo v. Cinelli, 666 N.Y.S.2d 621, 623-24 Shepardize (N.Y. App. Div. 1997); Tri Town Antlers Found., 550 N.Y.S.2d at 955 Shepardize; Little v. Blue Cross of W. N.Y., Inc., 424 N.Y.S.2d 552, 555 Shepardize (N.Y. App. Div. 1980); U.S. Fid., 896 F.2d at 203 Shepardize.

20. See Pan Am. World Airways, 505 F.2d at 1000-01 Shepardize; Ariston Airline & Catering Supply Co. v. Forbes, 511 A.2d 1278, 1281-82 Shepardize (N.J. Super. Ct. Law Div. 1986).

21. See, e.g., Chase Manhattan Bank v. N.H. Ins. Co., 749 N.Y.S.2d 632, 637 Shepardize (N.Y. Sup. Ct. 2002); Little, 424 N.Y.S.2d at 556 Shepardize; Fireman’s Fund Ins. Co. v. Nat’l Bank for Coops., 849 F. Supp 1347, 1360 Shepardize (N.D. Cal. 1994).

22. Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 314 N.E.2d 37, 39 Shepardize (N.Y. 1974); Lancaster v. U.S. Shoe Corp., 934 F. Supp. 1137, 1162 Shepardize (N.D. Cal. 1996).

23. Kenyon v. Sec. Ins. Co, 626 N.Y.S.2d 347, 350 Shepardize (N.Y. Sup. Ct. 1993), aff’d, 616 N.Y.S.2d 133 Shepardize (N.Y. App. Div. 1994); see also Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 697 Shepardize (2d Cir. 1998); Stamm Theatres, Inc. v. Hartford Cas. Ins. Co., 113 Cal. Rptr. 2d 300, 305 Shepardize (Cal. Ct. App. 2001); Ward v. Custom Glass & Frame, Inc., 663 N.E.2d 734, 737 Shepardize (Ohio Ct. App. 1995) (“The purpose for paying premiums of insurance coverage is to buy peace of mind so that when accidents occur, the insured can trust that his insurance company will not renege on its agreement.”); Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1041 Shepardize (D.C. Cir. 1981) (same).

24. See W. Lyman Case & Co. v. Nat’l City Corp., 667 N.E.2d 978, 979 Shepardize (Ohio 1996); Erie Ins. Exch. v. Colony Dev. Corp., 736 N.E.2d 941, 946-47 Shepardize (Ohio Ct. App. 1999); Cont’l Cas. Co. v. Rapid-Am. Corp., 609 N.E.2d 506, 509 Shepardize (N.Y. 1993); Ins. Co. of N. Am. v. Travelers Ins. Co., 692 N.E.2d 1028, 1034-35 Shepardize (Ohio Ct. App. 1997) (citing Sanderson v. Ohio Edison Co., 635 N.E.2d 19, 23 Shepardize (Ohio 1994)); Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s, London, 813 F. Supp. 576, 582-83 Shepardize (N.D. Ohio 1993) (citing City of Willoughby Hills v. Cincinnati Ins. Co., 459 N.E.2d 555 Shepardize (Ohio 1984) and Motorists Mut. Ins. Co. v. Trainor, 294 N.E.2d 874 Shepardize (Ohio 1973)).

25. See Sherwin-Williams Co., 813 F. Supp. at 583 Shepardize (citing Zanco, Inc. v. Mich. Mut. Ins. Co., 464 N.E.2d 513, 514 Shepardize (Ohio 1984) (duty to defend arises if pleading against insured contains allegations that are vague, nebulous, or incomplete such that a potential for coverage exists)); NL Indus. v. Commercial Union Ins. Co., 926 F. Supp. 446, 454 Shepardize (D.N.J. 1996) (applying New York law and citing Seaboard Sur. Co., 476 N.E.2d at 274-75 Shepardize).

26. See footnote 25.

27. Erie Ins. Exch., 736 N.E.2d at 946 Shepardize (emphasis added) (citations omitted).

28. See Preferred Mut. Ins. Co. v. Thompson, 491 N.E.2d 688, 691 Shepardize (Ohio 1986) (where claims alleged negligence, which was covered by the policy, and also intentional torts, which were not covered, carrier had a duty to defend entire action); see also NL Indus., 926 F. Supp. at 454 Shepardize (applying New York law and citing Cont’l Cas. Co., 609 N.E.2d at 513 Shepardize).

29. See Erie Ins. Exch., 736 N.E.2d at 946 Shepardize.

30. U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 Shepardize (Ill. 1991); Int’l Paper Co. v. Cont’l Cas. Co., 320 N.E.2d 619, 621-22 Shepardize (N.Y. 1974).

31. See Truck Ins. Exch. v. Century Indem. Co., 887 P.2d 455 Shepardize (Wash. Ct. App. 1995); Jenkins v. Ins. Co. of N. Am., 272 Cal. Rptr. 7 Shepardize (Cal. Ct. App. 1990); Aetna Ins. Co. v. Borrell-Bigby Elec. Co., Inc., 541 So. 2d 139 Shepardize (Fla. Dist. Ct. App. 1989); Fid. Gen. Ins. Co. v. Aetna Ins. Co., 278 N.Y.S.2d 787 Shepardize (N.Y. App. Div. 1967); Kaste v. Hartford Accident & Ind. Co., 170 N.Y.S.2d 614 Shepardize (N.Y. App. Div. 1958); Med. Prof’l Mut. Ins. Co. v. Newton Wellesley Hosp., No. 984705C, 1999 Mass. Super. LEXIS 529 Shepardize (Mass. Super. Ct. Dec. 14, 1999); Berman v. Gen. Accident Ins. Co. of Am., 671 N.Y.S.2d 619 Shepardize (N.Y. Sup. Ct. 1998); Ziebart Int’l Corp. v. CNA Ins. Cos., 78 F.3d 245 Shepardize (6th Cir. 1996); Hatfield v. 96-100 Prince St., Inc., 972 F. Supp. 246 Shepardize (S.D.N.Y. 1997). See also Goddard v. Farmers Ins. Co. of Or., 22 P.3d 1224, 1229 Shepardize (Or. Ct. App. 2001); Sanchez v. Kirby, 40 P.3d 1009, 1011-12 Shepardize (N.M. Ct. App. 2001).

32. See Cont’l Cas. Co., 609 N.E.2d at 509 Shepardize.

33. Sherwin-Williams Co. v. Certain Underwriters At Lloyd’s London, 813 F. Supp. at 582-83 Shepardize; NL Indus. v. Commercial Union Ins. Co., 926 F. Supp. at 454 Shepardize; Millennium Chems., at 29-30, 37-41; Chantel Assocs. v. Mt. Vernon Fire Ins. Co., 656 A.2d 779 Shepardize (Md. 1995); U.S. Liab. Ins. Co. v. Falsely, 626 N.Y.S.2d 238 Shepardize (N.Y. App. Div. 1995).

