Griffin Dewatering Corp. v. Northern Ins. Co. of New York

I. INTRODUCTION

At first we did not know what to make of this case. There was a $10 million judgment obtained by a nationwide groundwater pumping and control company against its liability insurer. The compensatory damages—all of which consisted of the attorney fees and costs incurred to sue the insurer for the $10 million—were about $1 million. What foul deeds had the insurer committed, we wondered, that merited such punishment?

At first the answer seemed simple.

At a meeting in Houston in May 1997, representatives of the insurer had, in order to induce the insured to renew its CGL (that is, “third party” liability) policy, orally promised representatives of the insured that the insurer would cover any “future” liability claims based on the release of sewage, even though the insurer, to that point, had steadfastly maintained that any liability based on sewage releases was excluded under the insurer’s “total pollution exclusion.” The Houston meeting had arisen out of the insurer’s disavowal of any coverage, or potential for coverage, for liability arising out of a certain sewage overflow in Laguna Beach. In particular, the insurer had disclaimed any coverage for the…