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California appeals court rules for insurers in railroads’ coverage dispute

Posted On: Apr. 20, 2018 2:35 PM CST

California appeals court rules for insurers in railroads’ coverage dispute

A California appeals court has affirmed a lower court ruling and ruled in insurers’ favor in connection with a 2008 train collision in Chatsworth, California, that killed 25 and injured 201 others.

In a complex unpublished ruling, a Los Angeles-based court agreed with the lower court’s granting of summary judgment to the insurers based on a release of claims to which the railroad policyholders had agreed.

An attorney not involved in the case said the ruling highlights the importance of policyholders clearly understanding their agreements.

Congress mandated positive train control systems, which are designed to prevent collisions, speed derailments and other accidents, in the aftermath of the 2008 train collision in Chatsworth, California. 

The National Transportation Board concluded that the accident was probably the result of the Metrolink train engineer becoming distracted from his duties because he was text-messaging, according to the California Court of Appeals ruling Thursday in Certain Underwriters at Lloyd’s, London et. al. v. Connex Railroad L.L.C. et al.

The wrongful death and person injury claims and lawsuits in connection with the accident settled for $200 million, the maximum allowable recovery under federal law for a single collision, according to the ruling.

Insurers including Lloyd’s of London sued for reimbursement, unjust enrichment and a judicial determination that an express policy exclusion precluded coverage for the accident. The railroads cross-complained, alleging breach of contract, bad faith and fraud, among their charges.

In its ruling, the three-judge panel agreed with the policyholders that an express policy exclusion in the coverage did not apply as a matter of law. But it also granted insurers summary judgment in the case based on the insureds’ release of all claims against them.

Insureds and insurers had entered into an agreement in the case in October 2010, in which insureds agree to “‘release and forever discharge’ insurers from any and all payments exceeding the $146 million” they had paid in connection with the accident.

“Insureds’ claim that they were fraudulently induced to enter into the Agreement was not supported by any evidence, and was belied by the language in the Agreement,” said the ruling in affirming the Los Angeles trial court’s ruling in the case.

Commenting on the ruling, Michael S. Levine, a partner with Hunton Andrews Kurth L.L.P. in Washington, said: “We advise our clients very frequently” that when they settle liability claims it is very important they understand the settlement’s insurance implications “and how it affects potential insurance coverage,” in preserving, waiving or assigning the insurance rights.

“My sense is when (the policyholders) crafted the settlement agreement, they didn’t fully appreciate the impacts it would have on the insurance,” Mr. Levine said.