When Is An Insured's Loss Not Damages?
It isn't often that insurers prevail on the same issue in California and New Jersey but such was the case last month with the intriguing issue of whether a policy's coverage for "damages" includes not only money paid to settle claims but cases in which the insurer provides non-cash services or otherwise relinquishes assets of value in lieu of paying money.
In Passaic Valley Sewerage Commissioners v. St. Paul Fire & Marine Ins. Co., A-97-09 (N.J. June 21, 2011), a wastewater utility agreed to settle claims brought against it by a waste hauler by agreeing to treat and dispose of sludge for a customer of the plaintiff for a period of five years. The insured sought indemnification for this loss from Coregis under a policy that provided coverage for “loss,” which was defined, in pertinent part, as “money damages.” The policy policy defined "money damages" as “monetary compensation for past harms” and expressly excluded indemnification for relief “in any form other than money damages. . . including equitable relief.”
Under the circumstances, the New Jersey Supreme Court ruled that the clear and unambiguous meaning of “money damages” could not be extended, as the insured argued, to the surrender of assets of value and required a cash payment. Rather, the Court ruled that the clear and ordinary meaning of “monetary” was “of or relating to money” and that the policy therefore required a cash payment by the insured and did not extend coverage, as the insured had argued, to any settlement involving the insured’s surrender of valuable consideration such as an agreement to provide services in the future.
To related effect is the newly published opinion of the California Court of Appeal in Ultra Salon, Cosmetics & Fragrance, Inc. v. Travelers Property Casualty Company of America, No. B224586 (Cal. App. June 10, 2011). The Second District sustained Travelers' demurrer on the basis that the civil penalties available for the insured’s claimed violations of Proposition 65, the California Safe Drinking Water and Toxic Enforcement Act of 1986 for failing to give clear warnings about the dangers associated with its cosmetic products did not allow recovery of insured “damages.” The Court of Appeals observed that Prop 65 penalties “do not grow out of a claim for moneys due and owing for personal harm or property damages that have resulted from discharge of pollutants or other toxic chemicals…” The court declined to impose a duty to defend based upon speculation that the plaintiff might later sue for bodily injury.
These are helpful rulings for cases involving intellectual property disputes and other types of commercial litigation where as a condition of the settlement, the insurer is called upon to do more than write a check.
