Ohio Environmental Ruling Called 'Grim'

A recent ruling by the Ohio Supreme Court in favor of an insuredunder an environmental insurance policy is “grim for insurers,” aninsurance trade group contends.

In a 4-3 decision, the Court held in late June in GoodyearTire & Rubber Co. v. Aetna Casualty & Surety Co. thatan insured with multiple policies can pick and choose which policywill cover the cleanup costs when pollutants seep from a site intonearby groundwater.

While the decision in the Goodyear case technicallyapplies solely to Ohio, Patrick Watts, vice president of theAlliance of American Insurers, Downers Grove, Ill., cautioned thatinsurers may not be immune from the implications of the case inother states.

In fact, Mr. Watts cautioned that a party in anotherjurisdiction might argue that the Goodyear line ofreasoning should be followed, particularly where there is noprecedent in that jurisdiction.

While the Goodyear case originally involved pollutioncleanup at 22 sites when Goodyear sued in 1993, the issues beforethe Supreme Court involved only a site in New Castle, Del., and asite in Lansing, Mich.

The Ohio Supreme Court held that:

When a continuous occurrence of pollution triggers claims undermultiple primary policies, the insured is entitled to seek coveragefrom any single policy of its choice that covers “all sums”incurred as damages “during the policy period.” This is subject tothe policy's limit of coverage.

A pollution exclusion clause that bars coverage for the expectedor intended emission or escape of contaminants is triggered whenthe policyholder expects or intends that the contaminants migratefrom the location where they were first deposited.

When correspondence and other documents from governmentalagencies fail to spell out to a policyholder that it may beresponsible for cleanup costs, and the policyholder did not admitliability for those costs, it is improper to bypass the fact-finder(judge or jury) on the question of whether the policyholder gavetimely notice to its insurers about an occurrence or a claim.

The parties agreed that there was continuous pollution overmultiple policy periods giving rise to occurrences and claims towhich the multiple policies applied. But they disagreed as to theproper method for distributing losses across the triggeredpolicies.

The Supreme Court rejected the pro rata approach advocated bythe insurers. As found by the court, under this approach, eachinsurer would have paid “only a portion of a claim” based on theduration of the occurrence during its policy period.

The court instead focused on language present in each of thepolicies stating that the respective insurer would “pay on behalfof the insured all sums (court emphasis) which the insuredshall become legally obligated to pay as damages” for propertydamage caused by an occurrence.

The court found no language in the policies that reduced aninsurer's liability if an injury occurred only partially during agiven policy period. Instead, the court said that the “plainlanguage” of the “all sums” provision included all damagesresulting from a qualifying occurrence.

The Court went on to say that for each site, Goodyear should beable to choose from the “pool of triggered primary policies” asingle primary policy against which to make a claim. If that policydid not cover the entire claim, Goodyear could then pursue coveragefrom other primary or excess policies.

The Supreme Court reasoned that Goodyear “expected completesecurity from each policy that it purchased.” Additionally, thecourt was convinced that the “all sums” approach “promotes economyfor the insured while still permitting insurers to seekcontribution from other responsible parties when possible.

Since Goodyear might have to seek excess insurance coverage, theSupreme Court reversed the judgment of the Court of Appeals thathad granted directed verdicts for the excess insurers.

(A directed verdict is a judgment entered in favor of adefendant by a judge, usually after the plaintiff has presented itscase, based on a finding that, as a matter of law, no reasonablejury could decide in the plaintiff's favor.)

“The excess insurers should be included in the proceedings sothat their rights and obligations can be considered in the eventthat their policies become a factor,” the Court wrote.

The second issue concerned the timeliness of Goodyear's noticeto its primary insurers in connection with the Michigan site. Theinsurance policies called for notice of an occurrence “as soon aspracticable” and notice of a claim “immediately.”

The Supreme Court reversed the Appellate Court's grant ofdirected verdict on this issue, stating that the facts did notpresent a sufficiently clear manifestation of unreasonableness onGoodyear's part.

The meaning of the pollution exclusion clause in some ofGoodyear's insurance policies was the last issue considered by theSupreme Court. The insurers argued that the exclusion meant that ifa policyholder intentionally placed contaminants in a landfill, theact was enough to forfeit coverage.

However, the Court found evidence that any migration ofpollutants from the Delaware site was unexpected and unintended.“When Goodyear was depositing the wastes, it did not believe thatthey were pollutants,” the Court said.

Additionally, at that time, it was widely believed thatchemicals deposited in a landfill would stay there and not migrateto surrounding groundwater, the court said.

As a result, the Supreme Court held that it was error to grantdirected verdicts on the pollution exclusion issue.

Mr. Watts said that the approach taken by the Ohio Supreme Courtin dividing up liability among insurers differs from the approachtaken by some other courts.

“Usually you try to come up with a proportional arrangement whenyou have multiple years with multiple insurers,” he noted. “It'sthe same old problem with environmental losses–you have a loss thatoccurs over a number of years,” he said.

But now, a policyholder in Ohio can seek complete payment fromone of the insurers that provides coverage and then have theinsurers sort out allocation among themselves, he added.

Additionally, “it will be more difficult to apply the pollutionexclusion in the future in Ohio because an element of intent is nowread into the exclusion,” Mr. Watts said.

Charles E. Schmidt, Alliance assistant vice president of publicaffairs, added that this was yet another example of the OhioSupreme Court finding liability or coverage where it was neverintended.

He said that, for example, in cases involvinguninsured/underinsured motorist coverage, the Supreme Court, onoccasion, “has gone beyond what most other people would have readin the contract.”

The Supreme Court sent the Goodyear case back to thelower court for proceedings consistent with its decision.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, July 15, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.