1
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Pollution Coverage Issues Table of Contents
Pollution Coverage Issues
Historic Development
o Evolution of the CGL Pollution Exclusion
Pre-1970 Pollution Exclusions
1970 Pollution Endorsement
"Discharge, Dispersal, Release or Escape"
"Sudden and Accidental" Exception
1973 CGL Policy
Underwriting Intent
1981 Pollution Endorsements
General Liability Policies
OCP Policies
1984 Pollution Endorsement
"Actual, Alleged, or Threatened"
Insured's Premises
Waste Disposal Facilities
Construction Sites
Response Cost Exclusion
Definition of "Pollutants"
1986 CGL Policy
Minor Changes
Pollutants Brought to Construction Sites
"Groundless, False or Fraudulent" Language
1986 Pollution Endorsements
"Hostile Fire" Endorsement
Broadened Pollution Coverage
1988 CGL Policy
"Seepage or Migration"
Discontinued Activities
"Any Insured"
Pollutants Brought to Construction Sites
Built-in "Hostile Fire" Exception
Revisions to Response Cost Exclusion
1993 CGL Policy
1996 CGL Policy
"Mobile Equipment" Exception
2
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Road Spraying Provision
1998 CGL Policy
Heating Equipment Exception
Additional Insured's Premises
Formatting Changes to "Hostile Fire" Exception
Changes to Road Spraying Provision
Indoor Fumes Exception
Revisions to Response Cost Exclusion
2001 CGL Policy
2004 CGL Policy
2007 CGL Policy
2013 CGL Policy
o 1973 Policy Jacket Specimen
o 1973 Coverage Part Specimen
o Broad Form CGL Endorsement
CGL Coverage Issues
o U.S. Overview
o 1. Definition of "Suit"
Discussion
Pro-Policyholder States
Pro-Insurer States
Intermediate States
Standard Policy Fixes
1984 Changes
1986 Changes
1988 Changes
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 2. Definition of "Damages"
Discussion
Pro-Policyholder States
Pro-Insurer States
Intermediate States
Prophylactic Costs To Prevent Future Pollution
Postpollution Containment Costs
Agency Ordered Remediation Costs
Pre Tender Expenses
3
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Investigation Expenses as Defense Costs
Ordinary Business Expenses
Civil Fines and Penalties
Standard Policy Fixes
1984 Changes
1986 Changes
1988 Changes
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 3. Coverage Triggers
Discussion
Evolution of Standard Trigger Language
Evidentiary Difficulties
Early Cases
Mraz v Canadian Universal Manifestation Discovery Trigger
Cases Following Mraz
Criticisms of the Mraz Approach
Other Approaches
Pro-Policyholder States Exposure Trigger
Pro-Insurer States Injury in Fact Trigger
Intermediate States Continuous Trigger
Delaware Continuous Trigger
GenCorp Continuous Trigger
Rebuttable or Conclusive Presumption
Progressive Disease Analogy
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 4. Known Loss Doctrine
Discussion
First Party Property Context
Third Party Liability Context
Pro-Policyholder States
4
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Pro-Insurer States
Intermediate States
Underwriting Exception
Industry Response to Montrose
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 5. Allocation
Discussions
Contractual Allocation
1973 Policy Language
Occurrence Trigger
All Sums Language
Per Occurrence Limit
Other Insurance
Methods of Sharing
Insolvency of Other Insurers
Indemnity Cost Allocation
Defense Cost Allocation
Conclusion
"All Sums" Allocation
Keene Corp. v. INA
"Pick and Choose"
"Anti-Stacking"
Analysis of "All Sums" Theory
Conclusion
"Time on Risk" Allocation
Forty-Eight Insulations
Analysis of "Time on Risk" Theory
Conclusion
"Time Plus Limits" Allocation
Owens-Illinois
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
5
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Pro-Insurer States
Intermediate States
o 6. "Sudden and Accidental" Exception
Discussion
Pro-Policyholder States
