There was a time when pollution exclusions were discussed, questioned, and sometimes overridden by courts, but this is changing. So, what is a pollution exclusion and why is it important? This is typically defined as “An exclusion in an insurance policy that refers to losses caused by ‘pollution,’ whether in solid, liquid, or gaseous form.”

The basic CGL policy provides very little pollution coverage, particularly when it comes to cleanup or remediation. One of the most common misperceptions is that pollution events can only be caused by materials known to be hazardous. This is a mistake that can be very costly in the event of a release. Any substance’s uncontrolled release into the environment may result in business interruption, human/animal impact, or other natural resource damages.

There have been many legal rulings which demonstrate the likelihood that the courts will uphold pollution exclusions in General Liability insurance policies. Here are a couple of examples where a separate Pollution insurance policy was necessary:

Pollution exclusion didn’t need to be cited

According to Business Insurance news, Century (a company in Georgia) sued Selective Insurance Group unit Selective Way Insurance Co. of New Jersey in the U.S. District Court in Atlanta. Century had graded its property before implementing an erosion control program. As a result, they were accused of causing pollution.

Century lost their demand for Selective Insurance to be ordered to provide defense and indemnification. Century argued that the insurance company waived its ability to assert the pollution exclusion as the reason for denying coverage because it failed to cite the exclusion in its initial denial letter. However, a panel of three judges in the appeals court upheld the right of the insurance company to deny pollution insurance coverage because there was a pollution exclusion in the General Liability policy.

Narrow interpretation of “pollution”

In this article, a plaintiff filed a wrongful death suit against Southern Heating and Cooling Inc. and other defendants after his parents died from carbon monoxide poisoning. His lawsuit alleges that a technician for the company who was called out for a service call failed to inform the homeowners that the burner in their gas furnace was misaligned, causing fatal levels of carbon monoxide to accumulate in their house. Southern Heating had purchased a CGL policy with a $1M limit. The insurer filed a lawsuit in federal court seeking a declaratory judgment that no coverage is owed under that policy because of the pollution exclusion.

The court said that no Alabama state court had ruled on whether carbon monoxide is a pollutant under an insurance policy exclusion, so a ruling by a federal judge could create friction between state and federal courts. This argument is a hotly debated topic in localities around the country and across many industries.

Pollution exclusion and a product failure

The Michigan Court of Appeals confirmed a trial court ruling which denied coverage for a products liability claim based on specific language in a pollution exclusion endorsement to a CGL policy.

Hi-Tech Engineering, Inc. designs and manufactures systems which its customers use to deliver liquids through high-pressure hoses.  A high-pressure hose manufactured by the company burst while being used by Polaris Industries in Wisconsin, to deliver a chemical used to manufacture polyurethane foam. The chemical was released from the broken hose and two employees were injured by exposure to the chemical while they were cleaning up the spill. The employees brought a products liability lawsuit against the manufacturer in Wisconsin state court.

The courts sided with the insurance company, citing that the pollution exclusion in its policy indicated that had no duty to provide coverage to the product manufacturer.

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As we begin to understand more about the long-term impact of pollutants and the role this plays in our current litigious society, businesses are taking a closer look at their insurance policies to see what is, and isn’t, covered. Over time, the courts have become more accepting of upholding pollution exclusions, leaving insureds vulnerable. Pollution coverage should be obtained to mitigate the risk of forcing companies to self-insure in the event pollutants cause environmental damage, bodily injury, or property damage.

For more information about pollution exposures and environmental insurance products, please contact us.