Application of Boston Gas Damages Apportionment Method Leads To 80% Jury Verdict Ruling for Plaintiff Insured In Environmental Coverage Dispute
Maestranzi
Brothers, Inc. v. American Employers’ Ins. Co. et. al. (Massachusetts Superior Court, Essex District,
April 9, 2010)
This environmental coverage
matter arises from a dispute over the division of damages for long-term
environmental claims stemming from pollution clean-up costs at an EPA Superfund
site. The jury returned a verdict in
favor of the plaintiff in the amount of $120,000 finding that the insurer breached
both its duty to defend and its duty to indemnify. However, the damages returned related only to
the issue of indemnification. The jury
found that the defendant had failed to prove that a significant portion of the
pollution at the site was not the result of a “sudden and accidental”
discharge. The verdict figure equaled
the amount previously paid by the insured to satisfy an EPA demand for clean-up
costs.
In determining the proper apportionment
of damages, the court applied the approach outlined in the Supreme Judicial
Court's recent decision of Boston Gas Company v. Century Indemnity Company,
454 Mass. 337, 910 N.E.2d 290 (2009) which outlined the general method of
apportioning damages between insurers and insureds in complex disputes where
the timing and extent of environmental damage are difficult to determine.Specifically, the Superior Court noted that
in Boston Gas, the Supreme Judicial Court adopted a
"time on the risk" pro rata method of damages for "long-tail
claims" resulting from long-term or progressive environmental damage.In doing so the court further explained, that
the fairest assessment of damages would be to pro-rate the damages by
determining the “time on the risk” divided by the years during the “triggered
period.” (i.e., determining the triggered policies that had time on the risk
and divide that by the total number of years of triggered coverage).
In undertaking this assessment of
damages the court first determined the “time on the risk.” Noting that it was agreed by the parties that
as the first shipment of waste oil to the site by the insured was in 1982, the
1981-1983 policy was the policy initially triggered by the PRP letter
announcing the EPA discovery of groundwater pollution.Thus, the triggering event was the 1982
shipments.There was also agreement that
the subsequent policies (1984- 1987) were triggered by the ongoing shipments
and ongoing pollution and that time on the risk ended in 1990 when the policies
then contained an absolute pollution exclusion.Thus, the numerator in the equation was 8 years (1982 – 1990).
The denominator, constituting the
total number of year of triggered coverage (i.e., the total years the
risk/damage/claim existed regardless of who was the insurer), proved more
problematic for the court.After
considering a number of possible alternatives that were deemed purely
fortuitous or happenstance, the court settled on a “fairer approach” that
consisted of the period when the first occurrence triggered the liability
(i.e., the 1982 shipments).The court
noted that the previous alternatives did not achieve the purposes of the Boston
Gas approach to promote "judicial efficiency, engender stability and
predictability in the insurance market, provide incentive for responsible
commercial behavior, and produce an equitable result." Id. at 366. Far from being
predictable and equitable, the alternative approaches encourage speculation,
unfairness to a company that did not even exist before 1965, and a windfall to
the insurance company.
Likewise, the alternatives ignored a key component of the
Boston Gas decision – the insurer
should only be responsible for "occurrences" under the particular
policy.
The court thereafter determined
that the end date for the years of triggered coverage was when the insured had
its last contact with the polluted site. In this case, that was the date of the
last shipment, i.e. 1992. The court noted that this approach best approximated
the Boston Gas case which assumed that the triggered period of years
ended when Boston Gas sold or abandoned the polluted site and best approximated
the "fact-based allocation" praised in Boston Gas. Thus, given
the facts of this case, the fairest "triggered period of years" was
from 1982 to 1992.
Given these determinations, the
court concluded that the pro rata equation was eight years over ten years. In
other words, the insurer was responsible for paying 8/10ths (or 80%) of the
jury's verdict with interest to run on that portion of the verdict from the
date of breach (i.e., the deadline date set by EPA for the settlement payment,
August 4, 2004).
A copy of the decision can be found here
Paul Steck and Tom Segalla
http://www.goldbergsegalla.com/attorneys/Steck.html
http://www.goldbergsegalla.com/attorneys/Segalla.html
case provided courtesy of Lexis