Nebraska And Oregon Supreme Courts Find In Favor Of Insurers In Two Separate Pollution Cases
October, 2006
The high courts of both Nebraska and Oregon have recently ruled in favor of insurers in two pollution cases.
Pollution Occurring Over 30 Years Is Not "Sudden"
In a case of first impression, the Nebraska Supreme Court held that an event occurring over a period of time is not “sudden” as that term is used in an insurance policy. Instead, “sudden” refers to the temporally abrupt release of pollutants into the environment. Dutton-Lainson Co. v. Continental Ins. Co., 716 N.W.2d 87 (Neb. 2006).
Facts
In Dutton-Lainson Co., plaintiff Dutton-Lainson Company (Dutton) used various solvents to clean its machines and parts in its manufacturing process. The cleaning solvents contained trichloroethylene (TCE) and “1,1,1, trichloroethane” (TCA). Dutton's regular manufacturing operations caused the TCE and TCA to spill onto the concrete floor of its operating premises which seeped from the concrete floor into the ground water beneath the facility and continued to spread to the ground water under adjacent property. Over the years, Dutton also placed the solvents and some sludge-filled degreaser fluid in sealed metal drums and deposited the solvents and drums in the local landfill in conformity with then-existing law. The contaminants were later released in the landfill.
Dutton was required to clean up the contamination by the U.S. Environmental Protection Agency (EPA) and incurred costs and expenses relating to the cleanup of the environmental damage. Dutton filed suit against its insurers, seeking indemnification for its defense against the EPA's investigation and the environmental cleanup. Several of its policies contained a qualified pollution exclusion which stated that the insurance did not apply to bodily injury or property damage arising out of contaminants or pollutants. The exclusion also stated, however, that it did not apply if the discharge, dispersal, release or escape was “sudden and accidental.” The trial court granted summary judgment to the insurers, reasoning that the terms “sudden” and “accidental” were unambiguous and that, regardless of the fact that Dutton may not have anticipated the pollution, the leakage from the Dutton plant over a period of 17 years and spillage in the landfill for a period of 29 years were neither “sudden” nor “accidental.”
Analysis
Nebraska’s Supreme Court noted that the sudden and accidental exception to the standard pollution exclusion clause has been the subject of copious litigation. It found that since the “sudden and accidental” exception to the pollution exclusion clause was expressed in the conjunctive, both requirements must be met for the exception to become operative.
In various jurisdictions, courts have disagreed as to whether “sudden” refers to something temporally abrupt from an objective standpoint, something unexpected from the subjective standpoint of the insured, or whether the term is ambiguous. Several courts have noted that recognized dictionaries differ as to the meaning. After reviewing numerous decisions announced on both sides of the issue, the Nebraska Supreme Court adopted the view expressed by several courts that it could not reasonably call “sudden” a process that occurs slowly and incrementally over a relatively long time, no matter how unexpected or unintended the process. The Nebraska Supreme Court agreed that it was incongruous to think of a leakage or seepage that occurs over many years as happening suddenly. In so finding, the Court held that under the terms of the policy at issue, an event occurring over a period of time was not sudden. The language of an insurance policy should be considered in accordance with what a reasonable person in the position of the insured would have understood it to mean. A reasonable person in the position of the insured would have understood the term “sudden,” as found in the context of the qualified pollution exclusion, to refer to the objectively temporally abrupt release of pollutants into the environment.
Learning Point:
New decisions arise every day on seemingly simple policy terms such as “sudden.” We sometimes take it for granted that terms are well settled when they have been the subject of copious litigation. This decision reminds us of the need to research every jurisdiction in order to determine if an issue has been resolved. Every case is unique and the law in each jurisdiction should be examined as early in the claims handling process as is possible. As cases move forward, a coverage opinion should be periodically requested in order to stay apprised of the changing law.
Pollution Clean-Up Costs For Property Owned By The Insured are Excluded
The Oregon Supreme Court has held that pollution clean-up costs for the property owned by the insured are excluded under a general liability policy. Schnitzer Investment Corp. v. Certain Underwriters At Lloyd's Of London, 137 P.3d 1282 (Ore. 2006).
Facts
In Schnitzer, the plaintiff owned property in Portland near the Willamette River. The plaintiff's property was environmentally contaminated as a result of industrial and chemical manufacturing. Most of the contaminants were in the soil, but the groundwater also contained some contamination above the background levels. The Oregon Department of Environmental Quality (“DEQ”) divided the property into three sites and issued Records of Decision directing the plaintiff to remedy environmental contamination on two of the three sites.
Plaintiff sued its insurers seeking indemnification for the costs that it incurred in complying with the DEQ’s orders. Plaintiff’s policies contained a number of exclusions from coverage, including an exclusion for property damage to “property owned or occupied by or rented to the insured[.]” The trial court granted summary judgment to the insurers and the appellate court affirmed.
Analysis
The Oregon Supreme Court affirmed the appellate court, rejecting plaintiff’s argument that the DEQ required it to clean up groundwater -- property owned by the State of Oregon -- as opposed to its own property. The Supreme Court found that the DEQ did not require plaintiff to clean up existing contamination in the groundwater, but instead required plaintiff to remove and cap the soil on its own property to prevent health risks resulting from contact with the soil. Because the policy terms provided for indemnification only if plaintiff was legally obligated to remedy “property damage” to others’ property and the DEQ's records of decision did not legally obligate plaintiff to clean up property damage to the groundwater, the only damage which plaintiff had to clean up was on its own property and that damage was excluded.
Learning Point:
Although a policy may potentially provide coverage for environmental contamination, there remain exclusions within a policy which may negate coverage. Environmental contamination which does not migrate beyond the limit of the insured’s property and does not impact groundwater or other property owed by a third party may potentially be excluded from coverage pursuant to the owned property exclusion. The basis of the claimed damages must be thoroughly examined in order to determine if coverage exists. Even a remediation order from a governmental agency may not end the inquiry. If the impacted property is owned exclusively by the insured, the policy’s owned property exclusion should be examined.
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