Insurance Law Hawaii

Primary D&O Policy Must Defend Despite Other Insurance Provision

    The federal district court found that the D&O carrier had a duty to defend despite the insurer's argument that its policy was excess to the employment practices policy. TriPacific Capital Advisors, LLC v. Federal Ins. Co., 2021 U.S. Dist. LEXIS 222497 (D. Calif. Nov. 15, 2021).

    Geoffrey Fearns was President of TriPacific (Tripac), a financial services company that managed institutional capital for residential construction projects. Tom Mahathirath, a former executive at TriPac, sued his former employer and Fearns seeking compensatory damages of not less than $8.9 million. The suit was tendered to Chubb and Travelers Casualty and Surety Company of America. 

    Chubb issued an Asset Management Protector Policy, which included a Directors and Officers Liability Coverage Part. The maximum aggregate limit of liability for all loss was $5,000,000. The D&O Coverage had aggregate limits of liability of $5,000,000 with a retention of $150,000. The policy included a duty to defend. The policy also had an Other Insurance Provision which stated if any loss was insured under another policy, the other policy would cover such loss until the policy was exhausted.     

    Travelers issued a Wrap policy which included an Employment Practices Liability coverage section. Travelers also had a duty to defend. 

    Travelers agreed to defend under a full reservation of rights, but never paid anything towards the defense. Chubb declined coverage because the Travelers policy applied based upon the Other Insurance provision, making the Chubb policy excess.

    Fearns moved for summary judgment, seeking a ruling that Chubb's obligation to defend and indemnify was primary. Chubb argued, among other things, that the self-insured retention had not been met. Under California law, however, the duty to defend was not impacted by a self-insured retention. The duty to defend arose immediately upon tender of the claim to the insurer. While a self-insured retention had to be paid before the existence of coverage, it did not impact the immediacy of the duty to defend. Further, nothing in the Chubb policy required the insured to satisfy any retention as a condition of the duty to defend. Therefore, the duty to defend existed regardless of whether or not the self-insured retention had been met. 

    Next, the court held that, under California law, the Other Insurance clause did not change Chubb's obligation to Fearns to provide a defense against Mahathirath's action. Such clauses had no bearing on the insurers' obligation to the policyholder and were limited to governing obligations amongst the insurers. While Chubb's Other Insurance provision may control the ultimate allocation of costs between the insurers, it was not relevant to a dispute between the insured and the insurer. The Other Insurance provision did not change Chubb's duty to defend, which attached immediately upon tender and required a full defense of the action. 

    Accordingly, Chubb breached its duty to defend and no longer controlled the defense. Summary judgment was granted to the insured. 

California Supreme Court Adopts Vertical Exhaustion for Long-Tail Claims

    In another round of litigation involving coverage issues between Montrose Chemical Corporation and its insurers, the California Supreme Court ruled in favor of Montrose, adopting vertical exhaustion of excess policies. Montrose Chem. Corp. of Calif. v. The Superior Court of Los Angeles County, 9 Ca. 5th 215 (2020).

    In 1990, the United States and the State of California sued Montrose for contamination  from 1947 to 1982 caused by Montrose's facility manufacturing insecticides. Montrose had primary and excess liability policies from defendant insurers between 1961 and 1985. Forty insurers collectively issued more than 115 excess policies, which collectively provided coverage sufficient to indemnify Montrose's anticipate total liability.

    Primary coverage was exhausted. Each excess policy provided that Montrose had to exhaust the limits of its underlying coverage before there would be excess coverage. Which excess carrier could be called on first was the issued before the California Supreme Court.

    Montrose proposed a rule of "vertical exhaustion" or "elective stacking," whereby it could access any excess policy once it exhausted other policies with lower attachment points in the same policy period. The insurers, in contract, argued for "horizontal exhaustion," whereby Montrose could access an excess policy only after it exhausted other policies with lower attachment points from every policy period in which the environmental damage resulting in liability occurred. 

    On motions for cross-summary judgment, the trial court denied Montrose's motion and granted the insurers' motion. Horizontal exhaustion was required in the context of a multiyear injury. The Court of Appeals affirmed.

    The Supreme Court reversed and found vertical exhaustion was appropriate. Under this rule, the insured had access to any excess policy once it exhausted other directly underlying excess policies with lower attachment points. Further, an insurer called upon to indemnify the insured's loss could seek reimbursement from other insurers that issued policies covering relevant policy periods. 

