US High Court Declines Appeal, Upholds Coverage Ruling on Treated Wood

Insurance carriers may want to examine policy language — and what information they request from insureds — after the U.S. Supreme Court let stand a lower court’s ruling which could force Argo Group to cover claims that a wood-treating company caused a South Carolina fence builder’s cancer.

The Supreme Court declined to hear an appeal from Argonaut-Midwest Insurance Co., a specialty insurer that had written commercial liability coverage for a treating company later purchased by Koppers Performance Chemicals Inc. The declination to hear the case essentially upholds a U.S. 4th Circuit Court of Appeal ruling from June 2024 that found that Argo’s policies, while ostensibly for Koppers’ Hawaii operations, applied nationwide.

The 4th Circuit judges explained that the treating operations were in Hawaii, as Argo had argued, but the policy language does not limit coverage to that state.

“The policies define ‘policy territory,’ in relevant part, as ‘(1) the United States of America, its territories or possessions, or Canada,'” the appeals court noted. “Nowhere do the policies expressly limit commercial general liability coverage to bodily injury arising out of the Hawaii locations listed in the policies.”

The court applied Hawaii contract and insurance law, interpreting the ambiguity in the policies in favor of the insured. But the case began a half a world away, when fence builder Phillip Riley and his wife sued New York-based Koppers and other lumber companies in 2014.

Riley alleged that he had developed cancer from years of exposure to chromated copper arsenate, the green-tinted, arsenic-containing compound that was widely used for decades to make lumber resistant to decay, fungus and termites.

The federal government in 2003 struck an agreement with the wood industry to end the use of arsenate, but CCA is still employed for some in-ground lumber applications.

Riley’s lawsuit, like thousands that were filed across the country, contends that Koppers and others failed to warn of the dangers of CCA before it was discontinued.

When Riley may have been exposed to the toxins proved to be a key point in the case. Argonaut-Midwest noted that the Koppers policy period was from 1979 to 1982, when Riley was just a toddler, well before he began working in his family’s fence business. A lower court found that Koppers’ initial complaint, in its suit against Argo after lawsuit defense and coverage was denied, did not clearly allege that the injury happened during the policy period.

But the 4th Circuit judges pointed out that Argo, after the lawsuit was filed, had requested more information from Koppers about the dates of Riley’s alleged exposure. In response, Koppers provided Riley’s deposition testimony, in which the fence builder said he had been exposed since birth due to the family’s regular use of treated lumber in its long-running fence business. Riley grew up in the business locale and later worked in the fence operations.

The appellate judges found that this information should have prompted a duty to defend the lawsuit against Koppers. The 4th Circuit cited previous court rulings that held that extrinsic information, outside of a lawsuit complaint, can alert an insurer to the possibility of coverage.

“Riley’s deposition testimony indicated that Riley was alleging exposure since birth. That was enough to trigger a duty to defend,” 4th Circuit Judge Marvin Quattlebaum wrote in the June opinion. “Accordingly, Argonaut has failed to show that there is no genuine issue of material fact as to whether a possibility existed that Koppers would have incurred liability for a claim covered by the policies in the Riley lawsuit.”

The case now goes back to the federal district court in South Carolina to determine the extent of Argo’s legal defense and coverage liability for Koppers. “Because Argonaut alleges that its duties to defend and indemnify hinge on its counterclaims, we remand this matter for further proceedings,” the 4th Circuit judges wrote.

Argo Group, a subsidiary of Brookfield Wealth Solutions, and its attorneys in the case declined to comment on the court decisions.