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Thursday, October 28, 2010

Marine Policy – Liability of Insurer for clean up of Willamette river – Oregon Supreme Court Judgment.

For some ‘anything pertaining to insurance is complex and not intelligible to common man’.  Marine Cargo Insurance is very interesting ; Hull Insurance is most perplexing.   In property Insurances, onething is certain – the extent of liability at the maximum would be the sum(s) insured, in Liability Insurances, it would be the Limit of liability per event or per year.  Hull Policies dangerously dabble with both limited sum insured and liability, manifest in many forms. 

All Policies will have period of Insurance i.e., losses occurring within this period only be tenable.  A liability claim tracing its origin to the period insured can surface much after the expiry of the policy. 

A recent judgment of Oregon Supreme Court threatens to destabilize Insurers and the way they have been reserving their claims.  The Court ruled that Lloyds of London and other Insurance Companies may be liable to cover the cost of environmental clean up of Willamette river frontland owned by Zidell Marine Corp., a Portland barge building operation.  The ruling is significant for other owners of industrial land further north in the Portland harbour as many of them face a massive clean up of their own that could amount to $1 billion.

The Willamette river is a major tributary of Columbia river.  Portland sits on both sides  of the river near its mouth on the Columbia.  Like many others, this river is heavily polluted and massive efforts of clean up and containment of pollutants is on.    Z idell Marine builds new steel barges for sale or lease.  These barges  measuring up to 90 ft are built to  haul items  such as lumber, grain, chemicals, petroleum products, wood chips, sand and gravel. 

A Marine Hull or Liability policy would consist of plain policy form, the policy schedule and the clauses and wordings as referred to in the schedule.   In London Market, commercial hull risks are normally insured under one of the sets of Institute clauses such Institute Time Clauses Hull, Institute Voyage Clauses Hulls,  Institute Time Clauses Hulls Port Risks, and more.    Besides the policies covering Hull and cargo, there are policies covering, Ship Building, Ship breaking, Funeral voyage and insurance of ship yards.  For insuring the Shipyards, one of the clauses used is Institute clauses for Builder’s risks. 
The policy covers the vessel being built or under repairs at a specified yard i.e., the Hull and machinery under construction at the yard against  all risks of loss of or damage to the subject matter caused and discovered during the period of insurance including the cost of repairing replacing or renewing any defective part and in case of failure of launch, the Underwriters bear all subsequent expenses incurred in completing the launch. 
The Policy covers  collision liability also i.e., loss of or damage to any other vessel or property on any other vessel, delay to  or loss of use of any such other vessel or property thereon,   general average of, salvage of, or salvage under contract of, any such other vessel or property thereon.  This indemnity is in addition to the indemnity provided for but is subject to exclusions, primary being :  removal of  or disposal of obstructions, wrecks, cargoes or any other thing whatsoever.

If you have not stopped wondering, the Policy also extends to cover the Protection and Indemnity arising out of legal liability in consequence of any  accident or occurrence during the period of insurance, which can be : loss of or damage to any fixed or movable object or property or other thing or interest whatsoever, other than the vessel, arising from any cause whatsoever in so far as such loss or damage is not covered by collision liability ;  any attempted or actual raising, removal or destruction of any fixed or movable object or property or other thing, including the wreck of the Vessel, or any neglect or failure to raise, remove, or destroy the same;  liability assumed by the Assured under contracts of customary towage for the purpose of entering or leaving port or maneuvering within the port et. al.    This is also subject to specific exclusions primary of them being :  any direct or indirect payment of the Assured under workmen’s compensation or employers’ liability acts and any other statutory or common law, general maritime law ;  punitive or exemplary damages, however described;  cargo or other property carried, to be carried or which has been carried on board the Vessel ; loss of or damage to property, owned by builders or repairers or for which they are responsible, which is on board the Vessel ;  pollution or contamination of any real or personal property or thing whatsoever.  And more…………………

Further, in no case shall the Underwriters’ liability under this Clause  in respect of each separate accident or occurrence or series of accidents arising out of the same event, exceed their proportionate part of the insured value of the Vessel.
Now coming back to the judgment, the award is in favour of ZRZ Realty Company that holds ZRZ Insurer responsible for the environmental clean up of ZRZ’s moody avenue property and adjacent areas of the Willamette river.  This is a significant one for Zidell and other Policy holders and will perhaps make insurance money available to clean up contaminated properties. 
The decision of the Supreme court reportedly reinstates much of a Multnomah County trial court judgment in 2003 against Lloyd's of London and Certain London Market Insurance Companies.   Zidell had sued its insurers in 1997  after they denied coverage of the estimated $20 million cleanup of its land and contaminated river-bottom in the South Waterfront neighborhood. Zidell Marine scrapped ships at the site for years, generating a stew of toxins that contaminated the soil and river sediments.
The matter was indeed complex and the issue was  whether the marine policy would cover this.  It is stated that one of terminology was that indemnity to Zidell for activity in a port that resulted in   loss of or damage to any fixed or movable object or property or other thing.  The issue boiled down to whether the language applied to only to ships, docks, pilings and other manmade structures in a busy port or whether the coverage extended beyond that to the riverbank and river's bottom.   The Supreme Court sided with Zidell -- reversing an earlier
Appeals Court
ruling -- agreeing that the marine policy coverage was broad, including the river sediment.   Zidell termed it a victory stating that insurance covers toxins in the sediment.  For Insurers the case reportedly is far from over.  The Supreme Court presently has remanded some issues back to
Appeals Court
, some of which could be key to determining the ultimate financial responsibility. 

