Indian Harbor Insurance Co v. NL Environmental Management Se
16-3262
| 3rd Cir. | Dec 14, 2017Background
- SSA obtained an environmental insurance policy (Indian Harbor) as required by a settlement; the settlement required NL Industries, Inc. and NL Environmental Management Services, Inc. (the “NL Companies”) to be named as additional insureds but expressly excluded the NL Companies from coverage for NRD Liabilities and Raritan River Liabilities.
- The final policy named both NL entities as additional insureds in some endorsements, but two exclusion endorsements (NRD and Raritan River exclusions) listed only “NL Industries” (a drafting shorthand) and omitted NL Environmental Management Services, Inc.
- SSA and Indian Harbor agree the omission of NL Environmental Management Services, Inc. from those exclusions was a drafting mistake; NL Environmental Management Services, Inc.’s counsel also understood it would be excluded from those coverages.
- After the Raritan Baykeeper suit sought remediation from both NL entities, Indian Harbor disclaimed coverage for NL Industries, Inc., discovered the drafting error, disclaimed coverage for NL Environmental Management Services, Inc., and sued for declaratory judgment and reformation.
- The district court granted summary judgment reforming the policy to add NL Environmental Management Services, Inc. to the two exclusions; NL Environmental Management Services, Inc. appealed.
Issues
| Issue | Plaintiff's Argument (NL Env. Mgmt.) | Defendant's Argument (Indian Harbor/SSA) | Held |
|---|---|---|---|
| Whether the policy should be reformed for mutual mistake | Reform improper; insurer’s negligence or discrepancies preclude reformation | Reformation warranted because writing failed to reflect parties’ actual agreement and both contracting parties intended to exclude both NL entities | Reformation affirmed: clear and convincing evidence of the parties’ intent and scrivener’s error |
| Applicable burden of proof for reformation | (Implicit) insurer must meet high standard; factual disputes exist | Reformation requires clear and convincing evidence of actual agreement and mistake; Indian Harbor met that burden | Indian Harbor met the clear-and-convincing standard under NY law |
| Whether an additional insured can block reformation | NL Env. Mgmt. claims it is entitled to resist correction because it received benefit and reviewed drafts | Indian Harbor/SSA: additional insured is not a contracting party and cannot block insurer–insured reformation | Additional insured may not block reformation; it is not a party to the insurance contract |
| Whether insurer negligence precludes reformation | Negligence in drafting should preclude equitable reformation | Insurer’s negligence does not bar reformation when clear evidence shows mutual intent and mistake | Negligence argument rejected; reformation still available when requirements satisfied |
Key Cases Cited
- Chimart Assocs. v. Paul, 489 N.E.2d 231 (N.Y. 1986) (reformation requires the writing to be shown not to reflect the parties’ actual agreement)
- Healy v. Rich Prod. Corp., 981 F.2d 68 (2d Cir. 1992) (party seeking reformation must prove by clear and convincing evidence)
- Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Marine Ins. Co., 38 N.Y.S.3d 1 (App. Div. 2016) (insurance policy interpretation follows contract law principles)
- Kowalchuk v. Stroup, 873 N.Y.S.2d 43 (App. Div. 2009) (elements of contract formation: offer, acceptance, consideration, mutual assent)