Source: http://www.ctlawtribune.com, February 16, 2015
By: Christina M. Lopez

Parties often haggle over what substances are considered pollutants

Insurers have had no problem arguing that almost anything can be a pollutant when seeking to disclaim coverage on the basis of the “absolute pollution exclusion” contained in general liability policies. However, they do not take such an expansive view of what constitutes a pollutant under a pollution liability policy. Because many of the coverage arguments construing pollution liability policies are based on comparisons between it and the absolute pollution exclusion, insurers have inadvertently created a broad class of substances that can considered pollutants.
Insurers first attempted to eliminate coverage for pollution-related claims from general liability policies by adding what is now referred to as the “standard pollution exclusion.” This exclusion, however, did not apply to bar coverage for any “sudden or accidental” pollution-related losses. Because the terms “sudden and accidental” were often held to be ambiguous, policyholders frequently found coverage for pollution-related claims under their general liability policies. During the 1970s and early ’80s, several newly passed statutes concerning pollution and its cleanup ushered in an era of heavy pollution-related litigation. Because of the increase in litigation, insurers once again sought to limit their exposure for environmental claims and, in 1985-86, introduced the “absolute pollution exclusion.” This exclusion, as its name suggests, further curtailed coverage under a general liability policy for pollution-related claims.
Around the same time, insurers realized that they could sell stand-alone policies to address the gap in coverage caused by the inclusion of the absolute pollution exclusion in general liability policies; and so, the pollution liability policy (sometimes called contractor’s pollution liability or environmental liability policy) was born.
The three most important parts of any pollution liability policy are the insuring agreement, the definition of a “pollution event” and the definition of a “loss.”
A typical policy’s insuring agreement will state that the insurer “will pay for any ‘loss’ an ‘insured’ is obligated to pay as a result of a ‘claim’ caused by a ‘pollution event’ resulting from covered operations.” Another common insuring agreement states that the insurer will “pay … all sums that the insured shall become legally obligated to pay as loss as a result of claims for bodily injury, property damage or environmental damage caused by pollution conditions resulting from covered operations.” See Spirco Environmental v. American International Specialty Lines Ins., 2007 U.S. Dist. Lexis 35991 (E.D. Mo. 2007).
With some minor variations, a “pollution event” or a “pollution condition” is defined as “the discharge, dispersal, release, or escape of any solid, liquid, gaseous or thermal irritant, contaminant or pollutant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” This definition mirrors the language of the absolute pollution exclusion and the definition of a “pollutant” in a general liability policy. Some policies add terms to the definition requiring that the discharge be onto the land, the atmosphere, or any body of water, and require that the pollutant is not naturally present in the environment. See Minkoff v. Action Remediation, 958 N.Y.S.2d 308 (2010). The inclusion of these geographic terms into the definition of a “pollution event” is likely influenced by opinions construing—you guessed it—the general liability policy’s pollution exclusion.
More specifically, many courts have attempted to limit the application of the absolute pollution exclusion by applying it only to situations that involve losses caused by discharges into the environment and not for losses resulting from everyday commercial activities. See Pepsico v. Winterhur International American Insurance, 78 N.Y.S.2d 142 (N.Y. App. Div. 2004) (losses from the use of faulty ingredients in making soda not barred by pollution exclusion); Stoney Run v. Prudential-LMI Commercial Insurance, 47 F.3d 34 (2d Cir. 1995) (losses for carbon monoxide poisoning in apartment building because of faulty heating and ventilation not barred by pollution exclusion).
Finally, the definition of “loss” is often a critical aspect of any case involving a pollution liability policy because this is often an area where there is significant variation between policies. Some pollution liability policies broadly define “loss” to include any bodily injury, property damage (including loss of use), cleanup expenses, remediation and natural resource damages. Some policies, however, define a “loss” to only include hazardous remediation and natural resource damages. Under these types of policies, a pollution event that only resulted in nonhazardous cleanup would not be covered by the pollution liability policy’s insuring agreement.
There is very little case law specifically addressing the terms or scope of coverage under pollution liability policies. For example, a recent search on a legal research website for “contractor’s pollution liability” resulted in only 15 hits, and fewer than five of those cases had any significant discussion regarding the coverage provided by the policy. For this reason, an attorney involved in coverage litigation involving a pollution liability policy will be faced with having to make analogies between the pollution liability policy’s definition of a “pollution event” and the general liability’s absolute pollution exclusion and definition of a “pollutant.” This becomes somewhat complicated when one factors in a basic premise of insurance coverage: exclusions are construed narrowly while coverage grants are construed broadly in order to maximize coverage.
If you can think of a substance, chances are that a court somewhere has held it to be a pollutant under the absolute pollution exclusion. For example, the traditional idea of “pollutant” is reflected in Heyman Associates No. 1 v. Insurance Company of Pa., 231 Conn. 756 (1995), in which the Connecticut Supreme Court held that coverage for claims resulting from fuel oil leaked into a harbor was barred by the absolute pollution exclusion. A somewhat more nuanced notion of “pollutant” is reflected in Space v. Farm Family Mutual Insurance, 652 N.Y.S.2d 357 (N.Y. App. Div. 1997), in which a New York Appellate Court held that the absolute pollution exclusion barred claims that occurred when a natural, organic fertilizer (liquid cow manure) that was purposefully used as intended leached into a neighboring property’s well. The court acknowledged that although the fertilizer may not have been a pollutant when it was applied, it became an “irritant or contaminant” when it leached into the well.
Finally, a nontraditional idea of a “pollutant” is reflected in Ortega Rock Quarry v. Golden Eagle Ins., 141 Cal. Rptr. 3d 517 (Cal. Ct. App. 2006), in which the court held that the total pollution exclusion barred coverage for claims resulting from a company’s placement of dirt and rocks in a river embankment. In reaching its conclusion, Ortega Rock specifically relied on the definitions of “pollutants” contained in several environmental statutes.
The takeaway from cases such as Space and Ortega Rock is that even substances that are not traditionally considered “pollutants” may be deemed pollutants if they end up someplace they are not supposed to be. The implication for coverage under a pollution liability policy is that the coverage provided may be quite broad. A policyholder may be able to make the case that a “pollution event” occurred even when a substance not traditionally thought of as a “pollutant” is released into the environment. Because more and more general liability policies are including exclusions for things that policyholders would not normally associate with pollution, such as silica, dust, vapor and smoke, it is important to keep in mind that a pollution liability policy may provide coverage for those risks.
As always with insurance coverage cases, the types of losses covered under a particular pollution liability policy is a factually driven inquiry that must begin with the policy language and the facts of your case.