NL Industries recently prevailed against its general liability insurers in the New York Appellate Division in a landmark case regarding the meaning of “intended or intentional” injury and the meaning of “damage” in a liability insurance policy. In Certain Underwriters of Lloyd’s, London v NL Industries, Inc.No. 2021-00241, 2022 WL 867910 (NY App. Div. Mar. 24, 2022) (“NL Indus. II”), the Appeals Division held that the exclusions for expected or intentional harm required a finding that NL actually anticipated or intended the resulting harm; not just being aware of an increased risk of harm. Further, the court held that funding an abatement fund to prevent future harm amounts to “damages” in the context of a liability policy because the fund has an offsetting effect. NL Industries II is a reminder to insurers and insureds that coverage is construed liberally and exclusions are construed narrowly in an effort to maximize coverage.
The underlying dispute
NL used to make lead paint. In 2000, several California municipalities filed a class action lawsuit against NL for public nuisance, alleging that NL marketed lead paint despite knowledge of its toxicity. The California trial court granted the government’s motion for summary judgment and found that NL knew lead paint was dangerous but continued to market it anyway. After multiple appeals and nearly 20 years of litigation, the parties finally reached a settlement in which NL agreed to pay $101.6 million to an abatement fund, which would be used to test and phase out lead paint. houses.
The dispute over insurance coverage
NL applied for coverage for the settlement with its commercial general liability insurers, but the insurers declined coverage. There were 320 insurance policies covering 70 years at issue. Insurers have sought to deny coverage on two grounds.
First, the insurers argued that there was no coverage because NL expected or intended to cause harm. A representative policy read as follows: “”Event” means an accident, including harmful exposure to conditions, which results, during the term of the policy, in personal injury or property damage. neither planned nor wanted from the point of view of the insured.” Certain Underwriters of Lloyd’s, London c. NL Indus., Inc.No. 650103/2014, 2020 WL 7711918, at *10 (NY Sup. Ct. December 29, 2020) (“NL Indus. I”) (emphasis added). Other policies used similar language. Identifier. at 10–11. Some policies also included an “expected or intentional harm” exclusion. The insurers argued that there was no coverage because the trial court found that NL knew the lead paint was toxic and therefore NL expected or intended to suffer the resulting damages and losses.
Second, the insurers argued that even if coverage was available under the policies, NL was not liable for “damages”. As part of the settlement, NL contributed money to a clean-up fund that would be used to remove lead paint from homes. Under California law, the payment into the reduction fund was intended only to prevent future damage, not to compensate for past damage. Insurers have argued that the policies’ coverage for “damage” only refers to compensation for past harm, no coming harm. Identifier. to *14. The insurers argued that this distinction meant that there was no coverage for the payment to the clean-up fund.
The New York Supreme Court rejected both of the insurers’ arguments and denied their motion for summary judgment. The insurers appealed, and the Appeals Chamber upheld the Supreme Court’s decision in its entirety and largely adopted its reasoning.
If NL has been found liable for the foreseen or intentional harm
Both courts rejected the insurers’ argument that there was no cover because NL intended or expected damage from the lead paint. Under New York law, an exclusion must be construed narrowly and directly to the point. NL Indus. I, 2020 WL 7711918, at *12. Applying this principle to the exclusion of “expected or intentional harm”, the Supreme Court explained that “what makes injury or damage expected or intentional rather than accidental is the knowledge and intent of the assured. It is not enough that an insured was warned that damages could result from his actions, or that, once warned, an insured decided to take a calculated risk and proceed as before. Identifier.
To determine whether NL was found liable for intending to cause harm or whether she simply knew the risks of her actions, the Appeals Division considered the allegations contained in the underlying complaint. He pointed out that NL’s liability was based on his knowledge that the lead paint “presented a serious risk of harm”. NL Indus. II, 2022 WL 867910, at *1. The Appeals Division explained that this “is not a clear finding that NL expected or intended to harm any person or property”. Identifier. Similarly, the Supreme Court held that NL was accused of having knowledge that lead paint was dangerous, but pointed out that there is a distinction between knowledge of the risk of dangerous consequences of one’s actions and the intention to cause harm. NL Indus. I, 2020 WL 7711918, at *13. The two courts thus concluded that the insurers had not discharged their burden of demonstrating that the exclusion of “expected or intentional harm” applied.
If NL was responsible for the “damages”
Both courts also rejected the insurers’ argument that the payment of the settlement to the abatement fund did not constitute liability for “damages” under the policies, as the California court said the payment was intended solely to prevent a future harm and not to compensate for past harm. Under New York law, insurance policies must be read as “common speech [to give effect to] the reasonable expectation and purpose of the ordinary businessman. NL Indus. I, 2020, WL 7711918, at *14. Ambiguities must be resolved in favor of the policyholder. Identifier.
The Supreme Court found that the “damages” were ambiguous and interpreted it in favor of NL, holding that “an ordinary businessman reading the policies at issue would believe that there is coverage for NL’s liability, and NL’s liability under California public nuisance law constitutes “damages” under the relevant policy language. Identifier. The Appeals Division agreed, finding that the payments also had a compensatory effect and, therefore, constituted damages covered by the insurance policy. NL Indus. II2022 WL 867910, at *2.
The Appeals Division interpreted the phrase “predicted or foreseen harm” narrowly to cover NL’s willful conduct. What matters for coverage purposes is not whether NL was aware of the risks of her conduct, but whether she intended to cause the specific harm that would result. Thus, the question of whether the insured acted deliberately with knowledge of certain risks is not the criterion for coverage. The Appeals Division has interpreted the term “damages” broadly to be ambiguous and therefore the term must be interpreted to include any sum which the policyholder was liable to pay by reason of the loss which he suffered. cause. This case serves as a reminder of the important principles that grants of coverage are construed broadly and exclusions are construed narrowly, both in favor of the policyholder.
Copyright © 2022, Hunter Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 131