Zidell Marine still builds barges and hopes to clean up the south waterfront soon.  It plans to cap to cap the contaminated river sediment rather than remove it with a dredge.   The Portland Harbor cleanup is several years behind Zidell's South Waterfront effort. The  group of property owners are  scheduled to deliver a draft cleanup feasibility study. 

As it happens it could be more years before the  cleanup gets underway in earnest.
The Supreme Court had earlier allowed petition for review.  ZRZ Realty seeking review of a Court of Appeals 
decision that had reversed and remanded a judgment in their favor against certain defendants with whom they had contracted for insurance coverage, and had vacated a supplemental judgment for attorney fees.

ZRZ Realty owned a site alongside the river;  various plaintiffs dismantled navy and merchant marine vessels at that site resulting in environmental contamination.  Eventually, the Department of Environmental Quality (DEQ) became concerned about the environmental contamination and issued a notice to Zidell, demanding that Zidell investigate and clean up certain damaged property. Zidell was insured at various times by a number of different insurers under a number of different types of policies, including primary and excess comprehensive general liability policies, "bumbershoot" policies, and "open cover" marine policies. Thereafter, Zidell sent a letter to its insurers regarding the notice that Zidell had received from DEQ. In response, the insurers denied coverage. Zidell subsequently brought this action seeking coverage for existing and future environmental cleanup costs.

By the time of trial, most of the insurers had settled, but certain defendants, such as Certain Underwriters at Lloyd's of London and some other  London Market Insurance Companies (collectively, London), remained in the case.  The trial court ruled that London was obligated to pay Zidell's costs of defense, and also determined how future coverage would be allocated under various policies. The court then entered judgment awarding attorney fees to Zidell in excess of $1.3 million; declared that certain London defendants were obligated to pay Zidell's future defense costs in responding to the DEQ notice; and stated that the parties' future rights and obligations were circumscribed by various findings and conclusions made by the court. The court later entered a supplemental judgment that awarded Zidell additional attorney fees. London appealed the judgment and supplemental judgment, and Zidell cross-appealed.

On review, the Court of Appeals concluded, with respect to policies that contained an express provision that property damage be "neither expected nor intended" (the express fortuity policies), that the trial court had erred in allocating to London the burden of proof on that issue. However, the court also concluded that the trial court had not erred in allocating to London the burden of proving that damage was expected or intended with respect to the policies that did not contain an express fortuity provision, but for which the trial court had invoked the implied fortuity doctrine (treating those policies as impliedly containing a requirement that damage be neither expected nor intended). Additionally, with respect to protection and indemnity (P & I) coverage under various marine insurance policies, the court concluded that the trial court had erred in concluding that soil and river sediment were included within the meaning of the P & I coverage. Both Zidell and London petitioned for reconsideration before the Court of Appeals.

The listed issues at the Supreme Court  were :
(1) If an insurance policy excludes coverage for "expected or intended" property damage or defines a covered occurrence as property damage "neither expected nor intended," who should bear the burden of proving that the property damage was or was not expected or intended?
(2) If an insurance policy is capable of more than one reasonable
interpretation, is the policy ambiguous if one interpretation is more likely or plausible than the other?
 (3) When part of a trial court's ruling is not challenged or disturbed on
appeal, should the trial court's judgment remain intact insofar as it is based on the unchallenged or undisturbed part of the ruling?

For some more clarity,  Liability insurance coverage, primarily for shipyards for ocean marine risks, provided in much the same manner as  Umbrella Liability Insurance for non marine risks.   Several decades ago, manufacturers, contractors, and industrial plants became aware that their need for liability insurance exceeded the limits available in their basic policies. The English brokers in London promptly came up with a solution: The Bumpershoot, which is a british slang for umbrella. They conceived of an excess liability policy that would extend the limits of liability for the scheduled underlying policies to the desired maximum level.   

Hope this made some interesting reading.  Do respond with your feedback.

Regards – S Sampathkumar.

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