Pollution / Georgia

Rejects Pro Rata Allocation Because Not Specifically Provided in Policy / Missing Pollution Exclusion Not Mutual Mistake

A Georgia federal court, applying Georgia law, held that an insurer did not present “clear, unequivocal and decisive” evidence to establish that it was a mutual mistake that a pollution exclusion was left off its policy.  The court found no other applicable policy exclusions and held the insurer liable for the entire loss under the “so-called ‘continuous trigger’ rule.”

The case arose from an insurance coverage dispute between ACE American Insurance Company (“ACE”) and Exide Technologies, Inc. (“Exide”).  Exide was a Georgia company that leased real property in Washington from The Wattles Company (“Wattles”).  From 1984 through 2009, Exide used the property for battery forming operations, a process that included the use of sulfuric acid.  Exide was insured by ACE for a year during that time period.

Wattles filed a lawsuit against Exide (the “underlying case”) alleging that Exide was liable for negligence and had breached its obligations under the lease because it allowed sulfuric acid mist to circulate the leased property which caused structural damage to the building’s roof trusses and other components.  Shortly after the lawsuit was filed, Exide filed for bankruptcy and the underlying case was stayed.  The bankruptcy court lifted the stay so that Wattles could attempt to recover a final judgment in the lawsuit from Exide’s insurance coverage without impacting Exide’s assets or bankruptcy estate.  Exide gave ACE formal notice of Wattles’ claims and informed ACE that it sought both a defense and a general coverage determination under the ACE policy.  The underlying case resulted in judgment against Exide for $2,273,623.93.

ACE filed suit requesting that the court (1) reform the ACE policy to include a missing pollution exclusion and (2) issue a declaration of no coverage based on the pollution exclusion and/or other policy exclusions and coverage restrictions.  ACE alleged that both Exide and ACE intended the policy to contain a pollution exclusion materially similar to the pollution exclusions found in other policies issued to Exide, including the immediate predecessor policy.  Both ACE and Wattles moved for summary judgment.

Under Georgia law, “[a] petition for reformation of a written contract will lie where by mistake of the scrivener and by oversight of the parties, the writing does not embody or fully express the real contract of the parties.”  According to the law, the mistake must be mutual and evidence of the mutual mistake must be “clear, unequivocal and decisive.”  In support of its contention of mutual mistake, ACE alleged that Exide asked Marsh to act as its soliciting broker in procuring primary layer first-party property insurance coverage with limits for 2006 – 2007.  As a part of that process, Marsh and Exide prepared an “underwriting submission” which included a pollution exclusion.  In response, ACE’s general managing agent sent Marsh a binder of insurance indicating that the ACE policy would be issued “per the expiring form.”  According to ACE, “per the expiring form” meant that it was intended to be issued pursuant to the same terms found in ACE’s expiring 2005 – 2006 policy, terms which included a pollution exclusion.  However, ACE did not produce the “underwriting submission” or any other document evidencing the inclusion of a pollution exclusion in the underwriting of the policy and provided no explanation as to the absence from the record.  The court found that“[t]he problem with ACE’s reformation claim is that, at best, ACE has produced evidence that the parties to the ACE Policy may have intended for it to include a pollution exclusion, but no evidence that they actually did so intend.” Additionally, in its motion for summary judgment, ACE admitted that Exide intended for Marsh to obtain a layer of primary insurance “on the same or better terms” as agreed upon in the prior year.   The court found that “the lack of a pollution exclusion in the ACE Policy would appear to provide more, rather than less, coverage to Exide—that is, an insurance policy with ‘better terms’ than those found in the [prior year’s policy].”  Thus, the court concluded that ACE had not put forward the “clear, unequivocal and decisive” evidence necessary to prove mutual mistake.  Ultimately, the court held that there were no applicable exclusions to limit coverage for the underlying case.  The court ruled that ACE was liable for the entire judgment in the underlying case under the “‘continuous trigger” rule:  “If ACE had intended to limit its liability through a pro rata allocation of damages, it could have included this language in the ACE Policy.” ACE American Insurance Co. v. Exide Technologies, Inc., No. 1:16-CV-1600-MHC (N.D. Ga. Sept. 19, 2017).