In Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s London, et al., the Court of Appeals for Ohio’s Eighth District, reversed the lower court, finding that money paid by the insured into an abatement fund was “damages” as that undefined term was used in the policyholder’s insurance policies. 2022-Ohio-3031, ¶ 1. Sherwin-Williams is a cautionary tale about how insurers may try to narrow the meaning of undefined terms in their insurance policies.

The dispute in Sherwin-Williams focused on coverage for $400 million that the policyholder and other defendants were ordered to pay into an abatement fund to be used by California cities and counties to mitigate the hazards caused by lead paint in homes. Id. ¶ 1. Although the underlying litigation proceeded in California, Ohio law governed coverage, which raised issues of first impression in Ohio. Id. Among other things, the insurers argued that the money paid into the abatement fund did not qualify as “damages” under the policies. Id. ¶ 57. The insured argued that, because the insurers did not define “damages” in the policies, the term had to be given its ordinary meaning. Id. ¶ 56.

The appellate court began with a few universal principles of insurance coverage, including that the “fundamental goal when interpreting an insurance policy is to ascertain the intent from a reading of the policy in its entirety and to settle upon a reasonable interpretation of any disputed terms in a manner designed to give the contract its intended effect.” Id. ¶ 58. The court also explained how words and phrases in the insurance policy “must be given their plain and ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument.” Id. The court emphasized that, “where an insurance contract term is reasonably susceptible of more than one interpretation,” courts “must liberally construe it in favor of the insured.” Id. Based mainly on those principles, the court agreed with the policyholder that the money it paid into the fund was “damages” under the plain meaning of that term.

The court explained that the Eighth Edition of Black’s Law Dictionary defines “damages” as “[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury.” Id. ¶ 59. It also relies on Webster’s Dictionary which defines that term as “the estimated money equivalent for detriment or injury sustained[.]” Id. The court also explained that, under Ohio law, “damages” in its plain and ordinary meaning is broad enough to encompass various remedies, including compensatory damages, injunctive relief, restitution, and other equitable relief. Id. ¶ 66. Thus, the court found that “an ordinary businessperson reading the policies at issue would believe that the Abatement Fund constitutes ‘damages’ under the relevant policy language.” Id. The court also reasoned that the money paid by the insured into the abatement fund was not strictly intended to prevent harm, but served to reimburse the government’s costs in its ongoing effort to remediate the lead paint hazard in California.

In rejecting the insurers’ argument that the “damages” in dispute were equitable in nature and thus did not fall within the ordinary meaning of damages, the appellate court noted that Ohio courts determining insurance coverage issues have concluded that equitable relief falls within the ordinary dictionary definition of “damages.” Id. ¶ 69. The court was also swayed by a case from the Fourth District Court of Appeals, which found that, in the insurance context, the term damages was “at best ambiguous.” Id. ¶ 68. Thus, the court found in Sherwin-Williams the undefined term “damages” ambiguous and construed it in favor of coverage. Id. at 70.  

Among other defenses, the court rejected the insurers’ argument on appeal that (i) the Intentional and Expected Acts exclusion applied, (ii) that coverage was barred a matter of public policy because the insured committed an intentional tort by knowingly using lead paint, and (iii) that the insuring agreement was not satisfied because the policyholder had not caused bodily injury or property damage. Id. ¶¶ 73-82, 83, 86-90. First, the court rejected the application of the exclusion finding no evidence demonstrating that the insured intended to cause harm when it promoted the lead paint. Id. ¶ 79. Second, it rejected the insurers’ public-policy argument finding the cases relied on by the insurers unpersuasive. Id. ¶ 83. Third, it rejected the insurers argument under the insuring agreement, concluding that the insured had to pay money into the abatement fund because of bodily injury and property damage caused by its promotion of lead paint. Id. ¶¶ 89-90.    

Sherwin-Williams highlights how insurers may try to narrow the meaning of undefined terms in their insurance policies. Because an insurer may try to advance interpretations of a policy that may limit coverage beyond what was initially intended when the policy was purchased, policyholders should seek to understand the full policy, including the insuring agreements, defined terms, conditions to coverage, and exclusions. This exercise may involve comparing policy language and endorsements to standard-form provisions and regularly examining whether modifications are necessary based on new or different exposures. Retaining experienced coverage counsel to help procure, renew, or modify insurance programs can mitigate this risk and help maximize recovery.