Judge Rakoff of the SDNY recently authored the (likely) final chapter of what the Court itself described as “this interminable litigation,” agreeing with Certain Underwriters at Lloyd’s position that the terms of an executed Settlement Agreement with Plaintiff Olin imposed a pro rata allocation upon all implicated London policies, as opposed to joint and several liability.

In Olin Corporation v Certain Underwriters at Lloyds London, Olin, a manufacturing company, operated at site in Morgan Hill, California for forty years, from 1956 to 1996.  The “interminable litigation” involved insurance coverage for the remediation of property damage caused by Olin’s operations.  Underwriters’ had issued excess insurance policies to Olin most of which included the following Condition C:

It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the Assured prior to the inception date hereof the limit of liability heron…shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.

Olin had argued that this provision meant that each policy should be liable up to its limits for all of the property damage as long as some portion of that damage took place during the policy’s effective period.  The Second Circuit agreed with Underwriters, though, and held that an “allocation” approach applied, where each policy provided coverage for only that property damage that could be directly attributed to its policy period.  The parties next litigated how to determine when exactly the property damage occurred.  Again, the Courts sided with Underwriters, finding the damage occurs as long as contamination continues to spread, including by passive “migration of contamination into the soil and groundwater.”

With the method of allocation, and a means to determine the time period of property damage, judicially decided, Olin and Underwriters executed a Settlement Agreement, at issue in the instant litigation.  Specifically at issue, Paragraph D, which provided:

With respect to any future third-party Pollution Claim relating to property damage that is not the subject of a release in this Agreement, the following allocation methods shall be used, (i)….shall be allocated pro rata equally over the entire period of time that nay operations took place on any parts of the real property Olin owned, and (ii)…shall be allocated pro rata equally over the entire period of time that any waste was disposed of or arranged to be disposed of…

Over year following execution of the Settlement Agreement, Olin sought a judicial determination that the Settlement Agreement permitted it to hold insurers jointly and severally liable for property damage that took place after the end of the policy period, if that policy contained Condition C, above.

The SDNY concisely ruled against Olin, agreeing with Underwriters that the express terms of the Settlement Agreement unambiguously evince the parties’ agreement that property damage is to be allocated using a pro rata allocation, and that it unambiguously was meant to override the terms of Condition C in all the applicable policies.

Thanks to Vivian Turetsky for her contribution to this post.