Defense Ended When Court Ruled No Duty To Indemnify

Commercial Liability	Environmental Contamination
Pollution	Duty to Defend

A federal court ruled that an insurer is not obligated to indemnify a battery manufacturer under its general liability insurance for alleged environmental contamination at four sites within a state. To address related issues regarding policy coverage, the court later examined whether the insurer's duty to defend continued even after it had been determined that there was no duty to indemnify in its favor.

Pertinent policy language included: "The Company shall have the right and duty to defend any suit against the insured seeking damages on account of such . . .property damage, even if any of the allegations of the suit are groundless, false or fraudulent." The court explained that "such. . .. property damage" referred to property damage caused by an occurrence. In this connection, policy provisions included: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of. . . property damage to which this insurance applies, caused by an occurrence."

The insured argued that it was reasonable to expect the insurer to have a continuing obligation to provide defense coverage. They noted that the language of the policy did not explicitly limit the duty to defend to only the duty to indemnify. They referenced a provision stating that the duty to defend ends "after the applicable limit of liability has been exhausted by payment of judgments or settlements." Additionally, they emphasized that there was no provision indicating that the duty to defend would end with a declaratory judgment in favor of the insurance company.

The insurance company based its position on "specific contract language" concerning the duty to defend. It argued that since the court had determined that an "occurrence" had not been proved, there was no "such. . . property damage" and, consequently, no duty to defend.

The court found the insurer's argument convincing. It based its interpretation on "what the contract states, rather than on what it does not state." The court determined that the insurer's duty to defend the insured in the lawsuit ended on the date when it concluded that the insurer had no obligation to indemnify the insured. This was the court's final ruling.

Fireman's Fund Insurance Companies Et Al., Plaintiffs v. Ex-Cell-O Corporation ET AL., Defendants; Ex-Cell-O Corporation ET AL., Third-Party Plaintiffs v. AIU Insurance Company ET AL., Third-Party Defendants. United States District Court, Eastern District of Michigan, Southern Division. No. 85-CV-71371. December 10, 1990. 752 F.Supp. 812. CCH 1991 Fire and Casualty Cases, Paragraph 3029.