Insurers, commercial policyholders anxiously await Ohio indemnification ruling in lead paint case

As the Ohio Supreme Court mulls whether insurers have a duty to indemnify Sherwin-Williams Co., after the paint maker and others were held liable in a $409 million public nuisance case over lead paint, attorneys on both sides warn of the potential broader implications of the forthcoming decision.

The Ohio Supreme Court heard oral arguments on appeal by certain underwriters at Lloyd’s of London after the state’s Eighth District Court of Appeals denied summary judgment to the insurers. In a 2-1 majority, the state appellate court held that Sherwin-Williams’ commercial general liability policies, which cover “damages” for specific property and bodily injury that the insured neither expected nor intended, could cover underlying public-nuisance claims brought by California public entities.

In the underlying California litigation, Sherwin-Williams and other co-defendants were required to pay $409 million into a government-administered remediation fund for pre-1951 residences which would have been identified by a court-appointed master. The money from the fund would remediate those damages — which is “precisely the liability that manufacturers reasonably expect to be covered” under a standard commercial general liability policy, argued Sherilyn Pastor, an insurance recovery partner at McCarter & English in Newark, New Jersey. Pastor authored the amicus brief on behalf of the Product Liability Council and the National Association of Manufacturers.

Pastor told Law.com that Sherwin-Williams’ insurers attempted to “shirk their coverage responsibility by taking untenable positions,” by claiming their commercial general liability policies don’t cover public nuisance claims alleging the agreements do not reimburse amounts needed to remediate dangerous conditions.

“My amici clients, who are manufacturers, are concerned about whether manufacturers will receive the tort liability insurance coverage that they paid substantial premium for and that they expected,” Pastor told Law.com. “CGL policies have always covered tort claims and public nuisance would be within that category, and CGL policies cover damages — that would include damages to remediate dangerous conditions. My client’s concerns would be the insurers are essentially looking to narrow their coverage obligations by arguing that damages shouldn’t include those amounts.”

However, Pastor points out that “damages” isn’t defined in the policies, though the insurers rely on “plain meaning” of the word.

In support of the insurers, Patrick E. Winters, a partner at Plunkett Cooney, filed an amici brief on behalf of the American Property Casualty Insurance Association, Complex Insurance Claims Litigation Association, and the National Association of Mutual Insurance Companies. He argued that imposing an extra-contractual risk on insurance carriers would harm Ohio’s insurance marketplace.

“No public policy reason exists to deviate from the plain application of CGL policy terms limiting coverage to damages ‘because of’ or ‘for’ ‘bodily injury,’” he wrote in the brief. “To underwrite CGL policies such as the policies at issue, insurers calculate and pool the risk of damages payable for third-party bodily injury and property damage, which impact different policyholders in different locations at different times. But insurers are not, and cannot be, guarantors against the consequences of all unfortunate events that impact society at large. They are instead risk spreaders, functioning to equalize the known but unpredictably distributed risks defined in their policies’ express terms. Premiums are calculated by actuaries based on prior losses for bodily injury and property damage as those terms are understood at the time of underwriting.”

Winters claimed that if the court failed to enforce the policy language, “it would create excessive uncertainty about the effect of widely used policy language that insurers rely on as fixed and limiting.”

During oral argument, Jonathan D. Hacker, a partner at O’Melveny & Myers in Washington, D.C., on behalf of some of the insurance companies and policies relating to Century Indemnity Co., which was formerly known as California Union Insurance Co., Westchester Fire Insurance Co., and Federal Insurance Co.

Hacker addressed whether CGL insurance policies include the monetary payments the insured must make that don’t compensate anyone for a loss or an injury. He said remediation includes education for the public about which homes should allow contractors in to encapsulate and remove the paint.

“Encapsulate and remove—that part costs money. Is that damage?” Ohio Supreme Court Justice Pat Fischer asked Hacker.

“It’s required that when homeowners, when you purchase an old home, there’s a lead paint disclosure. So most purchases would know that there was lead paint in their homes, the property value already reflects the existence of lead paint,” Hacker said.

“A homeowner, I think, would have a very difficult time establishing a property damage claim when their value of the property already reflects the existence of lead paint, there’s no property damage. There’s no damage to claim, there’s no loss,” he added. “There’s also no value, there’s no out of pocket loss.”

Richard M. Garner, a partner at Collins Roche Utley & Garner in Dublin, Ohio, on behalf of the Ohio Insurance Institute, also submitted a brief in support of the insurers. Robert P. Rutter and Robert A. Rutter, both members of Rutter & Russin in Cleveland, submitted a brief in support of Sherwin-Williams on behalf of United Policyholders.

Sherwin-Williams filed the present action in Cuyahoga County Common Pleas Court seeking a declaration as to whether its insurers have a contractual duty to indemnify the company under its policy.

In December 2020, Cuyahoga County Judge Robert C. McClelland granted summary judgment in favor of the insurers against Sherwin-Williams on the ground that there were “no ‘recoverable damages,” but rejected the insurers’ “expected or intended” argument, in that “Sherwin knew with certainty that there would be harms in this community, kids would be poisoned, kids would be harmed, and kids would be killed at high [lead] exposure levels,” Carl S. Kravitz, a partner at Zuckerman Spaeder in Washington, D.C., argued on behalf of the insurers.

Sherwin-Williams appealed the judgment and the insurers cross-appealed on the “expected or intended” ground, as well as others. In a 2-1 decision, the Eighth District reversed and remanded, with the majority holding that the abatement fund qualified as “damages.”

Related: 

• Arch not owed contribution for condo board’s defense 
• Failure to satisfy deductible leads to no coverage for hail damaged property
• Insurer must cover driver who had accident in friend’s car, Ohio court rules