Appeals Court rules insurer’s indemnity obligation is joint and several

The Court of Appeals of Oregon has decided that an insurance company’s indemnity obligation to its policyholders is joint and several, not pro-rata, in environmental liability insurance coverage case. In Cacade Corp. v. American Home Assurance Co., the Appeals Court expressly rejected pro-rata application rules that apply between insurance companies as applicable to policyholders.

In the case, Cascade Corp. sought coverage for both its expense in defending administration and judicial actions, which sought to hold it liable for contamination to groundwater under and near its business property, and for the expenses of remediating the contamination that was legally its responsibility.

Since the 1950s, Cascade has manufactured attachments for truck lifts at a location in Gresham, Ore. From 1961 to 1975, it used chlorinated solvents to clean metal as part of its manufacturing process. Those solvents contaminated the groundwater under and near Cascade’s plant. In 1992, the Boeing Corp., which has a manufacturing plant that borders Cascade’s, sued Cascade to recover the expenses for which Boeing was liable in cleaning up the groundwater contamination on its property. The federal court determined that Cascade was responsible for 70 percent of Boeing’s costs, in addition to Cascade’s own obligation to remedy the groundwater contamination on its property.

Because of the substantial expense incurred to defend and remedy the contamination, Cascade made claims against all insurers that it could identify as having issued primary or excess liability policies that might cover its liability for the groundwater contamination.

Cascade settled with most of the primary and excess insurers, but sought coverage for its legal and remediation expenses from Employers Reinsurance Corp.

The jury verdict was for the full amount that Cascade sought for its past expenses that it had not recovered from the primary insurers. However, the trial court entered judgment for only a small percentage of that judgment, and it declared that ERC was liable only for the same small percentage of Cascade’s future expenses. On appeal, Cascade asserted that those actions were erroneous, and it raised issues concerning prejudgment interest and attorney fees. In its cross appeal, ERC argued that the trial court erred by entering judgment for Cascade in any amount and also raised an evidentiary issue.

The Appeals Court reversed the lower court’s ruling and remanded the case with instructions to enter a modified judgment in favor of the insured for past expenses in the amount of approximately $3.8 million, to declare the insurer liable for future expenses beyond those that other insurers have paid until its policy limits are exhausted, to reconsider the award of attorney fees, and to award prejudgment interests.

Topics Carriers Legislation Pollution