34. See Dayton Indep. Sch. Dist. v. Nat’l Gypsum Co., 682 F. Supp. 1403,1406-07 Shepardize (E.D. Tex. 1988), rev’d on jurisdictional grounds sub nom., W.R. Grace & Co. v. Cont’l Cas. Co., 896 F.2d 865 Shepardize (5th Cir. 1990).

35. See Idaho v. Bunker Hill Co., No. 83-3161, slip op. at 15-16 (D. Idaho Nov. 12, 1987), reported in Mealey’s Litigation Reports — Insurance, A-1 (Nov. 24, 1987).

36. See NL Indus., Inc., 1991 U.S. Dist. LEXIS 21869 Shepardize; Millennium Chems., at 30-31.

37. See Chantel Assocs., 656 A.2d at 779 Shepardize (lead paint exposure that results in “direct and indirect damage to the cells, tissues and organs of the body” constitutes bodily injury); Gen. Accident Ins. Co. of Am. v. Idbar, 622 N.Y.S.2d 417 Shepardize (N.Y. Sup. Ct. 1994) (same); Scottsdale Ins. v. Am. Empire Surplus Lines Ins. Co., 811 F. Supp. 210 Shepardize (D. Md. 1993) (same); Hartford Mut. Ins. Co. v. Jacobson, 536 A.2d 120 Shepardize (Md. Ct. Spec. App.) (allegation of lead poisoning alleges bodily injury), review denied, 541 A.2d 964 Shepardize (Md. 1988).

38. Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s London, 813 F. Supp. at 582, 585-87 Shepardize (Ohio law); see also Glidden Co. v. Lumbermens Mut. Cas. Co., No. CV 215106 (Ohio Ct. Com. Pl. May 26, 1993) (granting summary judgment requiring primary carriers to defend lead paint lawsuit brought by the City of Philadelphia); NL Indus., Inc., 1991 U.S. Dist. LEXIS 21869 Shepardize (lead paint lawsuit brought by the City of New York alleges bodily injury due to lead paint), rev’d on other grounds, 65 F.3d 314 Shepardize (3d Cir. 1995).

39. See Millennium Chems., at 39; U.S. Fid. & Guar. Co. v. Korman Corp., 693 F. Supp. 253 Shepardize (E.D. Pa. 1988) (noting general rule that claim for medical monitoring states claim for bodily injury); Techalloy Co. v. Reliance Ins. Co., 487 A.2d 820 Shepardize (Pa. Super. Ct. 1984) (insurer obligated to defend hazardous waste tort complaint seeking creation of a trust fund for payment of medical expenses). Consistent with these holdings, courts in underlying tort cases have recognized that a claim for medical monitoring is a claim for personal injury. See, e.g., Barnes v. Am. Tobacco Co., 161 F.3d 127 Shepardize (3d Cir. 1998); Gibbs v. E.I. DuPont de Nemours & Co., 876 F. Supp. 475 Shepardize (W.D.N.Y. 1995). Many courts also have held that a claim seeking monetary costs for medical monitoring is a claim for damages, and not a claim for equitable relief. See, e.g., Zinser v. Accufix Research Inst., 253 F.3d 1180 Shepardize (9th Cir. 2001); Dhamer v. Bristol-Myers Squibb Co., 183 F.R.D. 520 Shepardize (N.D. Ill. 1998); Hurt v. Phila. Hous. Auth., 151 F.R.D. 555 Shepardize (E.D. Pa. 1993).

40. See NL Indus. Inc., 1991 US. Dist. LEXIS 21869, at *42-43 Shepardize (abatement costs are covered under standard CGL policies, regardless of whether the underlying injury which the insured sought to avoid was property damage or bodily injury); see also Diamond Shamrock Chems. Co. v. Aetna Cas. & Sur. Co., 554 A.2d 1342, 1349-50 Shepardize (N.J. Super. Ct. App. Div. 1989) (in a conventional tort action, once some present injury has been proven, the plaintiff’s damages may include the costs of measures taken to prevent future injury).

41. The Rhode Island lawsuit, for example, seeks to recover the “costs of discovering and abating Lead” in and on “many homes, schools, hospitals, and other public and private buildings throughout the State.” See Second Amended Complaint ¶¶ 21, 43.

42. See 813 F. Supp. 576, 587 Shepardize (N.D. Ohio 1993) (Ohio law); see also Glidden Co. v. Lumbermens Mut. Cas. Co., No. CV 215106, slip op. (Ohio Ct. Com. Pl. May 26, 1993) (granting summary judgment requiring insurers to defend virtually identical lead paint abatement claim brought by the City of Philadelphia).

43. 926 F. Supp. 446, 457 Shepardize (D.N.J. 1996).

44. No. 411388 (Ohio Ct. Com. Pl. May 8, 2002).

45. See Stychno v. Ohio Edison Co., 806 F. Supp. 663 Shepardize (N.D. Ohio 1992) (Ohio law) (costs to remediate environmental contamination to property are damages on account of “property damage”); Kipin Indus., Inc. v. Am. Universal Ins. Co., 535 N.E.2d 334, 337 Shepardize (Ohio Ct. App. 1987) (same); Sturges Mfg. Co. v. Utica Mut. Ins. Co., 332 N.E.2d 319, 322 Shepardize (N.Y. 1975) (stating that incorporation of a defective product into another product inflicts property damage).

46. See Md. Cas. Co. v. W.R. Grace Co., 794 F. Supp. 1206, 1224 Shepardize (S.D.N.Y. 1991), rev’d on other grounds, 23 F.3d 617 Shepardize (2d Cir. 1993); U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 550 N.E.2d 1032 Shepardize (Ill. App. Ct. 1989), aff’d, 578 N.E.2d 926 Shepardize (Ill. 1991); Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 731-35 Shepardize (Cal. Ct. App. 1996); Carey Can. Inc. v. Aetna Cas. & Sur. Co., Nos 84-3113, 85-1640, 1988 U.S. Dist. LEXIS 8997 Shepardize (D.D.C. Mar. 31,1988); Dayton Indep. Sch. Dist., 682 F. Supp. at 1407 Shepardize; Pittsburgh Corning Corp. v. Travelers Indem. Co., No. 84-3985, 1988 U.S. Dist. LEXIS 634 Shepardize (E.D. Pa. Jan. 21, 1988); Lac D’Amiante Du Quebec, Ltee. v. Am. Home Assurance Co., 613 F. Supp. 1549 Shepardize (D.N.J. 1985); U.S. Gypsum Co. v. Admiral Ins. Co., No. 83L53328, slip op. (Ill. Cir. Ct. Jan. 7, 1991), reported in Mealey’s Litigation Reports — Insurance (Jan. 15, 1991).

