Archive for the ‘Environmental Coverage’ Category

Developments in the Hydraulic Fracturing Industry

Wednesday, March 5th, 2014

For our readers who are keeping tabs on developments in the hydraulic fracturing (“fracking”) industry, you may be interested in our recent “news flashes” concerning the fracking industry in California.

The first is regarding a bill, introduced last Thursday, February 27th, that would halt all types of fracturing both on- and off-shore California until the completion of a multiagency review of the economic, environmental and public health impacts. SB 1132 would not only halt the use of high pressure injection of water and fracturing fluids into oil and gas reservoirs, the process most often thought of as “fracking” by the public, but would also prevent the use of acids to enhance permeability in “pay zones” to increase the flow of oil and gas into wells until the report is finished. To view a PDF copy the news flash, click here. 

Just one day later, on February 28th, the Los Angeles City Council’s unanimously voted to draft a new municipal ordinance banning hydraulic fracturing and other well-stimulation activities, such as acidizing, within the city confines. The ordinance would place a moratorium on “all activity associated with well stimulation, including, but not limited to, hydraulic fracturing, gravel packing, and acidizing, or any combination thereof, and the use of waste disposal injection wells.”  The ordinance would make Los Angeles the only oil-producing city in California to ban hydraulic fracturing. The moratorium would remain in place until the city verifies that hydraulic fracturing will not harm public safety or compromise drinking water.  The ordinance must still be drafted and is subject to additional public input before being presented to the City Council for a final vote. To view a PDF copy of this news flash, click here.

A Reservation of Rights Regarding the Pollution Exclusion and the Timing of Damages Does Not Trigger An Insured’s Right to Independent Counsel in California

Monday, September 16th, 2013

By Ekaterina L. Levy, Sedgwick San Francisco

In Federal Ins. Co. v. MBL, Inc., 2013 WL 4506149 (Cal. Ct. App. Aug. 26, 2013), the California Court of Appeal continued the judicial trend of restricting the insured’s right to insurer-paid independent counsel. The court held that a general reservation of rights, and a specific reservation of rights to deny coverage on the basis of the Absolute Pollution exclusion and to contend that the alleged damages did not occur during the policy period, do not create a conflict of interest between the insurer and its insured which would entitle the insured to independent counsel in an underlying action.

Pursuant to Section 2860 of the California Civil Code, if an insurer has a duty to defend and reserves its right to deny coverage regarding an issue that can be controlled by defense counsel appointed by the insurer, a conflict of interest arises between the insurer and the insured and entitles the insured to its own independent counsel, paid for by the insurer. The insured MBL, a supplier of PCE and other dry cleaning products, was named as a defendant in several third party complaints and cross-complaints in litigation instituted by the federal government for recovery of costs associated with remediation of groundwater contamination. Several of MBL’s liability insurers agreed to defend under a reservation of rights, and the insurers appointed defense counsel for MBL. MBL refused the defense counsel selected by the insurers, and contended that the reservations of rights entitled it to independent counsel of its own choosing at the insurers’ expense.

The court rejected MBL’s arguments and held that none of the three types of reservations issued by the insurers created a conflict of interest which would warrant an appointment of independent defense counsel. First, the court held that a general reservation of rights, pursuant to which the insurers did not expressly reserve their right to deny coverage under any particular exclusion (but preserved the insurers’ rights to rely on all their policies’ terms) did not create an actual conflict that gives rise to a right to independent counsel. The court reasoned that such a general reservation could do nothing more than create a theoretical, potential conflict of interest. Second, the court held that a reservation to deny coverage under an “Absolute Pollution” exclusion did not create a conflict because whether the exclusion applies is strictly a matter of contract interpretation and could not be controlled by defense counsel. Finally, the court held that a reservation on the issue of when the alleged damages occurred was irrelevant to the defense of the underlying claim and did not trigger a right to independent counsel, because MBL did not show how defense counsel could control that issue.

The case affirmed the holding of prior case law, first espoused in San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal. App.3d 358, that only an actual and significant conflict of interest – as opposed to a potential or theoretical conflict – entitles an insured to independent counsel under Section 2860.

 

Hydraulic Fracking – Recent Developments in CA, NY, NJ and PA

Thursday, December 20th, 2012

By Greg Lahr

For our readers who are keeping tabs on developments in the hydraulic fracturing (“fracking”) industry, we thought you would be interested in Sedgwick’s latest Hydraulic Fracturing News Flash regarding a recent proposal in California to regulate fracking, which can be viewed here.

