Absolute Pollution: Exclusion Update

This article reviews court decisions from 2001 and 2002 discussing the absolute pollution exclusion in the context of property damage, bodily injury claims, and other types of harm. In recent cases, courts have consistently found the absolute pollution exclusion to be clear and unambiguous, excluding coverage for “environmental” and other types of property damage claims. However, there is a split of authority and inconsistency in how courts analyze and interpret the absolute pollution exclusion when bodily injury claims are at issue. The analysis and court rulings are often determined by the specific policy language as applied to the facts in the cases.     

Defining “Pollutant”: What You Don't Know Can Hurt You

A fundamental question reported in hundreds of court decisions and evaluated every day by claims adjusters is whether a constituent that caused injury and damage is a “pollutant.” If yes, the claim will most often not be covered under general liability, professional, property, umbrella, or other policies because of the applicability of a pollution exclusion. Based upon our review of 200 cases, we determined that in 140, or 70 percent of the time, the constituent was considered a “pollutant” and the insurance claim was denied. In order to have insurance for “irritants” or “pollutants,” an insured must obtain specific pollution coverage.     

Insurance Coverage for Climate Change Suits: The Battle Has Begun

When it comes to climate change litigation, the stakes are almost as high for insurance companies as they are for the defendants they insure. Insurers therefore have strong incentives to closely parse their policies and pursue every possible basis for denying coverage, while policyholders, of course, have the opposite incentives. Given the novelty of the underlying claims, complex coverage issues involved, and high stakes, it is expected that the resulting insurance coverage disputes will be lengthy and hard-fought.

Climate change litigation has been slowly heating up, but the expected coverage battles have not materialized, until now that is. In July 2008 Steadfast Insurance Company filed the first coverage suit challenging an insurer's obligations to provide coverage for climate change-related suits against its insured: Steadfast Insurance Co. v. The AES Corporation, No. 2008-858 (Va. Cir. Ct.).

This article provides background on the Steadfast dispute, as well as the underlying climate change suit. It then examines each of the three coverage issues raised in the Steadfast suit: (1) whether the claims arise out of an “occurrence,” (2) whether the claims are barred by the “loss in progress” doctrine, and (3) whether the pollution exclusion applies. The article predicts that the outcome of Steadfast will likely turn on the pollution exclusion defense, but that even with respect to that issue, the insurer faces an uphill battle.     

Application of the Absolute Pollution Exclusion to “Nontraditional” Pollution

A nationwide split exists with respect to whether the so-called “total” or “absolute” pollution exclusion precludes coverage for “nontraditional” pollution. Does the exclusion encompass only industrial waste that contaminates the environment, or does it also include a much broader range of damage, such as exposure to indoor fumes, chemicals, or mercury? A review of judicial opinions reveals that the split results from different approaches to policy interpretation. This article surveys recent opinions grappling with the “traditional” versus “nontraditional” pollution issue.     

More than Floods and Wind,Louisiana Courts Continue to Get It Right on the So-Called “Pollution Exclusion”

The buzz out of Louisiana of late has been mostly related to insurance for losses arising from Hurricanes Katrina and Rita. But Louisiana continues to be a critical jurisdiction for insurance claims of companies in the energy and chemical industries. And for such claims, Louisiana has correctly held that claims involving negligent exposure to a potentially dangerous substance do not always fall within the ambit of so-called pollution exclusions, just because the substance could be characterized as a “contaminant” or “pollutant.”     

Policyholder Litigation Challenging the Claims-Handling Conduct of Resolute Management

Over the past decade, Berkshire Hathaway has engaged in numerous “retroactive reinsurance” transactions whereby it takes on another insurer's long-tail environmental and asbestos coverage obligations in exchange for payment of a large sum of cash by the insurer. The cash that Berkshire receives from the insurer typically is the amount of cash that the insurer had reserved to pay policyholder claims on these coverage obligations. Warren Buffet has referred to these large sums received from an insurer as “float,” characterized as “money that doesn't belong to us but that we get to invest for Berkshire's benefit.” The lure of holding on to float for investment purposes has led to aggressive efforts by Berkshire's claims-handling unit, Resolute Management, to reduce and delay claims payments to policyholders. In response, a number of policyholders have initiated lawsuits and other proceedings against Berkshire entities and their related insurers.     

