A comprehensive general liability (CGL) insurance policy will protect your business from claims of property damage, bodily injury, or personal injury brought by third parties. All CGL policies contain exclusions, which vary from policy to policy. One of the most universal of these is pollution exclusion, which has led to much confusion and litigation over the years.
Why Is Pollution Excluded?
Pollution wasn’t always excluded from CGL policies. But after the passage of the National Environmental Policy Act in 1970, the newly created Environmental Protection Agency began sending demand letters to corporations ordering them to curtail their polluting activities and clean up their contamination. Fretting they would be on the hook for billions of dollars in cleanup costs, insurance carriers began putting pollution exclusions into their CGL policies.
Early Pollution Exclusion Disputes
In the early 1970s, most policies adopted the Qualified Pollution Exclusion, which excluded damage and injury arising out of pollution or contamination caused by oil, or arising out of the discharge, dispersal, release, or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any body of water; but this exclusion did not apply if such discharge, dispersal, release or escape was sudden and accidental.
Much of early pollution exclusion litigation centered on what constituted a “sudden” or “accidental” release of pollutants. Some disputes focused on analyzing events related to the discharge, such as the insured’s initial conduct or a subsequent unexpected escape of pollution, to determine if the exclusion was triggered.
The Absolute Pollution Exclusion
In the late 1970s and early 1980s, insurance companies began writing absolute pollution exclusions into their policies. The wording was changed to read “…whether or not such discharge, dispersal, release or escape is sudden or accidental.” With the widespread adoption of the revamped exclusion, litigation evolved to focus on the scope and meaning of “pollutants” and absolute pollution exclusion clauses.
Courts have interpreted the absolute pollution exclusion to bar coverage for all property damage caused by pollution or environmental contamination, including cleanup costs. Many courts have held that a substance need not be inherently harmful to trigger the exclusion. For instance, small particles of rock, which are not normally harmful, can be considered contaminants if they are released from a quarry into an unintended setting, such as a stream, and subsequently, cause damage.
Courts have examined the exclusion not only based on the nature of the substance but on the substance in relation to the damage or injury. For instance, gasoline is a useful product in some contexts but may be released into a location where it is not useful and instead a pollutant that causes harm, thus triggering the exclusion. Alternately, when a substance is a known pollutant in some contexts and it causes harm that is unrelated to pollution – for instance, if someone slips on a puddle of the substance – the pollution exclusion might not apply in that scenario.
Non-traditional Environmental Pollution
A frequently litigated issue is whether the exclusion applies only to traditional environmental pollution or more broadly to the negligent handling of toxic substances that occurs in the normal course of business. Courts are split over whether the pollution exclusion bars coverage for personal injury resulting from isolated incidents involving inhalation or exposure to pollutants, such as toxic fumes, asbestos, or lead paint. Many courts have held that pollution exclusion bars coverage for bodily injury or property damage resulting from septic or sewage leaks. Courts have also addressed whether the pollution exclusion can bar claims arising out of exposure to bacteria and viruses, such as Legionnaires’ disease and, more recently, COVID-19. Many courts have enforced the pollution exclusion to bar coverage in a wide variety of contexts that fall outside what is considered traditional environmental contamination.
The pollution exclusion gave rise to separate environmental insurance policies, which are commonly purchased by companies in certain industries to protect against bodily injury and property damage claims resulting from contamination incidents. Environmental policies typically cover statutory clean-up requirements, business interruption losses, and legal defense costs. Policies can also protect against historic contamination or operational issues, such as mold, asbestos, lead paint, and Legionella. Depending on the policy, coverage for losses due to specific pollutants, such as mold, may be offered as an optional endorsement. In the wake of the COVID-19 pandemic, many environmental insurance companies have changed the language in their policies to explicitly exclude coverage for contamination from bacteria, viruses, and communicable diseases.
If your insurance company has denied or is challenging a pollution-related claim, call us for assistance. We have the experience, expertise, and tenacity to make sure insurance companies keep the promises they made to you and your business.