Napoleonic code does not apply to Chubb coverage dispute: Court

Chubb Ltd. is not obligated to provide coverage under an international property insurance policy issued to a battery manufacturer, under litigation filed by the manufacturer’s landlord, because the loss did not reach a deductible, said a federal appeals court in a ruling that overturns a lower court decision and cites the Napoleonic code.

At issue in the litigation between Chubb Ltd. unit Ace American Insurance Co. and Enumclaw, Washington-based The Wattles Co., which was the landlord of a site leased by Milton, Georgia-based Exide Technologies Inc., was whether a $2 million deductible had been met, according to Friday’s ruling in Ace American Insurance Co. v. The Wattles Co.

Beginning in the early 1980s, Wattles leased an industrial office building and warehouse in Sumner, Washington, to Exide Technologies, which used the facility to conduct battery formation operations until about 2009. These operations involved filling lead batteries with sulfuric acid and charging them, which caused sulfuric acid mist to be emitted into the warehouse space within the building and caused considerable damage to some of the building’s structural components.

Ace issued a worldwide property policy to Exide that provided up to $60 million per occurrence in coverage, or up to 20% of the cumulative limit of the $300 million per occurrence program, with several other insurers participating in the program.

Among the coverages provided by the policy was a “tenants and neighbors” provision that extended coverage under the policy to liability for damage incurred as a tenant, but only in countries “in which a Napoleonic or other civil or commercial code applies.”

In March 2013, Wattles filed suit against Exide in state court in Washington. Exide sought bankruptcy protection three months later, according to the ruling. Wattles eventually obtained a final judgment against Exide in state court totaling $2.6 million.

Ace filed suit in U.S. District Court in Atlanta seeking a declaration its policy did not afford coverage because the $2 million deductible had not been reached. The District Court ruled in Wattle’s favor, which was overturned by a unanimous three-judge appeals court panel of the 11th U.S. Circuit Court of Appeals in Atlanta.

The issue on appeal was whether the attorneys fee amount of $836,000 and $360,000 in post-judgment interest was covered under the Tenants and Neighbors provision and counted towards the deductible.

The appeals court panel disagreed with the lower court and concluded they were not, which put the total loss below the $2 million deductible.

“Ace’s proposed interpretation of the Tenants and Neighbors provision is fair and reasonable in light of the context of the Policy in which it appears,” said the ruling.

“We easily conclude that the United States is not a country in which a ‘Napoleonic code’ applies because in the context of Exide’s worldwide property insurance program, that phrase is plainly intended to extend coverage for tenants and neighbors liability only in those civil law countries, like Mexico, Spain, France, and others, where a comprehensive codification of laws modeled after Napoleon’s Code applies. The United States clearly is not such a country,” said the ruling.

The term “‘other civil or commercial code’ should not be read to include codes in common law legal systems like the United States, which are fundamentally different from civil law legal systems,” the ruling said.

As a result, the Tenants and Neighbors provision does not cover the Wattles attorneys fees or the post-judgment interest, and the $2 million deductible “has not been satisfied,” said the ruling, in reversing the lower court’s ruling and remanding the case with instructions to the lower court to grant Ace’s motion for summary judgment in the case.

Attorneys in the case could not immediately be reached for comment.

Last week a Chubb Ltd. unit prevailed in a coverage dispute with an Arkansas school district based on the timing of the claim submitted under its claims-made, employment practices liability policies.