Second Circuit Follows Viking Pump Methodology to Calculate Total Insurance Liability for Environmental Cleanup Efforts Spanning Years and Policies


On July 17, the U.S. Court of Appeals for the Second Circuit decided the case of Olin Corporation v. OneBeacon America Insurance Company, an environmental insurance recovery lawsuit. Olin Corporation has filed such lawsuits against several of its insurance carriers with respect to the contamination indemnification claims generated by Olin Corporation’s ongoing cleanups at its manufacturing facilities around the country. The Court of Appeals affirmed Olin Corporation’s right to recover and also agreed with OneBeacon America Insurance Company (OneBeacon) that the U.S. District Court for the Southern District of New York should have factored in the “prior insurance provision” of OneBeacon’s policies “thereby reducing the limits of its policies by those of any prior policies covering the same loss.”

Olin Corporation first filed an insurance-coverage action in 1983 in the U.S. District Court for the District of Columbia seeking indemnification for environmental damage at Olin Corporation manufacturing sites throughout the U.S., and the action was transferred to the U.S. District Court for the Southern District of New York. Because of the volume of claims and locations involved, the District Court chose to address coverage on a site-by-site basis.

This appeal pertains to five particular Olin Corporation manufacturing sites, and salient issue before the District Court was the proper method for allocating loss at each site and to decide whether OneBeacon can reduce the limits of its liability because Olin Corporation had other policies to draw on. Olin Corporation initially notified OneBeacon of its claims under the policy in 1984, and kept the insurer informed of developments on a regular basis, but coverage was denied. These policies were affected by the adoption of a “pollution exclusion on January 1, 1971. The District Court stated that period of the policy’s coverage was therefore January 1, 1970 through December 31, 1970.  The District Court summarily denied OneBeacon’s motion at oral argument, ruling from the bench:

The motion for summary judgment by OneBeacon is denied.  . . . [T]he language that is critical is as follows: ‘It is  agreed that if any loss covered hereunder is also covered  in whole or in part under any other excess policy issued to the insured prior to the inception date hereof.’ I am holding  that that applies to any other excess policy issued by  the same insurer, not to other excess policies issued by miscellaneous  possible insurers.

The District Court reasoned that:

The paragraph, in my view, if it is not limited as I have said, . . . would be hopelessly vague and subject to numerous possible factual issues in applying it. Also, it would relieve the insurer of possibly 100 percent liability on a policy for which substantial premiums were paid to obtain something other than possibly no liability.

The District Court awarded Olin Corporation $80 million in indemnifications costs. Olin Corporation’s remediation costs to date at these sites ranges from over $16 million to $300,000.

The Court of Appeals noted that between when judgment was first entered in this case and oral argument, the New York Court of Appeals issued its decision in In re Viking Pump, Inc. Under Viking Pump, the Court of Appeals concluded that Olin Corporation may “collect its total liability under any  policy in effect during the periods that the damage occurred, up to the policy limits.” Moreover, it found that

Because the  jury determined that property damage continued during the years in which Olin was covered by OneBeacon’s policies and that Olin did not expect or intend this  damage (at least during the OneBeacon policy year at issue), Olin may pursue OneBeacon for full indemnification for its costs at these sites up to the policy limits for  the 1970 year. Thus, OneBeacon’s total liability to Olin (before calculating prejudgment  or post-judgment interest) after Viking Pump can be computed as Olin’s  total remediation costs, less $300,000, at each of the manufacturing sites at issue, with Olin’s total recovery capped only by the relevant policy limits.

The matter was remanded to the District Court to calculate damages on the basis of the methodology dictated by Viking Pump.