(Article from Insurance Law Alert, December 2024)
For more information, please visit the Insurance Law Alert Resource Center.
Holding
The Ohio Supreme Court ruled that an insured’s payments into an abatement fund established to mitigate the hazards of lead paint were not covered “damages” under applicable insurance policies. Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s London, 2024 Ohio LEXIS 2789 (Ohio Dec. 10, 2024).
Background
The coverage dispute arose out of a lawsuit filed by Santa Clara County, California against Sherwin-Williams and other paint companies. The initial complaint asserted several causes of action, but the suit ultimately moved forward on a single public nuisance claim. The suit ended with a ruling against the paint companies that included an order to pay $1.15 billion (an amount that was later reduced to $409 million) into an abatement fund that would be used for paint testing in homes, remediation of lead paint-related hazards and education relating to lead paint poisoning, among other things. The paint companies ultimately agreed in July 2019 to a $305 million settlement.
Sherwin-Williams sued its insurers, seeking indemnification. The insurers moved for summary judgment on several bases, including that the policies covered only damages “for,” “because of,” or “on account of” property damage or bodily injury and that no such damages had been awarded against Sherwin-Williams.
An Ohio trial court ruled in the insurers’ favor, holding that an abatement fund payment is distinguishable from a damages award in that the former constitutes an equitable, forward-looking remedy, whereas the latter provides compensation for past harm. The trial court therefore concluded that no “damages” had been awarded under the policies and that the insurers had no duty to indemnify.
An Ohio appellate court reversed, holding that Sherwin-Williams’ payments to the abatement fund constituted damages, reasoning the fund was not only established to address future harms, but also to compensate the California government for money spent in ongoing efforts to remediate homes containing lead paint.
The Ohio Supreme Court reversed and reinstated the trial court’s entry of summary judgment in favor of the insurers.
Decision
The Ohio Supreme Court held that, under the language of the policies, payments to the abatement fund did not constitute covered “damages.” Sherwin-Williams argued that the fund compensated for past harms because lead paint had been present in certain California homes for decades. Rejecting this assertion, the court emphasized that abatement is a remedy that “looks to prevent future harm” and, in any event, the order against the paint companies in the California suit clearly indicated that the purpose of the abatement fund was to prevent, or at a minimum mitigate, future risk of harm to children through inspections, remediation and education, rather than to compensate the government for past expenditures.
Sherwin-Williams also argued that, because it was held liable for nuisance arising out of lead paint in homes that were built decades ago, the purpose of abatement fund payments was to compensate for past “physical damage” to property. The court rejected this contention as well, emphasizing that the abatement payment was not ordered to compensate for past physical damage to buildings and instead focused on abating potential future harm to human beings.
Comments
The decision highlights the parameters of the term “damages” for purposes of insurance indemnification, which may cover compensation for past harms but not an abatement fund payment to prevent future harms. Notably, the court expressly distinguished a decision involving “response costs” under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) for environmental hazards, explaining that response costs in that case were aimed at remediating past harm done to property, notwithstanding that the suit alleged public nuisance.
Simpson Thacher represents Travelers in this matter.