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Hawkins Chem., Inc. v. Westchester Fire Ins. Co.

Citation: 29 ELR 20309
No. 97-4028, -4032, 159 F.3d 348/(8th Cir., 10/21/1998)

The court holds that two insurance companies breached their duty to defend a chemical distributor in a class action alleging personal injuries caused by toxic fumes from a warehouse fire. The court first holds that a pollution exclusion endorsement added to the distributor's policy with its primary insurer removing coverage for "hostile fires" lacks legal force and, therefore, the primary insurer's pollution exclusion retains the hostile fire exception, which is required under Minnesota law. The court has previously held that an insurance policy or provision not filed with the state Commissioner of Insurance is unenforceable, and the primary insurer never sought the state's approval of the endorsement. The court then rejects the primary insurer's argument that the distributor has no right to enforce the state's regulatory scheme against its own insurer. The distributor does not seek damages for the insurer's violation of Minnesota's insurance statutes. It merely asked the district court to declare and enforce the terms of its insurance policies. The court also rejects the primary insurer's claim that it abided by the state's regulatory scheme. The regulatory authorities previously determined unequivocally that language identical to that contained in the primary insurer's endorsement was void and unenforceable absent the state Commerce Commissioner's consent on a case-by-case basis, and it is undisputed that the primary insurer never sought or obtained any subsequent approval of its pollution exclusion. The court also rejects the primary insurer's argument that it never needed the state Commerce Commissioner's approval because the endorsement was a "manuscript" rather than a "form." The mere fact that it chooses to call the form a manuscript does not alter the fact that the endorsement is a form.

The court then holds that an umbrella insurer's endorsement omitting coverage for pollution claims arising out of hostile fires substantially reduced the distributor's coverage and, thus, triggered the umbrella insurer's duty under Minnesota law to provide notice of the reduction. Due to the nature of the distributor's business, when the umbrella insurer eliminated the hostile fire exception from the distributor's pollution exclusion, the distributor suffered a reduction more substantial than might be felt by other insureds in other industries or locations. Moreover, the state Department of Commerce prohibits the use of pollution exclusions without hostile fire exceptions, absent prior case-by-case approval, which indicates that removing the hostile fire exception was not trivial. Furthermore, the umbrella insurer appeared to view the reduction as significant because it was the only endorsement that required the distributor's signature. The court further holds that the umbrella insurer's reduction is void, and the policy is renewed under its previous terms. Substantial reductions must be explained in writing. Here, the umbrella insurer never provided a written description of the change wrought by the endorsement.

The court next holds that because the primary insurer had arguably abided by its contract with the distributor and because the umbrella insurer did not validly remove the hostile fire exception from its own pollution exclusion, the umbrella insurer was obligated to defend the distributor. Minnesota law generally requires an umbrella insurance carrier to defend a party when the party's underlying insurer refuses to do so. Here, it was at least arguable that the primary insurer had not breached its duty to defend because the validity of the primary insurer's endorsement was not finally determined until the court's opinion was issued.

Counsel for Plaintiffs
David B. Olsen
Henson & Efron
1200 Title Insurance Bldg.
400 Second Ave. S., Minneapolis MN 55401
(612) 339-2500

Counsel for Defendants
Thomas H. Crouch
Meagher & Geer
4200 Multifoods Tower
33 S. 6th St., Minneapolis MN 55402
(612) 338-0661

Gibson, J. (before Arnold and Fagg, JJ.)