Commercial general liability policies provide coverage for the insured’s liability for “damages” on account of bodily injury and property damage and require the insurer to provide a defense to “suits” seeking such damages. Since the beginning of the environmental liability coverage wars some twenty-five years ago, insurers have disputed whether their insureds’ environmental liabilities seek to impose “damages”, are on account of “property damage,” and are adjudicated in the context of “suit[s].” Recent cases have continued to address these recurring issues.
Anaerobic decomposition produces among other things hydrogen sulfide gas. It is this gas that makes flatulents distinctive from, shall we say, the bouquet of a rose. This was illustrated in a recent coverage case involving a Minnesota pig farm that created a concrete lagoon with capacity to hold 1.5 million gallons of manure. Three-quarters of a mile away was a neighbor’s home.
“Who pays” and “how much” continue to be central questions in insurance-recovery litigation by policyholders for asbestos, environmental clean up, pharmaceutical, lead-paint, toxic-tort and other conditions that produce loss over time. Because insurance contracts are governed by state law, the coverage wars apparently will continue until each inch of turf is won or lost. Most recently, the Delaware Supreme Court has weighed in on the question of trigger of coverage (“who pays”) for asbestos- liability claims, the Minnesota Supreme Court has addressed allocation of loss (“how much”) among triggered policies, and the New Hampshire Supreme Court has now been asked to address the allocation question, too.
As part of the Reconstruction and Renewal of Lloyd’s in 1996, various participants in the Lloyd’s enterprise established several companies for the purpose of reinsuring the then-open syndicate years of account and managing the runoff of claims under those and prior years’ insurance policies. In 1997, the liabilities of a Lloyds’ owned-entity called Lioncover were reinsured into Equitas too.
Equitas issues an annual report and accompanying press release that discusses its results to date. Some of the highlights this year:
Among the typical skirmishes in insurance-coverage litigation is the scope of discovery. In seeking discovery in insurance-coverage cases and for insurance bad-faith claims, policyholders seek information from insurers about the underwriting of the policy at issue and the carrier’s handling of the policyholder’s claim for coverage. Disputes arise once the policyholder moves beyond those materials to information showing the general practice of the insurer, how the insurer’s response to the particular insured compares with how it has handled other claims, and the insurer’s own understanding of the policy language as evidenced through claims-handling manuals, training materials, and other types of interpretative aids. See generally Saldi v. Paul Revere Life Ins. Co., 224 F.R.D. 169 (E.D. Pa. 2004); Colonial Life v. Superior Court(Perry) 31 Cal. 3d 785 (1982); Carey-Canada v. Cal. Union Ins., 118 FRD 242 (D.D.C. 1986). One recurring subject has been other-claims information, that is, information in claim files dealing with other insureds.
W. Mark Felt or Hal Holbrook playing him said to “follow the money,” which has proven difficult in the instance of Lloyd’s of London, and a task made all the more important as asbestos and environmental liabilities continue to fall upon corporate policyholders in the US that purchased broad insurance in the 1950s, 60s and 70s through the London market. While lawyers and policyholders may be familiar with Equitas, the reinsurance runoff and claims-handling vehicles set up in the late 1990s to deal with liabilities arising under historical Lloyd’s policies, I have long believed that a key for litigators is something called Lioncover, a reinsurance vehicle originally set up to bailout important players at Lloyd’s who were involved in Peter Cameron Webb “managed” syndicate years of account. Lioncover, which I understand to be a wholly owned subsidiary of the Corporation of Lloyd’s and which houses the PCW business, initially was not reinsured into Equitas when Equitas was set up as part of the “Reconstruction and Renewal” of the Lloyd’s operation. It was later poured into the Equitas structure but also is explicitly backed by the Lloyd’s enterprise itself. Lioncover is a lever one can use to uncover the financial vehicles backing old Lloyd’s policies (which contra to popular myth are not backed solely by the assets of Equitas or by the trust funds in the US). Lloyd’s annual report for 2005 contains a few interesting crumbs worthy of note for Lloyd’s/Equitas watchers.
For more than fifty years, policyholders and their insurers have been struggling over the insurer’s promise to defend and the insurer’s control the defense. Policyholders properly have been concerned that an insurance company that controls the defense of an action potentially covered by the carrier’s duty to indemnify will use that control to avoid that very same indemnity obligation. While in egregious cases where a lawyer hired by the carrier has abused his or her relationship with the insured, the client, so as to favor the lawyer’s source of income – the insurance company – the courts have responded to protect the insured’s interests. But most courts have ruled that such after-the-fact remedies are insufficient: they do not adequately compensate for the injury; meritorious claims are not pursued (in part because insureds may not discover the abuse); and the potential for this abuse alone undermines the dominant purpose of the insurance relationship to afford protection and peace of mind for the insured.
For the past several years, the plaintiffs’ tort bar has sought to make workplace-exposure claims by welders the proverbial “next asbestos.” These cases typically allege a Parkinson’s Disease-like syndrome (“Parkinsonism”) or other neurological impairments (all generally referred to as “manganism”) allegedly stemming from the welder’s exposure to manganese while working. Whether this is a mass-tort with legs is certainly not clear, and the defense has had successes (even in what are considered to be plaintiff-friendly jurisdictions). Naturally, this litigation has produced insurance cases too, and the Maryland Court of Appeals (its highest court) recently ruled that an absolute pollution exclusion did not apply to bar coverage. Clendenin Bros. v. United States Fire Ins. Co. (Md. Jan. 6, 2006).
Many of us who have been practicing for quite some while in the insurance-coverage area at times marvel at the return or continuation of the coverage “wars” of the 1980s. We still confront the same issues in cases that were the focus twenty years ago, though sometimes courts confront new twists in otherwise well-trodden paths.
The Kentucky Supreme Court recently had the opportunity to address a number of the key environmental coverage issues in an insurance dispute commenced in 1987. In an opinion challenged by a lengthy dissent, the Kentucky high court addressed (among others): (i) whether response costs represent covered “damages” on account of property damage indemnifiable by CGL policies; (ii) whether administrative enforcement proceedings were “suits” to which the duty to defend applied; and (iii) how the (equivalent of an) owned-property exclusion applies. It also addressed whether the insured knew of the risk of injury such that coverage should be denied. And the court addressed whether the insurers’ payment of damages for breach of the duty to defend was subject to policy limits, which would have been the case had the insurers performed initially. This last issue, especially as resolved by the Kentucky high court, is not typical fodder in environmental-coverage cases.
What we once conceived of as the environmental coverage wars continue in a new, broader form where insurance companies seek to deny coverage for the liabilities of their policyholders whenever they stem from toxic exposures.
In 1986, the “absolute” pollution exclusion was widely introduced. There is agreement that Superfund-type claims and other true environmental liability claims are barred under the various guises of the absolute pollution exclusion. But the insurers have not limited their claim denials to that context.