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We can fairly sum up the history of pollution insurance coverage with one word: confusion. This is because underwriters and ISO forms have made it pretty clear that almost all pollution and environmental losses are not covered; yet courts have found creative ways to insist that they are a covered loss.
This push and pull has left most of us confused as to whether or not it is. More so for those companies that write national coverage. They may find that the same policy terms in one state will bar coverage, and those exact same terms as interpreted by the judiciary in another will indeed provide coverage. The inconsistencies from one state to the next is vexing for insurers. It is for this reason that insurance companies are wise to hire national counsel to oversee all litigation on certain insurance policy clauses in order to create a coherent defense, centralized discovery processes, and gold standard legal arguments that will seek to enforce the universal policy terms in a like manner.
Let’s look at the Absolute Pollution Exclusion clause as an example of the patent inconsistencies that can exist from state to state when interpreting a common clause. This standard pollution exclusion was adopted by ISO. It is still used in most commercial general liability (CGL) policies. This exclusion removed the qualifying phrase “sudden and accidental” from the prior ISO pollution exclusion. A more appropriate term for this clause is “broad form pollution exclusion,” since this is its intent.
We can examine the legal disparities in two different states to prove this point. The state of Colorado, on the one hand, will exclude pollution from coverage under this clause. In a recent opinion, the Colorado Supreme Court on February 25, 2013 determined that the absolute pollution exclusion clause in a CGL policy will exclude coverage for both traditional and non- tradition pollution. See Mountain States Mutual Casualty Company v. Roinestad, 2013 CO 14 (Colo. 2103) (attached).
There, the question was whether the discharge of restaurant cooking grease into a sewer system amounted to a discharge of a “pollutant” so as to fall within the pollution exclusion clause. The policyholder argued that he intended pollution to be covered, since he expected the policy to exclude only traditional, CERCLA-type, environmental pollution. This is called the reasonable expectations test. The Supreme Court rejected it, holding:
Based on the language of the policy, there is no reason to believe that an ordinary person would understand the pollution exclusion clause to apply only to “traditional” pollution, nor would prevailing law limit the exclusion in such a way.
On the other hand, the case of Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178 (6th Cir. 1999) (applying Michigan law, a copy of which is attached) found just the opposite. There, a contractor performed construction work at a high school, including painting and drywall sealing. The plaintiff, a teacher at the high school, alleged that fumes from the floor sealant caused her respiratory injuries. She filed a personal injury suit, but the company’s insurer denied coverage on the basis of an absolute pollution exclusion clause.
(N)o reasonable person could find that the insurance policy at issue unambiguously excluded coverage for injuries suffered by an employee who was legitimately in the immediate vicinity of the chemicals, and where the injury occurred only a few feet from where the chemicals were being used.
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