47. See, e.g., Helena Chem. Co. v. Allianz Underwriters Ins. Co., 594 S.E.2d 455 Shepardize (S.C. 2004); New Castle County v. Hartford Accident and Indem. Co., 933 F.2d 1162 Shepardize (3d Cir. 1991) (Delaware law), rev’d on other grounds after remand, 970 F.2d 1267 Shepardize (3d Cir. 1992); Avondale Indus. v. Travelers Indem. Co., 887 F.2d 1200, 1207 Shepardize (2d Cir. 1989) (New York law); Indep. Petrochem. Corp. v. Aetna Cas. & Sur. Co., 944 F.2d 940, 947 Shepardize (D.C. Cir. 1991) (Missouri law); Aetna Cas. & Sur. Co. v. Pintlas Corp., 948 F.2d 1507 Shepardize (9th Cir. 1991) (Idaho law); Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188, 1194 Shepardize (9th Cir. 1986) (Oregon law); A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607 Shepardize (Iowa 1991); AIU Ins. Co. v. Superior Court, 799 P.2d 1253 Shepardize (Cal. 1990); Hazen Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576 Shepardize (Mass. 1990); Minn. Mining & Mfg. Corp v. Travelers Indem. Co., 457 N.W.2d 175 Shepardize (Minn. 1990); C.D. Spangler Constr. Co. v. Ind. Crankshaft & Eng’g Co., 388 S.E.2d 557 Shepardize (N.C. 1990); Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507 Shepardize (Wash. 1990); Federated Mut. Ins. Co. v. Concrete Units, Inc., 363 N.W.2d 1751, 757 Shepardize (Minn. 1985) (most sensible reading of “damages because of . . . property damage” required the carrier to pay all monies that are causally related to an item of “property damage”); Aetna Cas. & Sur. Co. v. Gen. Time Corp., 704 F.2d 80 Shepardize (2d Cir. 1983).

48. See footnote 47.

49. See footnote 47.

50. See, e.g., Cont’l Ins. Cos. v. N. Pharm. & Chem. Co., 842 F.2d 977 Shepardize (8th Cir. 1988) (Missouri law), rejected by Indep. Petrochem. Corp. v. Aetna Cas. & Sur. Co., 944 F.2d 940, 947 Shepardize (D.C. Cir. 1991) (Missouri law), cert. denied, 503 U.S. 1011 Shepardize (1992), and by Monsanto Co. v. Aetna Cas. & Sur. Co., No. 88C-JA-118, 1993 Del. Super. LEXIS 444 Shepardize (Del. Super. Ct. Dec. 21, 1993) (Missouri law); Md. Cas. Co. v. Armco, Inc., 822 F.2d 1348 Shepardize (4th Cir. 1987) (Maryland law), rejected by Bausch & Lomb Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021 Shepardize (Md. 1993).

51. NL Indus., Inc., 1991 U.S. Dist. LEXIS 21869, at *42-43 Shepardize.

52. See Millennium Chems., at 38 Shepardize. The insurers in that case argued that there was not even a possibility of coverage for the Rhode Island claim, and thus they had no duty to defend because the claim did not seek “damages” within the meaning of the CGL policies at issue.

53. See Millennium Chems., at 38 Shepardize.

54. As noted earlier, under CGL policies, bodily injury and property damage must be caused by an “occurrence,” which is “an event which unexpectedly causes injury during the policy period or a continuous or repeated exposure to conditions which unexpectedly causes bodily injury, personal injury or injury to or destruction of property during the policy period.” (emphasis added).

55. Because lead-based paint typically has not been abated from a property before the filing of a lead paint lawsuit, the trigger period, as a practical matter, will run from first application of lead-based paint until the date that the lawsuit is filed.

56. See Sherwin-Williams Co., 813 F. Supp. at 587 Shepardize; NL Indus., 926 F. Supp. at 458, 462 Shepardize.

57. See Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878, 894-95, 895 n.16, 901-04 Shepardize (Cal. 1995) (adopting continuous trigger for hazardous waste claims alleging continuous or progressive bodily injury); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 983-84, 994-95 Shepardize (N.J. 1994) (adopting continuous trigger for asbestos-related bodily injury claims); J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 507 Shepardize (Pa. 1993) (same); Zurich Ins. Co. v. Raymark, 514 N.E.2d 150 Shepardize (Ill. 1987) (same); Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 471 Shepardize (Ind. 1985) (adopting continuous or “multiple” trigger theory for bodily injury claims arising out of allegedly defective drug product); Owens-Corning Fiberglas Corp. v. Am. Centennial Ins. Co., 660 N.E.2d 770, 788 Shepardize (Ohio Ct. Com. Pl. 1995) (applying continuous trigger to coverage for underlying asbestos-related bodily injury claims); Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034 Shepardize (D.C. Cir. 1981) (same); Owens-Illinois, Inc. v. Aetna Cas. & Sur. Co., 597 F. Supp. 1515 Shepardize (D.D.C. 1984) (applying Ohio law) (same); Morton Thiokol, Inc. v. Aetna Cas. & Sur. Co., No. A-8603799 (Ohio Ct. Com. Pl. Dec. 28, 1988) (same); cf. E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 853 F. Supp. 98 Shepardize (S.D.N.Y. 1984), clarified, 860 F. Supp. 124 Shepardize (S.D.N.Y. 1994) (injury from DES for purposes of triggering policies at issue may occur upon ingestion and at each moment thereafter).

58. See, e.g., Montrose Chem. Corp., 913 P.2d at 894-95, 895 n.16, 901-04 Shepardize (adopting continuous trigger for hazardous waste claims alleging continuous or progressive bodily injury or property damage, and noting that continuous trigger is not materially different from injury-in-in fact trigger in any event); Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 697 Shepardize (Cal. Ct. App. 1996) (finding that same court’s previous, injury-in-fact ruling was consistent with continuous trigger ruling in 1995 Montrose decision, cited above, because the two triggers were materially the same); Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1388 Shepardize (E.D.N.Y. 1994) (under an injury-in-fact trigger, injury sufficient to trigger insurance coverage can begin “the moment that a foreign molecule causes an insult to human tissue” and continue afterwards); Gen. Accident Ins. Co. v. Idbar Realty Corp., 622 N.Y.S.2d 417, 419 Shepardize (N.Y. Sup. Ct. 1994) (recognizing, in the lead paint context, that under an injury-in-fact trigger, multiple triggers can result from “separate discrete onsets, aggravations, or increases in severity, increases in persistence, or manifestations of symptomatology” of injury); Mount Vernon Fire Ins. Co. v. Chong, No. 96-CV-4008, 1998 U.S. Dist. LEXIS 2856, at *7 Shepardize (E.D.N.Y. 1998) (recognizing that multiple triggers are possible under an injury-in-fact trigger “[b]ecause continuous or repeated exposure to lead paint compounds the harm of the initial exposure to the lead . . .”) (citation omitted); Cortland Pump & Equip., Inc. v. Firemen’s Ins. Co., 604 N.Y.S.2d 633 Shepardize (N.Y. App. Div. 1993) (holding that, under an “injury-in-fact” analysis, underlying claim can trigger multiple insurance policies).

