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NEW YORKImproper jury instruction on the definition of property damage in a pollution liability coverage case led a district court to allocate cleanup costs over too few policy years, an appellate court has ruled.
As a result, the case involving cleanup costs for environmental contamination at four sites near Niagara Falls, N.Y., owned by Clayton, Mo.-based Olin Corp., has been remanded to district court.
Applying the federal Comprehensive Environmental Response, Compensation, and Liability Act, the New York State Department of Environmental Conservation ordered Olin to clean up the sites in the early 1980s.
Olin sought indemnification from various insurers, including certain underwriters at Lloyd's of London and London-market companies, which issued occurrence-based excess liability policies to Olin between 1950 and 1970.
Although the parties agreed that the liability would be allocated over the years in which the polluting acts actually occurred, they disagreed about the time period in which the damage took place, according to court records.
The pollution included air and groundwater contamination created by byproducts of the manufacture of chlorine and pesticides.
The district court agreed with Olin's position that the cleanup costs would have been the same regardless of ongoing pollution activity, and instructed the jury not to include ongoing groundwater contamination in its definition of property damage.
In determining when the property damage occurred and when full remediation became necessary, the jury determined that the property damage at Olin's four sites ended when full remediation plans were required to address the pollution.
The district court then allocated the costs of remediation equally over those years.
The Lloyd's underwriters and the London companies appealed the decision, arguing that the allocation method was based on an incorrect understanding of property damage, which they contended continued to occur at each site for several more years until remediation began. As such, the allocation of liability was spread over too few years, they argued.
The 2nd Circuit U.S. Court of Appeals earlier this month agreed and remanded the case to the U.S. District Court for the Southern District of New York for reconsideration.
Olin Corp. vs. Certain Underwriters at Lloyd's of London and London Market Insurance Companies; 2nd U.S. Court of Appeals; No. 05-5123-cv.