Everything Is Relative,Including the “Absoluteness” of the Current,Restrictive Pollution Exclusion

Although insurers like to call the most recent versions of the pollution exclusion “absolute,” insureds should not necessarily agree—just as many courts have not agreed—that the exclusion is “absolute.” Instead, insureds should examine the precise language of the exclusions at issue, which may on their face provide a basis to argue that a potential for coverage exists. Further, whether the release at issue is made up of “pollutants” or constitutes “pollution” can only be judged by the circumstances of each case. Ultimately, an insured stands to gain if it can demonstrate that some aspect of the underlying claim, no matter how small, remains potentially covered under at least one policy. To avoid a duty to defend, an insurer must conclusively establish that all potential for coverage is excluded. Even a sliver of potential coverage is enough to trigger an insured's right to call upon an insurer to defend the entire underlying action, a right that itself could be worth millions of dollars in attorney's fees and investigation costs.     

The Simplest Explanation Is Best: How Ockham's Razor Severed Insureds’ Hopes of Indemnification Following Hurricane Katrina

In 2005 Hurricane Katrina ravaged the Gulf Coast and many residents filed claims under their homeowners’ policies. Insurers denied these claims on the grounds that flood damage was expressly excluded from coverage, and homeowners filed suit against their insurers. At trial, these plaintiffs argued that the casualty loss of their homes was attributable to wind rather than flooding. Commentators refer to these cases collectively as the “Wind vs. Water” debate. This article discusses prominent “Wind vs. Water” cases before ultimately proposing federal legislation forbidding insurers from issuing homeowners’ policies unless prospective insureds first obtain federal flood insurance as a prerequisite.     

Busting the Myth of the Unavailability of Insurance Rule's Application to Loss Allocation for Pollution Liability Claims Since 1986

Tens of millions of dollars in pollution liability losses have been mistakenly allocated to general liability insurers under the “Unavailability of Insurance” rule in jurisdictions that employ it. Under this rule, a policyholder is not allocated losses for years when they claim that pollution liability was unavailable – mainly after the advent of the 1986 “absolute” pollution exclusion. Recent research has been compiled to include thousands of pages of evidence that by 1986 and to this date there was and has been a viable pollution liability insurance market that would not only underwrite a current year's risks, but also erase any prior pollution insurance coverage gaps by insuring decades of prior acts. This article looks at this rule and the enormous impact it could have on insurers' pollution liability reserves if it continues to be misapplied.     

Issues in Coverage for Preexisting Pollution Conditions under Pollution Liability Insurance Policies

Pollution liability insurance policies provide coverage for claims and costs associated with pollution conditions that develop and commence during the policy period. Coverage under such policies for claims arising from pollution conditions that existed before the policy incepted, however, varies significantly under different policy forms. This article addresses the two principal means that insurers have utilized to limit the risks associated with preexisting pollution conditions under pollution policies: the known conditions exclusion and retroactive date provisions. The article explains that these provisions have received mixed treatment in the courts and are likely to continue to be a focus of future coverage litigation involving environmental impairment liability and pollution legal liability policies.     

Insurance Market for Global Warming Heats Up: Old Products and New Policies Respond to Climate Change Risks

Climate change, characterized by higher surface and water temperatures, will likely lead to more frequent and severe storms, floods, rising sea levels, wildfires, and loss of a variety of species. The monetary loss attributable to these events could be enormous, resulting in a variety of first-party insurance claims and third-party lawsuits. The availability of insurance coverage to pay these claims will depend on the nature of weather-related losses and the particular policies in force. Insurers have also begun to develop products that pay to rebuild to “greener” standards after fortuitous losses, encourage lower carbon emissions, and provide incentives for the implementation of sustainable business and personal practices.     

