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Forum Shopping for Insurance Coverage
Published in the September 2006 issue of Litigation Notes - View Article
On August 21, 2006 the Supreme Court of British Columbia released an interesting decision relating to “forum shopping” in the context of an insurance coverage dispute.
Teck Cominco Metals Ltd. (“TCML”) has operated a lead and zinc smelter in Trail, British Columbia since 1906. The smelting process generates a by-product known as “barren slag” which TCML discharged into the Columbia River from the 1920’s until the mid 1990’s.
In the 1930’s and 1940’s the Grand Coulee Dam was constructed on the Columbia River in Washington State, creating a reservoir known as Lake Roosevelt. In 2004, an action was commenced in Washington State, requiring TCML to comply with the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”). TCML argued unsuccessfully that the U.S. Court did not have jurisdiction over it and that the case raised “… serious issues of comity and interference by United States courts and agencies in the internal affairs of Canada.
TCML had a number of insurance policies entered into between 1958 and 1985. All of the policies provide indemnity to TCML for its liability arising from property damage as a result of an “occurrence” taking place during the coverage period, anywhere in the world. TCML takes the position that the contamination of the Columbia River constitutes property damage within the meaning of the policies and that there should be indemnity available in respect of any eventual liability arising from the CERCLA litigation. The insurers, including Lloyd’s Underwriters, denied coverage for a whole host of reasons, including that the pollution was not unexpected or unintended, but the natural result of TCML’s mining and smelting operations, and was not an accident, occurrence or an insurable risk.
While coverage issues were under discussion, TCML and its insurers entered in to a standstill agreement, which was terminated on November 9, 2005, with the termination to take effect on November 23, 2005. On November 23, Lloyd’s Underwriters commenced an action in the Supreme Court of British Columbia, seeking a declaration with respect to its obligation to defend or indemnify TCML in respect of various environmental claims, including the CERCLA action. On the same day TCML commenced an action in the Superior Court in Washington State, seeking a declaratory judgment with respect to its rights to insurance coverage under its various insurance policies. However, the action in Washington State was commenced at one minute past midnight on November 23, by delivery of the originating process to a judge at his home. The British Columbia action was commenced when the Court opened at 9:00 a.m. Lloyd’s brought a motion to dismiss or stay TCML’s action in Washington State and TCML did the same thing with respect to the Lloyd’s action in British Columbia. The motion in Washington State was heard first and the court dismissed Lloyd’s application to dismiss TCML’s claims both for want of personal jurisdiction and on the basis of forum non conveniens.
Justice Davies of the Supreme Court of British Columbia also declined to dismiss the Lloyd’s action. He was unimpressed by the fact that TCML had been the “first to file”, considering that to be only one of many factors that should be taken into account. He was also unconcerned that the Washington court had accepted jurisdiction, stating that the Washington court had been unduly influenced by evidence which did not hold up to greater scrutiny, including the existence of a “service of suit” clause in a certificate of insurance, by which Lloyd’s allegedly agreed to attorn to the jurisdiction of U.S. courts. In fact, the certificate of insurance had been cancelled and replaced with another which did not contain a “service of suit” clause.
Justice Davies considered that the law of British Columbia would likely apply to the interpretation of the policies and that the location of witnesses and the relevant convenience and expense all favoured litigation in British Columbia. TCML had attempted to persuade him of the many witnesses from the U.S. who would be required to testify, given that the contamination occurred in Washington. Justice Davies considered that this was an attempt to divert attention away from the real issues in the coverage action, being pre-contractual disclosure, risk assessment and policy interpretation, which emphasized the importance of witnesses from British Columbia and elsewhere, and to focus on the underlying CERCLA litigation, which required witnesses from Washington.
Primarily, however, Justice Davies was of the opinion that TCML had engaged in inappropriate forum shopping. He found that TCML’s argument to the effect that the law of Washington was “more developed” when it came to insurance policy interpretation was nothing more than “…a thinly disguised ruse to obtain interpretation of coverage issues under a system of law that none of the parties to the Policies ever intended or expected would govern that interpretation.” He went on to say that his conclusions were reinforced by TCML’s continued forceful denial in the U.S. litigation that its Canadian operations should be subject to the extra-territorial application of CERCLA.
Some insight into why TCML preferred to have coverage decided in Washington, may be found in an extract from the Administrative Code of the State of Washington, quoted by the judge in his decision on the Motion bought by TCML, and which provides, in part:
It is in the public interest to reduce the costs incurred in connection with the environmental claims and to expedite the resolution of such claims. The state of Washington has a substantial public interest in the timely, efficient and appropriate resolution of environmental claims involving the liability of insureds at polluted sites in this state. This interest is based on practices favouring good faith and fair dealing in insurance matters and on the state's broader health and safety interest in a clean environment.
This certainly sounds like an invitation to the courts to interpret insurance policies on the basis of social policy, rather than black letter law.
Lloyd’s Underwriters v. Cominco Ltd. et al, 2006 BSCSC 1276 (CanLII)