West Bend Mutual Ins v. Federated Mutual Ins

Mar 25: In the U.S. Court of Appeals, Seventh Circuit, Case No. 09-2519. Plaintiff-appellant West Bend Mutual Insurance Company (West Bend) appeal from the grant of summary judgment in favor of appellees, who consist of a group of insurance companies that includes the United States Fidelity and Guaranty Company (Fidelity) and Federated Mutual Insurance Company (Federated). West Bend initially sued the defendants for breach of contract because Federated declined to defend a mutual insured in a class action alleging that insured's gas station contaminated groundwater in a residential neighborhood.

 

    The case revolves around "whether the pollution exclusion contained in Federated's policy effectively limited coverage for gasoline spills under Indiana law." The district court found that a clause in Federated's policy excluded coverage for this type of claim and granted summary judgment in favor of Federated, Fidelity, and other insurers. West Bend appealed the judgment as it applies to Federated and the Appeals Court, in a 2-1 split decision, affirmed the district court decision.

 

    The majority Appeals Court said, ". . .despite weak wording, the Federated products-hazard clause covered only knowingly completed market transactions and abandoned product. . . There is no doubt that the Bowens action was predicated on accidental leak of gasoline from MDK's storage tanks and West Bend never contended that the gas station abandoned its product. Therefore, the Federated Umbrella policy does not provide an independent source of recovery for the appellants."

    The dissenting Justice indicated, "I agree with my colleagues that the pollution exclusion in Federated's 2001-2003 CGL policy bars coverage under that policy. I do not agree, however, that the Indiana Supreme Court's decision in B & R Farm Services, Inc. v. Farm Bureau Mutual Insurance Co., 483 N.E.2d 1076 (Ind. 1985), precludes coverage under Federated's 2001-2002 umbrella policy.

That policy provides additional insurance for losses covered under '[t]he 'products-completed operations hazard' anywhere in the world.'"

   

    Access the complete opinion (click here). [Please Note: The 7th circuit has a temporary web hyperlink nomenclature system. If the link does not work click on this link and enter the case number above (click here).] 

James River Insurance v. Ground Down Engineering

Aug 20: In the U.S. Court of Appeals, Eleventh Circuit, Case No. 07-13207. James River Insurance Company appealed the district court’s dismissal of its claim seeking a declaratory judgment that it is not obligated to provide a legal defense to Ground Down Engineering under the insurance policy Ground Down purchased from James River. James River also appealed the denial of its summary judgment motion. James River argues that the “pollution exclusion” in the policy excuses it from the obligation to defend Ground Down and Ground Down’s engineer, Laurel Hall, in a suit filed by Priority Development for "negligently failing to discover construction debris and fuel tanks during an environmental site
assessment."

In its decision, the Appeals Court concluded that the district court erred in holding that the pollution exclusion does not apply. and vacated the district court’s dismissal and remanded the case with instructions for the district court to enter an order granting summary judgment to James River.

In its decision, the Appeals Court said, "Appellees argument fails for two reasons. First, Priority’s complaint states that the damages associated with the construction debris come from the elevated levels of methane gas caused by the debris and lists the debris under the heading 'environmental contamination.' Second, the pollution exclusion is not actually limited to irritants or contaminants. The definition for pollutants states that 'irritants or contaminants' covers 'waste' which includes 'all . . . materials to be disposed of, recycled, stored, reconditioned, or reclaimed.' Only a strained reading of this language would exclude construction debris causing elevated levels of methane gas from this definition. Finally, the first sentence of the exclusion states that 'Pollution / environmental impairment / contamination is not covered under this policy.' The construction debris described in Priority’s complaint, even without the methane gas, would be considered an environmental impairment."

Access the complete opinion (click here).

Boston Gas Company v. Century Indemnity

Jun 10: In the U.S. Court of Appeals, First Circuit, Case No. 07-1452. As explained by the Appeals Court, this is a dispute between Boston Gas Company (Boston Gas), the largest provider of natural gas in the New England area, and one of its insurers, Century Indemnity Company (Century). Before natural gas became the primary source of energy in New England, Boston Gas produced gas fuel at facilities called manufactured gas plants (MGPs). The MGPs created gas by heating coal in large ovens, generating gas which was then purified and piped out for use. The process also produced a variety of byproducts, including ash, drip oil, tar and coke. Many are non-biodegradable and some are deemed carcinogenic, and they now contaminate the ground and water around many former MGP sites; further, MGPs were often sited near waterways which were contaminated in turn. Contamination has been discovered at twenty-nine former Boston Gas MGPs; this case concerns only one of those sites, located in Everett, Massachusetts.

At trial, the jury awarded Boston Gas over $6.1 million in past remediation expenses; the district court also issued a declaratory judgment obligating Century to pay all future costs associated with the investigation and environmental cleanup of the Everett site. Century now appeals on multiple grounds from the district court's judgment.

