We recently obtained a favorable court ruling on behalf of our client, Tecumseh Products Company LLC, on an insurance coverage issue that has vexed corporate policyholders for decades — whether primary insurance policies contain aggregate limits for long-tail environmental insurance claims. See Bedivere Insurance Co., et al. v. Tecumseh Products Company LLC, et al., (Michigan State Court, 2019) (decision).
1. The Aggregate Limits Issue for Environmental Claims
Tecumseh’s situation was not atypical. For years, even before litigation started in 2017, Tecumseh’s primary insurers and excess insurers conceded that their policies were at risk, but refused to pay a single dollar because of disagreement regarding whether or not the primary policies contained aggregate limits. If the primary policies did not contain aggregate limits, those policies are on the hook to pay their full per occurrence limits for each occurrence, meaning that there are multiple limits (rather than one limit) for each former manufacturing site. However, if those same primary policies contain aggregate limits, then payouts would be reduced dramatically, and in some situations could be zero because of prior payments on other claims.
2. The Primary/Excess Carrier Dilemma
Unsurprisingly, the primary insurance policy carriers have argued for years that their policies contain aggregate limits, and that they were already exhausted, or nearly exhausted from the payment of prior claims; whereas the excess insurers have taken the opposite view that the underlying policies do not contain aggregates, are not exhausted, and thus their policies have not yet been triggered. It’s been a classic case of the chicken and egg, with each set of insurers pointing the finger at the other, refusing to pay because of this aggregate stalemate, and both sets of insurers content to see their insured fronting the full costs of investigating and remediating the underlying environmental sites, as well as fully covering the cost of litigation by third party landowners and government agencies.
3. The Insurers’ Best Argument — Ignore Policy Language, We Know Better
In its litigation against its historical general liability insurers related to policies going back to the 1950s and involving a number of former manufacturing sites in Michigan and Wisconsin, Tecumseh purchased primary liability policies from Travelers Indemnity Company, Maryland Casualty Company (now part of Zurich) and Michigan Mutual Insurance Company (now part of Amerisure), as well as excess liability policies from Continental Insurance Company, London Market Companies, and other excess insurers. The primary policies were clear on their face that there were no aggregate limits, so that the full per occurrence limit was available for each individual site. These policies stated that aggregate limits equal to the per occurrence limits of each policy would apply if and only if the polices were “rated” (i.e., the calculation of premiums) based on remuneration (i.e., payroll data for certain periods of time). However, the policies did not even mention remuneration, let alone provide detailed payroll data for Tecumseh employees. Rather, the policies contained detailed annual sales information for Tecumseh, which the underwriters for the primary policies used to rate or adjust the premiums then due and owing.
4. As It Should — Policy Language Controls
Despite the clear language in these policies, the primary insurers, as they have done in just about every other long-tail pollution or asbestos case over the past four decades, argued that the court should disregard the clear language of the policies and instead should consider and rely upon evidence outside of the four corners of the policies, such as an underwriters manual, testimony by a former Travelers executive paid by Travelers to provide so-called “fact testimony,” and vague and generalized notions of “underwriting industry practices” in the 1950s-1970s. The Michigan trial court correctly rejected these arguments, holding that “[b]ased on the express terms of Primary Policies, no aggregate limits apply to property damage coverage in this case, [because] none of the policies contain any language indicating that the underwriters used or were authorized to use remuneration figures in the premium calculation.” The court added the following: “The Primary Policies in this matter contain plain and unambiguous language governing resolution of this motion as a matter of law. The Court further finds that it would construe any ambiguous language, if there were any, in favor of Tecumseh.”
The court’s decision in Bedivere Insurance Co., et al. v. Tecumseh Products Company LLC, et al., (Michigan State Court, 2019) is important for corporate policyholders facing long-tail liability claims. These include any claim where more than one occurrence policy has been implicated, including pollution, asbestos, silicosis, opioid, sexual abuse, and any other kind of claim where bodily injury or property damage has been alleged to have occurred over multiple policy periods.
This decision should become one of the seminal pro-corporate policyholder rulings on the aggregate limits issue, and we strongly encourage companies facing long-tail property damage and bodily injury claims to contact us if they have any questions.