Forgotten But Not Lost: Using Insurance Archeology to Fund Brownfields Development Tina Richards Baker & Daniels LLP Indianapolis, Indiana

How can insurance help fund Brownfields redevelopment?  Are there former owners & operators / PRPs with general liability policies that have limits not yet exhausted?  Look at state law – do you have a valid claim against former owners & operators / PRPs?  May have a claim against the general liability policies of the former owners & operators / PRPs.

First Steps to seeking Environmental Insurance Coverage  Look at the policies – all of the policies  Gather evidence of coverage  Put carriers on notice

The Basics…  Most general liability policies are “occurrence- based” – they cover a claim whenever it is made if it stems from a covered act which took place in the policy period.  Insurance is a product – not an individualized agreement, arrived at by arm’s length negotiation – ambiguity is typically resolved in favor of policyholder.

Insurance Coverage for Environmental Liabilities is a Two-Part Obligation  Duty to Defend –Typically triggered if there is a potential for coverage –Is there a “suit”? –Investigation regarding the nature & extent of contamination can = defense obligation  Duty to Indemnify (provide coverage) –Environmental response costs = damages? –Was there an “occurrence” during a policy period? –Are there valid defenses to coverage? –Remediation = indemnification

Duty to Defend  The duty to defend is triggered by the mere "possibility" or "potential" of liability – which means that the merits of the underlying claim, while determinative of the insurer's duty to indemnify, have no affect on the duty to defend.  Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify and an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.

Duty to Defend – what constitutes a “suit” triggering coverage?  Indiana – “suit” is ambiguous and includes not just courthouse litigation but also administrative proceedings that are coercive and adversarial in nature. Participation in voluntary remediation program has been considered “suit.”  Michigan – majority of cases are pro-policyholder and hold that administrative proceedings are a “suit” and that PRP letter / EPA information request can be a “suit.”

Duty to Defend – what constitutes a “suit” triggering coverage?  Illinois –”suit” triggering the duty to defend extends only to suits filed in a court of law and not to mere allegations, accusations, or claims (e.g. Potentially responsible party (PRP) letter, draft consent order, and no-action letters) that have not been embodied within a formal complaint are not a “suit.”  Ohio – typically a “suit” is commenced, for purposes of triggering an insurer's duty to defend, when the policyholder becomes obligated to obey or pay because of an injunctive action or cost recovery action.

Duty to Indemnify – are environmental response costs “damages”?  Insuring agreement : will pay damages because of or resulting in bodily injury or property damage with respect to any accident, event, or continuous or repeated exposure to conditions. –Insurer argument is that the term “damages” is limited to legal damages or “compensation awarded at law to a third party.” –Pro-policyholder argument is that the term “damages” is ambiguous and that the ordinary meaning of “damages” is so broad that it encompasses environmental response costs.

Duty to Indemnify – was there an “occurrence” during a policy period?  Indiana / Ohio – continuous trigger: if coverage is triggered by an occurrence, it is triggered for “all sums” related to that occurrence even if the injury continues beyond the policy period.  Michigan / Illinois – pro rata / time on the risk allocation (liability is determined by multiplying the number of years an insurer provided coverage by the limits of that insurer's policies, and then assigning liability corresponding to the ratio of the total coverage provided by that insurer to the total coverage provided by all the triggered policies).

Defenses to Coverage  Late Notice  Known Loss  Owned Property  Voluntary Payment  Pollution Exclusions

Duty to Indemnify – Is there a valid defense to coverage?  Known loss – policyholder argument is that policyholder did not know liability would be imposed (i.e. “suit” brought against it) at the time it purchased the policy and that policyholder did not know about contamination at time purchased policy.  Owned property – policyholder argument is that the exclusion is not applicable to environmental liability claims because such claims are not to add value to property or compensate policyholder, but rather to abate a nuisance.  Voluntary payment – policyholder argument is that unless insurer can prove prejudice as a result of the policyholder’s payment of expenses, the exclusion does not apply.

Duty to Indemnify – is there a valid defense to coverage?  Late notice – policyholder argument is that insurer was not actually prejudiced by the timing of the notice provided –would the carrier have handled the defense differently? –done something different with respect to dealing with the environmental regulatory agency? –Done something different regarding the environmental investigation? –When start dealing with remediation and determining remedial plan it may be easier for insurer to prove actual prejudice.

Duty to Indemnify – is there a valid defense to coverage?  Pollution Exclusion –Sudden & Accidental The policy will not apply: to bodily injury or property damage arising out of the discharge, dispersal, release, or escape of … contaminants or pollutants into or upon land, the atmosphere, or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release, or escape is sudden and accidental.

Duty to Indemnify – is there a valid defense to coverage?  Pollution Exclusion Sudden & Accidental cont… –Indiana / Illinois - “sudden” does not require a temporal element and that the phrase “sudden and accidental” should be understood as meaning unexpected and unintended – in short, there was coverage for gradual but unexpected pollution. –Michigan / Ohio - The terms “sudden” and “accidental” have been found to be unambiguous and in their plain meaning – “sudden” is defined with a temporal element that joins together conceptually the immediate and the unexpected - the exception to the exclusion covers only those damages caused by an abrupt release – not occurring over a period of time.

Duty to Indemnify – is there a valid defense to coverage?  Pollution Exclusion Absolute Pollution Exclusion - The policy does not apply to: “bodily injury" or "property damage" arising out of the actual alleged or threatened discharge, dispersal, release, or escape of pollutants… –Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed. –Pro-policyholder argument: definition of “pollutants” is ambiguous and should be construed in favor of the policyholder & coverage.

Duty to Indemnify – is there a valid defense to coverage?  Absolute Pollution Exclusion cont… –Indiana – definition of “pollutants” is ambiguous and the pollution exclusion should be construed in favor of the policyholder / coverage. –Michigan – definition of “pollutants” is not ambiguous and typically bars coverage for environmental claims. –Illinois / Ohio – “pollutants” may be ambiguous when the exclusion is applied to cases which have nothing to do with “pollution” in the conventional, or ordinary, sense of the word.