RFBC - <b><i>Recent Result</i></b>: RFBC Obtains Favorable EIL Rulings for CBS Corporation

Recent Result: RFBC Obtains Favorable EIL Rulings for CBS Corporation

Published: June 21, 2007

One June 21, 2007, Somerset County Superior Court Judge Victor Ashrafi granted CBS Operations, Inc. summary judgment finding that the excess policy provides environmental impairment liability (EIL) coverage. Judge Ashrafi also ruled that the "known loss" doctrine does not preclude coverage for environmental remediation costs because an insured did not have a claim before procuring an excess umbrella policy that was likely to reach the attachment of that policy.

CBS Operations Inc.'s predecessor, Gulf & Western Industries obtained primary, umbrella and excess insurance coverage for a zinc smelter operations at a site in Palmerton, Pennsylvania. The foundation of Gulf & Western's 1984 EIL coverage was a primary claims-made policy issued by Aetna Casualty & Surety Co., which sat below an umbrella liability policy from First State Insurance Co.

The U.S. Environmental Protection Agency brought claims against CBS's predecessor in 1984 alleging that the Palmerton site's operations caused acidic wastewater to be released to various surface water resources and sulfuric acid to be released into the air.

In this coverage action, more than 580 insurance policies dating back to the 1940's have been at issue. RFBC has negotiated substantial settlements to resolve these claims. At issue in the summary judgment motions were three excess policies issued in 1984 by Century Indemnity Co., International Insurance Co. and Century Indemnity Co., successor to CCI Insurance Co., successor to Insurance Company of North America (INA). The Century policy attaches at $52 million. CBS seeks a declaration that the excess policies provide coverage for the Palmerton remediation costs.

The Court granted in part CBS’s motion finding that the Century policy provides EIL coverage. Although Century has maintained that its excess policy did not provide EIL coverage because no additional premium was charged and no risk assessment was conducted, the Century policy is an excess umbrella policy that follows form to the First State umbrella policy, which in turn affords the same coverage as the Aetna primary EIL policy.

Judge Ashrafi ruled: "The Century policy, which is an excess policy above the First State umbrella policy, contains an 'Umbrella Following Form' clause that conforms the Century policy's terms to those of the First State policy if there is any discrepancy in coverage between the two," the judge said. "In other words, the Century policy covers what the First State policy covers, albeit at a higher attachment level. Therefore, because the Aetna policy is an EIL policy, and the First State policy unambiguously provides coverage for such losses, the Century policy must also provide coverage for EIL losses."

The Court also agreed with CBS that the “known loss” doctrine does not apply. Century had argued that Gulf & Western knew or should have known that a pollution claim would be made against it before it obtained the policies in 1984. In opposition, CBS asserted that Century's policy is triggered by an environmental claim made against the insured during the policy period because the underlying Aetna is a claims-made policy. CBS explained that the EPA's 1984 notification of Gulf & Western's responsibility for remediation at the Palmerton site served as this claim.

Judge Ashrafi agreed with CBS stating: "This court agrees with CBS that the difference between an occurrence based policy and a claims made policy means that Pennsylvania's 'known loss' doctrine does not exclude coverage simply because an insured knows that it is causing pollution and subsequently obtains insurance coverage against potential remediation costs for that pollution."

The Court found that the event triggering coverage is a claim made against the insured and not the gradual occurrence of pollution. "Although New Jersey Zinc and Gulf Western were aware that they were polluting, and although they were aware of Pennsylvania attempts to halt the pollution, there is no evidence that they were on notice of a claim for remediation liability by the EPA or anyone else before the Century policy was obtained. More important, they were certainly not aware that any remediation costs would reach the $52 million attachment level of the Century excess policy through any prior pollution reports or Pennsylvania governmental actions before the 1984 EPA notice," the judge said.

Kevin J. Bruno of Robertson, Freilich, Bruno & Cohen in Newark, N.J., and Allan J. Arffa of Paul, Weiss, Rifkind, Wharton & Garrison in New York represent CBS. A full copy of the Court’s decision can read here: 6/21/07 letter opinion, CBS Operations, Inc. (f/k/a Viacom International, Inc.) v. Admiral Insurance Co., et al., docket no. SOM-L-1739-99.