No Aggregate Limits for Long-Tail Environmental Claims If Policy Not Rated on Renumeration Basis
A trial court in Michigan, applying Michigan law, held that the primary comprehensive general liability insurance policies at issue did not contain aggregate limits for long-tail environmental insurance claims.
From 1951 to 1987, Tecumseh Products Company, LLC (“Tecumseh”) had primary general liability policies from Travelers Indemnity Company, Maryland Casualty Company, and Michigan Mutual Insurance Company, as well as excess liability policies from Continental Insurance Company, London Market Companies, and other excess insurers for manufacturing sites in Michigan and Wisconsin. Tecumseh and its excess insurers disagreed with its primary insurers about whether the primary policies contained aggregate limits.
Several of Tecumseh’s excess insurers sued seeking a declaratory judgment regarding Tecumseh’s insurance coverage for property damage liability at four sites. Once the primary policies’ aggregate limits are exhausted, the excess policies would assume all payment obligations still due and owing for Tecumseh’s property damage claims. Tecumseh sought an order establishing that the primary policies do not contain aggregate limits of liability for property damage claims. Tecumseh argued that if aggregate limits did not exist under a particular policy, then the primary policy would not exhaust on an aggregate basis, and the excess insurer will only be liable for individual site property damage claims that exceed the per occurrence limits.
According to the trial court, “under the express terms of the Primary Policies at issue in this motion, aggregate limits do not apply.” The primary insurers issued policies which provided $200,000 in coverage per occurrence for property damage. The Declaration page of the policies refer to a $200,000 aggregate for property damage arising from operations or generally. The trial court found that whether aggregate limits exist under the particular primary policy depended on how the policy was actually rated. One possible factor in rating a policy is remuneration, the amount of money paid to employees for their work performed during the policy term. If the amount of remuneration goes up, the policy premiums likely go up. An alternative basis for rating a policy is sales. Under a sales-based rating system, as a company’s sales increase policy premiums increase. According to the trial court, none of the policies at issue contained any language indicating that the underwriters used or were authorized to use remuneration figures in the premium calculation, and therefore, based on the express terms of the primary policies, no aggregate limits applied to property damage claims. The trial court held that ‘notwithstanding the per occurrence limits that otherwise apply, an aggregate limit applies under the Primary Policies if and only if the operations are rated on a remuneration basis.” Therefore, the trial court held that the primary insurers “have unlimited liability under the [primary policies] unless “(a) there exist uncontested, per occurrence limits in the Primary Policies and (b) those limits are exhausted with respect to the particular policy in question and a particular site. Only in the event of (a) and (b) do the Excess Policies ‘kick in.’” Bedivere Ins. Co. v. Tecumseh Products Co. Case No. 17-563-CB (Washtenaw Cnty. Ct. Mich. Mar. 8, 2019).