What you need to know:

The US First Circuit Court of Appeals affirmed the trial court’s pro-rata, time-on-the-risk allocation of damages from environmental contamination in the long-running Boston Gas case.  The court held that judicial estoppel barred the insured from contradicting its position at trial – held before the Massachusetts SJC adopted pro-rata allocation – that property damage occurred continuously from the beginning of plant operations until the date of trial.  The court further concluded that the owned property exclusion barred coverage where, for one area of the site at issue, there was no risk of contamination beyond Boston Gas’ borders.

What you need to do:

Companies should consider the impact of the First Circuit ruling in determining allocation of damages, and whether the owned property exclusion applies.

Background

Boston Gas Co. sought coverage under CGL policies from Century Indemnity Co. for environmental liabilities from two manufactured gas plants, which were operated starting in 1908 and 1886, and insured with Century between 1951 and 1969.  Boston Gas received a jury award for past remediation expenses following the trial as to the Everett site.  On appeal, the parties disputed whether “joint and several” or “pro-rata” allocation applied.  The Massachusetts Supreme Judicial Court adopted pro-rata allocation, requiring that each insurer is obligated to pay only those costs associated with damage occurring during its policy period.  The parties ultimately settled the Everett site costs dispute.

Trial of the Commercial Point site proceeded before the SJC issued its allocation ruling.  The jury found that property damage resulting in liability occurred during each of the Century policy periods, and that the owned property exclusion applied to one portion of the site, the KeySpan area.  The jury awarded Boston Gas $1.7 million for amounts it was required to pay for the Commercial Point site that were not excluded.  Following the SJC ruling, the trial court allocated damages evenly from 1886 to 2007 using the pro-rata, time-on-the-risk-method, and found Century liable for 14.9% of Boston Gas’s recoverable costs.  See Boston Gas Co. v. Century Indem. Co., No. 11-1931, 2013 U.S. App. LEXIS 1351 (1st Cir. Jan. 18, 2013).

The Court’s Ruling

The First Circuit made the following rulings:

  • Allocation.  The First Circuit affirmed the trial court’s allocation of damages from 1886 to 2007 using the pro-rata, time-on-the-risk-method.

    Fact-Based Allocation.  The court concluded that the evidence did not permit a fact-based allocation because the trial proceeded under a “joint and several” theory of liability.  The jury was asked to determine only whether damage occurred during Century’s policy periods, and not to determine the amount of damage that occurred in those policy periods.  The trial court reasonably determined that pro-rata, time-on-the-risk allocation was appropriate because “[n]o plausible interpretation of the evidence presented at trial would permit a jury to pinpoint damages in time and degree with any level of certainty.”

    Judicial Estoppel.  The court held that judicial estoppel barred Boston Gas from contradicting its position at trial that property damage occurred continuously from the beginning of plant operations until the date of trial.  The court concluded that, absent the argument that damage was continuous, there would have been no basis for the jury verdict in Boston Gas’ favor that damage occurred during Century’s policy periods.  The court held that the change in the law did not warrant an exception to judicial estoppel.  While judicial estoppel may not apply where a party’s prior position was based on inadvertence or mistake, Boston Gas deliberately argued that damage was continuous.  And while judicial estoppel may not apply where a party changes its legal position, it does apply where a party changes its factual position, as Boston Gas did here.
  • Owned Property Exclusion.  The court affirmed the trial court’s denial of Boston Gas’ post-trial motion seeking judgment as a matter of law on the owned property exclusion.  Boston Gas argued that a purpose behind remediation of the KeySpan area was to remedy contamination of the air above the site, and that the owned property exclusion did not apply because Boston Gas did not own the air.  The court concluded that ownership of air rights was not determinative.  Instead, it ruled that Boston Gas was entitled to judgment as a matter of law only if the evidence clearly established a significant risk of off-site migration of contaminants.  The court held that there was ample evidence for a jury to find that there was no risk of contamination beyond Boston Gas’ borders.
  • Damages.  Finally, the court affirmed the trial court order vacating the verdict as being against the clear weight of the evidence, and ordering a new trial on the amount of costs subject to the owned property exclusion.  The jury was asked to determine the amount that Boston Gas was obligated to pay for which coverage was not excluded.  However, the damages figure entered corresponded to the stipulated costs of investigating the entire site plus the costs of investigating and remediating the KeySpan area, and the latter amount was excluded from coverage.  The court concluded that it was likely that the jury simply reversed the recoverable and unrecoverable amounts, resulting in an incorrect damages calculation.

Conclusion

The First Circuit affirmed the trial court’s allocation of damages from environmental contamination using the pro-rata, time-on-the-risk-method, concluding that the evidence did not permit a fact-based allocation, and that judicial estoppel barred the insured from contradicting its position at trial that property damage occurred continuously from the beginning of plant operations until the date of trial.

 

Topics:  Boston Gas, Commercial General Liability Policies, Contaminated Properties, Judicial Estoppel, Owned Property Exclusion, Pro Rata Allocation Rule, Pro-Rata Damages, Time-On-The-Risk Method

Published In: Civil Procedure Updates, Civil Remedies Updates, Environmental Updates, Insurance Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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