Appeals court upholds Swiss Re's obligation to cover Terminix pesticide verdict
A federal appeals court on March 3 upheld a ruling that Swiss Re must indemnify Terminix for part of an $8 million pesticide verdict.
The Ninth Circuit's decision is a useful reminder for insurers of how courts read the plain language of commercial general liability policies – and how litigation strategy can come back to haunt a re/insurer.
The case had its origins in a pesticide exposure incident in which Terminix, the pest control company now operating as TMX Holdco, was found liable for injuries caused by a pesticide its technician applied. Swiss Re, which had issued a commercial liability policy to Terminix, went to court seeking a declaration that it had no obligation to cover part of that jury award.
The heart of the coverage dispute came down to a familiar but often contested provision in commercial general liability policies: products-completed operations hazard coverage. This is the part of a CGL policy that kicks in when damage or injury arises from a company's products or completed work – after those products or operations are no longer in the company's hands. Swiss Re argued that the pesticide did not even qualify as Terminix's product under the policy and that, in any case, a physical possession exception should shield it from the claim.
The court was not persuaded. The technician had physically handled the pesticide while applying it, which was enough to bring it within the policy's definition of Terminix's product. And once the pesticide became airborne and migrated to the other side of a wall, into an area inaccessible to Terminix's technician, the company could no longer be said to have possessed it. The physical possession exception, designed to carve out situations where the insured still controls its product, simply did not fit the facts.
What makes the case particularly instructive for insurance professionals, however, is not just the coverage analysis – it is what happened procedurally. At an earlier stage of the litigation, Swiss Re had consistently maintained that a separate, prior claim under the same policy – known in the proceedings as the Esmond claim – was covered under the policy's general ongoing operations limit, and that this limit had been fully exhausted. The district court relied on that position and treated whether the Ferrera judgment fell under the products-completed operations provision as the sole issue in dispute.
After the district court's ruling on summary judgment, Swiss Re reversed course and sought to have the Esmond claim reclassified, which would have reopened the coverage math in its favor. The court shut that down. The legal doctrine applied – judicial estoppel – essentially holds that a party cannot take one position in litigation, have a court rely on it, and then reverse course when the outcome is unfavorable. Terminix had been denied the chance to challenge the original classification before the ruling came down, which meant reclassifying after the fact would have been fundamentally unfair.
The third issue in the case concerned when Swiss Re's obligation to pay prejudgment interest actually began. Terminix argued that the clock started ticking from the moment Swiss Re denied coverage back in April 2020. The court disagreed, pointing to language in the policy itself stating that the excess policy's liability does not attach until the underlying primary insurance has been fully paid out. That did not happen until March 2023, and so that is when the interest calculation began.
The Ninth Circuit affirmed the district court's rulings across the board. For insurers, the case is a pointed illustration of how policy language is read at face value, how courts treat carriers who shift positions mid-litigation, and how excess policy attachment clauses function in determining financial exposure – including on interest.
