Words Matter — Settlement Agreements Should be Enforced As Written

Sometimes you read a decision and it’s hard to understand how there really were two plausible sides to the dispute.    Arrowood Indemnity Company v The Lubrizol Corporation is one such a decision.  There, a policyholder sold back its liability coverage for claims “arising out of” certain named environmental sites.  When the policyholder subsequently received a PRP notice letter for a site that included a property that had allegedly been contaminated by waste migrating from one of the named environmental sites, the policyholder contended that it was entitled to coverage since the PRP notice letter did not expressly mention any of the named environmental sites from the settlement agreement and because the insurer had incorrectly advised a reinsurer that the new PRP notice letter did not involve one of the settled sites.

The Court made short shrift of the policyholder’s position, saying that the erroneous notice to the reinsurer could not change the unambiguous wording of the settlement agreement which applied not merely to the named environmental sites themselves but also to claims “arising out of” those sites.   Parties entering into settlements should expect courts to enforce them as they were written.