59. See United Servs. Auto. Ass’n v. Riley, 899 A.2d 819, 830-32 Shepardize (Md. 2006); Md. Cas. Co. v. Hanson, 902 A.2d 152, 165-70 Shepardize (Md. Ct. Spec. App. 2006).

60. See United Servs. Auto. Ass’n, 899 A.2d at 828-32 Shepardize; Md. Cas. Co., 902 A.2d at 154 n.2, 165-70 Shepardize.

61. See footnotes 59 and 60.

62. See Gencorp, Inc. v. AIU Ins. Co., 104 F. Supp. 2d 740, 749-50 Shepardize (N.D. Ohio 2000); Montrose Chem. Corp., 913 P.2d at 894-95, 895 n.16 & 901-04 Shepardize (adopting continuous trigger for hazardous waste claims alleging continuous or progressive property damage); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 983-84, 994-95 Shepardize (N.J. 1994) (adopting continuous trigger for asbestos-related property damage claims); U.S. Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1252-53 Shepardize (Ill. App. Ct. 1994) (same); E.I. du Pont de Nemours and Co. v. Admiral Ins. Co., No. 89C-AU-99, 1995 WL 654020, *4, *7-10 (Del. Super. Ct. Oct. 27, 1995) (adopting continuous trigger for claims alleging property damage caused by environmental pollution, and analogizing the nature of such damage to the continuous and progressive nature of asbestos-related bodily injury); New Castle County v. Continental Cas. Co., 725 F. Supp. 800, 809-812 Shepardize (D. Del. 1989) (same), aff’d in part, rev’d in part on other grounds, 933 F.2d 1162 Shepardize (3d Cir. 1991); Eaton Corp. v. Aetna Cas. & Sur. Co., No. 189068, slip op. (Ohio Ct. Com. Pl. Aug. 12, 1994) (applying continuous trigger in the context of environmental property damage so that “once a progressive environmental property damage process commences, all policies in effect from the commencement of the process through its manifestation or termination, whichever comes earlier, are ‘triggered’ or ‘activated’ and must respond to cover Plaintiffs’ resulting liabilities”). Eaton Corp. later was vacated pursuant to a settlement agreement. See also Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 Shepardize (Md. Spec. App. 2002) (adopting injury-in fact trigger for asbestos-related property damage claims, and noting that injury-in-fact trigger and continuous trigger are not inconsistent, and indeed are complimentary, where property damage is continuing in nature as opposed to “one shot” or episodic).

63. Gencorp, Inc. v. AIU Ins. Co., 104 F. Supp. 2d at 749-50 Shepardize (internal quotation and citation omitted).

64. See 73 F.3d 1178, 1210 Shepardize (2d Cir. 1995).

65. See id. at 1210 Shepardize.

66. See, e.g., Montrose Chem. Corp., 913 P.2d at 894-95, 895 n.16 & 901-04 Shepardize (adopting continuous trigger for hazardous waste claims alleging continuous or progressive bodily injury or property damage, and noting that continuous trigger is not materially different from injury-in-in fact trigger in any event); Armstrong World Indus., Inc., 52 Cal. Rptr. 2d at 697 Shepardize (finding that same court’s previous, injury-in-fact ruling was consistent with continuous trigger ruling in 1995 Montrose decision, cited above, because the two triggers were materially the same). See also Hoang v. Assurance Co. of Am., 149 P.2d 798, 802 Shepardize (Colo. 2007) (noting that coverage under an occurrence policy can be triggered by gradual property damage, which is considered an accident during the policy period); Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 Shepardize (Md. Spec. App. 2002) (adopting “injury-in fact” trigger for asbestos-related property damage claims, and noting that “injury-in-fact” trigger and continuous trigger are not inconsistent, and indeed are complimentary, where property damage is continuing in nature as opposed to “one shot” or episodic); Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1191 Shepardize (2d Cir. 1995) (recognizing that “occurrence-based policies could be triggered throughout a gradual [injury] process where [injury] can be shown by a preponderance of the evidence to be occurring at each point in that process”); McGroarty v. Great Am. Ins. Co., 329 N.E.2d 172 Shepardize (N.Y. 1975) (finding that gradual cracking and settling of a building over a two-year period was a process that triggered successive insurance policies).

67. See First Amended Complaint in Borden, et al. v. Sherwin-Williams Co., et al., No. 2000-587 (Miss. Cir. Ct., Jefferson County), ¶¶ 6, 12-15.

68. Sherwin-Williams Co., 813 F. Supp. at 586 Shepardize.

69. See Millennium Chems., at 30-34 Shepardize.

70. Sherwin-Williams Co., 813 F. Supp. at 587 Shepardize (footnote omitted).

71. See NL Indus., 926 F. Supp. at 458 Shepardize (citations omitted); Millennium Chems., at 30-34 Shepardize.

72. There sometimes are exceptions to this rule. For example, the rule may not apply when the policyholder did not choose voluntarily to go without coverage during the uninsured periods, but rather had no insurance because it was unavailable.

