Beware: An Exclusion That Can Cost You Millions In Coverage — Even When Claims Are Being Paid

Corporate Counsel

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PUBLISHED ON: February 17, 2011

This article originally appeared in Anderson Kill's Policyholder Advisor (January/February 2011).

The recent decision inDPC Industries, Inc. v. American International Specialty Lines Insurance Co., 615 F.3d 609 (5th Cir. 2010) illustrates the harsh fact that policyholders should not always breathe a sigh of relief when an insurance company initially accepts coverage for a claim. DPC Industries involved a chlorine gas leak at a facility in Missouri, which ultimately led to over $10 million in defense and indemnity liabilities for the policyholder companies. Although the policy’s general liability coverage part (Coverage A) had limits of $11 million, the insurance company (AISLIC) was able to reduce its obligation to $5 million by accepting coverage only under the policy’s pollution coverage part (Coverage D) — despite the fact that the claims potentially fell under either coverage part. Under the policy terms, the court held that the insurance company had the right to decide under which part it would accept coverage.