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Travelers Casualty & Surety Co. v. Certain Underwriters at Lloyd’s of London

Issue Discussed: Aggregation/Number of Occurrences

Submitted by Elizabeth V. Kniffen, Dennis Anderson

Date Promulgated: October 16, 2001

Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London, 96 N.Y.2d 583, 760 N.E.2d 319 (2001)

Court: Court of Appeals of New York

Issue Decided: Whether insurer could aggregate losses from multiple environmental injury claims arising from decades of commercial activities at numerous industrial waste disposal sites.

Travelers Casualty v. Certain Underwriters at Lloyd’s was the consolidated appeal of two cases arising from losses on policies issued to chemical companies. The first case involved primary, excess, and umbrella general liability policies issued to the Koppers Company, a chemical manufacturer in operation at locations throughout the United States since the early 1900s. Travelers issued the policies to Koppers from 1960 to 1972, and purchased various types of reinsurance from the defendant Reinsurers.

Beginning in the early 1980s, government entities and private parties commenced environmental actions directed at more than 150 of Koppers’ chemical plants and disposal sites, many of which had been in operation for over 60 years. Koppers sought defense and indemnification from Travelers, and eventually settled with Travelers for about $140 million.

Travelers apportioned its settlement payment amongst the sites, treating each as a separate occurrence, and later ceded about $61.5 million of the settlement to its facultative reinsurers, treating the entire settlement as a single casualty and apportioning approximately $13 million of the settlement to defendant Reinsurers. In doing so, Travelers reasoned that the many occurrences resulted from a “common origin” because they were all traceable to Koppers’ company-wide waste disposal practice.

The second case arose from claims under excess and umbrella policies issued to DuPont from 1967 to 1985, backed by reinsurance policies from various entities including defendant Reinsurers. In 1989, DuPont sued Travelers, seeking a declaration of insurance coverage for pollution-related claims arising from contamination at multiple hazardous waste sites. Travelers eventually paid DuPont $72.5 million to settle the claims, apportioned the settlement between two direct insurance policies with DuPont, and then sought reimbursement from its various reinsurers, including $7.4 million from defendant Reinsurers.

As with the Koppers claims, Travelers calculated this amount by treating all the DuPont claims as a single loss, asserting that they all shared a “common origin,” namely DuPont’s failure to implement and enforce its own environmental policy. As it had in the Koppers matter, Travelers then sued defendant Reinsurers, seeking monetary damages and declaratory relief.

In both cases, Reinsurers moved for summary judgment, arguing that Travelers’ “single loss” approach was inconsistent with the language of the insurance treaties. In both cases, the district courts granted Reinsurers’ motions, and in both cases the intermediate appellate courts affirmed.

The Court of Appeals also affirmed. The court’s analysis began by noting that the parties’ dispute centered on the interpretation of language common to the reinsurance treaties on both cases. Specifically, the issue was whether Travelers’ single allocation of its losses was encompassed by the term “disaster and/or casualty,” which included “all loss resulting from a series of accidents, occurrences and/or causative incidents having a common origin and/or being traceable to the same act, omission, error and/or mistake.”

The court held that Travelers’ broad interpretation of “disaster and/or casualty” would effectively excise the words “a series of” from the language of the treaty, violating the principle that all terms of the contract must be given effect. The court held that these terms could be harmonized by an interpretation under which the “disaster and/or casualty” provision would allow the reinsured to aggregate claims traced to “accidents, occurrences and/or causative incidents” having a special or temporal relationship and a “common origin.” The same interpretation could disallow aggregation of claims that lack such relationships.

The court ultimately concluded, as a matter of law, that Travelers’ allocation of its settlements with Koppers and DuPont did not fall within the ambit of “disaster and/or casualty” in the reinsurance treaties.