ExxonMobil Oil Corp. v. TIG Ins. Co.
| Decision Date | 18 May 2020 |
| Docket Number | 16 Civ. 9527 (ER) |
| Parties | EXXONMOBIL OIL CORPORATION, Petitioner, v. TIG INSURANCE COMPANY, Respondent. |
| Court | U.S. District Court — Southern District of New York |
Over three years after the Court stayed this action and ordered the parties to arbitration, the Court is now faced with ExxonMobil Oil Corporation's ("Mobil"1) motion to lift the stay and confirm the arbitral award, and TIG Insurance Company's ("TIG") cross-motion to vacate that award.
Mobil's motion asks the Court to confirm the award and to enter a final judgment that includes pre-judgment interest.
TIG moves to vacate the arbitral tribunal's decision on the grounds that in defining a key term in the underlying insurance agreement, the arbitral tribunal stated that its analysis was "guided by applying common speech and the reasonable expectation and purpose of the ordinary businessman to determine the intent of the parties," an interpretive method long-used by New York courts in interpreting insurance agreements. TIG claims this interpretive principle is based on contra proferentum and is therefore contrary to the dictates in parties' contract that the policy be construed in an "evenhanded" manner.
For the reasons stated below, Mobil's motion is GRANTED and TIG's is DENIED.
This action arises out of an insurance coverage dispute relating to an excess liability insurance policy between TIG and Mobil (the "Policy"). (Doc. 38-2.) Under the Policy, part of a multi-layer tower of coverage, TIG assumed responsibility for $25 million in general liability coverage. (Doc. 38-1 ¶ 1) (the "Award").
The Policy contains a New York choice of law provision, which specifies, in relevant part:
This Policy shall be governed by and construed in accordance with the internal laws of the State of New York, . . . provided, however, that the provisions, stipulations, exclusions and conditions of this Policy are to be construed in an even-handed fashion as between the Insured and the Company; without limitation, where the language of this Policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Insured or the Company and without reference to parol evidence).
(Doc. 38-2 at V(q).)
The Policy also contains an Alternative Dispute Resolution Endorsement ("ADR Endorsement") permitting the parties to resolve disputes through ADR. (Doc. 38-2 at Endorsement No. 11.) The ADR Endorsement provides: "It is expressly agreed that any decision, award, or agreed settlement made as a result of an ADR process shall be limited to the limits of liability of this Policy." (Id. at Endorsement No. 11 ¶ 6.)
The underlying dispute arises out of a number of lawsuits against Mobil seeking damages for contamination involving methyl tertiary butyl ether ("MTBE"), a gasoline additive Mobil once used. (Doc. 37 at 3; Doc. 41 at 4.) At least some of the alleged contamination arose from leaks from underground storage tanks at service stations. (Award ¶ 15; Doc. 41 at 4.)
The Policy includes a number of exclusions to coverage, including one relevant here, a pollution exclusion, that excepts from indemnity property damage "arising out of or alleged to arise out of the discharge, dispersal, release, or escape of pollutants into or upon land or other real estate, atmosphere, any watercourse or body of water whether above or below ground or otherwise into the environment." (Doc. 38-2 at IV(k)(1)(A).) The arbitral tribunal that presided over the parties' dispute (the "Tribunal"), noted that "[a]bsent an exception to this language, this provision would have excluded Mobil's claim for indemnity for its MBTE liability." (Award ¶ 17.) It does not appear that either party disputed this finding. As the Tribunal noted, however, "the parties did negotiate an exception from the pollution exclusion for damages arising out of claims for product liability," agreeing that it "does not apply to any liability of the Insured (1) for product liability . . . ." (Id. ¶ 18 (citing Doc. 38-2 at IV(k)(2)(A).) "Product Liability" is defined in the Policy as follows:
The term "product liability" means liability for personal injury or property damage arising out of the end-use of goods or products manufactured, sold, tested, handled or distributed by the Insured or others trading under its name if such use occurs after the possession of such goods or products has been relinquished to others by the Insured or by others trading under its name and if such use occurs away from premises owned, rented or controlled by the Insured; provided such goods or products shall be deemed to include any container thereof other than a vehicle, watercraft or aircraft.
(Doc. 38-2 at III(n).)
