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Missouri Court Applies “All Sums” Allocation to Long-Tail Environmental Coverage Dispute

 

The court in Doe Run Resources Corporation v. Certain Underwriters at Lloyd’s London, No. ED98086, 2013 Mo. App. LEXIS 468 (April 16, 2013), held that excess liability insurers were jointly and severally liable under policies issued to Doe Run in the 1950s for “all sums” that Doe Run paid to investigate and remediate environmental contamination that occurred over more than 90 years.

In the underlying dispute, Doe Run spent more than $62 million in response to an administrative order issued by the United States Environmental Protection Agency (USEPA) that required Doe Run to investigate and remediate environmental contamination at six Missouri sites at which Doe Run had conducted mining, milling and smelting operations since the late 1800s.   In December 2006, Doe Run sought coverage for these costs under seven excess insurance policies in effect from 1952 through 1961.  The insurers failed to respond to Doe Run’s request for coverage.

In the coverage litigation that followed, the trial court granted summary judgment to Doe Run’s insurers on several issues, including: (1) New York law governed Doe Run’s policies; and (2) under New York law, Doe Run’s losses must be allocated pro rata over the entire period during which environmental pollution occurred, and the insurers only were liable for losses allocable to their respective policy periods. 

At trial, the jury in the coverage action found that the insurers were liable for more than $62 million in environmental response costs incurred in connection with all six of the sites.  The jury also found that the insurers’ failure to pay was “without reasonable cause or excuse” and, therefore, the insurers were liable to pay a ten percent penalty and Doe Run’s attorney fees incurred in the coverage litigation pursuant to Missouri’s bad faith statute, RSMo. 375.420. Applying its earlier summary judgment rulings, however, the trial court reduced the jury verdict to approximately $5 million, which the court determined to be the insurers’ pro rata share of Doe Run’s total damages based on the number of years that the insurers’ policies were in effect in proportion to the total number of years during which pollution occurred.  Both Doe Run and the insurers appealed.

On appeal, the court held that the trial court erred in applying New York’s pro rata allocation scheme to limit the insurers’ coverage obligations and, instead, held that under Missouri law, the insurers were jointly and severally liable for “all sums” (the full amount) of Doe Run’s losses.  Id. at *22.  In support of its ruling, the appellate court first held that Missouri law applied to the coverage dispute because the “principal place of the insured risk” was Missouri, regardless of the fact that Doe Run had been acquired by a New York company.  Id. at *18-*21.  The appellate court then held that the “plain language” of the policies compelled an “all sums” allocation.  Id. at *24.  The court based its ruling, in part, on the insuring agreement in the policies, which obligated the insurers to pay “all sums which the Assured shall be obligated to pay by reason of the liability . . . for damages . . . on account of property damage, caused by or arising out of each occurrence happening during the policy period.” Id. at *22-*24 (emphasis and ellipsis in original).  The court also based its ruling on the fact that the policies defined “occurrence” as “one happening or series of happenings, arising out of, or due to one event taking place during the term of this policy.”  Id.  As the court explained, because the “express language” of the policies requires the insurers to pay “all sums” and the definition of “occurrence” in the policies “does not limit the policies’ promise to pay all sums . . . . ,” the trial court’s decision to allocate Doe Run’s losses pro rata was reversible error.  Id. at *24.

Interestingly, the Doe Run opinion does not cite the seminal allocation decision in Monsanto Co. v. C.E. Heath Compensation Liability Ins. Co., 652 A.2d 30 (Del. 1994), which is the only other reported decision in which a court determined how long-tail environmental losses should be allocated among multiple insurers under Missouri law.  The reasoning of the Doe Run court was very similar to the reasoning of the Monsanto court, however, with the Monsanto court applying all sums allocation because the phrase “all sums” is “unambiguous” and the definition of “occurrence” does not limit the insurer’s obligation to pay “all sums.” Id. at *34.  The Doe Run opinion also does not discuss any Missouri cases that discuss insurance allocation in contexts other than environmental pollution claims, stating instead that “[w]e do not reach the issue of whether Missouri law requires an all sums approach or a pro rata approach as the plain language of the policies governs here.”  Doe Run, 2013 Mo. App. LEXIS 468, at p. 23, n8.  

The Doe Run court also held that the trial court committed reversible error when it held that Doe Run’s “active operations” collectively constituted a single “occurrence” at each site as a matter of law, thereby limiting the coverage obligations of each insurer to a single per occurrence limit for each site. Id. at *26-*27. The appellate court agreed with Doe Run and held that each “separate and distinct cause[] of contamination” at each site (e.g. active operations, passive migration for waste disposal ponds, etc.) constituted a separate occurrence because Missouri law requires courts to determine the number of occurrences  at issue in a coverage dispute based on the cause or causes of the loss.  Id.  Because the policies did not contain aggregate limits, therefore, Doe Run was entitled to coverage under each triggered policy for multiple per occurrence limits at each site.

In addition, the appellate court held that the trial court committed reversible error when it denied Doe Run’s motion for prejudgment interest on the basis that Doe Run’s damages were not “liquidated or readily ascertainable.” Id. at *29. As the appellate court explained, Doe Run is entitled to an award of prejudgment interest because its damages - the costs it incurred in response to the remediation orders issued by the USEPA - were “readily determinable and ascertainable by computation,” and Doe Run had demanded payment by sending invoices and other supporting documents to the insurers showing that the costs had been incurred and paid.  Id. at *30.  Moreover, the fact that the insurers disputed some of the costs “is of no consequence” to the determination of whether Doe Run was entitled to prejudgment interest.  Id. at *31.

Finally, the appellate court rejected the insurers’ argument that the trial court erred in denying its motion for a directed verdict with regard to Doe Run’s bad faith claim under RSMo. 375.420 because the issue of whether the insurers “acted reasonably is an inherently factual inquiry left to the province of the jury,” and Doe Run had presented sufficient evidence to submit the case to the jury. Id. at *13. Among the facts considered by the jury were that the insurers did not acknowledge Doe Run’s request for coverage until after Doe Run initiated coverage litigation, and that the insurers continued to claim they lacked sufficient evidence to make a coverage determination, even after having reviewed millions of pages of documents that they had requested from Doe Run.  Id. at *14-*15.

© 2014 Neal, Gerber & Eisenberg LLP.

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About this Author

Seth D. Lamden concentrates his practice on representing corporate and individual policyholders in coverage disputes with their insurers. In addition to dispute resolution, Seth counsels clients on matters relating to insurance and risk management, including maximizing insurance recovery for lawsuits and property damage, policy audits and procurement, and drafting contractual insurance specifications and indemnity agreements.

Seth has successfully represented policyholders in coverage disputes against domestic, London market and Bermuda insurers arising from a broad array of claims...

(312) 269-8052.