73. See, e.g., Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835 Shepardize (Ohio 2002); Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1058 Shepardize (Ind. 2001) (“there is no language in the coverage grant . . . that limits Allstate’s responsibility to indemnification . . . solely for that portion of damages taking place within the policy period.”); Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 489-491 Shepardize (Del. 2001); Am. Nat’l Fire Ins. Co. v. B & L Trucking & Constr. Co., 951 P.2d 250, 257 Shepardize (Wash. 1998); Monsanto Co. v. C.E. Health Comp. and Liab. Ins. Co., 652 A.2d 30, 33-35 Shepardize (Del. 1994) (applying Missouri law); J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 507-09 Shepardize (Pa. 1993) (refusing to rewrite the explicit “all sums” policy language and therefore holding that each triggered insurer is liable for entire claim); Zurich Ins. Co. v. Raymark Indus., Inc., 514 N.E.2d 150, 165 Shepardize (Ill. 1987) (“the appellate court did not err insofar as it declined to order the pro rata allocation of defense and indemnity obligations among the triggered policies”) (emphasis added); Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd’s, London, 797 N.E.2d 434 Shepardize (Mass. App. Ct. 2003) (applying Illinois law); Rubenstein v. Royal Ins. Co. of Am., 694 N.E.2d 381 Shepardize (Mass. App. Ct 1998), aff’d, 708 N.E.2d 639 Shepardize (Mass. 1999); Wheeling Pittsburgh Corp. v. Am. Ins. Co., No. Civ. A. 93-C-340, 2003 WL 23652106 (W. Va. Cir. Ct. 2003); Highlands Ins. Co. v. Temple-Inland, Inc., No. 98-42939, slip op. (Tex. Dist. Ct. Aug. 4, 1999), reported in Mealey’s Litigation Reports — Insurance, H (Aug. 24, 1999); Weyerhaeuser Co. v. Fireman’s Fund Ins. Co., No. C06-1189, 2007 U.S. Dist. LEXIS 92521 Shepardize (W. D. Wash. Dec. 17, 2007); Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440 Shepardize (3d Cir. 1996); ACandS, Inc. v. Aetna Cas. & Sur. Co., 764 F.2d 968, 974 Shepardize (3d Cir. 1985); Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1048 Shepardize (D.C. Cir. 1981) (“There is nothing in the policies that provides for a reduction of the insurer’s liability if an injury occurs only in part during a policy period.”) (emphasis in original); Owens-Illinois, Inc. v. Aetna Cas. & Sur. Co., 597 F. Supp. 1515, 1524 Shepardize (D.D.C. 1984) (holding that once an insurance policy is triggered, it “provides coverage for [the insured’s] full liability . . . without any proration of that liability to [the insured]”).

74. See, e.g., Aerojet-Gen’l Corp. v. Transp. Indem. Co., 948 P.2d 909, 932-33 Shepardize (Cal. 1997) (holding that costs should not be allocated to insured on a pro rata basis for uninsured time periods); Sentinel Ins. Co. v. First Ins. Co. of Haw. Ltd., 875 P.2d 894 Shepardize (Haw. 1994) (court should allocate among insurers according to time periods that their policies covered).

75. See, e.g., EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, 934 A.2d 517 Shepardize (N.H. 2007); Security Ins. Co. of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d 107 Shepardize (Conn. 2003); Consol. Edison Co. of N.Y., Inc. v. Allstate Ins. Co., 774 N.E.2d 687 Shepardize (N.Y. 2002); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 Shepardize (N.J. 1994); Wolverine World Wide, Inc. v. Liberty Mut. Ins. Co., No. 260330, 2007 WL 705981 (Mich. Ct. App., Mar. 8, 2007); Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 Shepardize (Md. Spec. App. 2002); In re Wallace & Gale Co., 385 F.3d 820 Shepardize (4th Cir. 2004).

76. See, e.g., Cont’l Cas. Co. v. Rapid-Am. Corp., 609 N.E.2d at 514 Shepardize (“the duty to defend is broader than the duty to pay,” and thus the policyholder should not be deprived of the complete defense to which it is entitled at the duty to defend stage merely because another carrier may also be responsible, or merely because the policyholder may have been uninsured for a period of time pre-dating or post-dating the coverage period) (citing Squibb & Sons v. Accident & Cas. Ins. Co., No. 82 Civ. 7327, 1992 WL 133899 (S.D.N.Y. Apr. 21, 1992)); Mendes & Mount v. Am. Home Assur. Co., 467 N.Y.S.2d 596, 598 Shepardize (N.Y. App. Div. 1983) (holding that the policyholder’s right to recover for the defense of an underlying action could not be diminished on the ground that other insurance companies might also owe a duty to defend). See also Millennium Chems., at 34-37 Shepardize.

77. See, e.g., Ford v. Uniroyal Goodrich Tire Co., 476 S.E.2d 565 Shepardize (Ga. 1996); S.C. State Budget & Control Bd. v. Prince, 403 S.E.2d 643 Shepardize (S.C. 1991); Am. Prot. Ins. Co. v. McMahan, 562 A.2d 462 Shepardize (Vt. 1989); Baker v. Armstrong, 744 P.2d 170 Shepardize (N.M. 1987); Whalen v. On-Deck, 514 A.2d 1072 Shepardize (Del. 1986); State Farm Mut. Auto. Ins. Co. v. Daughdrill, 474 So.2d 1048 Shepardize (Miss. 1985) (coverage permitted except in uninsured motorists context); Brown v. Maxey, 369 N.W.2d 677 Shepardize (Wisc. 1985); Sinclair Oil Corp. v. Columbia Cas. Co., 682 P.2d 975 Shepardize (Wyo. 1984); Skyline Harvestore Sys. v. Centennial Ins. Co., 331 N.W.2d 106 Shepardize (Iowa 1983); Home Assur. Co. v. Fish, 451 A.2d 358 Shepardize (N.H. 1982); Hensley v. Erie Ins. Co., 283 S.E.2d 227 Shepardize (W. Va. 1981); First Nat’l Bank v. Fid. & Deposit Co., 389 A.2d 359 Shepardize (Md. 1978); Abbie Uriguen Oldsmobile Buick v. U.S. Fire Ins. Co., 511 P.2d 783 Shepardize (Idaho 1973); State Farm. Mut. Ins. Co. v. Coder, No. 4FA-98-991, 1998 WL 35169682 (Alaska Super. Nov. 27, 1998); State Farm Mut. Auto. Ins. Co. v. Hamilton, 326 F. Supp. 931 Shepardize (D.S.C. 1971).

78. See, e.g., U.S. Fire Ins. Co. v. Aspen Bldg. Corp., 367 S.E.2d 478 Shepardize (Va. 1988) (coverage permitted for punitive damages awarded on bodily injury, but not permitted where awarded for intentional harm or property damage); Mazza v. Med. Mut. Ins. Co., 319 S.E.2d 217 Shepardize (N.C. 1984); A-1 Sandblasting & Steamcleaning Co., Inc. v. Baiden, 643 P.2d 1260 Shepardize (Or. 1982); Beaver v. Country Mut. Ins. Co., 420 N.W.2d 1058 Shepardize (Ill. App. 1981); Cal. Union Ins. Co. v. Ark., La., Gas Co., 572 S.W.2d 393 Shepardize (Ark. 1978); Cont’l Ins. Co. v. Hancock, 507 S.W.2d 146 Shepardize (Ky. 1974); Am. & Foreign Ins. Co. v. Colonial Mortgage Co., 936 F.2d 1162 Shepardize (11th Cir. 1991).

