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March 27, 2008
Ohio Appellate Court Rejects Regulatory Estoppel; Affirms Summary Judgment On Sudden and Accidental Pollution Exclusion
David
W.
Walulik
Attorneys at Frost Brown Todd obtained another victory for insurers of environmental liabilities in the case, M&M Metals Int’l v. Continental Casualty Co., 2008-Ohio-1114 (1st Dist. March 14, 2008). This case applied the sudden and accidental pollution exclusion to eliminate $17-21 million worth of PCB and lead liabilities that arose from waste shipments to third party sites. This case affirmed summary judgment on all grounds, including: (1) regulatory estoppel; (2) secondary discharge; (3) policyholder burden of proof; and (4) choice of law.
With regard to regulatory estoppel, the policyholder through its counsel Anderson Kill & Olick argued that insurers should be estopped from relying upon the sudden and accidental pollution exclusion because a consortium of insurers misled the Ohio Department of Insurance when the industry sought approval for use of the exclusion in Ohio. A minority of states have adopted this argument and restored millions of dollars of otherwise excluded environmental liabilities for policies issued between 1970-1986 when the exclusion was standard. The M&M Metals court found the exclusion unambiguous and refused to consider any extrinsic evidence to vary the meaning of the exclusion, including alleged misrepresentations to insurance regulators.
With regard to secondary discharge, the M&M Metals court held that policyholder’s periodic shipment of waste to contaminated sites was not sudden or accidental. The court refused to consider alleged discharges of pollutants at the sites that occurred after the policyholder shipped waste to the site, and instead held that the relevant polluting activity was the shipment itself. The M&M Metals court refused to consider polluting events outside the three year window that the policyholder actually shipped waste to the sites in the 1970’s.
With regard to burden of proof, the M&M Metals court held that an insurer establishes the sudden and accidental pollution exclusion by proving that the policyholder seeks coverage for environmental liabilities. The burden of proof then shifts to the policyholder to prove a sudden or accidental polluting event as an exception to the exclusion. In this case, the Court refused to allow the policyholder to take site discovery from third parties because there was no dispute that the policyholder’s only connection to the site was the PCB and lead waste that it periodically shipped.
Finally, the appellate court affirmed the trial court’s rejection of a law of the site approach to choice of law. The policyholder had its principal operations in Ohio and the policy was issued to the Ohio headquarters, although liability arose in Pennsylvania. The court applied Ohio law to all coverage issues, regardless of where underlying liability arose.