State Supreme Court rules in favor of utility insurers

May 1, 2007

The Indiana Supreme Court said today that insurance carriers are not required to pay power utilities’ costs to install pollution equipment or to pay utilities’ legal costs to defend against lawsuits that forced them to upgrade air quality.

The 17-page, unanimous opinion upheld a decision by Hendricks Superior Judge David H. Coleman denying a motion by power companies Cinergy Corp. and Duke Energy Corp. that sought to force the insurers to pay their legal costs.

Cincinnati-based Cinergy, which was acquired by Duke in April 2006, supplies electricity to the Indianapolis area outside Marion County. Duke is headquartered in Charlotte, N.C.

The suit was a byproduct of a federal ruling in May 2006 that forced the utilities to cut emissions. That suit was brought by the federal government, three states and several environmental groups.

The 7th Circuit Court of Appeals in Chicago upheld the federal ruling last year, and the U.S. Supreme Court declined to hear the case in April after ruling in a similar case that utilities must install emission equipment.

Before the utilities lost the federal suit, a consortium of Associated Electric & Gas Insurance Services Ltd. and 19 other insurers sued in state court to determine their liabilities.

The utilities had said in the state suit that insurers were obligated to pay at least $4 million the power companies spent defending themselves in the Cinergy case—an amount exceeding the self-insured retention amount of up to $1 million.

The carriers contended the policies didn’t cover claims made against the power companies in the federal suit, and therefore had no duty to pay defense costs.

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