79. See, e.g., Scott v. Instant Parking Inc., 245 N.E.2d 124 Shepardize (Ill. App. Ct. 1969); Allen v. Simmons, 533 A.2d 541 Shepardize (R.I. 1987) (“Common sense demands that the burden of satisfying a punitive-damage award should remain with the wrongdoer and should not be cast upon the shoulders of the other insureds”); Douglas v. Bank of New England/Old Colony, N.A., 566 A.2d 939, 942 Shepardize (R.I. 1989); Home Ins. Co. v. Am. Home Prod. Corp., 550 N.E.2d 930, 932 Shepardize (N.Y. 1990); Casey v. Calhoun, 531 N.E.2d 1348, 1350-51 Shepardize (Ohio App. 1987); Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 642 N.E.2d 1065 Shepardize (N.Y. 1994); cf. Corinthian v. Hartford Fire Ins. Co., 758 N.E.2d 218 Shepardize (Ohio App. 2001) (public policy did not bar coverage for statutory punitive damages imposed without any showing of willfulness or recklessness).

80. See U.S. Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1251 Shepardize (Ill. App. Ct. 1994) (allowing indemnity for a settlement attributable to punitive damages under South Carolina law); Zurich Ins. Co., 642 N.E.2d 1065 Shepardize (New York public policy against insurance coverage for punitive damages did not preclude coverage as to Georgia judgment where it had compensatory purpose); Cont’l Cas. Co. v. Fibreboard Corp., 762 F. Supp. 1368 Shepardize (N.D. Cal. 1991) (under California law, West Virginia punitive award insurable because awarded on non-intentional reckless conduct), aff’d mem., 953 F.2d 1386 Shepardize (9th Cir.), vacated as moot, 506 U.S. 948 Shepardize (1982), appeal dismissed and remanded, 4 F.3d 777 Shepardize (9th Cir. 1993); but see Home Ins. Co. v. Am. Home Prods. Corp., 550 N.E.2d 930 Shepardize (N.Y. 1990) (punitive damage coverage prohibited where damages awarded in Illinois for willful and wanton behavior).

81. See Rummel v. Lexington Ins. Co., 945 P.2d 970 Shepardize (N.M. 1997) (express policy exclusion of punitive damages).

82. See Int’l Surplus Lines Co. v. Pioneer Life Ins. Co., 568 N.E.2d 9 Shepardize (Ill. App. Ct. 1990) (insurance policy contained phrase permitting recovery for punitive damages “where permitted by law”); but see State Farm Mut. Auto. Ins. v. Wilson, 782 P.2d 727 Shepardize (Ariz. 1989) (allowing coverage for punitive damages only where expressly provided for in policy).

83. See Millennium Chems., at 39 (emphasis in original) Shepardize.

84. See Buckeye Union Ins. Co. v. New Eng. Ins. Co., 720 N.E.2d 495, 500 Shepardize (Ohio 1999) (knowledge of harm that might befall another is entirely different from harm being the motivating factor for one’s behavior); Physicians Ins. Co. v. Swanson, 569 N.E.2d 906, 907, 909-10 Shepardize (Ohio 1991) (in order to avoid coverage on basis of “expected or intended” exclusion, insurer had to demonstrate that injury itself was expected or intended and not merely that insured’s actions were deliberate); City of Johnstown v. Bankers Standard Ins. Co., 877 F.2d 1146, 1149-50 Shepardize (2d Cir. 1989) (it is not enough that insured was warned that damage might ensue from its actions and proceeded anyway; insured must have intended the damage, or else have known with certainty that damage would flow directly and immediately from its intentional act); Pub. Serv. Mut. Ins. Co. v. Goldfarb, 425 N.E.2d 810, 814 Shepardize (N.Y. 1981) (same); Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d at 722 Shepardize (insured must have known or believed injuries were “practically certain to occur”; general knowledge of product’s dangers is not sufficient to defeat coverage).

85. See Swanson, 569 N.E.2d at 907 Shepardize (finding coverage not excluded where, although insured pointed BB gun at claimant at picnic table and shot three times, insured testified that he simply was trying to scare claimant); Slayko v. Sec. Mut. Ins. Co., 728 N.Y.S.2d 282 Shepardize (N.Y. App. Div. 2001) (coverage not excluded even though insured picked up shot gun, aimed it at claimant, and pulled trigger, because insured insisted he was unaware that gun was loaded), rev’d on other grounds, 774 N.E.2d 208 Shepardize (N.Y. 2002).

86. Consol. Am. Ins. Co. v. Spears, 462 S.E.2d 160, 162 Shepardize (Ga. Ct. App. 1995); see also Georgia Farm Bureau Mut. Ins. Co. v. Hall County, 586 S.E.2d 715, 718 Shepardize (Ga. Ct. App. 2003) (where complaint sought punitive damages, plaintiff alleged intentional act, or at least, expectation of harm; because facts necessary to support punitive damages require level of intent greater than that necessary to trigger the expected and intended exclusion, the alleged acts were not covered).

87. See J. Roth Builders, Inc. v. Aetna Life & Cas. Co., 503 N.E.2d 782, 785 Shepardize (Ill. App. Ct. 1987) (where civil case was tried on theory of willful and wanton behavior and jury returned verdict in favor of plaintiff, and jury had been instructed that ‘willful and wanton’ required finding of intent to harm, and plaintiff in coverage action presented no evidence to rebut this finding, coverage was denied as expected or intended).

88. See Travelers Ins. Co. v. Cole, 631 S.W.2d 661, 664-65 (Mo. Ct. App. 1982) (where civil suit alleged gunshot injury was negligent or willful and wanton, but did not allege intent, and where insured was convicted of assault with intent to kill in criminal action, court found that wanton and reckless acts do not amount to intentional acts as a matter of law so as to permit insurer to deny coverage; wanton and reckless acts, while intentional, may be negligent; coverage was excluded, however, based upon intent to harm); Steelman v. Home Mut. Ins. Co., 765 S.W.2d 372, 377 Shepardize (Mo. Ct. App. 1989) (finding of wanton and reckless conduct of insured in firing gun toward truck and striking driver precluded insurer from denying coverage based on intentional act because wanton and reckless conduct does not amount to an intentional act so as to permit an insurer to deny coverage). See also Am. Home Assur. Co. v. Safway Steel Prods. Co., Inc., 743 S.W.2d 693 Shepardize (Tex. App. 1987) (holding that punitive damages are not excluded from coverage under the expected or intended exclusion because the average insured would assume that the word ‘damages’ would include punitive damages).

89. See Spears, 462 S.E.2d 160 Shepardize.

90. See Millennium Chems., at 40 Shepardize; NL Indus., Inc., 1991 U.S. Dist. LEXIS 21869 Shepardize.

91. See footnote 85; see also Armstrong World Indus., Inc., 52 Cal. Rptr. 2d at 747 Shepardize (finding sistership exclusion inapplicable to asbestos-in-buildings claims, and noting that term “sistership” stems from practice in airline industry of recalling planes for repairs when plane of same model crashes due to design defect); Stonewall Ins. Co., 73 F.3d at 1211 Shepardize (same).