    The court noted that horizontal exhaustion would create significant practical obstacles to securing indemnification because the exclusions, terms, and conditions could vary from one policy to another. The insured would be put to a considerable expense of having to establish a right to coverage under the definitions, terms, conditions, and exclusions from policies in every policy period triggered by the continuous injury. 

    Therefore, California law permitted Montrose to seek indemnification under any excess policy once Montrose exhausted the underlying excess policies in the same policy period. Montrose was not required to exhaust excess insurance at lower levels for all periods triggered by continuous injury before obtaining coverage from higher level excess insurance in any period. Parties in insurance policies could, of course, write policies differently to establish alternative exhaustion requirements or coverage allocation rules if they so desired.

 

Insurer Rejecting Construction Defect Claim Must Share in Defense Costs

    One insurer, who accepted the tender of defense in a construction defect case, successfully moved for summary judgment against the second insurer, who denied the insured's tender. Interstate Fire & Cas. v. Aspen Ins. UK Ltd., 2019 N.Y. Misc. LEXIS 5800 (N.Y. Sup. Ct. Oct. 25,2019).

    Standard Waterproofing Corporation was hired by the construction manager, G Builders, to perform waterproofing work as part of condominium conversion project. After the project was completed,the condominium occupants experienced water damage in their units. The Condominium Board retained an engineer who reported numerous issues of water infiltration relating to Standard's work. 

    The Condominium Board filed suit against the construction manager, who filed a third party complaint against Standard. Standard tendered to four different insurers, including plaintiff Interstate and defendant Aspen. Interstate agreed to defend, while Aspen and the other two insurers declined. Aspen argued there were no allegations of an occurrence resulting in property damage during its policy periods. Interstate filed for declaratory relief against Aspen and Standard.

    Standard and Interstate moved to dismiss. The court rejected Aspen's arguments that the other two insurers were necessary parties. Complete relief could be accorded to the existing parties without the other two insurers being involved. 

    Turning to Interstate's motion for summary judgment, the court determined that Aspen had a duty to defend. The pleadings in the underlying case alleged that the renovation work "caused the condominium and its unit owners significant injury and damage." The third-party complaint alleged that Standard's work and culpable conduct led to the condominium damage. Aspen's CGL policy covered consequential property damage due to a contractor's faulty workmanship as "property damage" caused by an "occurrence," even if the cost of repairing the defective work itself was not covered. Therefore, the underlying pleadings created a reasonable possibility of coverage, triggering Aspen's duty to defend. 

    Accordingly, Aspen was obligated to reimburse Interstate for a portion of the defense costs. Where in insurer failed to undertake the common insured's defense and the other insurer was forced to defend alone and then seek reimbursement, New York courts applied the allocation method most favorable to the insurer who properly defended. Given the length of their respective policy periods, Interstate's share was 44% and Aspen's share was 56%. Interstate was also entitled to prejudgment interest at 9% from the date each invoice was paid. 

Exhaustion of Primary Policy Triggers Excess Coverage

    The Ninth Circuit affirmed the district court's ruling that the excess policy was triggered by settlements exhausting the primary policy. Westport Ins. Corp. v. California Cas. Management Company, 2019 U.S. App. LEXIS 4889 (9th Cir. Feb. 20, 2019). 

    Doe 1, Doe 2 and Doe 3 filed suit against the insured, Moraga School District, and three of its administrators for alleged sexual abuse by a teacher. The District was insured under primary general liability policies from 1991 through 1997. From October 1, 1994 to October 1, 1997, Westport also issued a series of annual excess policies that covered the District and its employees. California Casualty issued success liability policies to the Association of California School Administrators from July 1, 1986 to July 1, 2000, providing excess liability coverage to the District's school administrators.

    Doe 1 alleged abuse during policy periods 1993-94, 1994-95, and 1995-96; Doe 2 alleged she was molested in the 1995-96 and 1996-97 periods. Does 3 alleged that she was molested in the 1996-97 period. Westport eventually settled the three suits for an aggregate sum of $15.8 million. California Casualty refused to reimburse Westport. Westport sued and secured summary judgment.

