Insurers Invoke Pollution Exclusion

The insurance industry is positively fed up with defending claims for environmental contamination.

When the claims arose on a large scale in the 1970s, the carriers were shocked that many judges refused to strictly enforce the "pollution exclusion" clauses in policies. Insurers used these provisions to limit their liability to policyholders who were knowing, long-term industrial polluters. These clauses obligated the insurers to pay only for "sudden" or "accidental" occurrences, which the industry believed would be insignificant.

Instead, the insurers were forced to defend and pay a wide range of unanticipated environmental contamination claims. During the 1980s, the insurance industry was pummeled even further by court rulings on pollution responsibility that, for the most part, favored the policyholders.

Insurance companies responded by substituting the "absolute pollution exclusion" for the limited environmental coverage in the standard comprehensive general liability (CGL) policy. The companies hoped thereby to eliminate virtually all coverage for pollution-related property damage and bodily injury.

But now, insurers are invoking these "absolute" clauses to deny even claims that have no connection with environmental contamination. With mixed success, the insurance industry has argued that the new wording excludes coverage for accidents or product liability stemming from any kind of exposure to chemicals - for example, inplant chemical spills, lead paint exposure and asbestos handling - even if no outright pollution occurs.

Last year, the Louisiana Supreme Court refused to apply an absolute pollution exclusion in a situation where no environmental contamination had occurred. Keeping in mind the purpose of the CGL policy, the court said: "CGL policies protect against the premises, operations, products, completed operations and independent contractor hazards of the insured. No reasonable insured would intend for a pollution exclusion basically to eviscerate this coverage."

Other courts have treated the purported "absolute" exclusion as ambiguous, but have resolved the uncertainty in favor of the insured's reasonable expectations. Meanwhile, some policyholders have successfully argued that whether a substance is a "pollutant" is a question of fact. For example, is a "pollutant" a substance that actually caused injury or contamination, or is it a substance that potentially could do so?

A Kansas federal district court ruled that a certain chemical was "not generally recognized as polluting the environment" and, thus, the exclusion provision did not bar coverage. The judge said: "[A] 'pollutant' is not merely any substance that may cause harm to the 'eggshell plaintiff,' but rather it is a toxic or particularly harmful material which is recognized as such in industry or by government regulators."

Moreover, the court held that a pollution exclusion did not apply when the insurer was not trying to escape responsibility for pollution clean-up.

Policyholders don't always win these cases. A federal appeals court in Ohio ruled that a machinery manufacturer's policy was unambiguous in excluding coverage for claims by individuals who worked with such machinery, even where the insured did not discharge any pollutants.

One thing is clear: the effect of pollution exclusion clauses in CGL policies is far from clear.

Asbestos Crackdown. Flying demolition debris brought the house down on a building owner.

A federal grand jury handed up indictments against Mark Nicoletti and Philadelphia Suburban Development Corp. for unlawful asbestos emissions and violations of work practice standards (U.S. v. Nicoletti, C.R.A. 94-0211, E.D.Pa.).

After receiving a tip from a reliable source, a pollution control officer arrived at a work site and saw pipes being thrown from the windows of a building. Upon closer examination, the officer saw pieces of asbestos clinging to the pipe debris.

The officer tracked down Raymond Huggins, who was supervising the work, and got permission from Huggins to enter the building. Inside, the officer took photos, picked up samples and brought them to federal authorities who later decided to seek an indictment.

Before trial, defense lawyers filed a motion to prevent prosecutors from introducing the evidence seized by the officer. Such evidence was inadmissible, the defense argued, because the officer's entry into the building without a search warrant violated the defendants' rights under the Fourth Amendment.

The court denied the motion, ruling that the officer's warrantless entry and search of the building was justified because the officer had first-hand knowledge of a complaint about asbestos and had observed asbestos-laden pipes. These circumstances, the court concluded, gave the officer sufficient reason to inspect the site.