The Louisiana Court of Appeals has ruled that a commercial pollution legal liability policy covered at least some costs to be incurred in connection with the insured’s resolution of the state’s environmental enforcement actions. Bollinger Shipyards Lockport, L.L.C. v. Am. Int’l Specialty Lines Ins. Co., No. 2012 CW 0351 (La. Ct. App. 4/10/13) (unpublished).

Plaintiff Bollinger Shipyards instituted the lawsuit in 2003 seeking coverage under its policy, which was in effect from 2000-2005. The insurer responded, denying that the policy covered the costs and raising numerous affirmative defenses. As the litigation proceeded, Bollinger entered into a settlement agreement with the Louisiana Department of Environmental Quality (DEQ). The settlement involved multiple companies associated with Bollinger and called for a $500,000 payment to DEQ plus expenditures of more than $8 million to fund beneficial environmental projects. Those projects range from donating to a rural water association to funding new air monitoring equipment for DEQ, upgrading a company spray-painting system, installing a vapor-control flaring system, and adding wastewater treatment systems at two company locations.

Bollinger asserted that some or all of the settlement costs are covered losses under the insurance policy and moved for partial summary judgment. According to the appellate court, the insurance policy applies to “Loss that the insured is legally obligated to pay as a result of Claims made against the insured for Property Damage or Cleanup Costs resulting from Pollution Conditions.” Property damage is defined to include natural resource damages, but the policy treats cleanup costs as a separate type of loss, not as property damage.

The court identified 11 separate notices or warning letters to Bollinger-related companies that were resolved in the DEQ settlement. Two relate to an “area of concern” not otherwise specified in the opinion, four relate to wastewater discharge violations, and five to “alleged air quality violations.” The court concluded that “some if not all of DEQ claims of pollution by Bollinger entities fall within the definition of natural resource damage and therefore were claims for property damage under the policy.” The court rejected the insurer’s assertion that DEQ claims relating to wastewater discharges and air emissions are not focused on “pollution conditions” within the meaning of the policy. “Our interpretation of the insurance policy in this case leads to the conclusion that it is the nature of the claim being settled that determines coverage, not the individual obligations set forth in a settlement agreement.”

Although it found that at least some costs incurred under the settlement would be covered by the insurance policy, the appellate court concluded that the plaintiff had not established that it was entitled to summary judgment. The settlement agreement between Bollinger and DEQ addressed alleged violations by at least six different related companies, but was executed only by Bollinger Shipyards, Inc., while the plaintiff here is Bollinger Shipyards Lockport, L.L.C. Because the court below did not address whether the named plaintiff is the proper party to pursue all the claims involved in the DEQ settlement, the appellate court remanded for a determination of the proper party or parties plaintiff.