FORMOSA PLASTICS CORPORATION, U.S.A. v. ACE AMERICAN INSURANCE COMPANY
2:20-cv-14338
D.N.J.Nov 25, 2024Background
- ACE issued a multi-state Global Premises Pollution Liability claims‑made policy (originally July 1, 2010–July 1, 2015, extended to 2019) that covered Formosa’s Point Comfort, TX facility among others.
- Waterkeeper plaintiffs sued Formosa in July 2017 under the Clean Water Act alleging ongoing plastic pellet discharges from the Point Comfort plant; Formosa tendered the suit to ACE on August 11, 2017.
- ACE agreed to defend under a reservation of rights and consented to Formosa’s retention of Kelly Hart; later Formosa retained Holland & Knight to pursue settlement and entered a Consent Decree (Dec. 2019) requiring a $50M contribution to a mitigation trust and payment of plaintiffs’ fees.
- ACE denied coverage for the settlement and later moved for summary judgment arguing, inter alia, breach of the policy’s consent‑to‑settle, cooperation, and reporting provisions and asserted exclusions (Known Conditions; Intentional Non‑Compliance) barred coverage; Formosa cross‑moved for partial summary judgment.
- The district court held (1) Texas law governs whether prejudice is required for a consent‑to‑settle breach (site/situs factors controlled choice‑of‑law), and (2) genuine issues of material fact exist on whether ACE was prejudiced and on multiple exclusion/coverage issues; accordingly both summary judgment motions were denied.
Issues
| Issue | Plaintiff's Argument (Formosa) | Defendant's Argument (ACE) | Held |
|---|---|---|---|
| Choice of law for consent‑to‑settle and related conditions | Texas law applies (situs of pollution is Texas and has dominant interest) | New Jersey law should apply (policy issued in NJ; parties headquartered/contracted in NJ; no substantive difference) | Texas law applies for consent‑to‑settle/prejudice question (situs state has most significant relationship) |
| Whether Formosa’s settlement without ACE’s written consent vitiates coverage (prejudice requirement) | ACE must prove actual prejudice under Texas law; disputed facts show ACE had opportunities and sometimes declined active involvement | ACE urges prejudice as a matter of law or that facts show actual prejudice from exclusion from mediation, counsel selection, and settlement | Question of fact: summary judgment denied — neither legal presumption nor undisputed actual prejudice established |
| Applicability of Known Conditions and Intentional Non‑Compliance exclusions | Formosa disclosed environmental info to ACE, believed discharges were permitted; disputed when/if responsible persons knew of non‑permitted releases | ACE relies on trial findings and internal testimony to show pre‑policy knowledge and serial, willful noncompliance | Issues of material fact exist on both exclusions (timing/knowledge and intent disputed); summary judgment denied |
| Whether Consent Decree payments (mitigation trust projects and attorneys’ fees) are covered as "property damage" or "remediation costs" | Decree funds remedial mitigation and attorneys’ fees; Consent Decree framed projects as remedial (not civil penalties) and fees are authorized under CWA | ACE contends many projects are supplemental (not required by environmental law) and thus not "remediation costs," and some relief would be non‑recoverable civil penalties | Court: material factual disputes exist (nexus, reasonableness, whether projects were required by law); attorneys’ fees under CWA are covered by policy but triable issues remain |
| Scope/limitation of ACE’s reimbursement obligation (pre‑tender costs, counsel rates) | Formosa seeks reimbursement for covered defense costs; ACE’s panel counsel limitations do not apply because ACE did not meaningfully exercise control | ACE argues it need not reimburse pre‑tender defense costs, H&K settlement counsel, or costs outside panel rates | Court: pre‑tender defense costs (before Aug 11, 2017 tender) are not recoverable; other limitation issues raise factual disputes and summary judgment inappropriate |
Key Cases Cited
- Templo Fuente De Vida Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 129 A.3d 1069 (N.J. 2016) (distinguishes claims‑made policies and insurer/insured sophistication in consent/cooperation contexts)
- Gilbert Spruance Co. v. Pa. Mfrs. Ass’n Ins. Co., 629 A.2d 885 (N.J. 1993) (adopts Restatement most‑significant‑relationship approach for insurance choice‑of‑law)
- Pfizer Inc. v. Emps. Ins. of Wausau, 712 A.2d 634 (N.J. 1998) (site/situs state interests strongly weigh in environmental insurance disputes)
- Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691 (Tex. 1994) (insurer must show actual prejudice to avoid liability for settlement‑without‑consent)
- Motiva Enters. LLC v. St. Paul Fire & Marine Ins. Co., 445 F.3d 381 (5th Cir. 2006) (Fifth Circuit discussion of prejudice issue; later Texas decisions clarified prejudice requirement)
- Lennar Corp. v. Markel Am. Ins. Co., 413 S.W.3d 750 (Tex. 2013) (Texas Supreme Court requires insurer show prejudice for breaches of policy conditions)
- PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008) (no defeat of coverage for untimely notice absent insurer prejudice)
- Coastal Refin. & Mktg., Inc. v. U.S. Fid. & Guar. Co., 218 S.W.3d 279 (Tex. App. 2007) (insurer must demonstrate actual prejudice; absence of participation may not alone prove prejudice)
- Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex. 2014) (burden‑shifting approach to coverage/exclusion questions)
- SL Indus., Inc. v. Am. Motorists Ins. Co., 607 A.2d 1266 (N.J. 1992) (insurer liable for defense costs only after tender triggers duty to defend)
- Pittston Co. v. Allianz Ins. Co., 905 F. Supp. 1279 (D.N.J. 1995) (known‑condition/expected‑release exclusions not triggered where release is incidental to business and disclosures were made)