By: AgencyEquity.com
A West Virginia manufacturer faced allegations that its products caused cancer. When its insurance carrier denied coverage for the product liability claims, it sued its independent insurance agency.
The insured manufactured, repaired, and installed industrial storage tanks for the chemical, petroleum, energy, and pharmaceutical industries. Three people in one county were diagnosed with cancer in the mid-2010s. They sued the insured, claiming that harmful chemicals in storage tanks manufactured or installed over a four-decade period caused their illnesses.
The same insurance agency had obtained liability insurance policies for the company for more than 30 years. Some were Commercial General Liability (CGL) and Commercial Umbrella policies that took effect in January 1985 and renewed until April 1989. They each provide policy limits of $1 million each occurrence, $1 million aggregate for products-completed operations losses.
Another was a CGL policy that first took effect in April 1989 and renewed continuously until April 2010. This policy applied to losses on an “occurrence” basis and excluded coverage for liability arising out of the insured’s products and completed operations. Still another, which took effect in April 1989 and renewed until 2001, applied on a “claims-made” basis and covered products and completed operations liability losses.
When the insured submitted claims for the product liability suits, the insurer denied coverage, sued the insured, and asked the court to declare that it had no duty to provide defense or coverage. The insured then sued the agency for failing to obtain appropriate insurance coverage and advise them of their coverage options. The court’s opinion did not state the amounts of damages sought, but the insured asked for both compensatory and punitive damages.
The agency moved for summary judgment, a ruling in its favor based on the law when the facts are not in dispute.
The federal district court judge first reviewed the applicable insurance policies. A renewal of the CGL policy that ran from January 1988 to April 1989 included the Insurance Services Office (ISO) CGL coverage form. It did not include a products-completed operations liability exclusion. The Commercial Umbrella policy running for the same term also lacked such an exclusion.
The insurer argued that no coverage applied because the illnesses were not diagnosed or discovered during these policy periods. However, West Virginia courts had never ruled on this argument before. The federal judge held that the law required him to “predict” how the state high court would rule on it. Based on state court rulings in other cases, he held that each CGL and Commercial Umbrella policy in effect from the time of first exposure to the chemicals to the time of illness discovery applied to the suits.
These policies covered injuries only if they occurred during the policy periods. He held that this requirement was ambiguous regarding latent bodily injuries. Because ambiguities are to be resolved in the insured’s favor, and the policies did not exclude products-completed operations liability, he rejected the insurer’s motion. The insurer was obligated to provide the insured with a defense.
The exclusions in the 1989 – 2010 policies were irrelevant, he ruled. The claims made policy did not apply because the claims were not made during its policy period. Because coverage applied, he granted the agency’s motion for summary judgment and awarded no damages to the insured.
If the agency could have done anything differently, it might have been to keep renewing the claims-made Products-Completed Operations Liability policy past 2001. Had that policy been in effect when these individuals became ill, there might have been little question about coverage. However, the opinion does not say why it was not renewed in 2001; it might have been the insured’s decision.
Agencies should make certain their clients with long-tail exposures know what their options are for covering those exposures. Whatever the insured’s decision, the agency should document it in writing. If an insurer attempts to deny coverage, that documentation could help dismiss a lawsuit against the agency.
