McCarter & English LLP on District Court Applies Maryland Law; Finds Coverage for Asphalt Spill Despite Absolute Pollution Exclusion

McCarter & English LLP on District Court Applies Maryland Law; Finds Coverage for Asphalt Spill Despite Absolute Pollution Exclusion

   

By Brian J. Osias and Michael Collins Smith, Attorneys, McCarter & English, LLP

In Travelers Indemnity Co. v. MTS Transport, No. 11-cv-01567, 2012 U.S. Dist. LEXIS 127847 (W.D. Pa. Sep. 7, 2012), the federal court for the Western District of Pennsylvania demonstrated again the importance of a court's finding on choice-of-law. The court opted to apply policyholder-friendly Maryland law to an insurance dispute arising from a petroleum asphalt spill.  It is initially counterintuitive that an insurance contract issued by an Oklahoma-incorporated insurer operating out of Texas, arising from a spill in Pennsylvania and brought in a District Court of Pennsylvania, be interpreted under Maryland law.  Nonetheless, the policyholder persuasively argued for its choice of law, and the court agreed.  The insurer sought application of Pennsylvania law, including that state's broad interpretation of the now-ubiquitous absolute pollution exclusion.  Evaluation of the general contacts between the policyholder, insurer, Maryland, and Pennsylvania, combined with the governmental interests of each sovereign in the dispute, led the court to apply Maryland law.  Although unstated, the court may have been swayed by a desire to see the blameless victims of the spill compensated. Application of Maryland law resulted in a finding of ambiguity in the insurance contract.  The ambiguity was construed against its drafter- the insurer.  As construed, the loss was clearly within the coverage of the contract, and was unaffected by the broad exclusionary language.  The policyholder trucking company won coverage because of its successful battle for application of Maryland law.  Both policyholders and insurers are reminded of the importance of choice-of-law decisions, both in the insurance contract itself and at the inception of coverage disputes.

Brian Osias is a partner and Michael Smith is an associate in the Insurance Coverage group of McCarter and English, LLP. The views expressed herein are of the authors alone, and do not necessarily represent the views of McCarter & English, its employees, or its clients.

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