TIPS 75th Anniversary


The Tort & Insurance Law Jounal

Spring 1998
Volume 33 Issue 3

Table of Contents

Application of the Absolute Pollution Exclusion to Toxic Tort Claims:
Will Courts Choose Policy Construction or Deconstruction?

By: William P. Shelly and Richard C. Mason

Settlement of Complex Liability Coverage Disputes
By: Marc S. Mayerson

Computing the Amount of Compensable Loss Under the
Financial Institution Bond

By: William T. Bogaert and Andrew F. Caplan

Stigma and Property Contamination - Damnum Absque Injuria
By: Anthony Vale and Joanna Cline

Managed Care and Workers' Compensation
By: Lisa A. Krouse

Defamation Claims Arising Out of the Employment Relationship
By: Peter Bennett, Dana N. Levitt, Kraig J. Marton and Julie M. Ward

The Surety's Extension of Time Defense
By: James A. Knox, Jr.

The Use of Settlement Class Actions to Resolve Mass Tort Claims After
Amchem Products, Inc. v. Windsor

By: John D. Aldock and Richard M. Wyner

Liability of Design Professionals for Negligent Design
and Project Management

By: Martha Crandall Coleman


Application of the Absolute Pollution Exclusion to Toxic Tort Claims: Will Courts Choose Policy Construction or Deconstruction? , 33 Tort & Ins. L.J. 749 (1998)
By: William P. Shelley and Richard C. Mason

This article explores three decisions and their progeny that have imposed an "environmental restriction" on the Absolute Pollution Exclusion and examines the validity of common rationales for avoiding application of the exclusion as written. Among the most prevalent rationales cited by the courts are: (1) that the Absolute Exclusion was drafted with the sole intent to preclude a narrow field of Superfund liability and similar "environmental" claims arising under pollution statutes, but virtually nothing else; (2) that the terms "discharge, dispersal, release, or escape," when contained in the Absolute Exclusion, are "environmental terms of art," thereby demonstrating that the Absolute Exclusion applies only to Superfund-type liabilities; (3) that some courts have declined to grant a literal interpretation to the terms "irritant" and "contaminant" in the Absolute Exclusion on the basis that, if applied literally, these terms would include "virtually every substance"; (4) that some courts have concluded that some substances (such as lead-based paint or industrial adhesives) that may give rise to toxic tort claims are "useful products" rather than "pollutants"; and (5) a few courts have held that the Absolute Exclusion, as applied to toxic torts, would irreconcilably conflict with coverage provided for products liability or completed operations in many commercial general liability policies. A collective view of these rationales suggest that some courts have ceased to determine intent from the language of the Exclusion in favor of a misguided reliance on the "circumstances" surrounding its drafting. The authors suggest that there is little genuine assurance these assumptions are correct. Moreover, to the extent historical assumptions have driven courts' interpretational analysis, courts have been compelled to resort to extraordinary rhetorical gymnastics. In fact, a distraught jurist commented on one such example of judicial interpretation by noting that "if any principle can be derived from this ruling, it is that words have no meaning." The concluding section of the article discusses whether these courts will eventually return to decisions based on plain language of the policy and straightforward application of the traditional rules of interpretation.

Settlement of Complex Liability Coverage Disputes , 33 Tort & Ins. L.J. 783 (1998)
By: Marc S. Mayerson

Complex coverage disputes are marked by a number of common characteristics, including: size of the dollars at stake; liabilities that are national in scope or involve multiple states; tremendous legal and factual uncertainty involving the dispute; and multiple insurers that have issued policies potentially applicable to indemnify the insured for the loss. Because of the high stakes involved, there are strong incentives to achieve some form of resolution other than a litigated one. This article addresses some of the mechanics of resolving complex coverage disputes consensually, including how to assess the obligations under any given insurance policy; how to evaluate the impact of such factors as trigger, scope, exhaustion, number of occurrences, and application of aggregates; the availability of reinsurance; and bilateral and multilateral agreements among carriers. Also featured is a review of some of the topics that should be covered in any settlement, e.g., the scope of the agreement (one claim or a group of claims, individual sites or multiple locations, an entire hazard, the policy as a whole); defense obligations; allocation of costs and the likelihood of recovery; release of claims and indemnification issues.

Computing the Amount of Compensable Loss under the Financial Institution Bond , 33 Tort & Ins. L.J. 807 (1998)
By: William T. Bogaert and Andrew F. Caplan

The guiding principle of this article is that questions of Bond interpretation must ultimately be resolved by reference to language of the Bond: the parties’ contract. According to the authors, the courts must look to the Bond’s wording to determine the loss indemnified by the Bond. Covered in this article are three major issues in calculating the amount of a loss under a Financial Institution Bond. First, it analyzes the term "loss" as it is used in the Bond's insuring agreements. Next the article discusses several well-settled principles concerning loss, including how the Bond limits the amount of the insured's recovery by requiring that indemnifiable loss "result directly from" specific conduct or circumstances identified in the Bond's insuring agreements. Also analyzed are decisions that illustrate that an insured may recover only for those components of loss that the insured can trace to a specifically covered act or peril. The article also explains that the insured under the Bond is required to mitigate its damages. Finally, the article focuses upon calculation of the loss recoverable under the Bond.

