Wednesday, November 25, 2015

Federal District Court transfers hazardous waste coverage case to state of the contaminated site

XTRA Intermodal leased and eventually purchased property in Fairmont City, Illinois.  The site was later discovered to be contaminated with hazardous waste.  XTRA requested coverage for the contamination claims from Federal Insurance Company under policies Federal had issued it in the 1980's and 1990's.

Federal filed a declaratory judgment action in the United States District Court for the District of Massachusetts, seeking rulings on the applicability of pollution exclusions and on how damages and costs of defense should be allocated among all of XTRA's insurers. 

In Federal Ins. Co. v. XTRA Intermodal, Inc., 2015 WL 4275181 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts allowed XTRA's motion to transfer the case to the federal court in Illinois.

Federal asserted that venue was proper in Massachusetts because when it issued the policies to XTRA XTRA's corporate headquarters were located in Boston.  Additionally, some of the policies were brokered by insurance agencies in Massachusetts. 

The court noted that the insurance policies were issued more than twenty years ago and that there do not appear to be any modern-day connections linking the parties to Massachusetts.  XTRA moved its principal executive office out of Boston in 1999.   None of the insurers are headquartered in Massachusetts.

The court held that venue was more proper in Illinois because that state has a stronger, more immediate and more relevant connection to Illinois than to Massachusetts.  The underlying litigation is  there; additional insurance claims relevant to the site are likely to arise there; the site is located close to the federal courthouse there; and the interpretation and application of the policies will depend at least in part on the factual circumstances surrounding the contamination. 

The court  held that it was premature to conduct a choice of law analysis.  Even if Massachusetts law applied, that fact is given significantly less weight in a venue analysis when the law involves basic or well-established issues of law.

The court rejected Federal's argument that Illinois did not have a paramount interest in the resolution of the matter because the case would determine only who paid for the loss.  The court held that host states have a "paramount interest in the remediation of toxic waste sites, which extends to assuring that casualty companies fairly recognize the legal liabilities of their insureds." 

Tuesday, November 17, 2015

Appellate Division holds that lienholder gets free insurance

Source One was a lienholder on a vehicle owned by Eric Santos.  On January 28, 2013, Progressive Insurance issued a "verification of insurance," or binder, that was provided to Source One. 

Santos's first premium payment bounced.  On February 8, 2013.  Source One received a notice of rescission from Progressive.  The notice was dated February 1, 2013 and was purportedly effective on January 28, 2013.

On March 3, 2013, the vehicle was towed as a result of a loss and Source One received possession of the vehicle.  Progressive refused to pay the claim filed by Source One on the ground that the policy had been rescinded. 

In Source One Financial Corp. v. Progressive Direct Ins. Co., 2015 WL 6739184 (Mass. App. Div.), the Massachusetts Appellate Division held that Progressive did not follow the cancellation procedure required by Mass. Gen. Laws ch. 175 § 113(A)(2).  Under the statute, "no cancellation of the policy . . . shall be valid unless written notice thereof is given by the party proposing cancellation . . . at least twenty days in each case prior to the effective date thereof."  The statute does not provide for rescission.

The court held that failure to comply with the requirements for cancellation means that the parties are in the same position as if no notice were ever sent.

The court rejected Progressive's argument that the insurance policy was a nullity due to failure of consideration.  "The promise to purchase the policy made by Santos at the time the binder was issued" satisfied the consideration requirement.  "The failure of consideration is not available to Progressive to avoid this policy.  The failure of performance, that is, Santos's failure to pay the promised premium, is different even under contract law than utter lack of consideration." 

The court held that the policy could not be rescinded because there was no fraud, accident, mistake, or gross inequity. 

I understand this case in principle.  By retroactively cancelling (or "rescinding") the insurance, Progressive failed to comply with the statutory requirement of giving twenty days notice.  Therefore, the insurance was never cancelled.

But what if Progressive had complied with the statutory requirements, and the accident had happened within the twenty day notice period?  A policy that was never paid for would nevertheless provide coverage.