Focus on Insureds Intent
Pro-Insurer States
Focus on Speed of Release
Intermediate States
Ambiguities in the Complaint
Discrete Release Argument
Superseding Event Analysis
Special Situations
Deliberate Behavior Indifference
Multiple Accidental Spills
Standard Policy Fix
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 7. "Owned Property" Exclusion
Discussion
On Site Contamination
Exceptions to Owned Property Exclusion
Groundwater Contamination
Parens Patriae Theory
Government Cleanup Theory
Source Remediation Theory
Threatened Off Site Contamination
Alleged Off Site Contamination
Standard Policy Fixes
1984 Changes
1986 Changes
Exceptions to the Absolute Pollution Exclusion
2001 Changes
Conclusion
Map / National Summary
Map
National Summary
6
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Pro-Policyholder States
Pro-Insurer States
Intermediate States
o 8. Post-1986 Pollution Exclusions
Overview
Historic Development
Two Basic Questions
Analyzing Literal Terms
Definition of Pollutant
Discharge Dispersal Release or Escape
Risk Profile Assessment
Three Pollution Risk Factors
Classic Industrial Pollution
Similar High Risk Profiles
Low Risk Profiles
A New Understanding of the Caselaw
Some Cases Do Not Fit the Pattern
Conclusion
Court Cases by Type of Insured
Construction/Trade Contractors
Abatement/Remediation
Builder/Developer
Concrete
Demolition
Electrical
Excavation/Grading/Paving
Flooring/Carpet
Floor Sealant/Etching
HVAC
Industrial/Commercial
Landscaping
Painting/Drywall
Plumbing/Septic
Renovation/Remodeling
Road Construction
Roofing
Restoration
UST Installation/Removal
Weatherproofing
Other
Landfills/Waste Disposal/Recycling
Emissions
7
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Hostile Fire
Methane Recovery
Site Contamination
Other
Landlords/Tenants/Condos
Asbestos
Fumes
HVAC/Water Heater
Lead Paint
Pesticide
"Sick Building"/Mold
Site Contamination
Tenant's Operations
Other
Manufacturing
Emissions
Hostile Fire
Products Liability
Site Contamination
Tank Cleaning
Other
Miscellaneous Industries
Agricultural Operation
Architects/Engineers
Art Center
Commercial Compost Facility
Day Care
Dry Cleaning
Equipment Repair/Service
Exterminator
Furniture Stripping
Golf Course
Hog Farm
Hotel/Motel
Ice Skating Rink
Lumber
Mining
Mobile Home Park
Nail Salon
Packaged Foods
Racetrack
Railroad
8
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Real Estate Broker/Agent
Restaurant
Sandblasting
Self-Storage
Sod Farm
Steel Foundry
Trucking & Shipping
Warehouse/Packaging
Other
Municipalities
Compost Facility
Drinking Water
Pesticide
Sewage/Wastewater Treatment
Sewer Back-Up
Site Contamination
Other
Oil & Gas
Drilling/Well Services/Reclamation
Gasoline Distributors
Gasoline Station/UST
Pipelines/Transportation
Refining/Storage Facilities
Tank Cleaning
Residential Heating/Fuel Oil
Delivery
UST
Other
Court Cases by Jurisdiction
List of Pollutants
o 9. Pollution as Personal Injury
Discussion
Pre 1986 Language
Landlord Tenant Disputes
Miscellaneous Wrongful Entries
Other Invasion of the Right of Private Occupancy
Housing Discrimination and Real Estate Developments
1986 1988 Revisions to the CGL Coverage Form
1986 Revisions
1988 Revisions
Mistakes in the 1986 1988 Revisions
Pollution Exclusion Only Applied to BI PD
9
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Using a Definition as an Exclusion
Separating a Modifying Phrase from Antecedent
Omission of the Word Other
Post 1990 Pollution Coverage Disputes
States Favoring the Policyholder
States Favoring the Insurer
Policy Changes to Address Drafting Mistakes
1996 Policy Fix
1998 Clarification
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
o 10. Successor Liability Coverage
Discussion
Types of Corporate Acquisitions
Effect of "No Assignment" Clauses
Pro-Policyholder States
Pro-Insurer States
