Norfolk Southern obtains complete summary judgment win on its contractual claims against excess insurer.

02/26/14

WV

S.D. W.Va. -- United States District Court for the Southern District of West Virginia

Insurance

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On February 26, 2014, Norfolk Southern Railway Corporation (“Norfolk Southern”) obtained complete victory on its contractual claims against Westchester Fire Insurance Company (“Westchester”) in a coverage dispute in the U.S. District Court for the Southern District of West Virginia.  Chief Judge Joseph R. Goodwin granted Norfolk Southern’s summary judgment motion regarding Norfolk Southern’s status as an insured, finding that (1) Norfolk Southern qualifies as an additional insured on Westchester’s excess policy issued to the parent of Cobra Natural Resources, LLC (“Cobra”), and (2) Westchester’s policy covers Norfolk Southern for its liabilities arising out of a 2009 train derailment in Mingo County, West Virginia.  


The case, Norfolk Southern Railway Corporation v. National Union Fire Insurance Company of Pittsburgh, PA, et al., No. 2:12-cv-05183 (S.D. W. Va., Feb. 26, 2014), stemmed from the 2009 derailment, which involved a Norfolk Southern train loading coal at a facility leased and operated by Cobra.  Pursuant to the lease agreement between the companies, Cobra agreed to add Norfolk Southern on its liability coverage in an amount “not less than $2,000,000” for liabilities “arising out of” Cobra’s “work” or property “owned or used” by Cobra. 

Westchester denied coverage on two grounds.  First, Westchester argued that Cobra’s contractual obligation to provide Norfolk Southern with coverage of “not less than $2,000,000” meant that Norfolk Southern was never intended to be added to Westchester’s policy, but only to the underlying $2 million policy issued by another carrier.  Second, Westchester argued that Norfolk Southern’s liability did not “arise out of” Cobra’s work or property because, Westchester alleged, Norfolk Southern’s actions solely caused the derailment (a disputed fact). 

Regarding the first issue, Judge Goodwin found that Cobra’s contractual requirement to obtain “not less than $2,000,000” of insurance for Norfolk Southern was a minimum requirement and not a cap on the insurance to which Norfolk Southern was entitled.  Thus, the court found, “Cobra could, and did, obtain insurance in excess of $2 million consistent with the terms of the 2008 Lease Agreement.”

Judge Goodwin next addressed Westchester’s argument that the derailment did not “arise out of” Cobra’s operations or property, but rather arose out of Norfolk Southern’s alleged conduct.  The court held, “Westchester does not expressly say so, but it apparently contends ‘arising out of’ connotes a direct causal relationship.”  Judge Goodwin rejected this interpretation and adopted Norfolk Southern’s position that “arising out of” is a broad term meaning “incident to” or “flowing from,” and “[t]herefore, it is clear that the derailment arose out of Cobra’s work, or, at the very least, arose out of operations performed on Cobra’s behalf.” 

The court thus confirmed that Norfolk Southern is entitled to full coverage as an additional insured on Cobra’s excess policy issued by Westchester for liabilities associated with a derailment occurring on Cobra’s leased property and during Cobra’s operations, thereby giving effect to the parties’ plain intent and reasonable expectations in entering into the lease agreement.

Norfolk Southern is represented in this matter by Firm partners Donald R. McMinn and Stephen A. Klein.

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