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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Court says Illinois Union can’t deny coverage to NRG Energy (NYSE:NRG)

February 20, 2012 - A federal judge in Baton Rouge, Louisiana, has ordered Illinois Union Insurance Co. to defend a client that is embroiled in a lawsuit with the U.S. Environmental Protection Agency.

Judge James J. Brady said he was leaving a decision on whether the ACE Group unit must indemnify Louisiana Generating LLC open for now. But he sided with Louisiana Generating in its contention that Illinois Union must defend it.

NRG Energy, Inc., the parent company of Louisiana Generating, had purchased from Illinois Union a pollution liability policy that covered most of its facilities, including the Big Cajun II electric plant at New Roads, Louisiana. On Feb. 18, 2009 - three weeks after the policy took effect - the EPA sued the power company with a claim that remodeling work at Big Cajun had improperly increased pollution emissions.

The government seeks to require that Big Cajun operate in accordance with the Clean Air Act. It also asks that the owners remedy past violations and install new equipment.

The power companies and Illinois Union ended up in U.S. District Court for the Middle District of Louisiana in 2010 over the clients’ contention that the insurer owed Louisiana Generating a duty to defend and to indemnify. Conversely, Illinois Union said it had no liability on either point.

After both sides asked the court for a summary judgment on their positions regarding duty to defend, the court said that the policy issued to NRG provides for associated legal defense expenses related to claims and remediation costs.

Because “claims and remediation costs are covered so long as they relate to a non-excluded pollution condition” – and a notice of violation regarding Big Cajun was included in an endorsement to the policy -- “any potential claims or remediation costs related to the events in the underlying suit would trigger Illinois Union’s duty to defend.”

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