Stigma and Property Contamination —Damnum Absque Injuria, 33 Tort & Ins. L.J. 835 (1998)
By: Anthony Vale and Joanna Cline

Legal and practical considerations suggest that courts should not award stigma damages for marketplace stigma claims or for incomplete repair stigma claims. Recent case law, as outlined in this article, indicates that not all courts reject requests for stigma damages. In cases in which plaintiffs request damages for the stigma of living near a site without providing evidence of contamination on their own property, courts generally have found in favor of the defendants. In situations in which plaintiffs’ own property that has been contaminated, however, some courts have been willing to award stigma damages for the resulting diminution in property value even when the defendants have cleaned up the contaminants. Moreover, a few courts have indicated that damage awards can be based upon the public’s perception of contamination regardless of actual land contamination. Such reasoning is difficult to apply consistently, unfair to those who handle pollutants, and imposes a remedy that is beyond the scope of tort law.

Managed Care and Workers & Compensation , 33 Tort & Ins. L.J. 849 (1998)
By: Lisa A. Krouse

This article discusses the shift from fee-for-service to managed care programs and the use of capitation in the workers’ compensation system. Each year, an estimated eleven million employees have a work-related injury, representing approximately $111 billion in payments for medical expenses and lost wages, an average of $10,091 per worker. An increasing number of providers and medical organizations have become interested in treating workers’ compensation patients. More employers nationwide are opting for workers’ compensation strategies that give them greater control over the care received by injured employees and the conditions under which they return to work. Early evaluations, some of which are reviewed in this article, show that managed care programs that are aggressively controlled reduce workers’ compensation costs 20 percent on average after implementation costs. The author suggests that effective management of workers’ compensation cases depends on (1) preaccident management that involves identification and elimination of specific causes of workplace injury or illness; (2) the development of procedures for responding to incidents that do take place; (3) disability management that coordinates medical, rehabilitative, and return-to-work efforts; and (4) rehabilitation that aims at helping disabled workers recover and return to a fill life as quickly as possible.

Defamation Claims Arising out of the Employment Relationship , 33 Tort & Ins. L.J. 857 (1998)
By: Peter Bennett, Dana N. Levitt, Kraig J. Marton, and Julie M. Ward

In the employment context, defamation claims are typically brought by employees against their employers or former employers, stemming from one of three scenarios: (1) negative remarks made by co-workers; (2) negative remarks made by the employer to co-workers or customers; or (3) negative remarks made by the employer while providing a job reference to a prospective employer or information to a government agency such as an unemployment commission. This article presents a survey of the law of defamation as it applies to the employment relationship, with a particular emphasis on those issues that are currently regarded as evolving topics in employment defamation litigation.

The Surety's Extension of Time Defense , 33 Tort & Ins. L.J. 891 (1998)
By: James A. Knox, Jr.

An appropriate subtitle for this article would be "a 200-year retrospective." The first articulation of the surety’s extension of time defense involved the souring of a lending agreement between two Jamaican planters ( Nisbet v. Smith, 29 Eng. Rep. 317 (1785)). By the mid-1800s, the view was entrenched that an extension of time utterly released the surety, regardless of prejudice, as did any other alteration of the bonded contract. Three reasons were cited for the rule: (1) An extension of time substitutes a new contract for the old one by changing the time for payment or performance; (2) An extension of time impairs the surety’s subrogation (and other rights); and (3) An extension of time increases the surety’s risk because the principle may become insolvent during the extended time period. The practical consequences of the extension of time defense were daunting. In the author’s words, "sureties fiddled while creditors burned," but several exceptions (mostly dealing with consent, lack of consideration, forbearance or delay, and reservation of rights) were recognized. The courts began to lose patience with the situation and by 1941, the Restatement of Security reflected the bias against the compensated surety: in effect, said the Restatement, the accommodation surety would be fully discharged if the bonded contract was altered, but the compensated surety would be released only if the alteration caused material harm. By 1993, one commentator pronounced the defense as "all but extinct," an obituary that may be premature. The article concludes with an analysis of the concept’s revival in the Restatement (Third) of Suretyship and Guaranty.

The Use of Settlement Class Actions to Resolve Mass Tort Claims after Amchem Products, Inc. v. Windsor, 33 Tort & Ins. L.J. 905 (1998)
By: John D. Aldock and Richard M. Wyner

In Amchem Products, Inc. v. Windsor, 117 S. Ct. 2248 (1997), the Supreme Court upheld the permissibility of settlement class actions under Rule 23 but found that the requirements for certification of such a class were not satisfied with respect to the Amchem settlement. This article describes the failings of the judicial system in handling mass tort claims, and explains how the parties in Amchem sought to redress these failings in two ways: by creating a rational and efficient dispute resolution process and by subjecting the proposed settlement to judicial scrutiny through Federal Rule of Civil Procedure 23. It then describes how the Supreme Court found that the class had to be decertified for two related reasons: first, because the class was too diverse for approval as a single class, and second, because different groups of class members had conflicting interests that required separate representation. The article also addresses the implications of the Amchem decision for future mass tort settlement class actions. It concludes that the class certification issues that were fatal to the Amchem settlement likely can be resolved through the use of more narrowly defined classes or subclasses and by the use of separate counsel and named representatives for each class or subclass.

Liability of Design Professionals for Negligent Design and Project Management , 33 Tort & Ins. L.J. 923 (1998)
By: Martha Crandall Coleman

This article discusses the design professional's liability for negligent design and project management. Also addressed is the application of the economic loss doctrine to negligence claims against design professionals. One of the unusual and interesting aspects of negligence claims against design professionals in various jurisdictions is the divergence that has resulted throughout this country. As discussed at length, the courts do not agree on the duties of the design professional, to whom those duties are owed, what types of losses are recoverable, and who may recover them. For example, some courts have clearly held that one not in privity with a design professional may maintain an action in negligence for economic losses. Other courts have held such an action is unavailable. This debate is made more interesting by the public policy arguments involved, and because courts often fail to address the policy considerations involved in their decisions. As a result, concludes the author, judicial opinions are wide reaching, conflicting, and often appear to be addressing different issues altogether.

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