    The court divided each Doe's settlement equally across the policy period(s) in which she alleged she was molested. Next, the court reduced each policy period amount by 25 percent to reflect the District's liability. Then, the court deducted $1 million from each policy period in accordance with Wesport's Primary policy limit. Finally, the court assessed liability against California Casualty up to $150,000 for each Administrator in each policy period. In total, the district court found California Casualty liable for $2.6 million of the $15.8 million paid to the Does collectively. Dissatisfied with the result, California Casualty appealed. 

    On appeal, the Ninth Circuit noted that California Casualty's policy was an excess policy requiring only that the "underlying primary collectible insurance or self-insurance" be exhausted before its coverage began. The policy required the exhaustion of only "primary" or "self" insurance as opposed to "all other" insurance or "primary and excess" insurance. Westport's policy, on the other hand, stated, "If there is any other collectible insurance available to the insured . . . this insurance will apply in excess of other collectible insurance. Accordingly, California Casualty's policy applied upon the exhaustion of the $1 million of underlying insurance, not after exhaustion of all other insurance. 

    California Casualty had denied excess coverage in the face of settlement demands far exceeding the primary layer. Therefore, it waived its argument that the lack of contemporaneous allocation of liability in the settlements precluded subsequent apportionment. The three settlement agreements released the District and the Administrators from liability and did not differentiate among the defendants. Given the blended pleadings and working of the settlement agreements, the district court did not abuse its discretion in allocating the liability equally among the District and the three administrators. Therefore, the district court's judgment was affirmed.

    Thanks to Damon Key blogging colleague Mark Murakami for the heads up on this case. 

    

Misread of Other Insurance Clause Becomes Costly for Insurer

    One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018). 

    Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system. 

    Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.

    In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits. 

    MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.

    Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense.  After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed. 

    The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy. 

    Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.

    Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich. 

    Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage. 

 

Court Finds Multiple Occurrences In Alleged Sexual Abuse Scandal

    The bankruptcy court found there were multiple occurrences when several victims alleged sexual abuse by various priests within the Diocese. Diocese of Duluth v. Liberty Mut. Group, 2017 Bankr. LEXIS 908 (Bankr. D. Minn. March 30, 2017). 

    The Diocese filed a petition under chapter 11 as a result of liabilities arising from negligence claims asserted by victims of sexual abuse by priests. An adversary proceeding was filed by the Diocese against its insurers seeking declaratory relief. The Diocese filed a motion for partial summary judgment to establish the legal standard to determine the number of occurrences under the CGL policies which insured the Diocese.

    The Diocese argued that under Minnesota law, the "actual-injury" rule applied. Here, there was an occurrence when sexual abuse occurred. Each act of abuse constituted a separate occurrence. The insurers argued there was one occurrence because liability arose from one ongoing act of alleged negligence by the Diocese in negligently supervising its priests.

    The Minnesota Supreme Court had held that an occurrence was not when the wrongful act was committed, but when the complaining party was actually injured. When damages were a result of occurrences that were discrete and identifiable events, the triggered policies were those that were in effect when the damages occurred. When both the damages and the occurrence events were continuous over a period of time and were so intermingled and unidentifiable, there was one continuous occurrence. Allocation of liability between policies that were in effect during the time period would apply. 

    Here there were numerous victims who were sexually abused by several priests. There were specific occurrences that were discrete and identifiable events - the priests' sexual abuse of the victims. Each victim suffered an injury and had readily identifiable damage on each separate occasion of sexual abuse. The sexual abuse was what caused the damages to the victims. Therefore, under the actual-injury rule, the occurrence was the time when the victims were sexually abused by the priests. There were separate occurrences for each separate sexual abuse for each victim and each priest. The victims each suffered separate abuse and it was this occurrence that triggered the policy that was at risk at that time. 

    Therefore, the Diocese's motion for partial summary judgment was granted.

Insurer Cannot Escape Indemnity Obligations Through Cut-And-Paste Reservation of Rights

    The South Carolina Supreme Court found that the Special Referee correctly determined that the insurer failed to reserve the right to contest coverage of actual damages and punitive damages under the CGL policies. Harleysville Group Ins. v. Heritage Communities, Inc., 2017 S.C. LEXIS 8 (S.C. Jan. 11, 2017).

    Two developments, the Riverwalk and Magnolia North, were constructed between 1997 and 2000 by Heritage. After construction and sale of the units, the purchasers became aware of construction problems, including building code violations, structural deficiencies, and significant water-intrusion problems. In 2003, the property owners' associations (POAs) filed suit to recover damages for repairs to their homes.

