Second Circuit Appeal Favours American Club In Massive Katrina Liability Claim

Summary

On March 15, 2010, the Second Circuit issued its decision in In re: Lafarge North America, Inc., (08-5504-cv, 2d Cir Mar. 15, 2010). A central issue concerned the liability of the American Steamship Owners Mutual Protection and Indemnity Association (the "American Club") for losses arising from a barge that allegedly broke away from Lafarge's New Orleans terminal during Hurricane Katrina. Claims brought in the Eastern District of Louisiana by residents of the Lower Ninth Ward seek damages from Lafarge that may run to billions of dollars arising from the flooding of New Orleans during Hurricane Katrina. The claims are based on allegations that the barge had hit and breached the levee in the New Orleans Industrial Canal during the storm. The claim amount is due to be determined in a trial set to commence June 21st in New Orleans, which will also determine the amount of Lafarge's liability, if any.

In upholding the District Court's grant of summary judgment in favour of the American Club (albeit on different grounds from the District Court), the Second Circuit found that this case was one of those rare instances where although contract language was ambiguous, summary judgment in favour of the insurer was still appropriate because of the uncontroverted extrinsic evidence regarding the parties intended meaning of the clause.

The decision is of significance not only for the American Club but also for the International Group of P&I Clubs, given the significant potential impact of the claim under its Pooling Agreement.

Clyde & Co US LLP acted for the American Club in this litigation.

Background

The consolidated appeals involved three separate declaratory judgment actions between Lafarge North America Inc. ("Lafarge") and several of its insurers, which were brought to determine the insurers' obligations with respect to indemnity and defense costs relating to claims brought against Lafarge as a result of the breakaway of the barge ING 4727 from Lafarge's New Orleans terminal during Hurricane Katrina. Lafarge has been sued in the Eastern District of Louisiana by residents of the Lower Ninth Ward seeking significant damages relating to the flooding of New Orleans during Hurricane Katrina, based on allegations that the barge had hit and breached the levee in the New Orleans Industrial Canal during the storm.

Lafarge had $50 million in marine liability (wharfinger's) coverage with primary insurer New York Marine and General Insurance Company...

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