Conclusion
Map / National Summary
Map
National Summary
Pro-Policyholder States
Pro-Insurer States
o 11. Lost Policies
Discussion
Diligent Search Requirement
Burden of Proof
Clear and Convincing Evidence
Preponderance of the Evidence
Existence of the Lost Policy
Business Records
Umbrella Schedules of Underlying Insurance
Eyewitness Testimony
Terms of the Lost Policy
Specimen Copies of Standard Forms
Preceding or Succeeding Policies
Eyewitness Testimony
Substance of Essential Terms
10
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Insurer's Rebuttal
Conclusion
Pro-Policyholder Cases
Pro-Insurer Cases
IRMI's Environmental Insurance Reporter
o Georgia Supreme Court Rules Lead Paint Is a "Pollutant"
The Reed Decision
GFBM and Smith Background Information
The Smith Court's Decision
The GFBM Court's Decision
Conclusion
o Not Your Average Adult Beverage: Liquid Nitrogen Added to a Cocktail is a "Discharge" of a "Pollutant"
The Haven South Beach Case
Impact of the Deni Case on Pollution Coverage Decisions under Florida Law
Conclusion
o Carbon Monoxide Is a "Pollutant," Under Connecticut Law
The Wayland Case
The Exclusion Does Not Bar All Carbon Monoxide Claims
Conclusion
o Mercury and Air Toxics Standards Rule Dealt Blow by U.S. Supreme Court
Issue of Compliance Costs
Justice Scalia's Opinion
Prior Decision Reversed
o What if an Entity Other Than the Insured Disperses the Pollutant?
The Advanced Waste Services Case
Reliance on the Hirschhorn and Ace Baking Cases
Conclusion
o Manure and Septage Are "Pollutants" Under Wisconsin Law
The Preisler Case
The Falk Case
Conclusion
o Fireworks Are Not a "Pollutant" under Hawaii Law
The Charter Oak Fire Ins. Co. Case
Exclusion Not Limited to Traditional Environmental Pollution
Fireworks Do Not Fit the Definition of "Pollutants"
Conclusion
o Pepper Spray Qualifies as a "Pollutant" under Florida Law
The Endurance Am. Specialty Ins. Co. Case
Interpretation Under "Literal" Approach Leads to Strange Results
o Use of Corrective Legislation To Clarify Interpretation of Exclusion
Indiana's Interpretation of the Post-1986 Pollution Exclusion
11
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Not All Courts Struggle with Interpretation of the Exclusion
House Bill 1241
Conclusion
o Manure: Liquid Gold or "Pollutant"? It Is a Matter of Perspective
o Foul Odors May Not Be "Pollution" after All
o Pollution Coverage for Carbon Monoxide Claims
Pro-Insurer Cases
Questionable Cases
Pro-Policyholder Cases
Risk Profile Analysis of Carbon Monoxide Claims
Conclusion
o CGL Trigger Language Suggests Different Allocation Theories
Early Auto Policies
1966 CGL Policy
1973 CGL Policy
1986 CGL Policy
Post-1988 CGL Policies
Conclusion
o Bat Guano Is a "Pollutant"? Why the Wisconsin Court Got It Wrong
Pollution Exclusions in Liability Policies
Pollution Exclusions in Property Policies
Reassessing the Bat Guano Case
August 2013 Update
o Using Biochlor To Prove Injury-in-Fact
BIOCHLOR Software
Facts of the Case
Insurer's Motion To Strike
Conclusion
o Fact-Based Allocation
Caselaw
Conclusion
May 2013 Update
o Florida & Indiana in Turmoil
Florida--Deni Assoc. and Its Progeny
Indiana--Kiger and Its Progeny
Conclusion
o Right to Independent Counsel in Pollution Cases
Armstrong Cleaners Case
Ethical Rule on Conflicts of Interest
Blanket Reservation of Rights Does Not Create a Conflict
If Applicable, Pollution Exclusion Alone Would Not Create Conflict
Other Provisions Might Create a Conflict
12
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Chinese Wall between Adjusters
Conclusion
o Virginia Supreme Court Denies Coverage for Global Warming
Facts of the Case
Supreme Court's Opinion: No Coverage
Allegations of Civil Conspiracy to Blame
Nuisance May Be Covered under Other Circumstances
o Chinese Drywall: Does the CGL Pollution Exclusion Apply?
