Alabama Gas Corp. v. Travelers Cas. & Surety Co.
(U.S.D.C. Northern District of Alabama, July 16, 2013)
This environmental coverage action arises from a dispute as to whether the insurer’s multiple policies provided indemnity for past environmental contamination at a former manufactured gas plant prior to being redeveloped as low income housing.
Specifically, the Huntsville Gas Light Company, which incorporated in 1856, provided manufactured gas from various sources to customers until 1946. In 1946, the Huntsville facility was converted to a propane air system and sold to the City of Huntsville in 1949. In 1967 ownership of the site was transferred for purposes of constructing public housing. The plant was demolished, and the Searcy Homes public housing project was completed in 1971, with title to the land passing to the Huntsville Housing Authority at that time. From 1967 until 1984, the plaintiff allegedly was insured under liability policies issued by Travelers. In 2008, the plaintiff received an “information request” letter from the Environmental Protection Agency (EPA) regarding this site. The plaintiff forwarded this document to Travelers along with a demand for coverage in October 2008. In November 2008, Travelers notified the plaintiff that there was no “formal claim” and thus there could be no coverage until “such a claim or lawsuit is received.” In June 2009, the plaintiff received a formal PRP letter, which it again forwarded to the defendant. On February 3, 2010, the defendants informed the plaintiff that there was no “suit” and hence there was no defense obligation on its part.
The plaintiff brought suit challenging defendants’ denial of coverage and sought to have Travelers indemnify it for the sums it agreed to pay to EPA pursuant to an Administrative Settlement Agreement and Order on Consent for Removal Action (AOC). Conversely, the insurer argued that neither the use of the property nor the value of the property was impaired in any way prior to 2008. Separately, the parties agreed that “no Alabama state court or any federal court applying Alabama law ha[s] ever addressed whether a PRP letter from the EPA satisfies the “suit” requirement under a liability policy.” The court certified this question to the Alabama Supreme Court, which answered in the affirmative. See, Travelers Casualty and Surety Company v. Alabama Gas Corp., 2012Ala. LEXIS 174 (Ala.2012).
In defending the suit, the insurer alleged that the continuous contamination of the property up to, during, and after the 1940s did not fit the policy definition of “occurrence.” Conversely, the policyholder argued that the “occurrences,” which gave rise to damages in this case included the demolition of the remaining structures at the site prior to the construction of the housing project, the construction of the housing project itself, and the commencement of continuous and repeated exposure to conditions on the part of the residents in the low-income housing units. The policyholder also argued that each of these events took place during the 1967 to 1983 policy period, and hence they must be covered by the 1967 to 1983 policy. The insurer responded arguing that none of these events constituted an “occurrence” because the EPA found the plaintiff to be a PRP solely on the ground that it is the successor to the owner/operator of the site at the time of disposal of the hazardous substances.
In evaluating the claims, the court noted that the policy defines an “occurrence” as either (a) an accident that takes place during the policy period, or (b) a continuous or repeated exposure during the policy period to conditions which unexpectedly and unintentionally cause personal injury or injury to or destruction of tangible property.” The policy further stated that if that continuous or repeated exposure “exists prior to or after, as well as during the policy period, causing continuous or repeated injury or destruction, this policy shall apply only to the portion of each injury or destruction caused during the policy period. All such exposure to substantially the same general conditions existing at or emanating from each premises location shall be deemed one occurrence.”
In holding for the insurer and dismissing the policyholder’s indemnity claims, the court held that based on the leading Alabama precedent, the foregoing facts, and the relevant policy language, Alabama applies an injury-in-fact requirement for indemnity under a policy of insurance. Thus, as any injury to land occurred prior to 1949, the fact that the landscape was altered approximately twenty years later did not change this finding. Similarly, the fact that people moved onto the land, and that the risk of exposure to those individuals triggered the EPA’s clean up directives, which in turn triggered plaintiff becoming a PRP, did not change that finding either. As such, the court concluded that there was no indemnity coverage based on the 1967 policy of insurance presented as evidence to the court.