A federal appeals court on Friday upheld a lower court’s ruling in a dispute between an American International Group Inc. unit and an English reinsurer dating back decades.
In the late 1960s, a subsidiary of Castle & Cooke Inc. purchased land in Carson, California, where Shell Oil Co. had previously operated an oil and petroleum containment facility and developed a residential area, according to Friday’s ruling by the 2nd US Circuit Court of Appeals in New York in Insurance Co. in State of Pennsylvania v. Equitas Insurance Ltd.
In 2008, the California Dept. tested of Toxic Substances Control a site adjacent to the residential area and found dangerous levels of petroleum hydrocarbons including benzene, a known carcinogen, in the soil and groundwater.
Shortly thereafter, Carson̵7;s homeowners sued Dole Food Co., which had then merged with Castle & Cooke, and Shell in California state court for personal injuries and property damage related to environmental pollution.
In 1968, AIG unit The Insurance Co. in the state of Pennsylvania issued an umbrella insurance policy to Castle & Cooke covering up to $20 million over a three-year period.
Dole and its insurers settled the homeowners’ and other related lawsuits and awarded $20 million to the ICSOP policy, even though it had a three-year coverage period and the plaintiffs’ losses had occurred over four decades, the ruling said.
To cover some of its losses, ICSOP notified Equitas, its reinsurer, of Dole’s claim on the insurance. In 1969 ICSOP had obtained facultative reinsurance from Lloyd’s of London underwriters to cover some of the risks arising from the policy, and Equitas later inherited these underwriting commitments from Lloyd’s. Equitas Ltd. is the reinsurer that assumed Lloyd’s debts prior to 1993.
The reinsurance policy, which spanned the same three-year term as the policy, covers up to $7.2 million for each $20 million limit ICSOP pays to Dole and included a follow-on clause.
Equitas refused to cover any portion of AIG’s portion of the settlement and to pay the insurer’s claim. ICSOP filed suit in the US District Court in New York, which ruled in its favor. It was upheld by a three-judge court panel.
“Although the issue is not beyond doubt, we conclude that under the better reading of English law, Equita’s obligations under the reinsurance policy are as extensive as ICSOP’s obligations under the ICSOP-Dole policy,” the lower court said. .
Attorneys in the case had no comment or did not respond to a request for comment.