PBM NUTRITIONALS, LLC v. Lexington Ins. Co.
283 Va. 624
| Va. | 2012Background
- PBM filed a DJ action against Lexington, Arch, and ACE seeking coverage for infant formula losses from filter material infiltration during manufacturing.
- Pollution exclusion endorsements were added to each insurer’s manuscript form policy during negotiations, expanding the manuscript exclusions.
- PBM’s loss occurred January 22–30, 2009 after a valve defect caused steam leakage, superheating water and disintegrating water filters, allowing filter material to infiltrate the formula.
- Batches manufactured during Jan 22–30 showed elevated melamine levels; 4 of 25 batches exceeded FDA melamine limits, others potentially contaminated; PBM destroyed all affected batches.
- The circuit court held the pollution exclusions barred coverage; PBM sought reversal arguing policy language conflicts were ambiguous and that the exception to Paragraph 9(H) could create coverage; the court affirmed denial of coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do pollution exclusion endorsements conflict with Paragraph 9(H) and create ambiguity? | PBM argues conflict makes coverage ambiguous. | Insurers argue endorsements modify policy and are unambiguous. | No conflict; endorsements unambiguously expand exclusions. |
| Do the endorsements supersede the manuscript form and modify coverage? | PBM contends endorsements alter manuscript form to provide coverage gaps. | Insurers contend endorsements clearly expand exclusions and override conflicting terms. | Endorsements modify the policy and expand pollution exclusions. |
| Does Paragraph 9(H)’s exception negate the endorsements or create coverage? | PBM asserts the exception could apply to its loss. | Insurers argue exception does not restore coverage where endorsements apply. | Exception to exclusion does not create coverage; endorsements remain controlling. |
| Are the pollution exclusion endorsements ambiguous or overly broad? | PBM claims ambiguity and illusory coverage. | Endorsements are clear and not limited to traditional environmental pollution. | Endorsements are unambiguous and properly interpreted as not limited to traditional pollution. |
Key Cases Cited
- City of Chesapeake v. States Self-Insurers Risk Retention Group, 271 Va. 574 ((2006)) (pollution exclusions preclude coverage)
- Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263 ((1981)) (interpretation of exclusions; doubts resolved in favor of coverage)
- Copp v. Nationwide Mut. Ins. Co., 279 Va. 675 ((2010)) (contract interpretation; exclusions must be clear; burden on insurer)
- Seals v. Erie Ins. Exch., 277 Va. 558 ((2009)) (policy language construed in favor of coverage when doubt exists)
- Lower Chesapeake Assocs. v. Valley Forge Ins. Co., 260 Va. 77 ((2000)) (exclusionary language construed against insurer)
- Lansdowne Dev. Co., L.L.C. v. Xerox Realty Corp., 257 Va. 392 ((1999)) (courts do not add terms to contracts; interpret as written)