Arch wins case against sewer company

A federal appeals court has upheld a ruling in favor of Arch Insurance Co., holding that funds spent by a sewer system company to prevent future problems are not damages that must be compensated under its coverage.

In January 2016, a sewer system owned by Keithville, Louisiana-based Eagle Water LLC suffered a localized collapse that produced a sewage backup in a neighborhood in Bossier City, Louisiana, according to Thursday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Eagle Water LLC v. Gene Ash; Nida Ash; Arch Insurance Co.

Arch Insurance, a unit of Pembroke, Bermuda-based Arch Capital Group Ltd., paid a $4,340.36 claim under Eagle Water’s liability insurance policy for the property damages caused by the backup, but refused to compensate the company for the $608,952.19 it paid a construction company to repair the sewer system, without which there may have been additional backups or a raw-sewage spill, according to the ruling.

Arch filed suit in U.S. District Court in Shreveport, Louisiana, seeking a declaration it was not obligated to provide coverage, which the court issued.

The ruling was affirmed by a three-judge panel. Arch’s policy covers “sums” that the company “becomes legally obligated to pay as damages,” and damages are paid as compensation for loss or injury, said the ruling.

“When Eagle Water paid to repair its sewer system, it was not compensating anyone for loss or injury, so the repair costs are not damages, which means they are not covered by Eagle Water’s liability insurance policy,” said the ruling, in affirming the lower court’s decision.

Eagle Water’s attorney had no comment, while Arch’s attorney could not be reached.