Among other conclusions, the Appeals Court said, "We conclude that as to future costs, Century cannot reargue matters that have already been decided, but conversely, Boston Gas cannot properly seek to recover for future costs spent purely to remediate its own property where no threat exists of contamination outside the site. The district court will be able to determine the scope of litigation when a dispute arises, using doctrines like collateral estoppel, waiver, and the like to prevent relitigation of matters that have been, or could have been, decided.

"By its literal terms the declaratory judgment could be read to encompass costs that are not recoverable under Century's policy; the district court may not have considered that requiring Century to indemnify Boston Gas for all costs related to 'investigation and cleanup' may apply more broadly than it intended. On remand an adjustment is needed in order to clarify that Boston Gas' entitlement extends only to costs incurred for remediation not barred by the terms of Century's policies and consistent with the findings of the jury." Additionally, the Appeals Court certified three questions concerning allocation of liability to the Massachusetts Supreme Judicial Court for its consideration.

Access the complete opinion (click here). Access the certified order (click here).

Florida Key Deer v. Paulison

Apr 1: In the U.S. Court of Appeals, Eleventh Circuit, Case No. 05-16374. The Federal Emergency Management Agency (FEMA) and the U.S. Fish and Wildlife Service (FWS) appealed an adverse summary judgment and grant of injunctive relief. The district court found that FEMA and the FWS failed to comply with section 7 of the Endangered Species Act, with regard to FEMA’s administration of the National Flood Insurance Program (NFIP) in the Florida Keys. FEMA and the FWS maintain that section 7(a)(2) of the Endangered Species Act does not apply to FEMA’s provision of flood insurance and that FEMA has, in any event, fully complied with section 7. The Appeals Court affirmed the decision of the district court.

The case began in 1984 when in 1984, the FWS determined that FEMA’s administration of the NFIP in the Florida Keys potentially jeopardized the existence of the Florida Key deer by effectively authorizing the development that pushed the Key deer to the brink of extinction. In 1989, however, FEMA refused the FWS’s request for formal consultation, asserting that the ESA did not apply to the NFIP. In 1990, the plaintiffs, “Wildlife Organizations,” filed suit seeking an injunction requiring FEMA to comply with section 7(a)(2) of the ESA by formally consulting with the FWS about the impact of its administration of the NFIP on the Key deer. The Wildlife Organizations adopted the FWS’s argument that the NFIP encouraged new development that threatened the meager population of 250–300 Key deer with extinction.

Subsequently, FEMA consulted with the FWS regarding the impact of the NFIP on the Key deer and nine other endangered or threatened species. In 1997, the FWS issued its opinion, which found, among other things, that the NFIP, as administered in the Florida Keys, jeopardized the continued existence of the Key deer and eight other listed species. In accordance with its regulations and the ESA, the FWS recommended “reasonable and prudent alternatives” (“1997 RPAs”) to the manner in which FEMA administered the NFIP to avoid placing the Key deer and other listed species in jeopardy. The Wildlife Organizations eventually amended their complaint and added FWS as a defendant and challenging the adequacy of the 1997 RPAs and their accompanying conservation recommendations.

On March 29, 2005, the district court granted the Wildlife Organizations’ motion for summary judgment, finding that FEMA had not satisfied its obligation under section 7(a)(1) to carry out programs to conserve species and that neither FEMA nor the FWS had satisfied their obligations under section 7(a)(2). On September 12, 2005, the district court enjoined FEMA from providing any insurance for new developments in the suitable habitat of the listed species.

FEMA and FWS challenged the district court’s grant of summary judgment and injunctive relief, arguing that: (1) section 7(a)(2) of the ESA does not apply to FEMA’s administration of the NFIP; (2) section 7(a)(2) of the ESA does not require FEMA to perform an independent analysis of the FWS’s proposed “reasonable and prudent alternatives” before adopting them; (3) section 7(a)(1) of the ESA does not require agencies to develop species- and location-specific programs for the conservation of listed species; and (4) the district court exceeded its authority by issuing an injunction that is allegedly inconsistent with the ESA and the NFIA.

In affirming the district court decision the Appeals Court addressed each of the issues and determined that section 7(a)(2) applies to FEMA’s administration of the NFIP; said that FEMA adopted the RPAs the same day that the FWS proposed them and therefore did not perform an independent analysis; does require programs for the conservation of listed species and FEMA's program is "insignificant in its impact"; and the injunction at issue here does not require FEMA to act inconsistently with the command of the NFIA to issue flood insurance in otherwise eligible communities

Wildlife Organizations included the National Wildlife Federation (NWF), Florida Wildlife Federation and Defenders of Wildlife. The groups praised the decision and issued a release stating, “This is a significant victory for the Florida Key Deer and all of America’s endangered species. The court has sent a clear message that our federal government cannot subsidize development in sensitive coastal and floodplain habitats without taking into account the needs of the endangered species that live there. FEMA’s effort to place itself outside the reach of the Endangered Species Act, our nation’s most important wildlife law, has been soundly rejected.”