Insurance Coverage for Environmental Claims: Current Litigation Issues in the United States

The insurance industry introduced exclusions for environmental claims in the general commercial litigation policies in the early 1970s, and introduced even greater restrictions in the 1980s. Litigation over the two most common pollution exclusions has been robust and will likely continue to increase. This article first briefly reviews the history of insurance coverage for environmental claims in the United States, including the most common issues and how the courts have addressed them. The article then discusses the current issues and emerging trends in insurance coverage for environmental claims under the general commercial policies. Finally, there is a brief discussion on the growing market for insurance products that specifically cover (rather than exclude) environmental claims.     

Criminalizing Big Tobacco: Legal Mobilization and the Politics of Responsibility for Health Risks in the United States

This article reinterprets the discursive terms and cultural meanings that redefined the legal campaign against Big Tobacco during recent decades. We underline the palpable shift from a conventional tort‐based logic of products liability claims, which most analysts emphasize, to a logic incorporating key features identified with criminal law or “crimtorts.” The study builds on legal mobilization theory and combines narrative history of events with systematic analysis of media coverage across a twenty‐year period to demonstrate how Big Tobacco was criminalized over two decades.     

Alexy on Necessity in Law and Morals*

Robert Alexy has built his original theory of law upon pervasive claims for “necessary” features of law. In this article, I show that Alexy's claims suffer from two difficulties. First, Alexy is never clear about what he means by “necessity.” Second, Alexy writes as if there have been no challenges to claims of conceptual necessity. There have been such challenges and Alexy needs to answer them if his project is to succeed.     

The Biggest “Have” of Them All: Wal‐Mart and Its Litigation Outcomes in Slip‐and‐Fall Cases

Scholars have theorized that resource‐rich litigants known as the “haves” tend to succeed disproportionately in litigation when the adverse party is a “have‐not.” The traditional theory suggests that haves are able to use their wealth to secure better attorney representation and can use their frequent experience in litigation to tip the scales of justice in their favor, particularly when faced with “one‐shotters” whose involvement in litigation is infrequent. A remaining question, however, is whether some haves fare better than other similarly situated haves. Specifically, this article posits that the litigation strategy used by the defendant may also play a role in litigation outcomes. Companies that tenaciously fight claims that, in the short term, would be cheaper to settle might discourage otherwise valid claims in the future from being filed out of fear that the litigation will be a protracted battle. This article examines Wal‐Mart Stores, Inc. (Wal‐Mart)—the largest revenue‐generating company in the United States—to explore whether it fares better than other resource‐rich defendants. Wal‐Mart in particular has a reputation against settling cases and thus is an excellent vehicle to investigate this hypothesis. Appellate cases in an eleven‐year period involving slip‐and‐fall litigation were compiled, and the results show that Wal‐Mart did win at a higher rate than other defendants. Although more research is needed to explore fully the effect of litigation strategy on win–loss rates, this sample of cases demonstrates that Wal‐Mart is a more effective and victorious litigant.     

The Meaning of Champion Dyeing and Finishing: EIL Insurance Must Be Available in the Year That the Precise Risk Manifested Itself