92. See Millennium Chems., at 40 Shepardize.

93. See, e.g., Armstrong World Indus., Inc., 52 Cal. Rptr. 2d at 747 Shepardize; Stonewall Ins. Co., 73 F.3d at 1211 Shepardize.

94. See, e.g., Westview Assocs. v. Guar. Nat’l Ins. Co., 740 N.E.2d 220 Shepardize (N.Y. 2000); Sullins v. Allstate Ins. Co., 667 A.2d 617 Shepardize (Md. 1995); Atl. Mut. Ins. Co. v. McFadden, 595 N.E.2d 762 Shepardize (Mass. 1992); Byrd v. Blumenreich, 722 A.2d 598 Shepardize (N.J. Super. Ct. App. Div. 1999); Ins. Co. of Ill. v. Stringfield, 685 N.E.2d 908 Shepardize (Ill. App. Ct. 1997); Wood v. Auto-Owners Mut. Ins. Co., No. 99-06-068 (Ohio Ct. Com. Pl. Oct. 18, 2000); Danbury Ins. Co. v. Novella, 727 A.2d 279 Shepardize (Conn. Super. Ct. 1998); Monticello Ins. Co. v. Baecher, 857 F. Supp. 1145 Shepardize (E.D. Va. 1994); see also A-1 Sandblasting v. Baiden, 632 P.2d 1377 Shepardize (Or. Ct. App. 1981) (exclusion not applicable where claims were not for pollution to environment but rather for property damage to cars caused by paint spraying conducted by bridge painter).

95. See Glidden Co. v. Lumbermens Mut. Cas. Co., No. CV 215106, slip op. (Ohio Ct. Com. Pl. May 26, 1993).

96. See, e.g., Cont’l Cas. Co., 609 N.E.2d 506 Shepardize; Owens-Corning Fiberglas Corp. v. Allstate Ins. Co., 660 N.E.2d 746 Shepardize (Ohio Ct. Com. Pl. 1993).

97. See Essex Ins. Co. v. Avondale Mills, Inc., 639 So.2d 1339 Shepardize (Ala. 1994) (asbestos); U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 Shepardize (Ill. 1991) (asbestos); Porterfield v. Audubon Indem. Co., 856 So.2d 789 Shepardize (Ala. 2002) (lead paint); Lititz Mut. Ins. Co. v. Steely, 785 A.2d 975 Shepardize (Pa. 2001) (lead paint); Consol. Am. Ins. Co. v. Ivey ‘s Steel Erectors, Inc., No. 90-205-CIV-ORL-19 (M.D. Fla. Mar. 12, 1991), reported in Mealey’s Litigation Reports - Insurance, C-1 (May 28, 1991) (in dispute over coverage for claims by employees, court held that the pollution exclusion was ambiguous as to whether it applied to lead in a work environment, and therefore construed the exclusion in favor of the policyholder); see also Gould, Inc. v. Cont’l Cas. Co., No. 3529 (Pa. Ct. Com. Pl., July 26, 1991), reported in Mealey’s Litigation Reports — Insurance, A-1 (Aug. 6, 1991) (same).

98. See, e.g., NAV-ITS, Inc. v. Selective Ins. Co. of Am., 869 A.2d 929 Shepardize (N.J. 2005) (absolute pollution exclusion did not bar coverage for claim arising out of exposure to fumes from floor coating/sealant); Belt Painting Corp. v. TIG Ins. Co., 795 N.E.2d 15 Shepardize (N.Y. 2003) (absolute pollution exclusion did not bar coverage for bodily injury claim arising from inhalation of paint and solvent fumes); MacKinnon v. Truck Ins. Exch., 73 P.3d 1205 Shepardize (Cal. 2003) (holding that absolute pollution exclusion did not clearly bar coverage for claim arising out of application of pesticides around an apartment); Richardson v. Nationwide Mut. Ins. Co., 826 A.2d 310 Shepardize (D.C. 2003) (absolute pollution exclusion did not apply to carbon monoxide inside building), vacated and reh’g en banc granted, 832 A.2d 752 Shepardize (D.C. 2003), vacated pursuant to settlement, 844 A.2d 344 Shepardize (D.C. 2004); Langone v. Am. Family Mut. Ins. Co., 731 N.W.2d 334 Shepardize (Wis. Ct. App. 2007) (same); Westview Assocs., 740 N.E.2d 220 Shepardize (refusing to apply “absolute” pollution exclusion to lead paint); Byrd, 722 A.2d 598 Shepardize (same); Danbury Ins. Co., 727 A.2d 279 Shepardize (same).

99. See Claussen v. Aetna Cas. & Sur. Co., 380 S.E.2d 686 Shepardize. (Ga. 1989) (documents presented by insurance industry representative to the Insurance Commissioner indicate that the drafters intended the clause to exclude only intentional polluters); U.S. Fid. & Guar. Co. v. Specialty Coatings Co., 535 N.E.2d 1071, 1077 Shepardize (Ill. App. Ct. 1989) (documents intended to exclude only “expected or intended” damage; coverage was to continue for accidental discharges), appeal denied, 545 N.E.2d 133 Shepardize (Ill. 1989).

100. See City of Northglenn v. Chevron U.S.A., Inc., 634 F. Supp. 227 Shepardize (D. Colo. 1986).

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The Illinois Circuit Court’s Recent Decision Rejecting

The Judicial Estoppel Against A Policyholder Based On

The Policyholder’s Statements In Underlying Actions:

John Crane, Inc. v. Admiral Insurance Company

By

Scott N. Godes

[Editor’s Note: This commentary, written by Scott N. Godes, counsel at Dickstein Shapiro LLP, who represents policyholders in insurance coverage disputes, discusses the implications of the judicial estoppel debate in the Illinois court’s decision. The views and opinions expressed in this article are solely those of the author and not necessarily those of his current or former law firms and/or clients. Copyright 2008 by the author. Response articles are welcome.]

In John Crane, Inc. v. Admiral Insurance Co., No. 04 CH 8266, slip op. (Ill. Cir. Ct. Dec. 20, 2007), 22-10 Mealey’s Litig. Rep. Ins. 10 (2008) (“John Crane”), an insurance coverage action, the insurers tried to escape from providing coverage for asbestos claims. One of the arguments that the insurers raised was based on statements that the policyholder made in defending itself against underlying liability. The insurers asserted that, because the policyholder argued in underlying asbestos personal injury actions that there is no injury at the time of exposure to asbestos, the policyholder should be judicially estopped from arguing that there is injury at the time of exposure to asbestos in the insurance coverage context. See id. at 23.

