Opinion ID: 1136740
Heading Depth: 2
Heading Rank: 1

Heading: The Pollution Exclusion and its Sudden and Accidental Exception

Text: One of the bases for USF & G's denial of insurance coverage to Alabama Plating is the so-called pollution exclusion clause that the insurance industry uniformly added to CGL policies beginning in the early 1970's. USF & G argues that the clause eliminates insurance coverage for Alabama Plating as a matter of law. The qualified exclusion clause states: THIS POLICY SHALL NOT APPLY: . . . . (f) to ... property damage 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 land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.  (Emphasis added.) Although this Court has previously considered appeals involving the above-quoted exclusion, we have not addressed the meaning of the sudden and accidental exception to the exclusion, which reinvokes coverage that the prior language of the clause excludes. USF & G argues that the sudden and accidental exception provides coverage only where the pollution contamination was caused by an abrupt, short-lived event. Alabama Plating argues that the phrase sudden and accidental in the exception is ambiguous in meaning, and it makes several arguments supporting the proposition that sudden and accidental should be interpreted in favor of the policyholder to mean unexpected and unintended. First, we note that Hicks v. American Resources Ins. Co., 544 So.2d 952 (Ala.1989), cited by USF & G, is of no assistance. The meaning of the sudden and accidental exception to the pollution exclusion was not raised in that appeal. We also find no guidance from Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 231 (Ala.1990), where we interpreted the phrase sudden and accidental appearing in an exception to an exclusion in a homeowner's policy to mean immediate and accidental. Our interpretation was driven by the fact that the homeowner's policy at issue was written with an overall structure intended to exclude coverage for gradually occurring damage. In contrast, the overall structure of a CGL policy provides coverage for gradual, repeated conditions. Thus, a CGL policy provides a context in which to interpret the phrase sudden and accidental that is very different from the context in which the homeowner's policy in Koch was interpreted. A narrow majority of state supreme courts that have considered the meaning of the pollution exclusion, including the Supreme Courts of Indiana and Oregon this year, have held that the sudden and accidental exception is ambiguous and must be construed in favor of the policyholder to provide coverage where migration of contaminants into the soil or groundwater was unexpected and unintended. [2] We agree and, thus, adopt the majority position, which we consider to be the better reasoned approach. At a minimum, the word sudden is ambiguous. It may refer to an event that is unexpected, or to one that happens quickly or abruptly. Dictionaries, particularly those published around 1970, when the pollution exclusion clause was first added to CGL policies, reveal two differing definitions for sudden, with the primary meaning being unexpected. [3] Given this ambiguity in the pollution exclusion, we look to extrinsic evidence of the drafter's intent. Before the addition of the so-called pollution exclusion to occurrence-based CGL policies in the early 1970's, it was clear that the policies provided coverage for gradually occurring environmental contamination. [4] The evidence of the intent of the drafter of the pollution exclusion clause, an insurance industry group that represented USF & G and many other insurers, reveals that when the clause was added to the occurrence-based CGL policies, it was added with an expressed intent that there would be no reduction in coverage, but that the addition of the exclusion was merely a clarification that the policies did not provide coverage for intentional polluters. This evidence includes both contemporaneous statements by insurance industry representatives [5] and standard form letters sent to state insurance departments, including the Alabama Department of Insurance, in 1970 asking for approval of the pollution exclusion as an addition to CGL policies. [6] Moreover, when insurers sought to add the pollution exclusion to their CGL policies, the phrase sudden and accidental had already undergone judicial construction as language in boiler and machinery insurance policies where the occurrence of damage had to be sudden and accidental for coverage to be invoked. Courts had uniformly interpreted the phrase to mean that the damage had to be unexpected and unintended for the insurance to apply, so that the phrase provided coverage for gradual events. [7] In the face of this established interpretation, insurance companies chose to use the phrase sudden and accidental in the exception to the pollution exclusion. [8] Because the judicial construction placed upon particular words or phrases made prior to the issuance of a policy employing them will be presumed to have been the construction intended to be adopted by the parties, Couch on Insurance 2d § 15:20 (1984), we hold that the sudden and accidental exception to the pollution exclusion clause provides coverage when the discharge, dispersal, release or escape of contaminants into the environment was unexpected and unintended. [9]