WV water crisis settlements provide community up to $151M

Gazette-Mail file photo
This was the Freedom Industries site on the Elk River from where chemicals leaked into the Elk River and the Kanawha Valley’s regional drinking water supply. The site has been torn down.

Hundreds of thousands of Kanawha Valley residents, businesses and workers will receive up to $151 million in compensation from West Virginia American Water Co. and Eastman Chemical Co. for the effects of the January 2014 water crisis, under related class-action settlements made public late Monday afternoon.

West Virginia American will pay up to $126 million and Eastman Chemical up to $25 million under the deals, according to court records and lawyers in the case.

Exact distribution plans for the money still are being worked out, but lawyers for the plaintiff class said they believe the settlements will compensate everyone affected by the spill — from residents who had to purchase bottled water to businesses that had to close when they couldn’t use their water, to individuals who sought medical attention after being exposed to the chemicals that contaminated the region’s drinking water supply following the Jan. 9, 2014, spill at Freedom Industries.

“All those people will be captured in the class,” said Stuart Calwell, one of the lead lawyers for the plaintiff class. “It is in the best interests of the community.”

Calwell told media gathered outside the courtroom that the settlement “isn’t so much the bottles of water you had to buy. It’s what folks had to endure” during the water crisis. “It’s a just result,” Calwell said of the deal.

Settlement terms in the deals with West Virginia American and Eastman Chemical were announced by the attorneys, and then made public in court filings following a brief hearing before U.S. District Judge John Copenhaver Jr., who has had the parties before him for a week in a “Final Settlement Conference,” scheduled just before trial, which had been set to start on Oct. 25.

In prepared statements, Eastman and West Virginia American both emphasized that in the settlement they did not admit any fault or liability for the contamination of the region’s drinking water.

West Virginia American said, “A resolution through a settlement allows us and our dedicated employees to serve our customers without the distractions of ongoing lawsuits.”

Eastman said, “We we worked with plaintiffs’ counsel to negotiate a global settlement to resolve all litigation, and to provide benefits and closure to the community.”

More than 224,000 residents, more than 7,300 business owners, and an undetermined number of hourly “wage earners” were part of the class of plaintiffs Copenhaver certified more than a year ago for the lawsuit against West Virginia American and Eastman. The class set for the trial included everyone living in a dwelling supplied with tap water from West Virginia American’s Kanawha Valley plant, all business owners whose operations were supplied with tap water from the plant, and all wage earners whose place of employment was supplied by the plant, but whose home had a different water supplier.

Called “Crystal Good v. American Water,” for the lead named resident plaintiff and for West Virginia American’s parent company, the case targeted the companies for their roles in the contamination of the drinking water following the Jan. 9, 2014, chemical spill at Freedom’s Etowah Terminal. The facility, now torn down, was located just 1.5 miles upstream from West Virginia America’s drinking water intake on the Elk River.

Lawyers for residents and businesses alleged that West Virginia American did not adequately prepare for or respond to the spill. They point specifically to inadequate production and storage of treated water in the days prior to the spill, a move that made it impossible for West Virignia American to even temporarily close its intake while the spill flowed by. The lawyers allege that Eastman did not properly warn Freedom of the dangers of its chemical, Crude MCHM, or take any action when Eastman officials learned that the Freedom facility was in disrepair.

While the settlement avoids what was expected to be a complex, six-week trial, West Virginia American still faces an ongoing investigation by the state Public Service Commission of its handling of the spill.

The settlement aims to resolve not just the “Good” case, but all litigation against the water company and Eastman over the Freedom spill. Residents, businesses and wage earners are automatically members of the class covered by the deal, and the deal covers plaintiffs in most of the other cases that were not part of the trial set to be heard before Copenhaver.

Potential class members will have an opportunity opt-out of the settlement, though if enough do that, the defendants can choose to walk away from its terms.

Eventually, a formal process for class members to file claims for their compensation will be announced.

The $25 million settlement with Eastman will go to fund payments “limited to damages arising from physical harm to person or property.” Eastman had previously argued that it couldn’t be forced to pay for purely economic losses that didn’t accompany physical harm to person or property, but Copenhaver ruled that the contamination of water in one’s home could constitute physical harm to property, and that plaintiffs could also try to prove the pipes or hot water heaters were also damaged.

West Virginia American’s settlement requires the water company to contribute $76 million to what is referred to as a “guaranteed fund.” From this fund, residents and businesses who are class members can receive single uniform payments, in standard amounts still to be negotiated.

Also, West Virginia American will make another $50 million available to class members who don’t wish to accept the standard payment and want to submit documentation to demonstrate greater losses. Payments of such claims will be paid based on the determination of a claims administrator, the settlement term sheet says.

If the total amount of claims in the case comes in less than the settlement amount, some of the money could be returned to Eastman and West Virginia American.

