Summary
The Alabama Supreme Court considers an appeal and cross-appeal arising from a multiphase coverage dispute between Southern Natural Gas Company and Certain Underwriters at Lloyd’s, London concerning environmental-remediation costs. The dispute involves insurance-policy definitions of occurrence, coverage for property damage, notice, legal obligations to pay damages, attachment points, and the finality of phased judgments under Rule 54(b).
Topics
Practice areas
Questions Presented
- Whether the trial court properly applied Phase I jury findings to the representative compressor stations litigated in Phase II.
- Whether PCB contamination at multiple compressor stations constituted one occurrence or separate occurrences under the applicable insurance policies.
- Whether the policies' owned-property exclusions barred coverage for remediation of contaminated soil and groundwater on Sonat's property.
- Whether environmental-remediation costs voluntarily incurred before a formal lawsuit or governmental enforcement action qualify as damages Sonat was legally obligated to pay.
- Whether the evidence supported findings that LMI breached the policies by delaying its coverage determination despite issuing a reservation-of-rights letter.
- Whether the attachment point of umbrella policy CU 1887 was ambiguous and therefore properly submitted to the jury.
- Whether the trial court properly granted summary judgment on Sonat's mercury-remediation claims because Sonat could not prove site-specific covered damages.
Holdings
- The trial court did not err by applying Phase I factual findings to Phase II because the parties agreed to a representative, multiphase trial and the Phase I findings should not be reexamined by a subsequent jury.
- The evidence supported treating the PCB contamination at the compressor stations as one occurrence under the applicable policy definitions.
- The owned-property exclusions did not bar coverage for the costs of remediating contaminated groundwater and on-site soil where the contamination threatened groundwater or third-party property.
- Environmental-remediation costs may constitute damages the insured is legally obligated to pay even when cleanup begins before a formal lawsuit or governmental enforcement action.
- The evidence was sufficient to support a finding that LMI breached the insurance contracts by delaying for approximately ten years after its reservation-of-rights letter without determining whether coverage existed.
- The trial court properly treated the attachment-point language in CU 1887 as ambiguous and submitted its interpretation to the jury.
- The trial court properly granted LMI summary judgment on Sonat's mercury-remediation claims because Sonat could not present evidence identifying the covered damages incurred at individual sites.
Key quotations
“However, the factual determinations in Phase I should not be reexamined by a second or subsequent jury because to do so would lead to the unacceptable risk that the jury at each phase would consider evidence differently with possibly inconsistent results.” (at 453)
“Accordingly, on-site soil cleanup is not barred by an owned-property exclusion where there is a threat that the contaminants in the soil on the insured’s property will migrate to groundwater or to the property of others.” (at 460)
“Under the facts of this case, after being notified in 1991 of the PCB contamination, LMI’s 10-year delay after issuing its reservation-of-rights letter (1995 to 2005) in determining whether to provide coverage under the policies is not reasonable.” (at 463)
Factual background
Southern Natural Gas operated an integrated natural-gas pipeline from Texas to Georgia, including compressor stations and mercury-metering stations. From the late 1950s through the early 1970s, Sonat used Pydraul lubricant in compressor engines; Pydraul contained PCBs that migrated into soil and groundwater at multiple compressor stations. Sonat also undertook remediation after discovering possible mercury releases from its mercury-metering stations. LMI had issued umbrella and excess-liability policies to Sonat from 1949 through 1987, but disputed whether the policies covered the remediation costs.
Procedural history
Sonat sued LMI in the Jefferson Circuit Court of Alabama for declaratory relief and breach of contract based on LMI's refusal to pay environmental-remediation costs. The trial was divided into three phases. Phase I and Phase II resulted in jury findings and judgments for Sonat concerning PCB contamination, but earlier appeals were dismissed because the Rule 54(b) certifications were not final judgments. In Phase III, the trial court excluded undisclosed mercury sites and unsupported aggregate remediation costs and granted LMI partial summary judgment. After entry of a final judgment on January 24, 2012, LMI appealed and Sonat cross-appealed.