A state supreme court recently held that an insured’s settlement consisting of services and assets provided in lieu of cash was uninsured because the consideration was not “money damages” under the policy. 

In Passaic Valley Sewerage Comm’rs. v. St. Paul Fire & Marine Ins. Co., 21 A.3d 1151 (N.J. 2011), Passaic Valley Sewerage Commissioners (“PVSC”) had a long and drawn-out dispute with an regulated discharger Spectraserv, Inc. (“Spectraserv”).  Spectraserv was a private hauling and treatment business that discharged wastewater into the PVSC system.  After years of litigation and multiple claims and counterclaims, PVSC entered into a series of settlement agreements with Spectraserv.  Rather than pay money to resolve the dispute, PVSC agreed, in part, to treat and dispose of sludge for five years from Spectraserv customer Westchester County, New York, and PVSC assigned to Spectraserv the right that PVSC had to dispose of sludge from another entity Encap Golf Holdings, LLC.  PVSC turned to its insurer, Coregis Insurance Company (“Coregis”), to reimburse PCSC the value of the settlement.  PVSC’s expert determined that the total cost of the settlement to PVSC was between approximately $6 million and $17 million. 
 
The New Jersey Supreme Court disagreed with PVSC’s claim and found that the insurance policy was not ambiguous because it defined "loss" as "money damages," which was further defined as "monetary compensation for past harms."  The Court determined that "monetary" meant "of or relating to money."  And, the policy specifically excluded indemnification for any other kind of relief "in any form other than ‘money damages,’" including "equitable relief."  In the end, the Court decided that the settlement constituted something akin to equitable relief rather than money damages. 

The lack of precision, as demonstrated by the eleven million dollar valuation range—constituting an approximately 300% difference between the highest and lowest estimates—provides further evidence that the settlement agreement was not of a defined value.  Not only did the settlement fail to involve money damages, it was a business arrangement involving performance of services, designed to benefit the parties.

Id. at 1159. 

The Court also looked to prior case law holding that a sewer district was not entitled to indemnification for credit-refunds issued to its customers after an ordinance was declared illegal.  Int’l Ins. Co. v. Metro. St. Louis Sewer Dist., 938 F.Supp. 568 (E.D. Mo. 1996).  The Court ultimately determined that the plain language of the policy did not entitle PVSC to indemnification. 

For more information, please contact Bill Wagner or any member of Taft’s Environmental Practice Group.