AIG Insurer to Pay $42.5M to Cleanup Sites of Bankrupt Underwear Company

January 10, 2008

The American International Specialty Lines Insurance Co. Inc. (AISLIC) has agreed to pay $42.5 million to clean up contamination at four industrial facilities run by a bankrupt insured in a suit in which the Department of Justice intervened on behalf of the Environmental Protection Agency and other agencies.

The EPA says the case is a reminder to insurance companies that they can be responsible for their bankrupt clients’ contaminated sites.

The four sites, formerly owned by Fruit of the Loom, which filed for bankruptcy nine years ago, are located in Michigan, New Jersey, and Tennessee.

“Insurers should take note that they may be liable for the cost of cleaning up their bankrupt clients’ environmental messes,” said Granta Nakayama, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. “EPA will keep pursuing companies who pollute the environment.”

“This settlement will help clean up contaminated sites in Michigan, New Jersey, and Tennessee,” said Ronald J. Tenpas, assistant attorney general for the Justice Department’s Environment and Natural Resources Division. “This action demonstrates the Justice Department’s commitment to pursuing those who pollute or those who inherit their clean-up obligations, whether through insurance arrangements or other agreements.”_

Fruit of the Loom filed for bankruptcy in 1999 and the court set up two trusts to receive and distribute the company’s remaining assets, including its environmental insurance policies. The trusts subsequently tried to collect environmental cleanup costs from AISLIC, a member company of AIG Insurance, under the insurance policy which covered response costs and natural resource damages under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

AISLIC denied coverage and then brought a suit seeking to confirm that it was not obligated to pay the trusts for these costs.

This settlement resolves a lawsuit that began in 2005 over environmental insurance coverage between AISLIC and the two bankruptcy trusts, and concludes litigation in which the Department of Justice intervened on behalf of EPA, the Department of Interior, the Nuclear Regulatory Commission (NRC), and the National Oceanic and Atmospheric Administration (NOAA). The states of New Jersey, Tennessee, Illinois and Michigan have also joined the settlement.

Under the settlement agreement, AISLIC will make an initial $30 million payment plus interest from May 15, 2007 and ten annual payments of $1.25 million to the Fruit of the Loom trusts, according to the EPA.

Most of the money will be used to clean up contamination at the following hazardous waste sites: Velsicol Chemical (Hardeman) site, Toone, Tenn.; Ventron/Velsicol site, Bergen County, N.J.; Velsicol Chemical site, St. Louis, Mich. ; NWI Breckenridge site, Breckenridge, Mich.

The three largest sites – the St. Louis, Mich., the Bergen County, N.J., and the Toone, Tenn., sites – will each receive more than $12.5 million for environmental cleanup and restoration activities. The Breckenridge, Mich., site will receive $2.1 million for cleanup.

The proposed settlement agreement is subject to a 30-day public comment period. Following public comment, if appropriate, the United States would file a motion for entry with the court, seeking final court approval of the settlement agreement.

More information on the settlement:

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