TWA Loses $30 Million Environmental Insurance Case.

CHICAGO--(BUSINESS WIRE)--Aug. 3, 1999--

A state trial court in St. Louis, Missouri ruled Monday, August 2, 1999, that Trans World Airlines, Inc., headquartered in St. Louis, Missouri, after five years of litigation, cannot recover anything on its $30 million insurance claim for environmental cleanup at its aircraft overhaul base in Kansas City, Missouri. After a 15-day trial, Judge Robert H. Dierker, Jr. held that insurance policies issued by Associated Aviation Underwriters, Underwriters at Lloyd's, London and other London insurers provided no coverage to pay TWA's cleanup costs or defend TWA in enforcement actions brought by the U.S. Environmental Protection Agency.

In 1985 environmental regulators found TWA in violation of 22 provisions of state and federal hazardous waste laws at its overhaul base, which is adjacent to Kansas City's Mid- Continental International Airport. TWA then became the target of federal criminal investigations into the airline's hazardous waste handling practices. After TWA persuaded the federal government to instead pursue a civil proceeding, the airline entered into two agreements with the EPA in 1988 and 1989 to study the extent of contamination and cleanup its overhaul base, at a cost of approximately $30 million. TWA then sued its insurers, asking the Court to declare that the policies provided coverage.

The Court found no coverage, primarily because TWA could not prove that any of the contamination occurred as a result of its activities during the applicable policy periods. Judge Dierker also observed that TWA had "ignored the effect of the federal statute and regulations" on hazardous waste, and had "knowingly and intentionally disregarded the requirements of the law." TWA executives rejected or ignored recommendations from lower level management to take action and expend the substantial sums required to comply with the hazardous waste regulations. The court concluded, "it seems likely that TWA's response costs in this case were at least partly the result of a deliberate corporate decision to continue business as usual, rather than comply with (federal law) and its burdensome regulations." The Court found that TWA and its employees did intentionally fail to manage and control hazardous waste, and that the costs at issue were the expected and intended result of its own conduct.

The insurers also offered evidence that in the past, pollution from TWA's overhaul base had ignited and set fire to a nearby creek, that fish and wildlife had been killed and that toxic waste had been buried at night by TWA employees using bulldozers. In 1985, the Missouri Department of Natural Resources fined TWA $750,000, at that time the largest administrative penalty ever assessed in the state.

Underwriters at Lloyd's and the other London Market insurers were represented by Gary Westerberg of Lord, Bissell & Brook in Chicago. Associated Aviation Underwriters was represented by Jeff Cramer of the St. Louis firm of Brown & James. TWA's lead counsel at trial was the New York firm of Fried & Epstein, although Anderson, Kill & Olick in Philadelphia and New York had been lead counsel until it withdrew just prior to trial.

For further information or a copy of the opinion, Trans World Airlines. Inc. v. Associated Aviation Underwriters et al., Missouri Circuit Court, Twenty-Second Judicial Circuit (City of St. Louis), No. 942-1848A, Div. 3 (August 2, 1999), please contact:

Gary W. Westerberg or William D. Ellison
LORD, BISSELL & BROOK
115 South LaSalle Street
Chicago, Illinois 60603
Phone: [phone] or  [phone]
Fax: [phone] or 443-0570

Jeffrey L. Cramer; T. Michael Ward, or Stephen P. Krchma
Brown & James, P.C.
705 Olive, Suite 1100
St. Louis, Missouri 63101
Phone: [phone]
Fax: [phone]