Access the complete opinion (click here). Access a release from NWF (click here).

Certain Underwriters at Lloyds London v. Inlet Fisheries Inc.

Feb 11: In the U.S. Court of appeals, Ninth Circuit, Case No. 06-35383. According to the Ninth Circuit, the case involves the interplay between an ancient legal doctrine and contemporary vessel pollution insurance. Historically, all insurance policies were contracts uberrimae fidei, meaning that both parties were held to the highest standard of good faith in the transaction. The doctrine of uberrimae fidei was grounded both in morality and efficiency; insureds were considered morally obligated to disclose all information material to the risk the insurer was asked to shoulder, but such a principle was also an economic necessity where insurers had no reasonable means of obtaining this information efficiently, without the ubiquity of telephones, email, digital photography, and air travel.

The reasons which brought into being the strict marine insurance law doctrine as to disclosures, go far back into the early days of marine insurance, when sailing ships in faraway seas were insured in London by underwriters who could get no information except from the shipowners. Today, uberrimae fidei has been displaced in most insurance contexts. Nevertheless, the Appeals Court says, the doctrine enjoys continuing vitality in the world of marine insurance.

With the advent of significant environmental legislation in the 1970s, coupled with a number of high profile disasters involving oil tankers, liability of shipowners for environmental damages was expanded, culminating, at the federal level, with the Oil Pollution Act of 1990 (the OPA). The OPA increased substantially both the regulation and pollution liabilities of entities engaged in the transportation and production of oil within the United States. Pollution insurance, which traditionally had been part of P&I coverage, has emerged as a separate coverage in the United States. This stand-alone pollution coverage is often referred to as "vessel pollution insurance," and Lloyd’s of London is currently the second-largest provider of such policies.

The Appeals Court said, "The question we consider is whether the doctrine of uberrimae fidei applies to vessel pollution insurance policies covering statutory environmental liabilities. We answer that query in the affirmative, and affirm the district court’s grant of summary judgment in favor of the Lloyds’ underwriters."

The case arose when Water Quality Insurance Syndicate (WQIS), Inlet’s then-provider of stand-alone vessel pollution insurance, sent notice that it was cancelling Inlet’s (an Alaska-based fish buying and processing businesses) policy. The stated and most immediate reasons for the cancellation were Inlet’s failures to conduct a survey of its vessels as requested by WQIS and to pay its premiums. After receiving WQIS’s notice of cancellation, but before its effective date, Inlet, through its broker, sought vessel pollution insurance from Lloyds for several ships. The information Inlet provided on its application forms the basis of the current dispute.

Lloyds conditioned its renewal on Inlet providing accurate information on a newly requested application. In addition, Lloyds immediately commenced an investigation into Inlet’s history and the condition of its vessels. Finally, once Lloyds obtained sufficiently sound information, despite considerable stonewalling by Inlet, it filed this suit. The district court granted Lloyds’ motion, and ruled that uberrimae fidei applied and that Lloyds was entitled to void the policy. The Ninth Circuit agreed.

Access the complete opinion (click here).

Contractors Equip. Maint. Co., Inc. v. Bechtel Hanford, Inc.

Jan 24: In the U.S. Court of Appeals, Ninth Circuit, Case No. 06-35310. United Coastal Insurance Company (UCIC) appeals the district court’s order granting Bechtel Hanford, Inc.’s (Bechtel’s) motion for judgment on a supersedeas bond.

The case is the product of a breach of contract dispute in an environmental remediation project. Bechtel contracted with the United States Department of Energy (DOE) to perform environmental clean-up work at the Hanford Nuclear Reservation in Washington. P.W. Stephens Contractors, Inc. (PWS) entered a subcontract with Bechtel to work under Bechtel’s prime contract with DOE and obtained a performance bond from Acstar Insurance Co. (Acstar). When PWS defaulted on the subcontract, Contractors Equipment Maintenance Company, Inc., a second-tier subcontractor, sued Bechtel, PWS and Acstar. Bechtel subsequently filed cross-claims against PWS and Acstar.

Bechtel was awarded a judgment in 2004 against Acstar and PWS. Acstar obtained a supersedeas bond from UCIC and appealed the judgment against it. After the Ninth Circuit affirmed in part and reversed in part, Bechtel moved to collect the entire 2004 judgment from UCIC. The district court concluded that the supersedeas bond covered the judgment against both Acstar and PWS and granted Bechtel’s motion, ordering UCIC to pay the entire underlying judgment.

