Summary: Doe Run is a mining and smelting company incorporated in Missouri in the late 1800’s and since then has mined and processed lead from nearly 1,000 acres of land located in St. Francois County, Missouri. In time the waste products from Doe Run’s lead mining and processing procedures created environmental waste which contaminated the surrounding area. Consequently, the U.S. EPA required remediation of those waste sites. Lloyd’s had sold seven excess insurance policies between 1952-1961, under which Doe Run sought coverage. After a jury trial resulted in a verdict of more than $62,000,000, the trial judge reduced the verdict to $5.145 million. On appeal the Eastern District of Missouri reversed, reinstated the jury verdict, and found that there was substantial evidence for the jury to find that Lloyd’s had acted “recalcitrantly and vexatiously” in its handling of Doe Run’s claim.
The EPA brought administrative remediation actions against Doe Run. The remediation involved six separate sites; those at Leadwood, Bonne Terre, Elvins, National, Desloge/Big River, and Federal. In December 2006 counsel for Doe Run demanded that Lloyd’s assume the handling and indemnify Doe Run for the administrative claims for the clean-up of the Leadwood site.
The evidence showed that the contamination at the various sites began as early as 1894 and apparently ended with the remediation of the various sites in 2011. That is also when Phase I of the trials began. At the conclusion of the Phase I trial the jury found Lloyd’s liable for coverage under all policies for each of the six sites and awarded Doe Run slightly more than $62.481 million. In addition, the jury awarded vexatious penalties. As noted above, the trial court reduced the total award in its judgment from $62.481 million to $5.145 million. Thereafter, the parties cross-appealed.
The Lloyd’s appeal was based upon trial court error in denying its motions for directed verdict at the close of all the evidence on coverage and on the vexatious refusal to pay claim. Doe Run raised multiple points on appeal, including the court’s application of New York’s pro rata allocation scheme (as opposed to Missouri law) and the trial court’s ruling that as a matter of law there was no more than one occurrence per site.
Lloyd’s’ initial point and argument was that Doe Run had failed to make a submissible case. The court rejected Lloyd’s’ argument that Doe Run had not presented any evidence that Doe Run “did not anticipate and expect the environmental remediation damages” incurred as a result of the waste deposits. The court noted that Doe Run had presented considerable evidence at trial that it did not know that its waste deposits were “toxic and caused environmental harm.” In fact, Doe Run presented the testimony of a doctor who had worked for Doe Run in the 1950s who testified that at that time Doe Run was not expecting or anticipating any kind of a toxic issue. In addition, it presented evidence that the State of Missouri did not believe that these deposits were toxic as late as 1969. Finding that reasonable minds could differ in weighing the contradictory evidence, the appellate court ruled that the trial judge properly denied the motion for directed verdict concluding that Lloyd’s’ contention that Doe Run presented “no evidence that the damages were unexpected is not supported by the record.”
The appeals court then turned to Lloyd’s’ argument that the trial court erroneously denied its motions for directed verdict at the close of all the evidence on the vexatious refusal to pay claim. Lloyd’s took the position that Doe Run had not offered any “evidence that justified a finding that its handling of Doe Run’s claims was vexatious and recalcitrant.” The court noted the Missouri tests set forth in Watters v. Travel Guard Int’l, 136 S.W.3d 100, 108 (Mo. App. E.D. 2004) and Wood v. Safety Ins. Co. of America, 980 S.W.2d 43, 55 (Mo.App. E.D. 1998). Those cases restated the statutory test that the refusal to pay had to be “willful and without reasonable cause or excuse, as the facts would have appeared to a reasonable person before trial.” (Watters, supra) Furthermore, insurers are allowed to insist upon a “judicial determination of open questions of law or fact” Id. at 109 and that there cannot be any vexatious refusal award when the insurance company “has reasonable cause to believe and does believe there is no liability under its policy and it has a meritorious defense.” (Wood, supra). However, the court also noted that whether Lloyd’s had acted reasonably is a fact inquiry left to the province of the jury. Wunsch v. Sun Life Assurance Co. of Can., 92 S.W.3d 146, 153 (Mo.App. W.D. 2002). The court then turned to some evidence that showed that Lloyd’s’ actions were vexatious and recalcitrant. For example, Doe Run made a formal request for coverage early in December of 2006, which was not acknowledged until nearly three months later, after Doe Run had filed suit. Furthermore, a Lloyd’s corporate designee testified that Lloyd’s never paid a single environmental claim unless “ordered to do so by a court or as part of a negotiated settlement.” (Slip Op. pg. 11) Based upon that testimony alone the appellate court concluded that a jury could infer that Lloyd’s “had no intention to pay the claim unless ordered to do so by the court.” The Court of Appeals noted that “a reasonable juror could find that the refusal to pay was willful and recalcitrant.”
The appeals court then turned to Doe Run’s claim that Lloyd’s did not conduct a diligent investigation. According to the Lloyd’s claims handler, the claim file “could fit in a third to a half of a banker’s box and consisted of the policies and some of the pleadings in the case.” In addition, he testified that after four years of litigation, despite having a claims file opened for more than 10 years, and having discovery from two earlier coverage litigations, Lloyd’s “claimed it knew virtually nothing about Doe Run’s Leadwood site claim.” (Slip Op., pg. 11) The court further noted that Lloyd’s had reviewed about six million pages of documents obtained from Doe Run but still claimed that it did not have sufficient evidence to admit or deny coverage. In light of that evidence, the appellate court elected to “defer to the jury’s findings of facts and credibility determinations.” (Slip Op., pg. 12) The court further rejected Lloyd’s’ position that its coverage denial was based on a “reasonably litigable issue of law or fact.” The court ruled that even if Lloyd’s had a reasonable basis for denying coverage, “that would not necessarily preclude a penalty for vexatious delay if there was evidence that the insurer’s attitude was vexatious and recalcitrant.” Watters, supra at 109. (Slip Op., pg. 12) Relying upon evidence of Lloyd’s’ recalcitrance, the court ruled that there was “substantial evidence for the jury to find” that Lloyd’s actions violated of the vexatious refusal to pay statute.
The court then turned to Doe Run’s cross-appeal and found that the trial court should have been governed by Missouri law, rather than New York law, that the court should have adopted the all sums allocation scheme in the case, that the trial court was wrong to find there was one occurrence per site, and that under Missouri’s “cause approach, there were three occurrences at each site in active operation during the policy period… and two occurrences at inoperative sites….” The court further ruled that Doe Run was entitled to prejudgment interest. For those reasons, the appellate court granted Doe Run’s appeal and reversed and remanded with instructions to fully reinstate the jury verdict.
The lessons from the Doe Run case for insurance companies covering claims in Missouri are to act with promptness once a claim is submitted, investigate fully, and once provided with documents relating to that investigation, to fully review and evaluate those documents and make a coverage decision based upon that review. Furthermore, in Missouri it is dangerous for an insurance company to take the position that it will not pay any amount to resolve a certain category of claims unless ordered to do so by a court of law.
