EXIDE VERNON BREAKING NEWS: Insurance company asks federal judge to declare it does not have to pay out full limits of its policy to cover deal Exide executives made as part of reorganization plan with plaintiffs suing company over contamination at its Vernon lead smelter; Allied World National Assurance claims contract required Exide’s executives to present any proposed settlements to insurer for review and approval first before entering into any agreements

By Kat Greene

Law360, Los Angeles (August 12, 2016, 10:22 PM ET) – Exide Technologies Inc.’s insurer Allied World asked a Delaware federal judge on Friday to declare it doesn’t have to back its client in litigation over environmental contamination, saying Exide’s decision to settle the case in bankruptcy violated a provision in their insurance contract.
Allied World National Assurance Co. filed suit Friday, calling for a declaration that it doesn’t have to shell out the full limits of Exide’s insurance policy to cover a deal the company made as part of its reorganization plan with people who had sued Exide over contamination at a battery recycling plant in Vernon, California.

One of the four law firms representing the people suing over the contamination sent Allied World a letter earlier this month saying the claims in that deal will likely exceed $1 billion, and demanding the insurer tender its policy limit and pay the sum “in exchange for the appropriate release,” Allied said. But part of Exide’s insurance contract said the company and its executives wouldn’t agree to any settlements without running them by Allied World first, the insurer said.

“Neither Exide nor any insured person sought or obtained Allied World’s written consent to enter into the Vernon tort claims term sheet,” Allied World said. “The insured persons, therefore, offered to settle and/or entered into a settlement agreement without Allied World’s prior written consent.”

The Vernon tort claim term sheet sets out conditions for a mutual resolution and releases the company’s executives — also covered by the policy — from all liability, Allied World said. That’s just what’s outlined as an exception to coverage in its policy, according to the insurer.

Exide has faced years of litigation on several fronts following the revelation that the company violated environmental laws with contamination from its Vernon recycling plant. The company in 2013 agreed with regulators to run some upgrades on the plant after operations had been suspended, but in June of that year, it sought Chapter 11 bankruptcy protection.

In March, Exide’s executives reached a deal valued at $14.75 million with investors who had accused them of helping the company cover up its failure to comply with environmental regulations.

The investors initially filed the suit in April 2013, accusing Exide and its top executives of failing to disclose that the Vernon plant was releasing high levels of arsenic, lead and other hazardous materials, leading California regulators to suspend operations at the plant and calling for environmental remediation.

Instead of informing investors of environmental compliance issues, the company touted its compliance with environmental standards, including specifically stating that the Vernon plant met air quality standards, according to the investors.

The suit was consolidated with two similar cases in July 2013, and Exide was voluntarily dropped as a defendant after entering Chapter 11 bankruptcy in the wake of the plant shutdown. The individual defendants subsequently won their motion to dismiss the suit in December, without prejudice, and a second amended complaint followed in January.

Exide denied the investors’ amended claims in May, arguing it made “regular disclosures” to its investors and that the proposed class is too broad because it includes noteholders who purchased shares in a private offering.

In December, a judge agreed to certify an additional class of investors after certifying a liability-only stock class in July.

Representatives for Exide and Allied didn’t immediately respond to requests for comment on Friday. The individual defendants couldn’t be immediately reached for comment.

Allied is represented by Marc S. Casarino and Nicholas R. Wynn of White & Williams LLP.

Counsel information for the defendants couldn’t be immediately determined.

The case is Allied World National Assurance Co. v. James R. Bloch et al., case number 1:16-cv-00710, in the U.S District Court for the District of Delaware.

–Additional reporting by Dani Meyer and Jeff Sistrunk. Editing by Catherine Sum.