Case Briefs

In Norfolk Southern Corporation v. California Union Insurance Company, 2002-0369 c/w 2002-0371 c/w 2002-0372, (La. App. 1st Cir., 9/12/03) 2003 WL 22110450, ___ So.2d ___, cert. denied, Louisiana Supreme Court, Dec. 19, 2003, Norfolk Southern Corporation and certain affiliates (“Norfolk”) filed a declaratory judgment action against various members of Lloyd's of London and certain London Market Insurance Companies (collectively “London Insurers”) seeking coverage under several excess comprehensive general liability polices from 1969 to 1986 for the costs of environmental clean up at various sites throughout the United States including three sites in Louisiana. The environmental damages arose from long-term wood-preserving operations carried out at various Norfolk sites. The Louisiana First Circuit Court of Appeals made seven key holdings:

• In a long-term property damage suit attributable to numerous releases and discharges over extended periods of time, the “exposure theory” will be the applicable rule of trigger.
• The court expressly rejected the “all sums” theory of allocation and instead prorated losses across all policy periods and periods of self-insurance.
• The court deemed there to be a single “occurrence” in every policy period in which operations occurred.
• The policies did not provide coverage for damages that “occurred” prior to the inception of the policies.
• For any year in which the policyholder did not have insurance, the policyholder would be accountable for that year.
• A policyholder must meet self-insured retention (SIR) in every year.
• Groundwater is not owned by the landowner, and thus the “owned property exclusion” did not preclude coverage for the costs associated with remediating the groundwater.

The policy language provided that the London Insurers would indemnify Norfolk for the amounts Norfolk was legally liable to pay as damages due to “property damage … arising out of occurrences happening during the policy period.” The policies did not require the “property damage” to take place during the policy period; however, the court found that the unambiguous language of the policies clearly required the “occurrence” to have taken place during the policy period.

In the instant case, the property damage was not due to a single catastrophic event, but was due to numerous releases and discharges taking place over an extended period of time. The court noted that in these cases it was virtually impossible to determine the specific damage in existence at any given time or the specific cause of any particular damage. The court adopted the exposure theory, used in long-latency and occupational exposure cases, to determine which policies were triggered for cases involving long-term environmental damage. Applying the exposure theory to the facts of the case, the court found that coverage was triggered during each policy year in which wood-preserving operations occurred at each site. Furthermore, it found that after each facility was closed there were no new occurrences giving rise to relevant property damage. The court held that there was no coverage for property damage that existed prior to the effective date of the first policy. The court also determined based on the policy language that there was only one occurrence per policy period at each site.