Insurer Avoids a “Sticky Situation” when the Appellate Court Awards Less than the Lower Court Awarded
May 1, 2017
The 3rd U.S. Circuit Court of Appeals in Philadelphia ruled last week that while Travelers Property Casualty Co. Inc. is still responsible for indemnifying a container company for damages incurred to a corn syrup shipment, Travelers is only responsible for $425,000 not the $732,000 that was awarded at the lower court. The case is The Travelers Property Casualty Company of America v. USA Container Co., Inc. No. 14-3685, 2017 WL 1382482 (3d Cir. Apr. 18, 2017).
In the original case USA Container contracted with Meelunie B.V. Amsterdam (Meelunie), a corn-syrup distributor, to transfer corn syrup from rail cars, to drums, and then to consumers overseas. USA Container contracted with Passaic River Terminal LLC (Passaic), to transfer the corn syrup from the rail cars to the drums. In order to successfully transfer the corn syrup, it had to be heated in accordance with standard operating procedures that Passaic failed to comply with. When Passaic failed to comply with operating procedures, the company overheated the corn syrup, ruining it. When customers received the overheated corn syrup, they rejected the shipments, forcing Meelunie to sell the corn syrup at a reduced rate. The damages incurred by Meelunie amounted over $782,000. Meelunie demanded that USA Container compensate it for its losses and USA claimed coverage for the loss through Travelers. Travelers initially denied USA's claim, with claims that the damage was not covered under the CGL policy in place. USA Container and Meelunie entered into a settlement agreement. Multiple rounds of litigation between USA Container and Travelers followed, the end result being Travelers was obligated to pay USA Container for losses of $732,000 when the court decided that the CGL covered the property damage. The appellate court must now determine whether USA Container's loss arising from the damage to the corn syrup is covered under the CGL Policy.
As a holder of a CGL policy, the issue of insurance coverage depends on the terms of the CGL policy that USA procured from Travelers. As the insured, USA has the burden to prove coverage, while the burden to prove the application of any exclusion falls on the insurer Travelers. The CGL policy provided that Travelers is “required to pay those sums that USA Container becomes legally obligated to pay damages because of property damage to which the insurance applies”, but the insurance only applies to “property damage” if it is caused by an “occurrence”. The Court cited Cypress Point Condominium Ass'n Inc. v. Adria Towers, L.L.C., 143 A. 3d 273 (N.J. 2016) and that court's definition of an “accident” as encompassing unintended and unexpected harm caused by negligent conduct. Under that definition of an “occurrence”, the incident in the case at hand is clearly included as an “occurrence”. The Court affirmed the District Court's determination that this claim fell within the basic coverage provisions of the CGL policy.
Travelers claims that even if there was an “occurrence” they still owe no duty to indemnify, because either the “your work” exclusion, or the “business risk” exclusion apply in the case. As for the “your work” exclusion, Travelers failed to show that the corn syrup was “restored, repaired, or replaced” as is required under the exclusion. The court determined that the “your work” exclusion did not apply. As for the “business risk” exclusion, the risks that are not covered are specified, and the insurer has the ability to exclude coverage for a risk it does not want to cover during the policy writing period. So the “business risk” exclusion did not apply in this case.
Travelers was not completely out of luck, though. The Court found that the District Court erred in saying the Settlement Agreement supported a claim of $738,000 when “the amount paid by the insured” was only $425,000.
Editor's Note: When it comes to settlement agreements, the devil is in the details. Travelers Prop. Cas. Co. of Am. v. USA Container Co., Inc. showed us this in a hairy example, as the District Courts interpretation of the settlement agreement determined liability of over $300,000 more than was actually dictated by the settlement agreement. All parties to a settlement agreement should be very attentive to the details that will allow reward, or determine liability.