Wis. Assembly Passes Bill to Pin Insurers With $500 Million Fox River Cleanup Tab

June 29, 2005

A coalition of carriers that insured Wisconsin’s paper manufacturers thought they had successfully defeated a legislative effort to force them to pick up the estimated $500 million tab to clean up the polluted Fox River.

The insurers, along with several agent and business groups, waged an aggressive public-relations and paid media campaign arguing that the proposed “all-sums” legislation was unfair, unconstitutional and unwise.

They did successfully defeat an effort to insert the language of the legislation into Wisconsin’s annual budget package, which would have virtually ensured enactment. Now the issue has been revived, with Assembly Bill 222 — aka the Fair Claims Act — passing on a 49-44 vote. The bill now heads to the Senate, but will not be considered before August.

“We are hoping the Senate will quickly kill this bill and recognize as we have that this is special-interest legislation,” said Jeffrey Junkas, a spokesman for the American Insurance Association.

Junkas said insurers are cautiously optimistic because the Senate Majority Leader Dale Schultz (R-17th), former chair of the Senate Agriculture and Insurance Committee, “understands the property/casualty industry very well.” While Schultz has not made a public statement about AB 222, he did oppose inserting it into the two-year budget package which is still being debated.

Over several decades, paper companies (most famously, Atlanta-based Georgia-Pacific Corp.) released more than 67,000 pounds of toxic chemicals into Wisconsin’s Fox River. Now seven paper mills are on the hook, thanks to Superfund’s “polluter pays” rules, to pay for the already ongoing clean up.

Their ability to collect on their insurance coverage is limited, however, by a few inconveniences. First, many of the insurers that covered the paper companies are no longer in business. Second, those that are still around would only be liable for the pollution that took place during the policy period, which can be difficult to determine. Third, insurers have repeatedly argued in litigation that their general liability insurance policies did not cover pollution.

AB 222 was proposed by a group of state legislators who represent the Fox River area and the approximately 100,000 workers employed by the paper manufacturers. It would force insurers to pay “all-sums” up to the policy’s limits due to a covered risk regardless of whether or not it occurred during the policy period.

In spite of a strong push by the paper companies and Fox River-area politicians, the bill wasn’t able to garner enough support in the legislature earlier this year. Just as the session was nearing an end this spring, a last-ditch effort was made to have the Joint Finance Committee insert the substance of the Fair Claims Act to the state budget measure.

This gave birth to the Coalition for Contract Fairness, which waged a six-figure direct-mail and radio advertising campaign to prevent what it called “special-interest legislation.”

“On its face, the legislation is unconstitutional interference with contract,” said Eric Englund, president of the Wisconsin Insurance Alliance. “If a contract says you owe $5 million but you have $100 million in liability limits, [the bill says] you should pay $100 million.

“The premise is unconstitutional,” Englund said. “Federal and state constitutions prohibit state interference with existing contracts. It is well within the province of legislators to prospectively tell insurers how to behave in the future. But to go back into contracts and either modify or take sides when there is a dispute in contract terms is unprecedented here in Wisconsin.”

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