Pro-Insurer Decisions
Pro-Policyholder Decisions
So Who Is Right?
o Contractor Pollution Coverage under the CGL
Absolute Pollution Exclusion
Job Sites "Owned"/"Occupied" by Contractor
Materials "Handled" as Waste
Pollutants Brought to the Job Site
UST Removal
Governmental Cleanup Orders
Total Pollution Exclusion
"Traditional Environmental Pollution" Limitation
Conclusion
o Noncumulation Clauses
Insurer Responses to 1966 "Occurrence" Language
Avoiding Noncumulation Clauses
Conclusion
o Settlement Credits: The "Epicycles" of All Sums Allocation Theory
Goodrich v. Commercial Union
Problems with "Settlement Credits"
Adding "Epicycles" Means the Theory is Incorrect
"Settlement Credits" are Legal "Epicycles"
Correct Method of Allocation
Conclusion
o Measuring Toxicity Levels
EPA Airborne Exposure Rankings
World Health Organization Pesticide Rankings
New Jersey Hazardous Substance Rankings
o Illusory Coverage Argument Is Counterproductive
Accepted by Some Courts
Rejected by Most Other Courts
What's Going on?
Conclusion
13
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
o Pollution from an Off-Site Source
Word "At" Construed
Conclusion
December 2012 Update
o Assessing EPA's Endangerment Finding on Greenhouse Gases
The Clean Air Act
Massachusetts v. EPA
EPA Proposals
EPA Final Endangerment Finding
The Underlying Science
Implications of the Endangerment Finding
Conclusion
o Limits of the "Hostile Fire" Exception
Waste Processing/Recycling Facility Limitation
"Friendly Fire" Limitation
"Transformative Fire" Limitation
Conclusion
September 2012 Update
December 2012 Update
o Pollution Discharged by Vandals
Pollution Exclusion Applies Regardless of Fault
Valves Opened by Vandals
Hostile Fires Set by Vandals
Arrange Separate EIL Coverage
o Defending a Mix of Negligence and Pollution
Separate Acts of Negligence
Negligence Intertwined with Pollution
Conclusion
o Substances "Acting as a Pollutant"
Smoke
Sewage
Flammable Gas
Inhaled Liquids
Slippery Substances
June 2011 Update
September 2011 Update
September 2012 Update
o "Pollutants" That Catch Fire
Background of the Noble Energy Case
Cause of the Explosion
The Courts Decision
Definition of Pollutant
14
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Arising Out of Pollutants
Traditional View of Hostile Fire Exceptions
Substance Acting as a Pollutant
Critique of the Courts Decision
The Policy Had Nonstandard Causation Language
Hazardous Quality Is Not the Same Thing as Toxicity
Consequences of the Noble Energy Decision
Consequences for Waste Haulers
Conclusion
o The Ninth Circuit Rules on Apportioning CERCLA Liability
Background of the Burlington Case
The District Courts Apportionment Formula
The Ninth Circuits Ruling
The Ninth Circuits Criticisms Are Valid
o Insurer Responses to Global Warming
Studying the Problem
Loss Prevention
New Policy Terms
New Products
Helping Clients Manage Carbon Risks
Making Green Investments
Raising Public Awareness
Reducing Their Own Carbon Emissions
Disclosure to Shareholders
Conclusion
o Assessing CGL Coverage for Global Warming
Potential CGL Coverage
Property Damage
Long Tail Nature of Global Warming Claims
Damages
Application of Pollution Exclusions
1973 Sudden and Accidental Exception
Post 1986 Traditional Environmental Pollution
Known Loss Loss in Progress Doctrines
Allocation of Global Warming Damages
Conclusion
