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Lawyers for Sunoco Inc. have won a huge victory in the court battle over insurance coverage for scores of pending lawsuits over alleged groundwater contamination caused by methyl tertiary-butyl ether, or MTBE, a gasoline additive manufactured by Sunoco. In his 21-page opinion in Sunoco Inc. v. Illinois National Insurance Co., Senior U.S. District Judge Charles R. Weiner was forced to decide whether all of the pending MTBE cases are legally one “occurrence” under the policy or if each of the 70-plus suits must be considered a separate occurrence. Lawyers for Illinois National argued that its coverage on the $50 million policy had not yet been triggered because the policy calls for Sunoco to be self-insured for $250,000 per occurrence, with a $5 million aggregate self-insured retention. But Sunoco argued that although it has not yet spent $250,000 in defending each of the cases, the coverage should now be triggered because it has already spent more than $5 million in defending all of the cases. Weiner sided with Sunoco, saying, “As all of the underlying lawsuits allegedly arise from the same proximate cause, we hold they are but one ‘occurrence’ as a matter of law.” The ruling is a victory for Sunoco’s lawyers — Paul A. Zevnik, Richard F. McMenamin and Carol C. Carty of Morgan Lewis & Bockius in Philadelphia, along with David A. Luttinger Jr. and Renier P. Pierantoni of Morgan Lewis’ New York office. According to court papers, Sunoco’s policy provides $50 million in coverage for “bodily injury” and “property damage” caused by an “occurrence.” An “occurrence” is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” But the policy also included a hefty “self-insured retention,” or SIR, which calls for Sunoco to be self-insured for the first $250,000 per occurrence, with an additional self-insured retention of $5 million, referred to as the “aggregate retention amount.” Weiner found that a SIR “is in effect a large deductible” in which the insured assumes the obligation of providing itself a defense until the retention is exhausted. “In this regard, the relationship between an insurer and its insured with a self-insured retention is similar to the relationship between a primary and an excess insurer,” Weiner wrote. Under the policy language, Weiner found, amounts expended can be charged against the aggregate retention only if the per-occurrence retention is first satisfied. As a result, Weiner concluded that the entire coverage dispute turned on the determination of whether the MTBE lawsuits were a single occurrence or multiple occurrences. MTBE is a gasoline additive first marketed in 1979 and designed to boost octane levels in higher grades of gasoline. The MTBE lawsuits — many of which have been consolidated in the U.S. District Court for the Southern District of New York — generally contend that Sunoco is liable, along with other manufacturers and distributors of MTBE, for bodily injury and property damage. The suits allege that MTBE was defectively designed and constituted a dangerous product, and that Sunoco breached a duty to warn of its dangers. Already, MTBE suits have led to settlements by oil companies of nearly half a billion dollars in claims brought by cities with tainted water supplies. The first massive settlement came in 2002 when the South Lake Tahoe water district settled with gasoline makers for $92 million. A year later, Santa Monica, Calif., was paid an estimated $300 million. In the wake of those settlements, scores of MTBE suits were filed nationwide. Most, but not all, of the cases were transferred to the Southern District of New York under the federal courts’ Multi-District Litigation program. So far, the defense lawyers have met with mixed results in New York. In a key defense victory, U.S. District Judge Shira A. Scheindlin refused to certify the case as a class action, finding that the plaintiffs failed to meet the requirements for typicality and commonality. But in an April 2005 ruling, Scheindlin refused to dismiss claims by municipal plaintiffs, saying they had the right to pursue their claims under what she called the “commingled product theory,” a modification of the theory of market share liability. The plaintiffs, who include cities, municipal corporations and water suppliers, claim the defendants conspired to mislead them, the Environmental Protection Agency and the public about the dangers of adding MTBE to gasoline by downplaying the dangers to groundwater. Taking the plaintiffs’ accusations as true, Scheindlin explored different theories of collective liability for a product that moves swiftly through underground water supplies and allegedly bears no chemical signature, making it difficult for the identity of actual polluters to be established. She concluded that the MTBE contamination cases present a compelling “circumstance for the application of market share liability,” in which the plaintiff sues manufacturers who represent a “substantial share” of the market for a particular product. “The burden of identification shifts to the defendants if the plaintiff establishes a prima facie case of every element of the claim except for identification of the actual tortfeasor or tortfeasors,” she said. Scheindlin reasoned that courts, over time, have “fashioned new approaches in order to permit plaintiffs to pursue a recovery when the facts and circumstances of their actions raised unforeseen barriers to relief.” Sunoco’s litigation in Philadelphia focused only on its insurance dispute. Weiner surveyed the landscape of MTBE litigation and found that the plaintiffs have raised varying claims, including bodily injury, property damage and even fear of contamination. In one case pending in the Philadelphia Court of Common Pleas, a developer claims that MTBE contamination was the proximate cause of its failure to conclude a hotel construction project. Weiner also found that the cases allege contamination in different geographic areas. Some were alleged to have resulted from leaking underground storage tanks at gas stations and others by accidental spills from pipelines. But in all of the cases, Weiner said, the theory of Sunoco’s liability “stems from its roles in the MTBE supply chain, including manufacturer, distributor, marketer, supplier and manager of underground storage tanks.” The legal question, Weiner said, was “whether a continuing course of conduct — like the marketing of MTBE — presents one or more than one occurrence.” Some courts, Weiner said, take the “causal approach” and look to see whether one or more than one cause is responsible for all of the injuries. Others, he said, take the “pragmatic approach” and examine all of the circumstances to determine whether a single “occurrence” can be assigned to a series of events. Weiner found that “cause analysis appears to be the law of Pennsylvania” and has also been adopted by the 3rd U.S. Circuit Court of Appeals in a Virgin Islands case. After reviewing cases that applied the cause analysis, Weiner concluded that the onslaught of MTBE claims against Sunoco qualified as a single occurrence. “The claims faced by Sunoco all arise from one proximate cause common for all of the injuries and damage sustained by the underlying plaintiffs,” Weiner wrote. “It was the manufacture, sale and distribution of the MtBE that is alleged to be the proximate cause of the underlying claims. While the nature of the damage suffered by certain claimants may be unique from the group — the hotel case is good example — since they stem from the same proximate cause there is but a single occurrence.” The policy language, Weiner said, supported that conclusion because an “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Weiner found that “repeated exposures to the same general harmful conditions are exactly what the underlying lawsuits generally claim. Substantially all of them rely upon the facts that MTBE is harmful, and was placed in the stream of commerce by Sunoco, to state a claim based on a products liability theory.”

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