District Court Declares Insurer Must Provide Coverage for Boiler Explosion Under E&O Policy

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Hartford Steam Boiler Group v. SVB Underwriting Ltd., Case No: 3:04cv2127 (D. Conn. 2011)

Hartford Steam Boiler Group, Inc. (HSB) is one of the largest equipment and machinery insurers in the United States. HSB specializes in equipment breakdown policies. Clara Barton purchased an insurance policy from HSB that provided coverage for losses resulting from a boiler explosion. Under the policy HSB was required to reimburse Clara Barton for property damage and lost income caused by such an explosion. Tragically, on November 1999 an explosion occurred at the Clara Barton facility causing 5 deaths and a significant number of injuries.

For a number of years up to December 1, 2000 HSB maintained a “claims made” E&O policy with defendant SVB. In 2000, HSB purchased an extended reporting period often referred to as a “tail” or “run off” coverage. The purpose was to provide coverage for claims that would have been covered under the policy but which were made known after the policy ended. The extended coverage included a provision excluding coverage for any claim or circumstance that could be reasonably expected to give rise to a claim and was known by HSB’s general counsel prior to December 1, 2000. SVB denied coverage for losses arising out of the Clara Barton explosion based upon this exclusion.

The resulting question was whether general counsel was aware of facts and circumstances indicating a claim could arise. The court recited in detail the investigation following the explosion, including the initial theory that the incident was the result of a steam boiler explosion. This theory later changed to a gas leak. The court also noted that an attorney retained by HSB to investigate the incident determined it was not caused by HSB and it would not likely be a defendant in any resulting actions.

Despite the fact parties had requested information from HSB, HSB received a letter from another insurer stating payments made and its continued investigation, a subsequent theory that the gas leak was caused when the boiler pilot light went out and the overall nature of the accident, the court concluded general counsel was not aware of facts and circumstances that would likely lead to a claim.

The court made this conclusion while acknowledging that lawsuits typically follow such catastrophic events name all potentially responsible parties.  Accordingly, the exclusion did not apply and the insurer was required to provide coverage.

For a copy of the decision click here

Brian Biggie and Rick Cohen