o Intensification of Liability Exposures for Global Warming
Standing
Special Solicitude for State Governments
State Owned Property in Jeopardy
EPA Regulations Would Reduce the Risk
15
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Encouragement for Other Suits
Conclusion
o EPA and Army Corps Respond to Rapanos Decision
Background
The EPA Corps Guidance
o Duty To Indemnify Runs to Corporate Successors Under Ohio Law
Pilkington v Travelers
Coverage by Operation of Law
Insurance Recovery as a Chose in Action
Glidden v Lumbermens
Conclusion
o Insurer Liability for Cleanup Costs When No Duty To Defend Exists
Facts of Keystone Consolidated
The Seventh Circuits Opinion
The Insurers Options after Keystone
First Option Deny the Duty To Defend
Second Option Elect To Investigate Settle
Third Option Voluntarily Assume the Defense
Conclusion
o Supreme Court Curtails Reach of Clean Water Act
Basic CWA Jurisdiction
Expanded CWA Jurisdiction
The Rapanos Carabell Actions
Scalias Plurality Opinion
Kennedys Concurrence
What Does this Mean
o Finite Insurance Helps To Breathe New Life into Urban Communities
Finite Insurance Process for the Purposes of Development
Development Opportunities for Distressed Properties
Whats Old Is New Again
o Numerous Mercury Spills Were Multiple "Occurrences" Under Illinois Law
Facts of Nicor
The Gas Companys Insurance Program
Insurance Recovery Arguments
The Appellate Courts Decision
Take Away Lessons
o California Says Excess Coverage "Drops Down" To Cover Remediation Costs
The Powerine Oil Case
Disposition of the Lloyds Policies
Disposition of the Central National Policies
The County of San Diego Case
16
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
Critique of the Powerine Oil Case
Conclusion
o Case Law Continues To Fragment over "Environmental-Only" Interpretation of Exclusion
New Jersey
Washington
Can the Washington Decisions Be Reconciled
Conflict of Other Authority
o Illinois Court Defines "Traditional Environmental Pollution"
Facts of the Case Fire Smoke and Litigation
The New Test Has Pollutant Spilled Beyond Borders of Insureds Premises
Valuable Raw Material Used for Recycling Operations Was Waste
Coverage Could Not be Saved by Information in the Complaint
Lessons Learned
o Supreme Court Limits Rights of PRPs under CERCLA
Facts of the Case
The Supreme Court Decision
Cost Recovery Other Than § 9613 (f)(1) Contribution
o "Pollutants" and Ambiguity: Major Battlefields of CGL Pollution Coverage
Is the Pollution Exclusion Inherently Contradictory
Application of Multiple Exclusions
Mutually Exclusive Exclusions
Must Pollutants Be Called by Name
o "Sudden and Accidental Discharge" Still Raises Issues
Cotter Corp v. Am. Empire Surplus Lines Ins. Co.
o ISO To Expand "Building Heating Equipment" Exception
o Insured's Misrepresentation Does Not Void UST Coverage
o California and New York Rein in the Pollution Exclusion
New York
California
Conclusion
o Response Costs as "Damages"; PRP Letter as "Suit"
Wisconsin Changes Its Mind
The Johnson Controls Case
What Is a Suit
Conclusion
o Eleventh Circuit Interprets "Building Heating Equipment" Exception
Source of the Poisoning Debated
From Means by Way of
From Means Discharged by
Conclusion
17
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
o Notice of Occurrence under the 1973 CGL
Eastern Products Corp v. Continental Cas. Co.
