In light of Massachusetts law
applicable to one insurance contract, Supreme Court of Ireland rules that
clauses in both contracts that excluded coverage for faulty workmanship and
environmental pollution did not exempt insurers from liability for accidental
damage by insured’s employee to internal circuits during maintenance period
At Raheen Industrial Estate in
County Limerick, Analog Devices B.V. and a related company (plaintiffs) were at
all material times in the business of researching, designing and manufacturing,
high performance linear-mix integrated circuits. The Zurich Insurance Company
and another (defendants) insured the plaintiffs under two “all risk policies”.
Each policy barred insurers’ liability for loss or damage caused, inter alia,
by faulty workmanship, errors in processing or manufacturing, or by the actual
or threatened release, discharge, escape or dispersal of contaminants or
pollutants.
The plaintiff's integrated
circuits plant routinely interrupted production at Christmas time and during
the summer for biannual maintenance. During the summer 1999 maintenance break,
a technician employed by the plaintiffs installed the wrong filter in a
cleaning device. The effect was to befoul with carbon particles the
hydrochloric acid (HCL) regularly used to clean the silicone circuit wafers.
This gaff forced plaintiffs to substitute a large number of new wafers,
delaying production for an extra ten days. The plaintiffs filed a claim with
defendants but they denied liability based on the exclusion clauses.
The plaintiffs then sued in the
High Court for a declaration that the defendants were liable under the policies.
The Judge ruled that the exemption for “faulty workmanship” applied only to the
manufacturing process and not to maintenance work. He also found that the
“pollution” exclusion clause applied only where a toxic substance had injured
the surrounding environment by leaking from its container. The trial judge,
therefore, ruled that the defendants were liable under the policies and they
appealed. The Supreme Court of Ireland, however, dismisses their appeal.
Applying settled principles, the
Court unanimously decides that the High Court judge had been entitled to
conclude that neither of the exclusion clauses invoked by defendants applied to
the present case. The Court first points out that, under the contracts, Irish
law governs the local policy whereas the law of Massachusetts applies to the
similar, but broader, global policy.
A fundamental principle of
contract interpretation under the legal regimes of both Ireland and
Massachusetts is the rule of contra proferentem. This holds generally that, if
exempting provision is ambiguous and capable of more than one interpretation,
then the courts will construe the clause against the party seeking to rely on
it. Courts often apply this rule of interpretation against an insurance company
that drafted the equivocal language. The second important general principle in
relation to exclusions is that the insurer has the ultimate burden of
persuading the court that the exclusion or exemption applies to the facts at
hand.
The Court first determines that
the casualty did not take place within the exemption applying to the
manufacturing process. The Court clarifies this issue by asking and answering a
few simple questions. First, was there manufacturing going on in the August
Bank Holiday of 1999? Answer: No, the machines were closed down for
maintenance. Secondly, did something go wrong during the maintenance operation?
Answer: Yes. Was that the sole cause of everything that went wrong afterwards?
Answer: Yes.
Though maintenance may be crucial
to the manufacturing process, this does not allow the Court, as a matter of
plain English, to equate maintenance with manufacture. The man who made the
unfortunate error when replacing the filters was a “facilities technician”
working for the plaintiffs. He had nothing to do with, and no role to play in,
the day to day processing and manufacturing. There was nothing out of the
ordinary about the need for maintenance twice a year to support this
manufacturing process -- but maintenance it remained.
The Court also rejects the
defendants’ second complaint that the trial judge should not have taken into
account evidence that insurance companies have ready access to standard
exclusion clauses relating to maintenance. The trial judge was, the Court
holds, entitled to draw adverse inferences from their failure to include such a
clause in their policies.
Finally, the Court addresses and
rejects defendants’ invocation of the contamination or pollution exclusion. In
light of the case law of Massachusetts in relation to the global policy, the
pollution clauses in both policies, on their natural interpretation, only
intended to exclude coverage for leaks that damaged the environment, and thus
did not apply to the present case.
Citation: Analog Devices
B.V. v. Zurich Insurance Company, [2005] I.E.S.C. 12 (Sup. Ct. Ire. 2005).
**** Mr. Richard Ehrlich is a specialist in Corporate, Estate and Personal Financial Planning in Florida. In the course of his career, he has prepared hundreds of estate plans and helped hundreds of small businesses navigate the various issues involving insurance, retirement and employee retention. He has helped numerous families deal with the difficulties of taking care of elderly relatives and assisted with all of their long-term planning and long-term care needs. Finally, he has helped investors with their losses in unsuitable investments. LinkedIn Profile: https://www.linkedin.com/in/richard-ehrlich-777b513/; Attorney Profile: http://www.eldercounsel.com/profile/richard-ehrlich-ehrlich-law-center-pa/; Attorney Profile: https://solomonlawguild.com/richard-ehrlich%2C-esq; Attorney News: https://attorneygazette.com/richard-ehrlich%2C-esq#c35a1098-f039-43ab-b0dc-06cff6dabf61