The total amount of the settlement — $151 million — is more than the total of the $52 million one plaintiff expert estimated as the “welfare loss” from the loss of water usage during the crisis and the $78 million another plaintiff expert estimated as the business revenue lost.

During the Monday afternoon hearing, Copenhaver said concerns he had expressed during a morning hearing about some terms of the tentative settlement with West Virginia American had been resolved. Before the afternoon hearing, Copenhaver met with lawyers for all sides for two additional closed-door sessions, each lasting nearly an hour.

The judge and the lawyers noted that complete settlement proposal documents were yet to be prepared and that, once available, those documents would be given preliminary approval by the court, and then will be open for review by the plaintiff class and be the subject of a hearing in open court. Before the deal can take effect, it must then receive final approval from the judge.

The judge ordered the lawyers to meet with him again on Nov. 14 for a progress report on preparation of those documents. As if to underscore the tentative nature of the deals, Copenhaver continued jury selection in the case until early December.

Copenhaver also eventually will review a petition from the lawyers for payment of their fees and costs. Anthony Majestro, lead lawyer in state court cases that also are being settled, said that the legal fees and costs would come out of the $151 million, but that attorneys had not prepared any estimates yet for what they will ask Copenhaver to approve. Calwell said plaintiffs’ lawyers have spent more than $1 million preparing for trial.

At Monday morning’s hearing, Copenhaver expressed concern that the term sheet provided to him for the West Virginia American settlement could have allowed the water company to seek recovery through the state Public Service Commission’s rate-setting process for the costs of the settlement.

“If so, this becomes a fool’s errand,” the judge said of such a possibility. “Such a result is not acceptable.”

Copenhaver said the costs of the settlement “must be borne by investors and stockholders” and not by “the very same customers who were victims in the first place.”

Lawyers said that settlement language was never meant to allow West Virginia American to seek rate recovery of the settlement costs, and that water company officials hadn’t intended to seek such rate hikes, but that West Virginia American simply hadn’t had time between Friday’s announcement of a tentative settlement and Monday morning’s hearing to get final corporate approval for that part of the agreement.

The final term sheet made public Monday, after the afternoon hearing, specified that the water company “will not seek rate recovery from the Public Service Commission for amounts paid pursuant to the final settlement.”

In a related matter late Friday afternoon, lawyers for West Virginia American filed suit in Kanawha Circuit Court against one of the water company’s insurers, Starr Indemnity and Liability Co., seeking a court order that Starr is obligated to cover its share of the settlement costs, up to West Virginia American’s policy limits. Presumably, if West Virginia American’s settlement costs are paid by its insurance companies, the company would not be in a position to seek to also recoup those costs in a rate case.

According to the water company lawsuit, West Virginia American is covered by a “tower” of insurance policies that kick in at various levels when underlying coverage is used up.

A policy, issued by Travelers Property Casualty, has limits of $1 million, and a second level policy, issued by AXA Insurance Co., has limits of $25 million. Starr’s policy and another policy issued by XL Insurance Co. shares limits of $50 million, according to the water company lawsuit. The suit also refers to other, “higher layer excess carriers” of insurance for West Virginia American.

Already, four lawsuits are pending in Kanawha Circuit Court in which spill victims seek court orders that various West Virginia American insurance companies are obligated to cover damages sought by residents and businesses in water crisis cases brought against the water company.

The new water company lawsuit alleges that, during a week-long round of settlement negotiations last week, and in previous mediation sessions, Starr “declined to make any settlement offers.” It says that, before last week’s settlement talks began, Travelers and AXA examined the lawsuits against West Virginia American and “tendered their policy limits” — a total of $26 million — “in aid of reaching a settlement” of the claims in the class-action federal court case and similar cases pending against West Virginia American in state court.

“The plaintiffs in the federal and state actions issued demands seeking settlement within the total insurance available to WVAWC,” the water company lawsuit states. “During the settlement conference, the plaintiffs in the federal and state actions made additional demands for settlement which were less than the total amount of coverage available to WVAW.”

The lawsuit states that, “In breach of its policy, Starr refused to contribute its limits, or an amount anywhere close to its limits, to the settlement.

“This refusal not only deprived WVAWC of the insurance coverage that it was owed by Starr, but also made it more difficult for the WVAWC to obtain coverage from certain higher layer excess carriers,” the lawsuit states. “Although certain of the higher layer excess carriers did offer to contribute a reasonable amount in light of the claims and these insurers’ respective attachment points and limits, others did not.”

The lawsuit says that, although Starr refused to contribute, West Virginia American “was able to reach a tentative settlement ... however to do so, WVAWC was required to pay money itself that Starr was required under its policy to indemnify WVAWC for the plaintiffs’ claims.”

Reach Ken Ward Jr. at kward@wvgazettemail.com,

304-348-1702 or follow @kenwardjr on Twitter.

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