Friday, December 25, 2009

U.S. District Court holds that language of policy endorsement trumps reason endorsement was written

In my last post I started discussing Whittaker Corp. v. Am. Nuclear Insurers, __ F.2d __, 2009 WL 4342512 (D. Mass.).

Whittaker and Textron were former owners and operators of property that was declared a superfund site because of nuclear waste. They sought coverage for associated costs from American Nuclear Insurers, or ANI. At issue was an endorsement called a Facility Form in which ANI promised to pay "all sums which the insured shall become legally obligated to pay as damages because of . . . property damage arsing from the nuclear energy hazard."

ANI argued that there was no coverage for the loss. It argued that the Facility Form must be viewed in the context in which it was drafted. It contended that the Facility Form is a "creature of statute," intended to carry out the legislative goals of the Price Anderson Act, which was conceived in response to "the risk of potentially vast liability in the event of a nuclear accident of sizable magnitude." The Act required nuclear power licensees to purchase primary insurance of $60 million. The government agreed to act as an excess insurer, providing licensees with $500 million of indemnity over the primary policy. Licensees were relieved of any additional liability regardless of fault or causation.

ANI claimed that it developed the Facility Form to meet the primary policy requirement of the Price Anderson Act. It argued that if the Facility Form is interpreted to provide coverage for the "conventional" environmental cleanup, its ability to provide coverage for third-party claims in the event of nuclear catastrophe would be severely and possible fatally jeopardized.

The court rejected that argument. It noted that the Price Anderson Act is not a "nanny" act, in that it does not prohibit insurers from undertaking to provide coverage to nuclear plant operators for "conventional" environmental harm should they choose to do so. It did not dictate the terms of the Facility Form.

The court held that coverage under the Facility Form is determined by its terms, and that pursuant to those terms coverage was initially triggered.

As I will discuss in my next post, however, there was no coverage because the loss came within an exclusion.

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