Therefore, to determine whether Mobil was entitled to coverage for the leaks from the underground storage tanks at service stations, the Tribunal had to decide whether those leaks "aros[e] out of the end-use of goods or products manufactured, sold, tested, handled or distributed by [Mobil]." The parties provided the Tribunal with different meanings of the term "end-use." As summarized, by the Tribunal, TIG "argue[d] that 'end-use' must mean something more than use" and "that the correct interpretation is that "'end-use' is synonymous with 'use' by the 'end-user,' or consumer." (Id. ¶ 98.) Mobil "assert[ed] a broad definition that 'end-use' occurs when the product it manufactured isput into the stream of commerce and potentially, Mobil contends, there could be multiple 'end-uses' along the course of production and distribution." (Id. ¶ 99.) The Tribunal considered neither definition to be appropriate. (Id. ¶ 100.) Instead, the Tribunal reasoned that "end-use" refers to "the instant when the product, MTBE-treated gasoline, has made its way to the end of its distribution process and is the ultimate finished product available for purchase and use by an end user . . .." (Id. ¶ 103.) The Tribunal reasoned that this interpretation of "end-use" was consistent with "the commonly understood meaning of the term and with the authorities cited by TIG," as well as New York statute, and found its interpretation to be "more logical and likely consistent with the expectations of the parties." (Id. ¶ 104.) The Tribunal also noted that its analysis was "guided by applying common speech and the reasonable expectation and purpose of the ordinary businessman to determine the intent of the parties." (Id. ¶ 97.)
The Tribunal continued its analysis by interpreting the term "arising out of." The Tribunal considered guidance offered by the New York Court of Appeals that "arising out of means" "originating from, incident to or having a connection with." (Id. ¶ 110.) The Tribunal determined the Court of Appeals decision to be entitled to weight, but that "arising out of" could not be interpreted so broadly "as to swallow up the pollution exclusion." (Id. ¶ 111.) The Tribunal therefore determined that "arising out of" "requires finding a nexus between the injury and the 'general nature of the operation in the course of which the injury was sustained.'" (Id.) Ultimately, the Tribunal declined to draw a "a precise line of where the nexus is broken and becomes too remote," but found that "it is entirely reasonable to conclude that leaking from underground storage tanks where the MTBE gasoline has been delivered is not so remote as to preclude coverage." (Id. ¶ 113.)
The Tribunal also noted that even if it agreed with TIG's definition of "end-use," it would nonetheless find TIG liable because the leaks from the service stations would have a "sufficiently close nexus" to the definition of end-use TIG asserted. (Id. ¶ 114.)
At the time the Tribunal issued its award, Mobil's MTBE losses were approximately $435 million. (Id. at ¶ 144.) Because, the Tribunal found that Mobil's covered liability exceeded TIG's layer, it found Mobil entitled to the Policy's full $25 million limit. (Id. ¶ 145-147.)
Citing New York legal authorities, including case law and statutory provisions, Mobil requested the Tribunal also award it pre-judgment interest in an amount exceeding $6 million. (See Award ¶¶ 133-136.) The Tribunal, however, declined to do so concluding that the ADR Endorsement's language that "any decision, award, or agreed settlement made as a result of an ADR process shall be limited to the limits of liability of this policy" meant that the Tribunal "lack[ed] the jurisdiction to make an award that exceeds the limits of the" Policy. (Id. ¶¶ 137-139.) The Tribunal reasoned that its "decision [or] award" was "constrained by agreement of the parties to be no more than the policy limits" because the "common understanding of the terms arbitral 'decision' or 'award' would include interest." (Id. ¶¶ 140.) Finding that it lacked the jurisdiction to award interest, the Tribunal opined that a court might be able to do so. (Id. ¶ 141 n. 4.)
The Federal Arbitration Act provides a "streamlined" process for a party seeking "a judicial decree confirming an award, an order vacating it, or an order modifying or correcting it." Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). District courts "treat a petitioner's application to confirm or vacate an arbitral award as akin to a motion for summary judgment." City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 136 (2d Cir. 2011) (quotation marks omitted).
Under the FAA, a court "must grant" a petition to confirm an arbitral award "unless the award is vacated, modified, or corrected as prescribed in [the FAA]." 9 U.S.C. § 9; see also Trustees of New York City Dist. Council of...
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