The Massachusetts Appeals Court has ruled that Massachusetts law should apply in deciding whether Narragansett Electric Co. (NEC), a Rhode Island-based utilities provider, is entitled to insurance coverage for environmental contamination at several of its sites. The August 31 decision reverses previous rulings in a case where the two states have different statutes of limitations for contract claims.
The case, OneBeacon America Ins. Co. v. Narragansett Elec. Co., involves a conflict of law that arose after eight sites in Rhode Island – one shared with neighboring Massachusetts – were contaminated by NEC’s predecessor from the mid-1800s until the 1980s. The sites were used by NEC’s predecessor for manufactured gas plants, electric operations and waste disposal, and soil and groundwater contamination was eventually found.
After the Rhode Island Department of Environmental Management stated that pollution at the sites needed to be resolved, NEC was denied coverage for clean up costs from its insurers, including OneBeacon America Insurance Co., citing pollution exclusions or claiming that the event did not occur during their policy periods.
OneBeacon filed a Superior Court action in 2005, arguing that it is not responsible for defending NEC’s environmental contamination claims under the 13 general liability insurance policies its predecessors issued to NEC between 1972 and 1985. NEC then filed for breach of contract and declaratory relief against OneBeacon.
This resulted in a conflict of law because Massachusetts applies a six-year statute of limitations for breach of contract claims, while Rhode Island provides a 10-year limitations period. An initial Superior Court judge ruled that Rhode Island substantive law would apply in interpreting the insurance policies because the sites in question were operated by a Rhode Island public utility and primarily located in the state.
However, OneBeacon appealed that Massachusetts law should apply since that is where the contracts were negotiated. In the latest ruling, the court upheld that appeal, stating it was an error to apply Rhode Island law.
“At first blush, Rhode Island might seem the obvious place of the insured risk, given the location of NEC and the affected sites there,” the court stated in its decision. “But while an underlying tort claim might properly be resolved under the laws of the State where the injury occurred, the obligation of an insurer to defend and indemnify against that claim is more appropriately determined by reference to the insurance contract itself and the circumstances of its issuance.”
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