Where liability is imposed in the underlying case, the policyholder’s arguments against liability necessarily have been rejected. The issue before the court in John Crane, however, was whether, in the absence of definitive findings about the timing of injury in the underlying case, the insurance companies who provided coverage at the time of the initial exposure could use estoppel to preclude the type of evidence used against the policyholder from being presented in the coverage case.

The insurers’ reliance on judicial estoppel in the coverage context was rejected, and the insurers were not able to rely upon judicial estoppel to deny coverage based on the policyholder’s arguments to defeat underlying liability. The court explained specifically that “due to the nature and interplay of an underlying liability action and the subsequent insurance coverage action, a unique situation may arise where it appears that the insured is taking two different positions and the insured is not judicially estopped from doing so.” Id. at 24 (emphasis added).1

The John Crane court correctly recognized that, in the insurance coverage context, policyholders are allowed to present arguments about the basis for the potential or actual imposition of liability which are inconsistent with positions asserted by a policyholder as a defense against liability. Although the policyholder took positions that appeared inconsistent when defending itself versus attempting to prove what the insurers asserted was required in the coverage action, and that, “[a]t first blush, it appears that Crane should be judicially estopped from asserting one argument in one judicial proceeding and then arguing the opposite position in another judicial proceeding,” the court recognized the unique nature of insurance coverage actions, and refused to apply judicial estoppel against the policyholder. Id. at 24-26 Shepardize.

The John Crane court also relied on the doctrine that a policyholder cannot be forced to prove liability against itself in an insurance coverage action. See id. at 25 Shepardize. That doctrine is well established in insurance coverage law. See, e.g., Am. States Ins. Co. v. Synod of the Russian Orthodox Church Outside of Russia, 170 F. App’x 869, 873 (5th Cir. 2006) (“We rejected that argument [that the policyholder must prove its underlying liability], holding that the Church need not prove its own liability.”); Vitkus v. Beatrice Co., 127 F.3d 936, 945 Shepardize (10th Cir. 1997) (finding it untenable for policyholder to be required to try to defeat liability in underlying action and then prove it in the insurance coverage action); Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1378 Shepardize (E.D.N.Y. 1988) (same); U.S. Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1243 Shepardize (Ill. App. Ct. 1994) (the policyholder “does not have to prove its actual liability as a prerequisite to obtaining coverage”) (internal quotation marks and citation omitted).

Rather, the proper inquiry in an insurance coverage case is whether the claim as alleged in the underlying action falls within the insurance policy’s coverage provisions. See, e.g., U.S. Gypsum Co., 643 N.E.2d at 1242-43 Shepardize; Progressive Cas. Ins. Co. v. Cameron, 724 P.2d 1096, 1103 Shepardize (Wash. Ct. App. 1986) (“To resolve the question of coverage, the trial court needed only to determine whether the defendants would be covered by the policies if they were to be found negligent.”) (emphasis in original).

Applying judicial estoppel as the insurers sought to do in John Crane, and as they seek to do in other cases, would harm the policyholder and reverse this entire line of cases. Recognizing that, the John Crane court refused to apply judicial estoppel. See generally John Crane, slip op. at 24-26.

Sound public policy supports the rule prohibiting insurers from relying on judicial estoppel in the manner asserted in John Crane. A contrary rule would make coverage illusory by putting the policyholder in a Catch-22: try to defeat potential underlying liability and be at risk of forgoing coverage, or not contest underlying liability and try to get coverage (and face the arguments from the insurer that the policyholder gave up its coverage by failing to contest the underlying claims). An insurer has a duty to its policyholder, “analogous to that of a fiduciary.” E.g., Jones v. Secura Ins. Co., 638 N.W.2d 575, 579 Shepardize (Wis. 2002). That obligation imposes a duty on the insurer to act in good faith with its insured, including in the context of third party claims against the policyholder. See, e.g., id. Shepardize Insurers’ attempts to use policyholders’ good faith defense against the underlying claims of liability as defenses against coverage directly undermine policyholders’ positions in the underlying actions and should not be countenanced. As one court explained, “the insurer . . . is supposed to be on the side of the [policyholder] and with whom [it has] a special relationship”; when the insurer tries to make the policyholder prove liability against itself, the insurer “effectively attacks its [policyholder] and thus gives aid and comfort to the claimant in the underlying suit.” Haskel, Inc. v. Sup. Ct., 33 Cal. App. 4th at 963, 979 Shepardize (1995). That “undercuts one of the primary reasons for purchasing liability insurance.” Id.

The John Crane decision was correct in holding that insurers should not be allowed to rely on judicial estoppel to use the policyholders’ underlying defenses against them in coverage actions. Insurers’ attempts to do so consist of using an equitable doctrine as a sword — after refusing to defend or indemnify their policyholders, they then deny coverage because the policyholders made arguments that the insurers should have made on their behalf, and ask courts to preclude policyholders from raising arguments in coverage litigation. The John Crane court recognized that such a litigation tactic is inequitable and that, where the terms of the policy provide coverage, application of the asserted estoppel defense would preclude policyholders from recovering insurance proceeds that their insurers wrongly withheld.

Endnote

1. This analysis does not apply to insurers who have taken inconsistent positions in the same or various coverage actions. In the underlying actions that are a predicate to insurance coverage, insurers argue that policyholders are obliged to present arguments against liability that the insurance company may rely on to deny coverage. Regardless of whether the particular insurance policy contains a promise to defend the policyholder, virtually all liability insurance policies contain a provision regarding voluntary payments, which insurers assert to be a requirement that someone present the arguments against underlying liability in the name of the policyholder, for the benefit of both the policyholder and the insurance company. In contrast, insurers do not have any obligation to present arguments in support of coverage. Insurers never face the predicament in which policyholders find themselves after insurers denied coverage: both asserting arguments against liability that the insurers should have made in the underlying actions, and arguing for coverage. See, e.g., Harbor Ins. Co. v. Cont’l Bank Corp., 922 F.2d 357, 360-61, 363-64 Shepardize (7th Cir. 1990).

Where insurers do contradict themselves, it typically is in an effort to avoid providing coverage, without any effort to protect the interest of the policyholder. In Continental Bank Corp., Harbor and Allstate sued their policyholder, arguing that the conduct alleged against the policyholder’s directors was “so egregious as to make indemnification by Continental offensive to public policy,” and, therefore, that Harbor and Allstate should not have to provide coverage under their policies. Id. at 359-60 Shepardize. But after the policyholder settled the underlying litigation, Harbor and Allstate “argued that Continental had settled the cases prematurely; the directors had been guilty of no misconduct at all!” Id. at 360 Shepardize. The court allowed the policyholder to introduce the insurers’ change of position in the coverage litigation context. See generally id. Shepardize

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