    During the construction period, Heritage maintained several liability policies with Harleysville with per-occurrence limits between $3 and $4 million on primary policies and between $9 and $13 million on the excess liability policies. Harleysville agreed to defend. Harleysville attempted to reserve rights by making generic statements of potential non-coverage coupled with furnishing most of the Heritage entities with copies (through a cut-and-paste method) of the policies.

    At the outset of each trial, Harleysville's counsel for Heritage conceded liability, and in both trials, the trial court directed a verdict for the POA on the negligent construction cause of action. The only contested issue in each trail was the nature and extent of the damages resulting from the admitted negligent construction. In the Magnolia North case, the jury returned a general verdict for $6.5 million in tender damages and $2 million in punitive damages. In the Riverwalk suit, the jury returned a general verdict of $4,250,000 in actual damages and $250,000 in punitive damages in favor of the POA.

    Harleysville then filed the present declaratory judgment actions to determine what portion of the judgments would be covered under the policies. Harleysville contended it had no duty to defend. Alternatively, Harleysville sought a determination on what portion of the general verdicts constituted covered damages. Harleysville argued it could only be responsible for that portion of the damages occurring during the period of time its policies provided coverage.

    The matter was referred to a Special Referee, who held an evidentiary hearing in December 2011. The Special Referee found that the costs to remove and replace the faulty workmanship were not covered. But he held that it would be improper and purely speculative to attempt to allocate the juries' general verdicts between covered and non-covered damages. Therefore, the Special Referee ordered the full amount of the actual damages in the construction defect suits would be subject to Harleysville's duty to indemnify in proportion with its time on the risk. The Special Referee calculated Harleysville's pro rata portion of the progressive damages based on Harleysville's time on the risk. Lastly, the Special Referee found punitive damages were covered and that no policy exclusion applied to preclude coverage.

    On appeal, the Supreme Court agreed with the Special Referee that the generic denials of coverage coupled with furnishing the insured with a verbatim recitation of all or most of the policy provisions (through a cut-and-paste method) was not sufficient. By having a duty to defend, the insurer gained the advantage of exclusive control over the litigation. It would be unreasonable to permit the insurer to not disclose potential bases for denying coverage. Here, despite policy references in the reservation of rights letters, there was no discussion of Harleysville's position as to the various provisions or explanation of its reasons for relying thereon. Because Harleysville did not effectively reserve the right to contest coverage, it was unnecessary for the court to address claims of error regarding various policy exclusions.

    Harleysville argued it was not responsible for an award of punitive damages which indicated the jury found that Heritage's wrongdoing and the results therefrom were not accidental. The court disagreed. The policy did not unambiguously exclude punitive damages. Because policy language was construed in favor of the insured to include punitive damages, the court affirmed the Special Referee's finding that punitive damages were covered.

    The court turned next to the Special Referee's allocation determinations for Harleysville's time on the risk. Harleysville contended the actual damages awarded for loss of use in the Riverwalk case should be deemed progressive in nature and, thus, included in the amount subject to allocation based on Harleysville's time on the risk. The court agreed and modified the Special Referee's Riverwalk calculation slightly to include allocation of the actual damages resulting from loss of use.

    Harleysville further argued that punitive damages, like actual damages, were subject to allocation based on time on the risk. The court disagreed under the circumstances presented here and affirmed. The POAs presented evidence that despite knowledge of the ongoing construction problems, Heritage deliberately targeted its sales efforts toward elderly, out-of-state residents and marketed its condominiums on the basis of quality and luxurious amenities, such as swimming pools and tennis courts, that were never constructed. The POAs contended that this evidence demonstrated Heritage willfully and repeatedly sold improperly constructed condominiums to innocent purchasers and that such conduct justified the imposition of punitive damages.

    The Special Referee rejected Harleysville's argument that punitive damages were likewise subject to time on the risk allocation, observing that the formula only applied to damages that were deemed progressive. Although the court was not creating a bright-line rule that punitive damages could never be subject to allocation based on time on the risk, the evidence here demonstrated that all of Heritage's reprehensible acts that justified the punitive damages took place entirely during the period of time Harleysville's policies were effective. Therefore, the Special Referee did not err in finding punitive damages were not subject to reduction based on the time on the risk multiplier in these cases.

