Daily Development for Friday, February 27, 2004 by: Patrick A. Randolph, Jr. Elmer F. Pierson Professor of Law UMKC School of Law Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu INSURANCE; COVERAGE: A liability insurance policy covering liability arising from "operation, maintenence or use of the insured premises and all operations necessary or incidential to the business of the . . . insured conducted from or at the insured premises: covers off-site damage resulting from the business conducted on the insured premise. Cycle Chem, Inc. v. Lumbermens Mutual Casualty Company, 2003 WL 23111986 (N.J. Super. App. Div. 2003); December 30, 2003. A company that manufactured and sold chemical solvents owned two special multi-peril insurance policies. The policies contained insuring clauses with respect to damages "arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted from or at the insured premises... ." The insured premises, in this case, appear to have been the office facilities of the insured. A claim was made against insured based upon the appearance of the insured's solvents in remotely located Superfund sites. Claimants alleged that some solvents distributed by the insured caused water and soil contamination. Insured alleged that this amounted to a claim that something that the insured did in connection with the distribution of its products, all of which were controlled from this central office facility, was implicated in the claim, and asserted a right to coverage under the policies. Although neither the insured nor the insurance company could locate or produce the policies, they were able to stipulate as to the insuring clause and several other provisions. One stipulation was that the insurance policies contained a classification code for "Buildings or Premises office." Apparently, such a classification code defines a premium rate which is then multiplied by the size of the insured premises. The insurance company argued that the policies did not provide coverage from claims or liabilities not related to the office operations. The lower court held that the classification code meant that the policy was "limited to coverages arising out of an office operation." Consequently, the lower court believed that the policies did not cover the off-site contamination. The insured appealed, arguing that the policies were ambiguous and should have been construed in its favor and to meet its reasonable expectations. It also argued that the classification code did not limit the coverage and most importantly that "the policy language itself [was] broad enough to cover off-site environmental risks." The Appellate Division agreed with the final point, and disagreed with the lower court's treatment of the "classification code." Therefore, it found it unnecessary to discuss the first two points. As to the classification limitation, the insurance company pointed to an endorsement that specifically limited coverage based upon the classification code. The insured responded that the form of policy expressly stated the contrary. The Court pointed out that the policies were lost and that the parties had not stipulated to any policy language dealing with the classification codes. Consequently, it felt that the lower court should never have relied on the code as a proper basis to construe the policy language. The Court then rejected the insurer's argument that the low premiums actually charged meant that there was no coverage for this risk. The Court took the view, in this particular case, "the premiums charged [contained no] clue to the meaning of the insurance clause especially since the record [did] not establish exactly what coverages [the] lost policies provided and what, if any, exclusions existed." Therefore, the Court grounded its "approach to interpretation in the language of the policy itself." It pointed out that the policy paid for occurrences either "arising out of the ownership, maintenance or use of the insured premises" or for "all operations necessary or incidental" to the insured's business "conducted at or from the insured premises." This required the Court to determine if there was a nexus between the off-premises contamination and the insured premises. It found several cases to support such an interpretation. Consequently, it held that the language "arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted or from the insured premises" was "sufficiently clear and unambiguous to have precluded the entry of summary judgment in [the insurance company's] favor" because the business of selling the contaminating solvents was conducted from the solvent company's offices. Comment 1: Although the opinion seems predicated on the notion that the claim in question was based upon activities in the nature of business office decision making and instruction of field personnel, at one point the court states that the company "distilled, sold, and distributed chemical solvents . . . " and that it "owned, operated, and insured only one premises" - the premises in question. Thus there is some ambiguity as to whether where the distilling operations took place. But the rest of the opinion appears to be directed at the notion that liability here was based upon activities in the nature of general office activities, so the point is moot. Comment 2: Although this broad a reading of a business premises insurance policy is news to the editor, the cases that the court cites, at least if the court's description of them is to be credited, appear to support the claim. Good news, one supposes, for business owners. Apparently many insurers have now taken the precaution of stating a reservation in the policy limiting the coverage to the rated uses. The absence of such a reservation in this case was an important factor in the court's interpretation of the apparent meaning of the policy. Of course, the insurer never intended to insure the chemical distribution operations of the insured, but in the insurance business, an insurer has all presumptions invoked against it. It has to say what it means "jest 'zactly right." Comment 3: Note the breadth of this holding. All liability for any activity directed from the "home office" would apparently be covered, regardless of the nature of the claim. Comment 4: The insurer charged $154 for one policy (covering at least a year, and maybe more) and $208 for a second policy. Both had coverages of $500,000. Probably the best purchase that this company ever made. Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA. Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues. 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