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Should Courts Look Forward To Determine Insurance Coverage Or Back In Time?

Indiana's Supreme Court issued a ruling favoring insurance companies and against power companies over what it characterizes as "future contamination."  The case, Cinergy Corp., et al. v. Associated Electric & Gas Insurance Services Ltd. and St. Paul Surplus Lines Insurance (plus several other power companies and some 21 other insurance companies) casts a backward look at insurance policies, both from a coverage and perhaps a shortsighted viewpoint.

In short, here's the Court's summary of its ruling from the first paragraph of the decision:  "Incurring enormous defense costs in the course of a federal environmental lawsuit, several power companies desire payment of these defense costs, as they are incurred, under the terms of certain liability insurance policies. The insurance companies, denying liability for such defense costs, initiated this action for declaratory judgment. The power companies sought partial summary judgment to compel payment of all past and future defense costs incurred in responding to the federal lawsuit. We affirm the trial court's denial of the motion because it seeks relief more extensive than that to which the power companies are entitled."

First, the power companies were sued by the federal government, three states and several environmental groups for alleged violations of the Clean Air Act.  In response to those suits, the power companies incurred nearly $4 million in defense costs and agreed to install certain emissions equipment to prevent future violations.  Next, they asked their insurance companies to provide coverage.  But the insurance companies declined and said, essentially, "we don't cover future damage."

That's what sidetracked the court, helped along by the insurance companies.

Framing the issue that way may not have been the right way to look at the problem.  The court characterized the lawsuit against the power companies as:  "alleging failure to obtain permits and discharge of excess emissions from power plants resulting in wide-spread harm to public health and the environment."

That language does not sound like future harm.  Sure, the remedy does, but not the allegations, which should have made all the difference in the world.  Insurance policies like the ones that cover these power companies provide coverage for harm to people and the environment that occurred in the past.  They don't mention anything one way or the other about remedies. 

Unfortunately, the court doesn't provide all of the language from the insurance policies at issue, so we may not ever know the answer to this question:  does the policy provide coverage for lawsuits arising out of pollution?  Most pollution policies do, and from the language tossed around in this opinion, it would seem these policies do, too. 

The power companies appear to have been unable to get the court to focus on the underlying lawsuit and its allegations of past harm.  If the court had focused on these factors, then it likely would have found coverage under typical insurance law.

The court, however, admits its own failings:  "Synthesizing the policies' insuring agreements with their respective definitions of capitalized words and phrases is a daunting task, replete with often confusing, redundant, and some-times circular concepts."

Too bad they didn't look to the underlying litigation.  Had they been applying California law, they likely would have found coverage. 

Maybe in Indiana insurance policies look ahead, not back - I don't know; I'm not admitted there. 

But it is tough to insure the future, no matter what state you're in.  Most insurance policies I've seen cover past acts, which is what the court told us this lawsuit alleged. 

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Tuesday, May 08, 2007 at 20:33 Comments Closed (0) |
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