Duty to Defend Bodily Injury Evolving Over Many Policy Periods Prorated in Louisiana

    The Louisiana Supreme Court held that the duty to defend in long latency disease cases should be prorated between the insurer and insured when the policies cover for only a portion of the time in which the exposure occurred. Arceneaux v. Amstar Corp., 2016 La. LEXIS 1675 (La. Sept. 7, 2016). 

    The underlying plaintiffs alleged that they worked at American Sugar's refinery during various years ranging from 1941 to 2006, and suffered hearing losses from exposure to loud noise in the course of their work. For many of these years, American Sugar was self-insured. For other years, various insurers provided policies. Continental Casualty Company provided liability policies to American Sugar covering bodily injury from December 31, 1975 through March 1, 1978, or a period of 26 months. Continental agreed to pay 25% of the past and future defense costs, subject to a reservation of rights.

    In the ensuing lawsuit, American Sugar moved for partial summary judgment, contending that Continental owed a duty to defend, including a complete defense and reimbursement of defense costs expended plus interest. The trial court granted American Sugar's request for a complete defense going forward, but denied the motion's request for past defense costs.

    The Supreme Court noted there was no Louisiana precedent on whether an insurer's duty to defend may be prorated among insurers and the insured during periods of self-insurance in long latency disease cases. Nationwide, the pro rata allocation method and the joint and several allocation method were used.

     Under the pro rata allocation, carriers of triggered policies were responsible for a share of defense costs based at least in part on the period of time they were on the risk. Defense costs were divided among insurers, and if the insured was not covered for certain periods, the insured was responsible for its pro rata share. Under the joint and several allocation, the insured selected one insurer that was on the risk and held it liable for the entire loss up to policy limits. This insurer then had the burden of collecting contribution from other insurers. 

    The court adopted the pro rata allocation method for defense costs based on the policy language. The joint and several allocation approach provided a disincentive to insureds to purchase uninterrupted insurance coverage and provided a windfall to companies that failed to obtain continuous coverage. The pro rata allocation method, by contrast, promoted risk spreading.

    Therefore, the amount of time an insurer was on the risk was an appropriate formula for pro rata allocation. Continental was only responsible for its pro rata share of defense costs based on its policy periods. A petition for rehearing was denied by the Louisiana Supreme Court on October 19, 2016. 

Coverage for Construction Defects Barred By Exclusion j (5)

   The Texas Court Appeal reversed a trial court judgment which found coverage in favor of the contractor based upon exclusion j(5). Dallas Nat'l Ins. Co. v. Calitex Corp., 2015 Tex. App. LEXIS 2002 (Tex. Ct. App. March 3, 2015).

   Turnkey Residential Group, Inc., was the contractor to construct a twelve-unit townhome complex in Dallas. The owner of the project was Calitex Corporation. Construction began on November 2006. The project was to be completed by Turnkey by October 27, 2007.

   Calitex filed suit against Turnkey and some of its subcontractors in February 2008. Calitex alleged problems with Turnkey's work included: (1) the stone exterior was not properly treated and leaked, and some areas were left uncovered with stone; and (2) windows leaked. It was further alleged that the quality of materials, labor and craftsmanship did not meet the standards of the contract and resulted in damages. Turnkey submitted a notice of claim to its insurer, Dallas National Insurance Company (DNIC). Coverage was denied.

   In the underlying case, the jury ultimately found Turnkey was liable and awarded Calitex $500,000 in damages. 

   Calitex then sued DNIC, alleging it was a third party beneficiary of Turnkey's policy. DNIC answered by relying on exclusion j (5), contending that damages in the underling litigation were excluded from coverage to the extent there was property damage to that particular part of real property on which Turnkey was performing operations if the property damage arose out of those operations. 

   DNIC filed a motion for summary judgment. It argued that when it received notice of the claim, the construction project was still underway, implicating several business risk exclusions under the policy. Specifically, coverage for the repair or replacement of defective workmanship or substandard goods and services while construction operations were still ongoing were precluded. 

   Calitex cross-moved for summary judgment. The court granted summary judgment to Calitex. The trial court granted Calitex's motion to award $500,000 as indemnification for the underlying judgment and attorneys' fees of $193,000.

