Allianz Wins Order Requiring Other Insurers to Contribute to Defense of Asbestos, Pollution Claims

Carriers that insured Freightliner Corp. before it was purchased by Daimler-Benz AG in 1981 — even those that entered into fronting agreements that transferred liability back to the insured — have to contribute to the defense of claims related to a Superfund site and asbestos injuries, the Oregon Supreme Court ruled Thursday.

The high court found fault in decisions by both the trial court and the Court of Appeals in its 7-0 ruling in favor of appellant Allianz Global Risks. The decision potentially makes Freightliner’s former insurers liable for claims related to pollution and 1,500 asbestos-related lawsuits, although the court remanded the case with instructions to the trial court to decide if any policy exclusions apply.

“We are very pleased with the Oregon Supreme Court’s opinion vindicating our clients’ positions in the lengthy litigation,” Washington D.C. attorney Margeret H. Warner, with McDermott Will & Emery, said in a prepared statement. “We have worked with our insured to deal with the challenging situations brought by the Portland Harbor Superfund site, asbestos bodily injury and other complex claims. We look forward to the co-insurers now contributing to that work.”

According to the Supreme Court’s opinion, Allianz has spent $24 million defending and paying environmental and asbestos claims arising from Freightliner’s business operations between 1952 to 1982.

The U.S. Environmental Protection Agency in 2000 designated a Superfund site encompassing a 10-mile strip on both banks of the lower Willamette River through Portland. Freightliner’s former manufacturing plant is among several industrial uses that are thought to have contributed pollutants.

Allianz insured Daimler-Benz against claims against its US operations. The carrier sought contribution from other carriers that insured Freightliner or its parent company, Con-Way. Those include Ace Property and Casualty, General Insurance Co., Westport Insurance Co. and Lloyd’s of London.

The insurers refused, saying that Freightliner and Con-Way did not transfer liability for environmental and asbestos claims to Diamler-Benz when the business was sold. Also, General, Westport and Ace said even if Daimler did assume those liabilities, they owe no coverage because Freightliner made side agreements to indemnify the insurers for any claims.

What’s more, Lloyd’s and General said their policies excluded coverage for pollution liability unless it was “sudden” or “unexpected and unintentional.”

A Multnomah County jury found that the insurers could not be liable because of the side agreements. Also, the jury decided the Lloyd’s and General policies excluded coverage for environmental claims.

The Court of Appeals affirmed the jury’s verdict, but on alternative grounds. The court found that the other insurers were not liable because Daimler-Benz did not assume Freightliner’s contingent liabilities.

In an opinion written by Justice Thomas A. Balmer, the Supreme Court said both the trial court and the Court of Appeals got it wrong.

The high court found that the evidence shows Daimler did assume Freightliner’s liabilities when it purchased the company, other than $16 million in specific “contingent liabilities” for which Freightliner had deposited reserves that were paid out during the three years after the transaction closed.

What’s more, the high court found no merit in the insurers’ argument that the fronting agreements show that they did not intend to accept liability for the environmental and asbestos claims. The court said the insurance policy and side agreements should never have been presented to the jury in the first place.

“What the policies did or did not mean—that is, the correct legal interpretation ofthepolicies—is an issue for the court to decide as a matter of law,” the opinion says.

Furthermore, the jury’s finding that the insurers did not intend to cover the claims is not relevant, the court said. The insurance policies themselves include a duty to defend and indemnify for covered claims, “even though Freightliner separately agreed to indemnify each insurer for damage and defense costs,” the court said.

That left the question of whether pollution exclusions contained in the policies barred coverage. The jury found that the Ace and Westport policies included exceptions for “sudden, unexpected, and unintended” discharges, so coverage would be owed if not for the side agreements. The Lloyd’s and General policies, however, used different language and no coverage would be owed, the jury found.

The Supreme Court ruled that the trial court erred by not interpreting the meaning of side agreements, as well as the the exclusions and exceptions in the policies.The court remanded the case to the trial court with instructions to decide those issues as a matter law.

“In summary, we reverse the Court of Appeals’ holding that Daimler did not assume the contingent liabilities of Freightliner—including the liabilities at issue here—and affirm the jury verdict on that issue,” the court concluded.