Champion Dyeing & Finishing Co., Inc. v. Centennial Insurance Company and North River Insurance Company, decided in November 2002, represents a decisive victory for policy holders in environmental coverage litigation involving the availability of EIL insurance after 1985 or 1986. EIL coverage was generally unavailable after 1985 and until 1995, particularly for old leaking underground storage tanks (UST's). The availability issue arises in environmental coverage cases where the court adopts a prorata rather than joint and several theory of allocating responsibility for cleanup costs, and when in such cases there are periods of no insurance, because, for example of the insertion of the absolute pollution exclusion in commercial general liability (CGL) policies. In those circumstances, the courts apply the “willing self-insurer” rule and allocate responsibility to the insured who willingly decided to retain the risk. Until Champion Dyeing, there was little guidance about how to determine availability in the context of site-specific environmental pollution. The case was part of a 1998 declaratory judgment action by a small manufacturing company seeking reimbursement for cleanup costs attributable to pollution from two fuel oil storage tanks found leaking in November 1997. Reversing the trial court's decision, the New Jersey appellate court found that defendants failed to prove insurance available to the insured in 1997 and that therefore the duty to indemnify should have been apportioned solely among the insurers. In doing so, it stressed the necessity of demonstrating that insurance could have been purchased covering the precise risk that manifested, not simply that EIL insurance covering undefined risks was available. Its rationale was based on a recognition of the two essential differences between EIL and CGL insurance: claims made trigger of coverage and coverage of specific pollution conditions rather than generalized occurrences. In addition, testimony at trial failed to demonstrate the availability in 1997 of insurance providing coverage for the risk at issue because the testimony at the insurer's expert lacked foundation. This decision indicates that, in order to prove or disprove availability, the parties must first hire a competent environmental insurance expert and then must ask and answer three questions: What policies were being issued in the market that applied to the particular type of risk during the relevant time period, and especially in the year that the risk manifested? Would the insured have been able to purchase one of these policies or endorsements for its particular risk? Would the policy terms have provided coverage for the specific manifested risk in question? After applying these three questions to a number of hypotheticals with typical fact patterns, it is evident how impossible it is to prove coverage available for UST risks such as in the Champion case and how extremely difficult it will be to do so for non-UST, generally-site specific risks.     

Environmental Insurance Policies Are Negotiated Contracts and Not Commodities

Given the current economic climate, the high costs associated with pollution incidents and the resultant remediation and third-party bodily injury and property damage claims emphasizes the importance of ensuring that our clients have environmental policies in place to protect their interests when most General Liability and Property policies cannot. However, as a number of recent court decisions have highlighted, simply procuring a dedicated environmental policy is not enough. Whether acting in the role of attorney, risk manager, or broker, it is of paramount importance that we truly understand the risks inherent in our clients' business so that we can provide them with the best and broadest coverage available. Further, this understanding allows us to properly inform our clients as to the extent of their coverage so that they can guide their business decisions accordingly.     

Dirt Is a Pollutant! Water Is,Too … How to Create Clarity in Environmental Insurance Coverage and Lower the Cost of Environmental Risks

General confusion about what is or could be an excluded-pollutant in property and liability insurance policies has created a situation where insurance agents and brokers cannot accurately advise their customers on how to insure environmental risks. Pollution exclusions are intended to exclude pollution-related claims. Over one hundred different environmental insurances have been designed to fill the coverage gaps created by pollution exclusions. By ignoring the fundamental purpose of pollution exclusions and the broad range of environmental insurance policies that are available, many environmental damage claims are needlessly uninsured today.     

Trilogy of Decisions Finds Insurers in Bad Faith

Insurance companies, even at their best, can be slow to respond to claims and to place what the insured regards as obstacles in the way of coverage. At their worst, as set forth in the cases discussed below, insurers can ignore their policyholders and violate their policy obligations. In all of these cases, policyholders are prone to shout “bad faith.” However, bad faith law differs dramatically from state to state, and is often unavailable as a remedy. The cases discussed below demonstrate a new willingness by the courts to hold insurers to their contractual obligations and to impose meaningful extra contractual damages for their failure to do so.     

Effects of Defects—Action or Argument? Thoughts about Deryck Beyleveld and Roger Brownsword’s Law as a Moral Judgment*

Abstract. Two claims lay the foundation for Beyleveld and Brownsword’s legal theory. The first says that immoral laws cannot be law, the second that rights to freedom and welfare can be proven to be logically necessary given merely the phenomenon of agency. The author argues that both claims are too strong. The first is an overidealization of law, which fails to do justice to its double nature as a real as well as an ideal phenomenon. The second must fail, for a moral “ought” cannot be deduced from a merely instrumental “ought.”