Ohio Environmental Ruling Called 'Grim'

Ohio Environmental Ruling Called 'Grim'

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

In a 4-3 decision, the Court held in late June in Goodyear Tire & Rubber Co. v. Aetna Casualty & Surety Co. that an insured with multiple policies can pick and choose which policy will cover the cleanup costs when pollutants seep from a site into nearby groundwater.

While the decision in the Goodyear case technically applies solely to Ohio, Patrick Watts, vice president of the Alliance of American Insurers, Downers Grove, Ill., cautioned that insurers may not be immune from the implications of the case in other states.

In fact, Mr. Watts cautioned that a party in another jurisdiction might argue that the Goodyear line of reasoning should be followed, particularly where there is no precedent in that jurisdiction.

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

The Ohio Supreme Court held that:

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

A pollution exclusion clause that bars coverage for the expected or intended emission or escape of contaminants is triggered when the policyholder expects or intends that the contaminants migrate from the location where they were first deposited.

When correspondence and other documents from governmental agencies fail to spell out to a policyholder that it may be responsible for cleanup costs, and the policyholder did not admit liability for those costs, it is improper to bypass the fact-finder (judge or jury) on the question of whether the policyholder gave timely notice to its insurers about an occurrence or a claim.

The parties agreed that there was continuous pollution over multiple policy periods giving rise to occurrences and claims to which the multiple policies applied. But they disagreed as to the proper method for distributing losses across the triggered policies.

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

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

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

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

The Supreme Court reasoned that Goodyear “expected complete security from each policy that it purchased.” Additionally, the court was convinced that the “all sums” approach “promotes economy for the insured while still permitting insurers to seek contribution from other responsible parties when possible.

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

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

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

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

The Supreme Court reversed the Appellate Court's grant of directed verdict on this issue, stating that the facts did not present a sufficiently clear manifestation of unreasonableness on Goodyear's part.

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

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

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

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

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

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

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

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

Charles E. Schmidt, Alliance assistant vice president of public affairs, added that this was yet another example of the Ohio Supreme Court finding liability or coverage where it was never intended.

He said that, for example, in cases involving uninsured/underinsured motorist coverage, the Supreme Court, on occasion, “has gone beyond what most other people would have read in the contract.”

The Supreme Court sent the Goodyear case back to the lower 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.