Clausen Miller Obtains Summary Judgment in Multi-Million Dollar Environmental Insurance Coverage Case
January, 2003
In Dow Chemical Co. v. Fireman’s Fund Ins., et al., Case No. 2:99-CV-76398, the United States District Court for the Eastern District of Michigan granted summary judgment to six CM clients: AIU Insurance Company, American Home Assurance Company, Birmingham Fire Insurance Company, Granite State Insurance Company, Insurance Company of the State of Pennsylvania, and National Union Fire Insurance Company of Pittsburgh PA (“Certain Defendants”), finding that Certain Defendants had no duty to indemnify Dow Chemical for environmental losses at five manufacturing companies throughout the United States. Dow Chemical had claimed damages of approximately $395,000,000 at the five manufacturing sites.
Facts
In 1999, Dow Chemical filed suit against numerous insurers that issued general liability policies to Dow from 1944 to 1984, including Certain Defendants, seeking indemnification for environmental liabilities associated with 25 Dow manufacturing facilities located throughout the world. Dow alleged that it defended itself against numerous underlying actions arising out of property damage, bodily injury and personal injury caused by materials stored, generated or disposed of by or on behalf of Dow at various geographic locations and sought indemnification for liabilities incurred.
Throughout the course of litigation, each of the defendant insurers except Certain Defendants settled with Dow. CM’s Margaret J. Orbon and Colleen A. Beverly, on behalf of Certain Defendants, filed three summary judgment motions regarding issues of late notice, justiciability, and prior release of certain sites based on a prior settlement agreement. Certain Defendants also joined in The Home Insurance Company’s motions for summary judgment based upon the application of pollution exclusions within the policies at issue.
On February 20, 2003, the district court granted four out of the five pollution exclusion motions as well as Certain Defendants’ late notice motion.
Analysis
Pollution Exclusion
The district court began its analysis by recognizing that all of the general liability excess insurance policies that Certain Defendants sold to Dow between June 11, 1971 and December 1, 1984 contained a pollution exclusion clause precluding coverage for damages caused by seepage, pollution or contamination. However, the court also noted an exception to the exclusions for damages when the release or discharge of contamination was “sudden and accidental.” The court stated that it was undisputed that all of the liability Dow accrued was a result of pollution and thus, it was presumed that Certain Defendants did not have a duty to indemnify Dow. The court relied upon Sixth Circuit precedent in finding that the burden is on the insured to demonstrate that the “sudden and accidental” exception to the pollution exclusions applied. The court cited South Macomb Disposal Authority v. American Ins. Co., 572 N.W.2d 686 (Mich. App. 1997) in determining that under Michigan law, there are two steps for determining when an occurrence falls within the “sudden and accidental” exception to the pollution exclusion. First, Dow needed to separately identify any “sudden and accidental” discharges if there existed a larger pattern of discharges at a particular focus site. Second, the court must determine whether there is a genuine issue of material fact as to whether any separate and identifiable occurrences met the Michigan Supreme Court’s definition of “sudden” and “accidental.” Moreover, the court stated that the critical inquiry is whether any separate and independent discharges were expected and that Dow’s actions were to be evaluated under an objective rather than a subjective standard.
Dow attempted to argue that the costs for which it was seeking coverage were derived from “sudden and accidental” events. The court rejected this argument with respect to four out of the five sites, finding that Dow did not provide sufficient evidence to demonstrate that the contamination at issue could be traced to alleged “sudden and accidental” events. Therefore, the court found that coverage was precluded by the pollution exclusions within Certain Defendants' policies as to those sites.
Late Notice
The court also granted Certain Defendants summary judgment based upon a late notice defense. In reaching this decision, the court rejected the standard set forth in Aetna Casualty & Surety Co. v. Dow Chemical Co., 93-CV-73601-DT (E.D. Mich. Aug. 15, 1993), which would only require Dow to give notice when it subjectively concluded that a claim was likely to involve one of its insurers. In rejecting that standard, the court found that there is an objective element to the notice provisions, requiring Dow to provide notice when it had information from which it could conclude that an occurrence covered under the policies would likely involve the insurers. The court rejected Dow’s argument that it did not believe under statutory law that it would incur remediation costs sufficient to require it to notify its excess insurers until 1997. The court pointed out the remediation efforts Dow performed prior to 1997 and its filing of the Aetna v. Dow litigation in 1993 in reaching its decision that Dow had knowledge of its liability well before 1997. The court also accepted Certain Defendants’ arguments that they were prejudiced by Dow’s late notice due to the fact that they could not participate in settlement negotiations and that both evidence of remediation efforts and testimony regarding this remediation was not as readily available due to the time delay. In finding that proper notice was a condition precedent to coverage, the court found that Dow was not entitled to any benefits under Certain Defendants’ policies with respect to two of the five focus sites.
Learning Point:
This case illustrates that in order for an insured to successfully assert that damages fall within the “sudden and accidental” exception to the pollution exclusion within standard CGL policies, an insured must provide evidence which traces or links the contamination to the alleged “sudden and accidental” event.
In addition, this decision indicates that the Michigan federal courts have more stringent requirements for insureds under the notice provisions within liability policies, requiring an insured to provide notice once it has information from which it may conclude that an occurrence covered under the policies would likely involve the insurer.
Back to CM Report of Recent Decisions (2003v1) 2003 Volume 1 Table of Contents
