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Tuesday, May 01, 2007

Ind. Decisions - Supreme Court decides environmental insurance case

In Cinergy Corp., Duke Energy Indiana, Inc. v. Associated Electric & Gas Insurance Services, LTD, St. Paul Surplus Lines Ins. Co., et al, a 17-page, 5-0 opinion, the Court finds that the power companies' insurance companies are not responsible for paying the costs of defending the companies against a federal lawsuit "to require the power companies to incur the costs of installing government-mandated equipment intended to reduce future emissions of pollutants and prevent future environmental harm." Justice Dickson writes:

Incurring enormous defense costs in the course of a federal environmental lawsuit, several power companies desire payment of these defense costs, as they are incurred, under the terms of certain liability insurance policies. The insurance companies, denying liability for such defense costs, initiated this action for declaratory judgment. The power companies sought partial summary judgment to compel payment of all past and future defense costs incurred in respond-ing to the federal lawsuit. We affirm the trial court's denial of the motion because it seeks relief more extensive than that to which the power companies are entitled. * * *

On interlocutory appeal, the power companies contend there are no determinative issues of material fact and that, as a matter of law, the policy provisions require AEGIS to pay the power companies' costs for defense of the federal lawsuit, and to pay such defense costs as they are incurred by the power companies. AEGIS contends that its policies provide no coverage for the claims made against the power companies in the federal suit, and thus it has no duty to pay defense costs. It also contends, in the alternative, that any such defense costs are not payable as incurred but rather only when "the loss occurs and is determined to be covered." * * *

The nature of the underlying federal lawsuit, as reflected by the record before us, is "a civil action" brought against the power companies "for injunctive relief and the assessment of civil penalties for violations" of various provisions of the Clean Air Act, federally-enforceable State Implementation Plans developed by Indiana and Ohio, and a 1998 administrative consent order. * * *

There is essential agreement among the parties, however, that the primary thrust of the federal lawsuit is to require the power companies to incur the costs of installing government-mandated equipment intended to reduce future emissions of pollutants and prevent future environmental harm. Their principal disagreement is thus whether the costs of installing such equipment fall within the policies' coverage for damages because of or resulting in bodily injury or property damage with respect to any accident, event, or continuous or repeated exposure to conditions. * * *

AEGIS disputes the applicability of Indiana precedent, asserting that none of the cases concern whether liability coverage for "'bodily injury' . . . or 'property damage' provides coverage for a claim seeking injunctive relief ordering a defendant to make modifications to its own facil-ity and cease operating in violation of a statute." AEGIS also asserts that "none of the cases cited concern air pollution or violations of the PSD [Prevention of Significant Deterioration] or NSR [New Source Review] provisions of the CAA [Clean Air Act]." Id. It argues that the cases dealing with emission of industrial waste all involved damage when the wastes settled on persons and properties, as opposed to emission in the air as alleged here. AE-GIS distinguishes the federal claims in this case with cases where "damages" have included gov-ernment-mandated cleanup costs, explaining that "[t]he claims here . . . do not allege cleanup costs or preventive measures ordered as part of the clean up of a spill," but rather "the underlying claims here seek to force [the power companies] to comply with statutory requirements that it apply for certain permits before constructing projects at its facilities, and where necessary, install modern pollution control technology as part of the construction."

AEGIS urges that "damages" under its policies should not apply to "prophylactic meas-ures taken to limit the release of emissions." * * *

The responsibilities of AEGIS under its policies for "ultimate net loss," including the power companies' defense costs, is conditioned by the requirement that such loss be for damages because of bodily injury or property damage "caused by an OCCURRENCE." (emphasis added). Under all three policies the term "occurrence" means "an accident, event, or continuous or repeated exposure to conditions." Due to this occurrence requirement, the policy thus applies only if damages claimed by the power companies, the costs associated with the installation of equipment to contain further excess emis-sions, constitute damages because of bodily injury or property damage caused by an accident, event, or exposure to conditions. The clear and unmistakable import of the phrase "caused by" is that the accident, event, or exposure to conditions must have preceded the damages claimed—here, the costs of installing emission control equipment.

But what the power companies here claim to be covered, the installation costs for equip-ment to prevent future emissions, is not caused by the happening of an accident, event, or expo-sure to conditions but rather result from the prevention of such an occurrence. We cannot read the policy requirement that covered damages result from the happening of an occurrence to mean that coverage extends to damages that result from the prevention of an occurrence. * * *

In this interlocutory appeal, the power companies are challenging the denial of their mo-tion for partial summary judgment, which sought an order directing AEGIS to pay as incurred the power companies' expenses in the defense of a federal lawsuit seeking primarily to compel the companies to install equipment to reduce future emissions of pollutants and to prevent result-ing future environmental harm. Because the AEGIS insurance policies do not provide coverage for the costs of installing such equipment, the trial court did not err in denying partial summary judgment seeking to compel payment of all costs incurred by the power companies in defending all claims in the federal lawsuit. We affirm the trial court.

Posted by Marcia Oddi on May 1, 2007 12:46 PM
Posted to Ind. Sup.Ct. Decisions