According to the Ninth Circuit Court of Appeals, in Ash Grove Cement Co. v. Liberty Mutual Ins. Co., an unpublished opinion applying Oregon law, an insurer’s duty to defend begins with a “104(e) letter” from the EPA and continues for the duration of the regulatory process. In A “Suit” by Any Other Name: Ninth Circuit Rules CERCLA 104(e) Letter Triggers Duty to Defend, Pillsbury attorney Alex Lathrop discusses the Ash Grove ruling.
In New York High Court Gives the Bronx Cheer to Insurers’ Pro Rata Allocation and Exhaustion Arguments, Pillsbury attorney Benjamin D. Tievsky discusses New York State Court of Appeals’ decision in In re Viking Pump, Inc. The Court of Appeals accepted two certified questions from the Delaware Supreme Court. As noted by Ben, “in a New York minute,” the Court of Appeals has “leveled the playing field by endorsing the ‘all sums’ and ‘vertical exhaustion’ approach to allocation advocated by a policyholder, at least as to policies containing ‘non-cumulation’ and ‘prior insurance’ provisions.” This ruling will be of interest to those who have encountered in New York barriers to insurance coverage where multiple policies over multiple policy terms are implicated, including, but not limited to, coverage for environmental or asbestos liabilities.
UPDATE: When Attorneys General Attack II
In When Attorneys General Attack, Pillsbury attorneys Sheila McCafferty Harvey, Joseph Jean, Carolina Fornos and Benjamin Tievsky discuss the New York State Office of the Attorney General’s and other jurisdictions’ power to aggressively scrutinize energy companies’ public statements on the subject of climate change. In the alert, they provide strategies for managing and obtaining insurance coverage for these investigations.
In A Double Standard in Construction Defect Coverage Cases?, I discuss the recent decision of Allied Property & Casualty Insurance Co. v. Metro North Condominium Associates. This decision highlights why only a minority of courts still hold to the fiction that construction defects cannot give rise to an “occurrence” covered under a commercial general liability (CGL) policy, why construction companies and others need to understand how this rule is applied, and why contractors may want to avoid choosing Illinois law to control their CGL policy.
In his November op-ed, C. Andrew Gibson states that bonds do not have a deductible as compared to a subcontractor default insurance (SDI) policy that does carry a deductible. The statement is literally correct. A bond does not have a “written” deductible when a default takes place. However, frustration develops when the question is asked “When will a bond pay?” We will explore the time it takes for each to respond and pose the question at the time of default, would you rather have contract certainty (SDI) or uncertainty (Bond)? Is uncertainty a deductible disguised as loss of time?
In Fabozzi v. Lexington Insurance Company, the United States Court of Appeals for the Second Circuit has reaffirmed that ambiguities in an insurance policy must be construed against the insurer.
The Fabozzis were renovating their home when they learned that its interior walls were so rotted that the entire house was actually in the process of collapsing. Faced with the complete loss of their home, the Fabozzis understandably turned to their homeowners’ insurer, Lexington Insurance. The homeowners’ policy provided coverage for collapse caused by certain named perils, including hidden decay. But the policy also required that the collapse be “caused only by one or more of” the named perils. That simple, 7-word phrase led to Lexington’s denial of coverage and a decade of litigation.
Subcontractor default insurance (SDI) was created more than twenty years ago. Despite its relatively recent vintage, SDI is now offered by multiple insurers and is quickly replacing traditional subcontractor payment and performance bonds as a go-to option on large-scale construction projects. SDI has many benefits that surety bonds don’t. We’ll be going into this in substantial detail at our Fourth Annual Subcontractor Default Insurance Forum that Pillsbury co-presents, along with our friends at Willis Towers Watson, in Scottsdale in May.
In Insurance Coverage Issues for Hotel and Apartment High-Rises Damaged by Fire, Pillsbury attorneys Joseph Jean, Alexander Hardiman, and Matthew Putorti discuss how to maximize insurance recovery when a fire damages or destroys mixed-used hotel, retail, and apartment high-rises, as happened on New Year’s Eve at the Address Downtown Hotel in Dubai and at several other buildings in Dubai since 2012.
Acquiring adequate insurance coverage against environmental risks, in particular the spill or release of pollutants or contaminants in day-to-day operations, is important to many construction businesses confronting the requirements of environmental regulation. For example, EPA’s hazardous waste rules require permittees (at both the state and federal level) to demonstrate financial responsibility for the operations of these facilities, including site closure and post-closure care, and coverage for sudden and accidental discharges. This requirement can be satisfied by proof of acceptable insurance coverage. In addition, having such insurance often assists companies facing the challenge of an extensive and prolonged Superfund cleanup. Many courts have ruled that the receipt of a Superfund Notice Letter from EPA triggers the responsibility of the insurer to provide the coverage in the policy.
Responding to an inquiry from the U.S. Court of Appeals for the Fifth Circuit, the Texas Supreme Court ruled Friday, in a 5 to 4 decision, that the “coercive nature” of the administrative proceedings employed by the Environmental Protection Agency (EPA) under Comprehensive Environmental Response, Compensation, and Liability Act’s (CERCLA) cleanup and cost recovery provisions amount to a “suit”, and a potentially responsible party’s (PRP) receipt of a CERCLA letter from EPA, inviting the recipient to negotiate with EPA “is effectively a demand”. Moreover, with respect to judicial review, “as a practical matter, courts afford PRPs no hope of relief, and consequently they have no choice but to comply with EPA’s directives”. The case is McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company and The Travelers Indemnity Company. Chief Justice Hecht wrote the majority opinion.
This decision was triggered by ongoing cleanup actions taken at the San Jacinto Waste Pits Superfund Site, which is located in Harris County, Texas, in the vicinity of Pasadena, Texas. According to the Court, in the 1960’s McGinnes Industrial Waste Corporation (McGinnes) dumped pulp and paper mill waste sludge into disposal pits near the San Jacinto River. EPA began investigating possible environmental contamination in 2005 and, in 2007, notified McGinnes’ parent company that it was a PRP at the site, and invited the parent company to begin negotiating an order for the cleanup of the site, and the reimbursement of EPA’s expenses to date. When McGinnes and its parent company failed to respond to these EPA communications, EPA issued a Unilateral Administrative Order (UAO) directing McGinnes to conduct an remedial investigation and feasibility study; a failure to comply with this UAO would expose McGinnes to $37,500 per day in daily penalties and very costly punitive damages.
McGinnes was covered by a standard-form commercial general liability (“CGL”) insurance policies at the time it was “dumping” waste at the site, and it asked for a defense in accordance with the terms of the insurance policy. The insurers refused, arguing that these EPA administrative proceedings are not a “suit,” as specified by the policy. McGinnes then sued its insurers in federal court, but the court agreed with the insurers’ position, granting their motion for summary judgment. On appeal to the Fifth Circuit, that Court of Appeals asked the Texas Supreme Court to answer the question” “Whether EPA’s PRP letters/and or administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend” — to which the Texas Supreme Court answered: “Yes”.
Dissenting justices Boyd, Johnson, Guzman and Lehrmann argued that the Court was, in effect, rewriting these insurance policies, and described the ruling as a “disturbing decision”.