Opinion ID: 1356228
Heading Depth: 2
Heading Rank: 4

Heading: Pollution Exclusion Clause

Text: The CGL policies provide insurance coverage for damage third-parties incur resulting from an occurrence, which the Commercial Union policy, for example, defines as follows: `occurrence' means an injurious exposure to conditions which results, during the policy period, in personal injury or property damage or advertising offense neither expected nor intended from the standpoint of the Insured[.] Clerk's Papers at 001125. The policies do not provide coverage, however, for costs Alcoa incurs to remedy damages stemming from environmental pollution or contamination because of pollution exclusions in the CGL policies. The pollution exclusion clause in the Commercial Union policy, for example, states: It is agreed that the insurance does not apply to bodily injury or property damaged 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. Clerk's Papers at 001154. In other words, the CGL policy will not, as a general matter, cover damage to others by pollution the insured generates. But the last phrase of the clause qualifies the pollution exclusion: the policy will cover pollution damage to others if the discharge, release or escape is sudden and accidental. Because of this qualification of the pollution exclusion, this policy provision is a qualified pollution exclusion clause. The case at bar concerns the meaning of the phrase, sudden and accidental. Alcoa contends it is entitled to coverage because sudden and accidental encompasses as much as 40 years of Alcoa's gradual, pollution-generating activity. The trial court agreed with the CGL insurers and dismissed Alcoa's claims, based on the pollution clause, in a series of orders. [12] The trial court relied on extant Pennsylvania law defining sudden and accidental: This court will not revisit established Pennsylvania law. That law holds that the pollution exclusion clause is unambiguous. In Pennsylvania, the term sudden and accidental is not another way of saying unexpected and unintended but includes a temporal element requiring an abrupt and time-limited discharge. Clerk's Papers at 029348. In its earlier order dismissing Alcoa's claims against Commercial Union (Clerk's Papers at 029856), the trial court cited Lower Paxton Township v. U.S. Fidelity & Guar. Co., 383 Pa.Super. 558, 557 A.2d 393, 402 (1989), where the Pennsylvania Superior Court said: To read `sudden and accidental' to mean only unexpected and unintended is to rewrite the policy by excluding one important pollution coverage requirement abruptness of the pollution discharge. We construed a nearly identical qualified pollution exclusion clause in Queen City Farms, 126 Wash.2d at 74, 882 P.2d 703, but we found coverage, holding the phrase `sudden and accidental' means `unexpected and unintended'. Id. at 90, 882 P.2d 703. In the case at bar, however, Queen City Farms does not apply; Pennsylvania law controls. In its order granting Commercial Union's motion to dismiss, the trial court specifically noted the conflict between Pennsylvania and Washington law in the interpretation of the qualified pollution exclusion clause, and concluded Pennsylvania law applied to the interpretation of the clause. No party disputes the trial court's application of Pennsylvania law to the pollution exclusion issue. Alcoa's appeal from the lower court's pollution exclusion clause holding is limited to a single issue: whether the CGL insurers are estopped to deny coverage because of misrepresentations they made to the Pennsylvania Insurance Department when they applied in 1970 for permission to use the pollution exclusion clause. The alleged misrepresentation occurred in an explanatory memorandum the insurance industry submitted to the Pennsylvania Insurance Department along with its application for the pollution exclusion clause. The memorandum reads, in pertinent part: Coverage for pollution or contamination is not provided in most cases under present policies because the damages can be said to be expected or intended and thus are excluded by the definition of occurrence. The above explanation clarifies this situation so as to avoid any question of intent. Coverage is continued for pollution or contamination caused injuries when the pollution or contamination results from an accident. Sunbeam Corp. v. Liberty Mut. Ins. Co., 740 A.2d 1179, 1189 n. 7 (Pa.Super.1999). This argument is what courts have referred to as regulatory estoppel, a species of fraud in the inducement. Alcoa claims that but for the fraudulent misrepresentation by the insurance industry as to the meaning and effect of the pollution exclusion clause, thereby inducing the Pennsylvania Insurance Department to approve use of the clause in CGL policies, Alcoa would not have been left without coverage. It is not necessary to discuss this claim in detail because in a December 1999 case, the Pennsylvania Superior Court, sitting en banc, settled and disposed of the regulatory estoppel issue. In Sunbeam Corp., the court held the insured failed to demonstrate the Pennsylvania Insurance Department had relied on the alleged misrepresentation in making the decision to allow the pollution exclusion clause. Actual reliance on the alleged false statement is one of the necessary elements of fraud. [13] Indeed, the Pennsylvania court found it was unlikely a regulatory body like the Pennsylvania Insurance Department would simply abandon its statutory charge to determine the meaning of a proposed clause in an insurance contract and rely solely on the insurance industry's representations as to the meaning of the clause. Richard W. Simpson, who was Assistant Director of the Bureau of Regulation of Rates of the Pennsylvania Insurance Department (Clerk's Papers at 001659), averred in a declaration, As stated above, I was not mislead [sic] or deceived by the IRB's filings of 1966 or 1970 nor to the best of my knowledge was any Department staff member misled or deceived. Clerk's Papers at 001661. As the Sunbeam court said, citing the language of the Pennsylvania trial court: [Sunbeam's] regulatory estoppel argument requires that I find that after reading the pollution exclusion, the members of the regulatory bodies and their staffs looked to the insurance industry's explanation of the proposed pollution exclusion to determine the scope of the exclusion. However, it is far more reasonable to assume that a regulatory body would attach its own meaning to the language of a proposed exclusion and that it would, in fact, be suspicious of an industry explanation which appeared to be somewhat inconsistent with the proposed language. Sunbeam, 740 A.2d at 1190 (alteration in original). In addition to disposing of the regulatory estoppel argument against Alcoa, Sunbeam reaffirmed Lower Paxton `s definition of sudden and accidental: the word `sudden,' construed in its plain, natural, and ordinary sense, includes a temporal element and means `abrupt' and `lasting only a short time.' Sunbeam, 740 A.2d at 1188. These are the precise words the trial court here relied upon in dismissing Alcoa's claims under the pollution exclusion clause. As a result of Sunbeam, Alcoa is left without a triable issue of fact unless it can show that for at least some of the polluted sites the pollution that occurred was sudden and accidental, as Pennsylvania defines the phrase. In its written decision on the CGL insurers' motion for summary judgment based on the pollution exclusion clause, the trial court held, It is the Plaintiffs burden to establish coverage and that there are facts to support an exception to the pollution exclusion clause. Clerk's Papers at 029354. Alcoa does not disagree it had such a burden. The trial court discussed and rejected several of Alcoa's contentions that discharges of pollutants were, in fact, abrupt. On appeal, Alcoa addresses the factual issues in a single paragraph, asserting, If the trial court had applied the proper legal standard, Alcoa's claims would be precluded by the qualified pollution exclusion only if the release of pollutants were non-accidental from Alcoa's standpoint. Br. of Appellants at 103. Because Sunbeam establishes the trial court did apply the proper legal standard, and Alcoa has not argued triable issues of fact arise from that standard, the trial court correctly granted the summary judgment motions dismissing Alcoa's claims against the CGL insurers under Pennsylvania law.