MGKF Secures $5.6M Judgment for Superfund Site Redevelopers

May 16, 2007
Client Alert Newsletter May 2007

MGKF's litigation team recently secured a $5,631,075 judgment against environmental insurer Kemper Environmental, Ltd. and affiliates (collectively "Kemper") in favor of its client, Frazer Exton Development, L.P. ("FED"). FED is redeveloping the 79-acre Foote Mineral Superfund Site ("Site") in Chester County, Pennsylvania, as a continuing care retirement community. The judgment arises from FED's prior victory over Kemper at trial, which resulted in the first federal decision regarding the scope of "cost-cap" environmental insurance coverage. In 2004, Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York held in Frazer Exton Development, L.P. v. Kemper Environmental, Ltd., that the Kemper policy at issue covered any remediation the U.S. Environmental Protection Agency ("EPA") would eventually require, and unambiguously covered FED's investigation costs. The decision was affirmed on appeal to the Second Circuit. Because Kemper persisted in denying FED’s claims even after these rulings, FED filed another complaint against Kemper for damages in December 2006.

In awarding damages to FED in this subsequent action, Judge Baer found that although EPA had approved a remedy through a Record of Decision ("ROD"), Kemper refused to pay any of FED's costs. Entering partial judgment of $5.6 million, the Court reaffirmed its declaratory judgment that the policy provides broad cost-cap coverage for any EPA-issued remedy and all pre-ROD investigation costs incurred after inception of the policy. A magistrate judge was assigned to make recommendations on the balance of FED's $10.9 million claim, which FED projected would soon reach the $16.5 million policy coverage limits, plus interest. Prior to the hearing, however, the parties reached a confidential settlement.

This case underscores the limits of environmental insurance and importance of involving environmental counsel in every stage of the underwriting and policy drafting process so that developers are sufficiently protected against cost overruns. Further, to ensure the best recovery, policyholders should aggressively pursue their claims under such policies, rather than waiting for the lengthy claims process to unfold.