Chancery Keeps Alive Lloyd’s Chemical Spray Liability Fight

Chancery Keeps Alive Lloyd’s Chemical Spray Liability Fight

Law360, Wilmington (April 8, 2016, 4:30 PM ET) — Delaware’s Chancery Court has refused to toss a bid by Lloyd’s underwriters for retroactive revision of decades-old insurance policies to exclude toxic tort claims arising from a U.S. government contractor’s aerial drug-eradication spraying in Colombia.
The London-based insurers filed the Chancery Court suit to correct, or “reform,” the DynCorp International Inc. contract. That action was filed last year after another state court concluded in a summary judgment that the underwriters had a duty to defend DynCorp and its subcontractors against damage claims related to its aerial herbicide spraying operations.

At issue are insurance policies dating to 1998, and coverage terms that moved to the forefront after more than 3,000 Ecuadorian citizens joined U.S. federal lawsuits in 2001 alleging harm caused by cross-border drift from subcontractor spraying. Lloyd’s underwriters argued DynCorp was never insured against the risk and “deceived” underwriters to continue coverage, estimated at a $500 million value in one document, without disclosing pending mass tort lawsuits.

DynCorp attorneys claimed their needs and understandings were clear, and accused Lloyd’s parties of trying to lay groundwork for a future attempt to recover $60 million in past liability and court defense payouts for the other aerial spraying legal issues.

“Based on the summary judgment record there are genuine issues of material fact in dispute” that warrant continued litigation, Superior Court President Judge Jan R. Jurden, sitting as an appointed vice chancellor for the contract reformation claim, wrote in rejecting DynCorp’s summary judgment bid.

Underwriters “vehemently and consistently” claimed a prior understanding that DynCorp’s policy excluded coverage for any liability involving aerial spraying of chemicals, Judge Jurden said in her ruling.

In a court filing the Lloyd’s parties said, “DynCorp is desperate to hold on to coverage the evidence establishes it never requested, never secured, never paid for and was told no insurer would write,” the company said in brief filed after a summary judgment trial last year.

DynCorp argued in its own brief that Lloyd’s lead underwriter for the policy, Global Aerospace Underwritings Managers Ltd., “is the largest and most sophisticated aviation insurer in the world.”

But Global “did not properly focus upon the clear and direct requests for coverage it received from the brokers on behalf of DynCorp, and as a result made decisions it now regrets,” DynCorp’s attorneys said in one brief.

To win in the suit to reform or correct the contract, Judge Jurden said the underwriters have to prove a mutual mistake regarding terms of the contract or a unilateral mistake about which the other side was aware but remained silent, among other requirements.

“On the summary judgment record underwriters have not, as DynCorp argues, fatally undermined their ability to prove that underwriters and DynCorp reached this understanding,” Judge Jurden wrote.

The dispute is rooted in past efforts by the American and Colombian governments to curb drug cartel production of heroin and cocaine. The herbicide used, glyphosate drifted at times across village and fields in Ecuador, leading to a lawsuit in 2001 that at one point involved more than 3,000 individuals.

Although the Ecuadorian citizens’ suit remains active, most complaints have been thrown out based on rulings in the U.S. District Court for the District of Columbia that the individuals and provinces involved lack standing to sue and had failed to substantiate claims for losses and expenses.

The Lloyd’s parties are represented by Thaddeus J. Weaver of Dilworth Paxson LLP and Ann C. Taylor, T. Patrick Byrnes and Mark A. Deptula of Locke Lord LLP.

DynCorp is represented by David J. Baldwin, John Sensing and Janine L. Hochberg of Potter Anderson & Corroon LLP, Finley T. Harckham and Kanishka Agarwala of Anderson Kill P.C. and Alexander D. Hardiman of Pillsbury Winthrop Shaw Pittman LLP.

The case is Underwriters at Lloyd’s London, et al. v .DynCorp, case number 5421, in the Court of Chancery of the State of Delaware.

–Editing by Kelly Duncan.

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