Release’s Operative Language, Not Its Recitals, Determined Its Meaning, Appellate Court Says
May 31, 2013 |An Indiana appellate court has ruled that recital language in a release signed by an insured in favor of its insurer that arguably suggested that the release applied to only some of the insurance policies the insured had with its insurer did not trump the “clear language” in the release that released the insurer from “any further claims” related to pollution and contamination at a particular facility, without reference to different types of insurance coverage.
The Case
After Warsaw Chemical Company agreed to remediate contamination at its Warsaw, Indiana, facility in August 1989, it notified its general liability insurer, United States Fidelity and Guaranty Company (“USF&G”), and sought reimbursement pursuant to its primary and excess policies. USF&G notified Warsaw that it believed that coverage did not exist for a number of reasons and denied coverage pursuant to both primary and excess liability policies. In 1992, in exchange for $25,000, Warsaw released USF&G from claims or demands related to the remediation.
The release provided, in pertinent part:
WHEREAS, USF&G issued to Warsaw the following comprehensive general liability insurance policies for the following policy periods:
________________________________________________________________________________
Policy Number |
Policy Period |
ICP 07911442001 |
05/03/88-05/03/89 |
ICC 090453055 |
05/03/87-05/03/88 |
ICC 085149911 |
05/03/86-05/03/87 |
ICC 069731717 |
05/03/85-05/03/86 |
________________________________________________________________________________
NOW THEREFORE, Warsaw, by its duly authorized representative, agrees as follows:
1. In consideration for the payment of $25,000.00, receipt of which is hereby acknowledged, Warsaw releases, acquit[s], and forever discharges USF&G and its agents, representatives, parent organizations, subsidiaries, and all other persons, firms or corporations in privity with USF&G from any further claims, demands, causes of action, damages, clean-up costs, expert fees, consulting fees, attorneys fees, costs or losses of any kind and nature whether known or unknown, foreseen or unforeseen, anticipated or unanticipated arising from, or in any way related to, the pollution and contamination of the soil and groundwater in, upon or adjacent to the Warsaw facility in Warsaw, Indiana.
In 2007, Warsaw sued USF&G, contending, among other things, that the 1992 release only concerned primary liability policies and not the excess policies that USF&G had issued to it, which excess policies were not specifically mentioned in the release. The trial court ruled in Warsaw’s favor, and USF&G appealed.
The Indiana Appellate Court Decision
The appellate court reversed, concluding that the 1992 release covered the excess policies.
The appellate court found that the operative language of the release “clearly release[d] USF&G from ‘any further claims’ related to pollution and contamination at the Warsaw facility, without reference to different types of insurance coverage.” The appellate court explained that Indiana had long distinguished between operative contract language and recitals, and it decided that the recitals referencing only the primary policies could “not be used to interpret the unambiguous operative language.”
Simply put, the appellate court ruled, recital language that “arguably suggest[ed] that the release applied to only some of the insurance policies Warsaw had with USF&G” did not trump the release’s “clear language.” Because the release covered the excess policies, the appellate court concluded, the trial court had erred in denying USF&G’s summary judgment motion on this point. It therefore reversed the judgment of the trial court and remanded for entry of summary judgment in favor of USF&G.
The case is U.S. Fidelity and Guaranty Co. v. Warsaw Chemical Co., Inc., No. 49A04-1203-CT-97 (Ind. Ct. App. May 23, 2013).
The Rivkin Rule
Of the at least 30 federal jurisdictions and states that have addressed the issue, the vast majority have held that recitals do not control unambiguous operative language in contracts. See e.g., Grynberg v. F.E.R.C., 71 F.3d 413, 416, 315 U.S. App. D.C. 154 (D.C. Cir. 1995) (“[I]t is standard contract law that a Whereas clause, while sometimes useful as an aid to interpretation, cannot create any right beyond those arising from the operative terms of the document.) (citation omitted); Burch v. Premier Homes, LLC, 199 Cal. App. 4th 730, 131 Cal. Rptr. 3d 855, 867 (Cal. Ct. App. 2011) (“In cases where there is ‘any apparent conflict between its different clauses or provisions, the circumstances surrounding its execution and the conditions and motives of the parties as shown by recitals in the contract or matters in evidence should be taken into consideration in order that the true intent of the parties may be ascertained.'”) (citation omitted); Andersen ex rel. Andersen, Weinroth & Co., L.P. v. Weinroth, 48 A.D.3d 121, 849 N.Y.S.2d 210, 219 (N.Y. App. Div. 2007) (“[W]e note that a recital paragraph in a document is not determinative of the rights and obligations of parties to the agreement[.]”); Furmanite Worldwide, Inc. v. NextCorp, Ltd., 339 S.W.3d 326, 336 (Tex. App. 2011) (“Recitals in a contract are not strictly part of the contract, and they will not control the operative phrases of the contract unless those phrases are ambiguous.”).