Here are some recent developments that we are following in other states:

In New York, the Department of Environmental Conservation (“DEC”) has prepared a Revised Draft Supplemental Generic Environmental Impact Statement (“SGEIS”) on the Oil, Gas and Solution Mining Regulatory Program. The SGEIS pertains to issuing well permits for horizontal drilling and high-volume hydraulic fracturing for extracting oil and natural gas from the Marcellus Shale and other low-permeability gas reservoirs. Since making the SGEIS available for public review in September 2011, the DEC has drafted proposed regulations, which are available for comments from December 12, 2012 to January 11, 2013. At least until the regulations are finalized, it appears that the DEC’s moratorium on issuing well permits for horizontal drilling and fracking will continue.

In Pennsylvania, appellate review of the constitutionality of Act 13 of 2012 (“Act 13”), 58 Pa. C.S. §§ 2301 et seq. (signed into law on February 14, 2012), continues with the filing of appellate briefs to the Pennsylvania Supreme Court in September 2012. According to the General Assembly, Act 13 broadly reformed the laws that govern the development of oil and gas resources in Pennsylvania by establishing uniformity and promoting growth in the industry though the pre-emption of local ordinances that impose conditions or limitations on oil and gas operations. The General Assembly intended to allow oil and gas development as a permitted use in any zoning district, and mandate that restrictions placed on oil and gas development by municipalities be no greater than those placed on other industrial uses. A number of municipalities sought a declaratory judgment that Act 13 is unconstitutional, and requested that the Act be permanently enjoined. After the Pennsylvania Attorney General filed preliminary objections based primarily on standing and justiciability grounds, the municipalities filed a motion for summary judgment. On July 12, 2012, the Commonwealth Court issued a decision that granted in part and denied in part the summary judgment motion, and in part sustained the Attorney General’s objections. Significantly, the court declared a section of Act 13, which provides for uniformity of local ordinances, to be unconstitutional. Cross-appeals were filed by the municipalities and the Attorney General.

In New Jersey, a one-year moratorium on fracking signed by Governor Christie is set to expire in January 2013. However, a New Jersey assemblyman is currently sponsoring legislation that would extend the ban on fracking until the state Department of Environmental Protection reviews the federal Environmental Protection Agency’s study on the effects of fracking, which may not be out in final form until 2014.

11th Circuit: Total Pollution Exclusion Bars Coverage for Carbon Monoxide Poisoning

Tuesday, September 11th, 2012

By Aaron F. Mandel

In Scottsdale Insurance Co. v. Pursley, Slip Copy, 2012 WL 3553405 (11th Cir. Aug. 20, 2012), the U.S. Court of Appeals for the 11th Circuit rejected an attempt to limit the application of a commercial general liability policy’s total pollution exclusion to traditional, environmental pollution. 

In Scottsdale, Sheryl Simpson-Jones (Simpson-Jones) and her husband, Christopher Jones (Jones), hired Richard Pursley to repair their boat.  Pursley completed the repair, but neglected to cover the exhausts for the starboard engine after he was done.  After the Joneses retook possession of their boat, Jones turned on its generator to operate the boat’s air conditioner.  The generator and starboard engine shared a common exhaust vent, and carbon monoxide filled the boat’s cabin, kitchen, and sleeping quarters, where Jones had fallen asleep.  Jones died of carbon monoxide poisoning, and Simpson-Jones filed a wrongful death claim against Pursley. 

Scottsdale had issued a commercial general liability policy to Pursley covering liabilities arising out of his mobile marine engine repair business.  The policy, however, contained a total pollution exclusion that precluded coverage for “‘bodily injury’ … which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”  The policy defined “pollutants” to mean “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”  Scottsdale filed a declaratory judgment action against Simpson-Jones in Georgia federal district court.  The court, in granting Scottsdale’s motion for judgment on the pleadings, determined that the total pollution exclusion in Scottsdale’s policy precluded coverage for Jones’ death.  Simpson-Jones appealed, arguing that the district court’s application of the exclusion disregarded the historical purpose of the pollution exclusion to preclude coverage for traditional environmental pollution.  Rejecting Simpson-Jones’ argument, the 11th Circuit noted that the Georgia Supreme Court held in Reed v. Auto-Owners Insurance Co., 667 S.E.2d 90, 91 (Ga. 2008), that there was “no language in the policy supporting restricting application of the exclusion to traditional environmental pollution.”  Therefore, the 11th Circuit affirmed the district court’s grant of Scottsdale’s motion for judgment on the pleadings.

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