A Fairfax Financial Holdings Ltd. unit and another insurer are not obligated to defend or indemnify Lubrizol Corp. in an Environmental Protection Agency case based on 1994 and 1995 settlement agreements with the insurers, says a federal appeals court in a divided opinion.

Friday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Arrowood Indemnity Co., Lubrizol Corp. v. United States Fire Insurance Co., upholds a lower court ruling.

Wickliffe, Ohio-based Lubrizol, a specialty chemicals provider, incurred $2.9 million in liability under the Comprehensive Environmental Response, Compensation and Liability Act for the Patrick Bayou site, a 3-mile-long tidal bayou that was adjacent to Lubrizol’s Deer Park, Texas, facility, according to the ruling.

Lubrizol had reached a 1994 settlement agreement with a predecessor company to Charlotte, North Carolina-based Arrowood, which had issued a primary general liability policy to Lubrizol, on claims arising out of a list of subject sites that included the Patrick Bayou site.

It reached a similar agreement in 1995 with Morristown, New Jersey-based United States Fire Insurance, a Fairfax unit, which had issued Lubrizol umbrella insurance policies.

Beginning in December 2010, Arrowood, USF and Lubrizol filed litigation over the issue of whether the settlement agreements covered the Patrick Bayou site.

The U.S. District Court in Cleveland granted the insurers partial summary judgement, finding the agreements “unambiguously” released the insurers from their obligations to Lubrizol for the Patrick Bayou site liability.

A three-judge appeals court panel upheld the lower court ruling in a 2-1 decision. “The dispositive question is whether the Patrick Bayou Site contamination ‘arises out of’ Lubrizol’s activities at the adjacent Deer Park Facility,” said the ruling, referring to the settlement agreements.

“We conclude that under the plain language of the agreement, Arrowood is not responsible to Lubrizol for any potential liability or expenses from the EPA Patrick Bayou action,” said the majority opinion.

Similarly, it found that USF was released from any obligation to cover Lubrizol for liability or expenses relating to the EPA claim. “Although the language in the Arrowood and USF settlements is not identical we do not read the two agreements to require different outcomes,” said the majority opinion, in upholding the lower court ruling.

The dissenting opinion said that while it agreed with the court’s ruling on USF’s claim, in contrast, the Arrowood agreement is “not so clear” and the District Court’s ruling should have been reversed and remanded.