Peabody Essex Museum, Inc. v. U.S. Fire Insurance Company
(D. Mass. July 18, 2012)
On July 18, 2012 the U.S. District Court for the District of Massachusetts affirmed a lower court finding that U.S. Fire Insurance Company should have to pay 43% of the $1.5 million clean up costs for an oil spill on the property of the Peabody Essex Museum. U.S. Fire had filed a motion to reconsider following the determination of U.S. District Court Judge Nathaniel M. Gertner last August. Calling the matter an “interminable action,” the court for the most part refused to reconsider the decision pertaining to the allocation of indemnity. In its motion to reconsider, U.S. Fire argued that Judge Gertner erred by relying on expert opinions offered by the museum and founded on disputed questions of fact. However, the reviewing court found a dearth of evidence that the museum’s experts were in fact unreliable. According to the Court, “U.S. Fire had ample opportunity to challenge the expert reports but simply lost the argument and there is no discernable manifest error in the Court’s decision to rely on the experts’ reports.”
The case involves an underground oil tank located on museum property that failed and began leaking oil onto an adjacent property owned by Heritage Plaza Enterprises. In 2003, Heritage discovered the oil on its property and demanded $400,000 from the museum for clean up costs. The museum was further directed by the Massachusetts DEP to clean up the mess. For its part, U.S. Fire refused to defend the museum against either claim, or indemnify it over a subsequent $300,000 settlement with Heritage, leading the museum to sue the insurer in 2006.
The reviewing court found that Judge Gertner was correct to use the fact based method to allocate coverage between U.S. Fire and other insurers. Furthermore, the Court found that Judge Gertner correctly adopted the analysis of an expert for the museum who concluded that 9,000 cu. ft. of soil would have been contaminated from the first day of U.S. Fire’s policy in December 1983 to the last day of its pollution coverage in December 1985. Furthermore, Judge Gertner was correct to rely on the additional testimony of an expert who testified that clean up costs would cost between $1.1 million and $1.5 million. U.S. Fire argued that the allocation of damage should be made with a time on risk approach, meaning that the triggered policy should share in damages based on a calculation weighing when each policy was in effect and the total years of triggered coverage. According to such a measurement scheme, U.S. Fire would only owe about 10% of the remedial costs claimed.
The reviewing court reversed Judge Gertner on one issue, finding that U.S. Fire should be on hook for 43% of the “fixed clean up costs”, meaning those costs that would have been undertaken no matter how bad the property contamination was, such as the cost of certain equipment, permits, and analysis. According to the Court, to assign all fixed costs to U.S. Fire would be inequitable and an unfair windfall for the museum.
For a copy of this decision, click here.