News & Success Stories
MGKF Prevails at Trial in Dispute Over "Cost-Cap" Environment Insurance Policy
Following a four-day bench trial in the U.S. District Court for the Southern District of New York, MGKF secured a declaratory judgment in favor of our client in an environmental insurance coverage dispute. 2004 WL 1752580 (S.D.N.Y. July 29, 2004 ).
In 1998, a listed Superfund site was purchased for remediation and redevelopment. To protect against cost overruns during the investigation and cleanup, a brownfields redevelopment “cost-cap” insurance policy was purchased from Kemper Environmental, Ltd. (“Kemper”). In 2002, during the ongoing site investigation, Kemper was notified that the policy deductible would be exceeded based upon current cost projections, and assurances were sought that Kemper would cover any costs in excess of the deductible. Kemper disclaimed coverage, arguing that the cost-cap policy neither covered investigation costs nor costs incurred for contaminants migrating off-site, and only covered cost overruns for certain projected cleanup costs that had been provided to Kemper during policy negotiations. Kemper argued that a change in the policy language made after the policy binder was issued resulted in narrower coverage than what the insured claimed, and that it never intended to insure against cost overruns other than for the specific tasks identified in the anticipated (but not yet approved) remedy provided during the policy negotiations.
In a 19-page opinion, the court rejected Kemper's arguments, finding that “the insurance policy . . . provides broad coverage” for any remedy that the U.S. Environmental Protection Agency (“EPA”) may impose and all investigation costs, including those related to off-site contamination. The court looked at the history of the policy negotiations, and concluded that the broad coverage claimed had been intended by the parties, irrespective of the change in policy language made after coverage was bound. The court also found Kemper's argument that the policy premium was so low that it could not have been intended to afford the broad coverage sought “unavailing, if not incredible.”
The case is the first in the federal court system to determine the extent of an insured's coverage under a cost-cap policy (particularly one issued before a remedy is selected). The decision underscores the need to confirm that the policy issued conforms precisely to the policy negotiated and bound, and that any ambiguity in insurance policies can result in litigation over the extent of coverage. MGKF attorneys have significant experience in both assisting clients in drafting environmental insurance policy provisions tailored to meet client goals, and litigating against insurers to secure favorable coverage decisions.
In 1998, a listed Superfund site was purchased for remediation and redevelopment. To protect against cost overruns during the investigation and cleanup, a brownfields redevelopment “cost-cap” insurance policy was purchased from Kemper Environmental, Ltd. (“Kemper”). In 2002, during the ongoing site investigation, Kemper was notified that the policy deductible would be exceeded based upon current cost projections, and assurances were sought that Kemper would cover any costs in excess of the deductible. Kemper disclaimed coverage, arguing that the cost-cap policy neither covered investigation costs nor costs incurred for contaminants migrating off-site, and only covered cost overruns for certain projected cleanup costs that had been provided to Kemper during policy negotiations. Kemper argued that a change in the policy language made after the policy binder was issued resulted in narrower coverage than what the insured claimed, and that it never intended to insure against cost overruns other than for the specific tasks identified in the anticipated (but not yet approved) remedy provided during the policy negotiations.
In a 19-page opinion, the court rejected Kemper's arguments, finding that “the insurance policy . . . provides broad coverage” for any remedy that the U.S. Environmental Protection Agency (“EPA”) may impose and all investigation costs, including those related to off-site contamination. The court looked at the history of the policy negotiations, and concluded that the broad coverage claimed had been intended by the parties, irrespective of the change in policy language made after coverage was bound. The court also found Kemper's argument that the policy premium was so low that it could not have been intended to afford the broad coverage sought “unavailing, if not incredible.”
The case is the first in the federal court system to determine the extent of an insured's coverage under a cost-cap policy (particularly one issued before a remedy is selected). The decision underscores the need to confirm that the policy issued conforms precisely to the policy negotiated and bound, and that any ambiguity in insurance policies can result in litigation over the extent of coverage. MGKF attorneys have significant experience in both assisting clients in drafting environmental insurance policy provisions tailored to meet client goals, and litigating against insurers to secure favorable coverage decisions.