In my last post I wrote about the statute of limitations with respect to the duty to defend discussed in OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015). (As I stated in my last post, the decision was issued on June 3, 2015, not in 2014 as the Westlaw citation indicates.)
The decision went on to discuss the statute of limitations with respect to the duty to indemnify.
The court held that the claims accrued when the insurers breached their duty to indemnify by failing or refusing to pay environmental costs that NEC became legally obligated to pay.
NEC argued that the cause of action did not accrue until its legal obligation to pay environmental damages was established through adjudicatory proceedings by judgment, settlement, or other binding determination.
The court held that a legal obligation imposed by a governmental agency pursuant to an environmental statute is different. "The insured's liability for remediation in such instances may be determined long before final judgment . . .[or] may arise without any litigation at all." The court noted the long-settled Massachusetts rule that a notice of responsibility from the EPA (or DEP) is sufficient to trigger a duty to defend. Similarly the duty to indemnify is triggered when an environmental agency seeks response actions from an insured.
The court concluded that the statute of limitations began to accrue when the governmental agencies imposed essentially mandatory obligations that NEC take action. "Neither litigation nor final resolution was necessary, in this context, to impose liability for purposes of accrual of NEC's indemnification claims on the insurers."
NEC argued that its costs incurred prior to the mid-2000's were investigative rather than remedial and so implicated only the accrual of its claims for breach of the duty to defend, not the duty to indemnify.
The court disagreed, noting that NEC had earlier in the litigation characterized its costs incurred for both investigation and remediation as indemnification costs. (Would the decision have been different if NEC has initially characterized the investigation costs as defense costs?) It also held that as a factual matter, NEC's response "took a remedial turn long before the accrual dates for its indemnification claims against the insurers" when it entered into a consent order, agreed to pay for remediation, and took other actions.
As I discussed in my last post, the court held that the statute of limitations on the duty to defend can begin to run after an insurer issues a reservations of rights letter and then makes no decision with respect to coverage.
In the indemnity argument the court came to a different conclusion. "We think a question of fact exists as to whether the insurers' failure to make coverage determinations . . . constituted disclaimers of their duty to indemnify prior to October, 2001."
The court held that an insurer's duty to indemnify depends on actual facts, while the duty to defend depends on allegations. Therefore, the duty to indemnify might require more time to investigate. Moreover, the insurers continued to communicate with NEC about the claims after the initial reservation of rights were issued. That was sufficient to raise a question of fact as to whether the insurers' responses to the claims constituted disclaimers prior to 2001.
The court's conclusion does not address the issues I raised with respect to its analysis on the duty to defend. An insured is still required to guess at what point after a reservation of rights letter asserting that the insurer has not made a decision the insured is to conclude that coverage has been denied.