Foran Glennon Secures Appellate Win for London Market Insurers in Environmental Insurance Coverage Action

A Missouri Court of Appeals found in favor of Certain London Market Insurance Companies (the “London Companies”) in an environmental insurance coverage action arising from Northrop Guidance and Electronics Company, Inc.’s (“Northrop”) manufacturing operations at a facility in Springfield, Missouri. Partners Helen Franzese and Ronald Puhala represent the London Companies.

In its lawsuit, Northrop sued various insurers, including the London Companies, seeking coverage for property damage caused by contamination at the Springfield facility. At the conclusion of a three-week trial, the jury held that the London Companies had no coverage obligation to Northrop regarding the Springfield site.

Regarding the London Companies, the appeal concerned two points:

1) Northrop’s contention that the trial court’s pre-trial decision to apply “pro-rata” allocation and subsequent application of “all-sums” allocation infected the trial; and

2) Northrop’s argument that the trial court erred in submitting to the jury the affirmative defenses of “late notice of claim” and “failure to cooperate.”

The Court of Appeals rejected Northrop’s appeal in its entirety, keeping in place the jury’s verdict in favor of the London Companies.

The court held that evidence presented by the insurers’ expert relating to the amount of groundwater contamination caused by the various sources of pollution at the site was not impermissible “allocation” evidence, as contended by Northrop, but rather permissible “divisibility” evidence, presented to show that no covered property damage occurred during the London Companies’ policy periods.

The decision is notable in this respect as it indicates Missouri adopts the standard set forth by the California Supreme Court in State of California v. Allstate Ins. Co., 201 P.3d 1147 (Cal. 2009), that an insurer does not have to pay for all co-mingled groundwater damages at a site under an “all sums” allocation. Rather an insurer may present evidence of the amount of damages caused by uncovered polluting events even where the groundwater is co-mingled from various sources.

Northrop’s argument that the London Companies’ affirmative defenses of “late notice of claim” and “failure to cooperate” should not have been submitted to the jury was also rejected.  The court held that, based on the evidence presented, the jury could have determined the London Companies suffered “prejudice” though Northrop’s failure to cooperate and late notice of claim. The Court of Appeals extensively discussed what constitutes “prejudice” for late notice and the failure to co-operate under Missouri law.

Northrop may appeal the decision to the Supreme Court of Missouri.

The case is Northrop Grumman Guidance and Electronics Company, Inc., vs. Employers Insurance Company of Wausau, et al. Missouri Court of Appeals, Western District (Case No. WD82615 (Consolidated with WD82623 and WD82636)).  Opinion filed on August 4, 2020.

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