Insurer Required To Prove Insured’s Intent To Contaminate

Insurer Required To Demonstrate Intent Of Insured To Cause Contamination In Order To Deny CGL Coverage For Environmental Liability

A New Jersey court recently ruled in Cooper Industries LLC v. Employers Insurance of Wausau A Mutual Co. that Cooper Industries is covered by a predecessor’s corporate general liability (CGL) policies for any liability the company incurs regarding Passaic River remediation efforts, including settlement payments. In support, the court determined that the insurers failed to prove that Cooper’s predecessor intended to cause environmental harm “comparable both as to severity and type with that for which indemnification is sought,” thereby negating application of the policies’ pollution exclusions. 

Environmental Contamination of Passaic River

On March 10, 2010, the EPA issued a General Notice Letter to Cooper Industries LLC, naming Cooper as a “potentially responsible party” (PRP) for environmental remediation of a 17-mile stretch of the Passaic River known as the Lower Passaic River Restoration Project. In the General Notice Letter, the EPA maintained that Cooper was responsible for the cleanup as the successor to the McGraw-Edison Company. The agency also requested that Cooper become a cooperating party by participating in the Cooperating Parties Group Agreement (CPG Agreement), which is a type of settlement between and among the EPA and other potentially responsible parties. The EPA warned that if Cooper declined to join the cooperating group, the agency may initiate enforcement proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

In May 2011, Cooper notified Lamorak Insurance Co. (formerly known as OneBeacon Insurance Company), which Cooper contends issued policies to Cooper’s predecessor, McGraw-Edison, of the EPA General Notice Letter and demanded that OneBeacon provide Cooper with a defense to the EPA action. OneBeacon refused to provide a defense to Cooper for several reasons, among which was their assertion that the policies at issue contained pollution exclusion clauses that precluded coverage related to liability arising from the release of pollutants. As a result, Cooper assumed its own defense and entered into the CPG Agreement.

Cooper subsequently filed a declaratory action against Lamorak and several other insurance carriers seeking indemnification in connection with the EPA action. Cooper maintains that, as a result of the insurers’ failure to provide Cooper with a defense, it has incurred (and is continuing to incur) more than $4.1 million in defense costs.

Insurance Coverage Dispute Over Indemnification

In prior proceedings in Cooper Industries LLC v. Employers Insurance of Wausau A Mutual Co., Judge Garry Furnari held that receipt of the EPA Notice Letter constituted a “suit” that triggered coverage under the policies. In reaching his decision, Judge Furnari noted that the EPA relies on Notice Letters to encourage cooperation, subjecting those who fail to comply to contempt proceedings, fines, and treble damages and barring them from filing a contribution action against settling PRPs. “[G]iven the coercive nature of CERCLA, it would be ‘naive to characterize the EPA letter as a request for voluntary action,” he wrote.

In the latest ruling, the court addressed, among other issues, whether McGraw-Edison Company’s insurers must indemnify Cooper for any future EPA settlement or other financial liability. The court held that Cooper “deserves a ruling declaring that, if Cooper is found liable, then the Insurers owe a duty to indemnify.” Judge Furnari also rejected the insurers’ argument that indemnity claims are premature. “As insurers whose policies provide first-dollar coverage for Cooper’s liabilities, the likelihood that the certain insurers will bear responsibility for some quantum of indemnity costs for the remediation of the Lower Passaic River Site appears to be quite certain,” he concluded.

The court also addressed whether Cooper’s potential liability for pollution of the Lower Passaic River would fall within the scope of coverage provided by the policies. The court ruled that the environmental contamination was not subject to the policies’ pollution exclusion. In reaching his decision, Judge Furnari noted that environmental actions will be treated as alleging a covered occurrence pursuant to a commercial general liability policy unless the insurer can prove that “the insured intended or expected to cause environmental harm comparable both as to severity and type with that for which indemnification is sought.” CPC Int’l., Inc. v. Hartford Acc. & Indem. Co, 316 N.J. Super. 351, 371 (App. Div. 1998).

In this case, the court held that the requirement weighed in favor of Cooper. “There appears to be no evidence that Cooper’s predecessors intended to cause the environmental harm for which Cooper is currently being held liable,” Judge Furnari wrote. “Even the Insurers’ proposed expert on the timing of the contamination here supports the conclusion that the occurrences took place during each of the Policies’ respective coverage periods.” He added: “As a result, these liabilities logically appear to demand being treated as covered occurrences unless the insurers can prove that Cooper’s predecessors intended to cause environmental injury ‘comparable both as to severity and type with that for which indemnification is sought.’”

The court’s decision provides support to insureds seeking coverage for environmental liabilities who can make a claim against predecessors’ policies, even where the policies contain pollution exclusion provisions, as insurers will likely find it difficult to demonstrate the level of a predecessor’s intent required by Judge Funari. However, the unique facts of each individual situation must be carefully considered and discussed by insureds and experienced counsel prior to asserting a claim against insurers on this basis.

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.