Justices' Pass On Fracking Coverage Unsurprising To Attys

Law360 Insurance Authority
01/29/2024

The U.S. Supreme Court's recent decision not to review a Third Circuit panel's ruling finding no insurance coverage for $13 million in damage to hydraulic fracturing wells did not surprise many legal experts, who said persuading the justices to take up a diversity case involving a state law issue is an uphill battle.

The justices' denial of Superior Well Services Inc.'s petition for review, however, should not be construed as the high court's approval or agreement with the Third Circuit's decision favoring AIG unit American Home Assurance Co., experts say.

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'Significant Issue Of Federalism'

Policyholder attorney Ethan Middlebrooks, a shareholder at Anderson Kill PC in New York, told Law360 that he found the justices' decision interesting since federalism is an issue that the nation's high court may address at some point.

Middlebrooks said federalism is an emerging issue since insurers generally favor litigating coverage disputes in federal court, while policyholders may prefer to lodge disputes in state courts.

"There is a significant issue of federalism with how the federal courts treat insurance decisions by at times widely diverging from or expanding upon a state's insurance coverage law, even though insurance is supposed to be a creature of contract law, which is a question of state law," he said.

Middlebrooks said it would have been interesting if the Third Circuit certified a question to Pennsylvania's Supreme Court to reconcile the differences between Kvaerner, the Third Circuit's 2019 decision in Sapa Extrusions Inc. v. Liberty Mutual Insurance Co., and the Pennsylvania Supreme Court's decision in Erie Insurance Exchange v. Moore. In Sapa, the Third Circuit said that faulty workmanship that occurs when performing under a contract is not an accident, or occurrence under an insurance policy. In Moore, the Keystone State's high court set forth a broad interpretation of occurrence under an insurance policy although in a different context than workmanship.

"CGL policies require property damage or bodily injury plus an occurrence to trigger coverage," he said. "[T]he majority trend is that defective workmanship is an occurrence, and it would be interesting to see the Pennsylvania Supreme Court reconcile that with the two different cases cited by Superior Well in its petition."

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Commercial Litigation Attorney | Anderson Kill P.C.
Ethan W. Middlebrooks
Shareholder
New York

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