On appeal, UCIC claims that the bond secured only Bechtel’s judgment against Acstar. The Appeals Court said it agreed with UCIC that the bond secures only Acstar’s obligations on the underlying judgment and therefore reversed the district court decision. The Appeals Court said, "Because Acstar’s liability has been satisfied, we direct entry of judgment in favor of UCIC."

Access the complete opinion (click here).

Nascimento v. Preferred Mutual Insurance Co.

Jan 18: In the U.S. Court of Appeals, First Circuit, Case No. 07-1792. Jack Nascimento appeals a district court judgment from the State of Massachusetts declaring that Preferred Mutual Insurance Company (Preferred Mutual) is under no contractual obligation to defend him in an environmental liability suit brought against him by his neighbors, Tiago and Maria Leal. The Appeals Court said, "We affirm, albeit on slightly different grounds than those relied upon by the district court."

On March 25, 2005, Nascimento placed a claim with Preferred Mutual requesting it to defend and indemnify him under his Commercial General Liability (CGL) policy effective from November 9, 1996 to November 9, 1997. On April 15, 2005, Preferred Mutual denied coverage under the CGL policy’s total pollution exclusion.

According to the Appeals Court, the district court based its decision solely on section f(2)(a) of the total pollution exclusion. The district court held that all of the damages claims set out in the Leal complaint involved remediation costs. Relying solely upon section (f)(2)(a), the district court held that the CGL policy excluded coverage for such "remediation damages." Nascimento, concedes that section (f)(2)(a) bars remediation damages, however, he says the Leal complaint seeks "both remediation and non-remediation damages."

Following the district court’s decision in this case and during the pendency of this appeal, the Massachusetts Supreme Judicial Court decided McGregor, in which "it interpreted the same total pollution exclusion clause as appears in Nascimento’s policy." Under McGregor, the total pollution exclusion in Nascimento’s CGL policy bars "all" of the Leals’ claims. McGregor holds that once the oil becomes a pollutant, the total pollution exclusion of the CGL policy is triggered and coverage for remediation and non-remediation claims is barred.

The Appeals Court concluded, "In this case, the home heating oil leaked from the UST Nascimento continuously used. The leak caused the pollution damage for which the Leals seek reimbursement. Therefore, section f(1)(a) of the total pollution exclusion was triggered, and Preferred Mutual has no duty to defend Nascimento in the Leal suit."

Access the complete opinion (click here).

Royal Indemnity v. Apex Oil Company

Jan 2: In the U.S. Court of Appeals, Eighth Circuit, Case Nos. Case No: 06-3454, 06-3461 and 06-3469. Royal Indemnity Company brought the action pursuant to 28 U.S.C. §§ 2201 and 2202, to seek a declaration of the rights and obligations of Royal Indemnity Company, various other insurance companies and Apex Oil Company, Inc. (Apex), under certain insurance policies Royal Indemnity Company and the other insurance companies issued to Apex. The Appeals Court affirmed the district court’s decision to abstain, but vacated the dismissal order and remanded the case so that the court can instead enter an order staying the proceedings.

Between May 2003 and April 2005, the State of Illinois, the United States, and a group of individuals filed five separate lawsuits (the underlying suits) against Apex in state and federal courts in Illinois based on the actions of Apex and its predecessor companies in releasing contaminants into the soil surrounding its oil refinery in Hartford, Illinois. Royal Indemnity Company defended Apex on the majority of the underlying suits. On August 5, 2005, Apex brought suit against multiple insurers in the Circuit Court of Madison County, Illinois (the Illinois lawsuit), seeking a declaration of the parties’ rights and responsibilities with respect to the Hartford soil contamination under policies the insurance companies had issued to Apex.

On March 22, 2006, Royal Indemnity Company initiated the lawsuit by filing a complaint in Federal court pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, “seeking adjudication of the parties’ rights and obligations under certain insurance policies.” In its complaint, Royal Indemnity Company also sought a declaration of the rights and responsibilities of the parties based on claims of equitable contribution, subrogation, unjust enrichment and/or equitable estoppel for the costs Royal Indemnity Company incurred in defending Apex as well as attorneys’ fees, costs and interest.

Royal argues that the district court erred in applying the Wilton and Brillhart abstention doctrine and instead should have applied the “exceptional circumstances” test articulated in Colorado River. The Eighth Circuit said, "However, unlike Colorado River, this lawsuit involves a declaratory judgment action. Apex, therefore, claims that the district court correctly relied upon Wilton and Brillhart to govern its abstention analysis." Royal also argued that the Ninth Circuit’s decisions in Government Employees Insurance Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en banc), and United National Insurance Co. v. R & D Latex Corp., 242 F.3d 1102 (9th Cir. 2001), support its claims that Wilton and Brillhart do not apply here. However, the Appeal Court said, "...not only are these cases not binding precedent for us, they are easily distinguishable..."

Access the complete opinion (click here).