   On appeal, DNIC argued that even if the defectively installed stone veneer and waterproofing was "property damage," much of the damage to the building occurred during ongoing operations and was therefore excluded under exclusion j (5). The court of appeals agreed that the exclusion applied. At least some of the damage proved by Calitex in the underlying lawsuit constituted damage to a "particular part of real property" on which Turnkey was "performing operations" and arose out of those operations. Therefore, DNIC met its burden to show exclusion j (5) was applicable to some of the damage proven in the underlying lawsuit.

   The court next determined that Calitex had the burden to segregate covered damage from non-covered damage in order to recover from DNIC. There was no reasonable basis to estimate the amount of damage or the proportionate part  of the damage caused by a risk covered by the policy. Therefore, the trial court erred in granting Calitex's cross-motion for summary judgment as to the amounts awarded to Calitex against Turnkey in the underlying judgment.

Coverage Found For Cleanup of Superfund Site Despite Pollution Exclusion

   The court determined that the pollution exclusion did not bar defense or indemnity for the insured's obligation to clean up a superfund site. Decker Mfg. Corp. v. The Travelers Indem. Co., 2015 U.S. Dist. LEXIS 12169 (W.D. Mich. Feb. 3, 2015).

   From 1966 to 1981, Decker disposed of its waste materials at the township landfill. The landfill was closed in 1981. Decker was insured under a CGL policy for a four year period from January 1, 1973, through January 1, 1977.

   After the landfill was closed, the EPA began an investigation which eventually led to a Unilateral Administrative Order in 1995 in which Decker was ordered to remove drums, construct a landfill cap, and monitor groundwater. Decker notified Travelers of the EPA's order on November 14, 1995. Travelers responded that it had no duty to defend or indemnify Decker.

   In 1998, Decker was joined in the EPA's litigation against the City. Decker entered a consent decree in the EPA litigation. The consent decree denied liability, but required Decker to reimburse the EPA for past and future response costs, and to finance and perform operation and maintenance activities for thirty years. Travelers agreed to contribute to the defense of Decker under a reservation of rights. Travelers paid $98,067.00 towards Decker's defense costs.

   Decker filed suit demanding that Travelers reimburse it for all alleged defense and indemnity costs, including past and future costs. Travelers moved for summary judgment that the policy's pollution exclusion precluded coverage. The exclusion barred coverage for property damage arising out of any discharge of any water or pollutant that is "either expected or intended from the standpoint of any insured . . . ." Travelers contended that because Decker intentionally discharged its waste into the landfill, the pollution exclusion applied. Decker argued that the pollution exclusion did not apply because it placed its waste in what it believed was a safe location, and Decker did not expect or intend the waste to leave the landfill. Therefore, the court considered whether the relevant "discharge" was Decker's initial placement of its waste into the landfill, or the escape of waste from the landfill.

   There was no evidence that Decker was aware of any problems with discharge from the landfill. The landfill was poorly located in an area where the soils were permeable and the ground water was shallow. At the time the landfill was constructed, it confirmed to the then contemporary standards. Further, it was licensed by the State throughout the time it was used by Decker. 

   Therefore, Travelers' motion for summary judgment on the pollution exclusion was denied. 

   The court also found that Decker had no expectation, intent, or knowledge that the wastes would migrate from the landfill. Accordingly, there was an occurrence because the property damage was the result of an accident that was neither expected or intended. 

   Next, the court addressed whether a pro rata, time-on-the-risk allocation or an "all sums" allocation was appropriate. Under the time-on-the-risk method, insurers were responsible for the portion of the underlying injury that occurred during their policy period. Decker advocated the "all sums" method, which would make insurers jointly and severally liable for all defense costs. The court rejected the "all sums" approach, however, because it ignored the policies' definitions of the terms "property damage" and "occurrence," which limited coverage to property damage or occurrences "during the policy period." Instead, the pro rata, time-on-the-risk allocation was consistent with the policy language.

   The final issue was how to apply the pro rata, time-on-the-risk allocation to the facts of the case. Travelers' expert testified that the property damage occurred over a 40-year period, from 1965 to 2004. There was contradictory evidence, however, concerning disposal at the site prior to the landfill's opening in 1966. Therefore, the court was not in a position to determine how to apply the pro rata time-on-the risk formula to the facts at this time. Further development of the facts and legal argument was needed.