1973 Policy Language
1973 Policy Language Compared with More Recent Versions
o How "Total" Should a Total Pollution Exclusion Be?
Less Than Total Pollution Exclusion Endorsements
o IRMI Celebrates 25 Years of Excellence!
Then and Now At IRMI
o Insurer Bad Faith and the CGL Pollution Exclusion
Freidline
Indiana Supreme Court Appeal
Precedents Not Conclusive
Bad Faith
Conclusion
o Property Damage versus Cleanup Costs
Facts of the Case
An Illustration
The Language of Paragraph f 2
What Is a Request Demand or Order
Coverage Intent
o Reasonable Expectations About Pollution
I Know It When I See It
Expect a Shift
o ISO Files Mold Exclusion Endorsements
Case Law
The ISO Mold Exclusion
Limited Fungi or Bacteria Coverage
Effect of the Endorsements on CGL Coverage
o Washington Declines To Follow Montrose on "Known Loss"
o How To Design and Implement a Model Environmental Audit Program
Environmental Auditing Program Principles and Standards
A Model Environmental Audit Program
A Model Environmental Audit Program Manual
o IRMI.com Wins Best of the Web Award
o When Does Toxic Dumping Cause "Property Damage"?
o Seventh Circuit: Time-On-The Risk Includes Self-Insurance
o California: CGL "Damages" Can Only Be Awarded by Court
The Courts Reasoning
Objections
The Dissent
o California Again: No Single Rule for Allocating Defense Costs
18
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
o Whether Pre-Tender Response Costs Are Voluntary Payments
Are Cleanup Expenses Voluntary
Danger of Increased Damages
Prejudice to Insurer
No Prejudice No Voluntary Payment
Voluntary as Ambiguous Term
o If The Pollution Exclusion Won't Work, How About Impaired Property?
o CGL, EIL Markets Hardening
General Liability
Pollution Liability
o Risk Assessment Per The Known Loss & Loss in Progress Doctrines
The Montrose Case
Frequent Spills
Third Party General Liability Insurance
o Coverage for Pollution Discharges Caused by Product Liab. Occurrences
Coverage for Completed Operations
Products Completed Operations as Separate Coverage
Conclusion
o Fourth Circuit Limits Known Loss Rule
o Coverage for the Successor Corp. for Pollution Occurrences
Is Successor Corporation Entitled to Predecessors Coverage
Policy Clause Protects
Most Courts Have Not Denied Coverage
Some Exceptions
Other Courts Focus on Timing
Conclusion
o Breach of Contract & CGL Coverage
o Fumes from Construction Materials: Courts Go Both Ways
o Continuous Injury or Damage & the Known Loss Rule Under 1999 CGL Policy
The Known Loss Rule
The Continuous Injury Trigger
Filing Status
o Insurer's Burden of Proof to Support a Late Notice Defense
Forfeiture of Coverage Limited
Destruction of Evidence
Inability To Inspect
May Be Rebutted
Substitute Information Insufficient
Analysis Must Be Included
o New Environmental Risk Mgmt. Products & Services
Travelers Environmental Insurance for Commercial Real Estate Transactions
ERM Integrated Emergency Response Plans
19
www.IRMI.com Copyright 2016 © International Risk Management
Institute, Inc.
o New CGL Broad Form Pollution Exclusion Implemented
Cleanup Costs and Third Party Property Damage
Fumes from Materials Brought to Job Site
Pollution Events on Premises Owned by Additional Insured
o Interpreting the "Other Ins." Clause When Multiple Policy Periods Are Triggered
o Insured Must Prove Sudden & Accidental Discharge
Comment
o ECS Offers Report Service in Response to Act
o Distinguishing Insurer & Insured: CA Rejects Apportionment of Self-Insured Retention
o ISO Announces Changes to CGL Pollution Exclusion
o Cleanup Exclusion Does Not Apply to Third-Party Prop. Damage
