Thursday, February 18, 2016

Extrinsic evidence, the duty to defend, and environmental claims.

Originally published by Diane Polscer.

A federal district court applying Washington law recently ruled that an insurer had no duty to defend its insured against environmental “claims” and, in doing so, may have considered evidence extrinsic to the agency communications for which the insured sought a defense.  The Jorgensen Forge Corp. v. Illinois Union Ins. Co., 2016 WL 409822 (W.D. Wash. Feb. 3, 2016).

Like many other jurisdictions, Washington courts have long held that the duty to defend “arises when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy’s coverage.”  Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 760-61, 58 P.3d 276, 281-82 (2002).  Washington’s Supreme Court has recognized exceptions to this rule but observed that they operate only “in favor of the insured”:  “Put simply, an insurer may not rely on facts extrinsic to the complaint in order to deny its duty to defend where * * * the complaint can be interpreted as triggering the duty to defend.  Id.  (emphasis original).

In Jorgensen Forge, the insurance policy at issue provided a duty to defend against environmental “claims,” which it defined to mean “the written assertion of a legal right * * * alleging responsibility or liability on the part of the ‘insured’ for ‘bodily injury,’ ‘property damage,’ or ‘remediation costs’ arising out of ‘pollution conditions’ * * *.”  The policy required that the claim be “first made” during the policy period.  The policy also contained an exclusion barring coverage for all remediation costs “arising from” two pre-existing administrative orders.

On reconsideration of its prior ruling in favor of the insured, the district court found no duty to defend four “claims” made against the insured by state and federal agencies.  The court found that two of the claims were not “first made” during the policy period and that the other two claims arose out of the pre-existing orders.  Accordingly, the court concluded that there was no duty to defend any of the four claims.  In reaching this determination, the court considered information that was not contained in the administrative orders and other communications initiating the “claims”—documents which some might argue equate to complaints asserted in a traditional legal action.  This arguably “extrinsic” information included other correspondence between the insured and the agencies, engineering reports, and even deposition testimony.

The Jorgensen Forge court did not address the Washington case law prohibiting consideration of evidence extrinsic to “the complaint.”  One explanation for the district court’s decision might be the policy provisions at issue, which depended on information that may not necessarily be alleged in the initiating agency communication.  Another might be the nature of administrative “claims,” as an agency “complaint” may not include the same degree of detail alleged in a traditional complaint.  In any case, Jorgensen Forge may be read as one court departing from Washington’s traditional duty to defend standard without a clear explanation for recognizing an exception.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today
via Abogado Aly Website

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