PHILADELPHIA -- Sunoco Inc. has won a victory in the court battle over insurance coverage for scores of pending lawsuits over alleged groundwater contamination caused by methyl tertiary butyl ether (MTBE), according to The Legal Intelligencer.
In his 21-page opinion in Sunoco Inc. v. Illinois National Insurance Co., Senior U.S. District Judge Charles R. Weiner was forced to decide whether all of the pending MTBE cases are legally one occurrence under the policy or if each of the 70-plus suits must be considered a separate occurrence.
Lawyers for Illinois National argued that its coverage on the $50 million policy had not yet been triggered because the policy calls for Sunoco to be self-insured for $250,000 per occurrence, with a $5 million aggregate self-insured retention. But Sunoco argued that although it has not yet spent $250,000 in defending each of the cases, the coverage should now be triggered because it has already spent more than $5 million in defending all of the cases.
Weiner sided with Sunoco, the report indicated. As all of the underlying lawsuits allegedly arise from the same proximate cause, we hold they are but one occurrence' as a matter of law, he said.
According to court papers, Sunoco's policy provides $50 million in coverage for bodily injury and property damage caused by an occurrence. An occurrence is defined in the policy as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. But the policy also included a hefty self-insured retention (SIR), which calls for Sunoco to be self-insured for the first $250,000 per occurrence, with an additional self-insured retention of $5 million, referred to as the aggregate retention amount.
Weiner found that a SIR is in effect a large deductible in which the insured assumes the obligation of providing itself a defense until the retention is exhausted. In this regard, the relationship between an insurer and its insured with a self-insured retention is similar to the relationship between a primary and an excess insurer, Weiner wrote.
Under the policy language, Weiner found, amounts expended can be charged against the aggregate retention only if the per-occurrence retention is first satisfied. As a result, Weiner concluded that the entire coverage dispute turned on the determination of whether the MTBE lawsuits were a single occurrence or multiple occurrences.
The MTBE lawsuitsmany of which have been consolidated in the U.S. District Court for the Southern District of New Yorkgenerally contend that Sunoco is liable, along with other manufacturers and distributors of MTBE, for bodily injury and property damage. The suits allege that MTBE was defectively designed and constituted a dangerous product, and that Sunoco breached a duty to warn of its dangers.
Sunoco's litigation in Philadelphia focused only on its insurance dispute, the report said.
Weiner said the theory of Sunoco's liability stems from its roles in the MTBE supply chain, including manufacturer, distributor, marketer, supplier and manager of underground storage tanks. The legal question, Weiner said, was whether a continuing course of conductlike the marketing of MTBEpresents one or more than one occurrence.
Some courts, Weiner said, take the causal approach and look to see whether one or more than one cause is responsible for all of the injuries. Others, he said, take the pragmatic approach and examine all of the circumstances to determine whether a single occurrence can be assigned to a series of events. Weiner found that cause analysis appears to be the law of Pennsylvania and has also been adopted by the Third U.S. Circuit Court of Appeals in a Virgin Islands case. After reviewing cases that applied the cause analysis, Weiner concluded that the onslaught of MTBE claims against Sunoco qualified as a single occurrence, the report said.
The claims faced by Sunoco all arise from one proximate cause common for all of the injuries and damage sustained by the underlying plaintiffs, Weiner wrote. It was the manufacture, sale and distribution of the MTBE that is alleged to be the proximate cause of the underlying claims. While the nature of the damage suffered by certain claimants may be unique from the groupsince they stem from the same proximate cause there is but a single occurrence.
The policy language, Weiner said, supported that conclusion because an occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Weiner found that repeated exposures to the same general harmful conditions are exactly what the underlying lawsuits generally claim. Substantially all of them rely upon the facts that MTBE is harmful, and was placed in the stream of commerce by Sunoco, to state a claim based on a products liability theory, The Legal Intelligencer said.
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