Federal Appeals Court Denies Chubb’s Superfund Subrogation Claim

The U.S. Court of Appeals, Ninth Circuit, affirmed last week that Chubb Custom Insurance Co., part of the Chubb Group of Insurance Cos., cannot recoup $2.4 million from its subrogation suit under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund.

The Ninth Circuit affirmed the decision from the U.S. District Court for the Northern District of California. In that ruling, which was issued last year, the district court said the two CERCLA sections that Chubb cited — Sections 107(a) and 112(c) — do not support the insurer’s subrogation claim to recoup from former site owners some $2.4 million the insurer paid out to the policyholder, Taube-Koret Campus for Jewish Life.

Defendants in Chubb’s subrogation suit include Space Systems/Loral Inc., Ford Motor Co., Sun Microsystems Inc., Chevron Corp. and Harman Stevenson Inc.

In a 2-1 decision, the appeals court panel held that Chubb lacked standing to bring suit under CERCLA Section 107(a) because it did not incur “costs of response” related to removal or remediation of the polluted site, and also because the common law principle of subrogation does not apply to Section 107(a).

Claims under Section 112(c) were also barred because the insurer did not allege that the policyholder was a “claimant,” or that it made a claim under the Superfund or to another potentially liable party (PRP). “Here, however, Chubb has not alleged that Taube-Koret has made such a demand on defendants, the Superfund, or any other PRP,” the panel stated. “Chubb only alleges that Taube-Koret has made an insurance claim to Chubb. There is no indication that section 112(c)(2) contemplates this meaning of claimant.”

Chubb had also brought subrogated claims under state law but the panel held that the insurer’s state law claims were time-barred.

Court documents show that Chubb had issued an environmental site liability/insurance policy to Taube-Koret’s properties that would cover — among other things — remediation costs related to pollution incidents on its property, from 2002 to 2012. The properties include some 47 acres of land in Palo Alto, Calif.

Taube-Koret paid Chubb an initial policy premium of $153,259 for part of the properties, with a policy limit of $10 million and a $50,000 deductible for each pollution incident. The premium was later raised by an additional $37,966 to include additional properties.

In 2008, Chubb issued Taube-Koret a check for $2.4 million, which “constituted the necessary cleanup costs for responding to the release of hazardous substances” on its properties, and represented “payment for all necessary Response Costs claims and incurred” by Taube-Koret, “thereby making [Taube-Koret] whole for its soil remediation costs.”

Chubb had argued that defendants should be held liable for Taube-Koret’s response costs because they released hazardous substances that migrated to Taube-Koret’s property from surrounding land that they owned and operated at various times.

“The decision is important because it prevents insurance companies from, among other things, providing minimal coverage and then using CERCLA contribution principles to off-set the liability which they accepted premiums to take on,” said John Nevius, an attorney from law firm Anderson Kill & Olick’s insurance recovery group, who submitted an amicus brief on behalf of nonprofit group United Policyholders and participated in oral arguments in the case.

“Subrogation is an equitable principle based upon tort and wrongful behavior. Potentially responsible parties under CERCLA may or may not have been at fault with respect to how contamination came to be,” Nevius said.

“Insurance companies do not always stand directly in the shoes of their policyholder PRPs and should be required to establish an equitable basis for subrogation rather than merely rely on the fact that some money was spent and take advantage of the complexities of CERCLA.”

Chubb was not immediately available to comment on the court’s decision.

The case is Chubb Custom Ins. Co. v. Space Systems/Loral, Inc.; Ford Motor Co.; Sun Microsystems, Inc.; Chevron Corp.; and Harman Stevenson Inc., No. 11-16272, United States Court Of Appeals for the Ninth Circuit, filed March 15, 2013.