Ohio Law Applies in Insurance Dispute over Superfund Remediation Costs

Ohio law must be used to resolve an insurance dispute involving a polluted site in Michigan caused by manufacturing companies based in Ohio and Indiana, the Ohio Supreme Court ruled Wednesday.

The 5-2 decision may force Travelers to turn over documents related to the claim requested by its insured, Scott Fetzer Co. after the federal government ordered the company to remediate hazardous waste sites. The insurer argued that the information was protected by attorney-client privilege, but under Ohio law that privilege does not shield documents in a bad faith action.

A majority opinion written by Justice Jennifer Brunner said that a bad faith claim against an insurer is a tort lawsuit. In tort lawsuits, courts use the law from the state where the “most significant relationship” between the parties exists, which in this case was Ohio.

Chief Justice Sharon L. Kennedy and Justice R. Patrick DeWine dissented. They said that an insurer bad-faith claim is a contract dispute, so the law of the state that was the principal location of the insured risk should be applied. As it happens, the state of Michigan — where the pollution occurred — does not recognize bad faith as a cause of action against insurers, the opinion says.

Scott Fetzer, based in Westlake, Ohio, is seeking coverage for remediation work at two Superfund sites in Bronson, Michigan. The company acquired one of the sites in 1968, when it merged with Indiana-based Kingston Products Corp.

The US Environmental Protection Agency in 1986 identified Scott Fetzer as a potentially responsible party for the pollution at the Bronson site. The owner of a manufacturing site nearby, ITT Inc., also alleged that Scott Fetzer was liable for pollution on land that it owned.

Scott Fetzer entered in a consent agreement that required it to remediate the pollution. The company asked insurers that sold liability policies to Kingston in the 1960s. It identified four policies issued by Travelers Casualty and Surety Co. between 1964 and 1968, as well as policies issued by other carriers. Two insurance carriers have settled Scott Fetzer’s claims, but American Home Assurance Co., Arrowood Indemnity Co. and Travelers have not.

None of the insurers accepted Scott Fetzer’s claims initially. In October 2019, the company filed a breach-of-contract action against each insurer in Cuyahoga County Common Pleas Court. The lawsuit separately alleged that the carriers had acted in bad faith.

Travelers disputed the existence of the policies, which were allegedly issued by an insurance company that it had acquired. The carrier asked the trial court to suspend any action in the bad faith case until it decided whether Scott Fetzer was entitled to coverage by Travelers. The carrier also asked the court to stay discovery proceedings, but the trial court denied the request.

Several months later, Scott Fetzer told the trial court that Travelers had not provided documents relating to its claims, including internal documents explaining how the insurer makes coverage decisions.

Travelers argued the documents were protected by attorney-client privilege, but the trial court ruled in Scott Fetzer’s favor. The carrier argued that either Indiana or Michigan law should govern the dispute. The documents would be protected under the law of those states.

The trial court sided with Scott Fetzer. The Eighth District Court of Appeals affirmed the decision. Travelers appealed to the Supreme Court.

The majority opinion says when there is a dispute over the choice of law in tort claims, the court looks to the “most significant relationship” to determine which state law should apply.

In her dissenting opinion, Kennedy countered that to establish its bad faith claim, Scott Fetzer must first prove that coverage existed for the damages it claimed. Since the dispute primarily related to rights and obligations established by an insurance contract, the choice-of-law rule governing insurance contracts should control, she said.