July 7, 2010

On July 2, 2010 the Minnesota Supreme Court issued a decision that overturned a long-standing rule in insurance coverage cases.  The decision may have a major impact on mass tort and environmental cases.  The Supreme Court ruled that primary insurers of a business may be equally liable for the costs of defense under a theory of equitable contribution even though there was no direct contractual relationship between insurance carriers who provided coverage to an insured over a 50 year time period.

Commentators suggest that the decision may help simplify insurance coverage disputes, especially in mass tort and environmental cases.  See http://www.finance-commerce.com/article.cfm/2010/07/06/Cargill-insurance-ruling-may-expedite-masstort-cases.

The case arose when the State of Oklahoma sued Cargill in 2005 under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601-9628 (2000), and the Solid Waste Disposal Act, 42 U.S.C. § 6972 (2000), alleging that Cargill’s past poultry waste disposal practices polluted and damaged land and water in the Illinois River Watershed.  Cargill was also named as a defendant in a number of lawsuits in Arkansas alleging personal injury and wrongful death as a result of exposure to allegedly contaminated poultry litter.

Cargill notified its liability insurers of the Oklahoma and Arkansas litigation, requesting that the insurers defend and indemnify Cargill.  Liberty Mutual agreed to pay its share of the reasonable and necessary defense costs in conjunction with Cargill’s other insurance carriers for the Oklahoma and Arkansas lawsuits, subject to a complete reservation of rights, deductible provisions, and all other policy terms and conditions.  But because none of Cargill’s insurers agreed to fully defend Cargill or pay defense costs without contribution from other insurers, Cargill chose to defend itself in the Oklahoma and Arkansas lawsuits.

The Hennepin County trial court granted Liberty Mutual partial summary judgment concluding that it would be inequitable to require a single insurer to assume the multimillion dollar cost of defending Cargill without any right of contribution.  The trial court certified the following question for appellate review: “Can a court order primary insurers, who insure the same insured for the same risks, and whose policies are triggered for defense purposes, to be equally liable for the costs of defense where there is otherwise no privity between the insurers?”

The Minnesota Court of Appeals answered “yes” finding that Cargill’s conduct amounted to bad faith.  The Court of Appeals held it was proper for the trial court to impose an obligation of a duty to defend.  In its decision, the Minnesota Supreme Court took the additional step of finding that a past holding involving multiple party insurers no longer applied.  The Supreme Court concurred with the Court of Appeals and held that a primary insurer that has a duty to defend – and whose policy is triggered for defense purposes – has a right to seek contribution from other insurers who also have a duty to defend and whose policies have been triggered.  Moreover, the Supreme Court held that insurers with such an obligation are responsible in equal shares for the costs of defense.

A practical effect of the ruling is that insurers who may have an obligation to defend are more likely to step in and honor their obligation to defend their insureds.

In the context of environmental and mass tort claims, businesses may be able to rely on comprehensive general liability policies for insurance coverage.  Policies issued before the late 1970s and early 1980s often did not contain pollution exclusion clauses.  Each case needs to be evaluated to determine if coverage may be available.  As environmental laws, including federal and state Superfund cleanup laws with their joint, strict and retroactive liability provisions, were passed, insurance policies were revised to contain pollution exclusion clauses that may serve to limit or preclude coverage.  Currently, insurance policies can provide coverage for third party claims, unforeseen cleanup expenses and regulatory actions that arise out of a site with contamination.

At Hessian & McKasy, the environmental lawyers in the Firm’s Environmental Law Attorney Practice Group assist clients in evaluating and litigating cleanup and mass tort claims.  As environmental lawyers, we consider the potential for insurance coverage as a means of limiting our clients liability and exposure to environmental claims.  We work closely with the attorneys in our Litigation Department who have extensive experience in resolving matters in federal and state courts and through various alternative dispute resolution mechanisms.  For information on the professional services provided by the Environmental Law Attorney Practice Group at Hessian & McKasy, please visit:http://www.enviroattorney.net/practice/professional_services.php#insurance.

The views here are my own and do not reflect the views of my employer, Hessian & McKasy, P.A. Please see the disclaimer below as information on this website does not constitute legal advice.

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