Opinion ID: 1989584
Heading Depth: 1
Heading Rank: 2

Heading: the history of the pollution exclusion

Text: Prior to World War II, insurance policies in this country were structured to cover liability arising only from specific perils expressly identified therein. See Brief for Commissioner at 10. Beginning in the 1940s, insurers began to offer CGL policies which were not limited to liability for particular perils; instead, coverage started from the premise that the risk covered was all liability, unless specifically excluded. Id. (emphasis in original). The insurance contract at issue in this case is such a CGL policy. We now turn to the pollution exclusion itself. Before 1966, to be covered [under a CGL policy], an injury giving rise to liability had to be caused by an accident.  Brief for Commissioner at 11 (emphasis in original). In 1966, the word accident in the CGL policy was replaced by occurrence, and this change was viewed as expanding the insurer's liability by including harms that came about gradually as well as those that occurred as a result of a single accidental event. Id. In the 1970s, in order to counteract this perceived expansion of coverage, the insurance industry developed the original general pollution exclusion. That provision excluded coverage for Bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water. 9 [COUCH] § 127:6. Over time, many policies began to include a sudden and accidental exception to this pollution exclusion: This exclusion does not apply if such discharge, dispersal, release or escape is sudden or accidental. See id. at § 127:8. Doerr, 774 So.2d at 126; see also Brief for Commissioner at 11-12. According to the Supreme Court of New Jersey, the purpose of the sudden and accidental exception to the pollution exclusion was to deny coverage only to intentional polluters. Morton Int'l, 629 A.2d at 870-72 (summarized in 9 COUCH § 127:8); see also Claussen v. Aetna Cas. & Sur. Co., 259 Ga. 333, 380 S.E.2d 686, 689 (1989) (Documents presented by the Insurance Rating Board [which represents the industry] to the Insurance Commissioner when the `pollution exclusion' was first adopted suggest that the clause was intended to exclude only intentional polluters.). Subsequently, in 1980, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601 et seq. CERCLA was enacted in order to allow the government and private individuals or entities to act as quasi-regulators over environmental pollution by allowing them to carry out the cleanup of hazardous waste sites and then recover the expenses of the cleanup from the responsible parties. Doerr, 774 So.2d at 126 (citation omitted); see also Key Tronic Corp. v. United States, 511 U.S. 809, 815 n. 6, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994). In response to this legislation, parties alleged to have engaged in environmental pollution at hazardous waste sites began to claim that the standard CGL policy required their insurers to defend them in such actions and to indemnify them if they were found liable. Considerable litigation ensued, especially over the meaning of the sudden and accidental exception to the general pollution exclusion. Doerr, 774 So.2d at 126 (citation omitted). Indeed, between 1970 and 1985, insurers [were] held liable for many billions of dollars in defense and response costs incurred pursuant to laws that did not even exist at the time the exclusion, with its exception, was written. Brief for Commissioner at 12; see also Western Alliance, 686 N.E.2d at 999 (relating absolute pollution exclusion to the enormous expense of environmental litigation) (citing Koloms, 227 Ill.Dec. 149, 687 N.E.2d at 81). [T]he insurance industry reacted with lightning speed to the possibility that . . . it could find itself indemnifying industries facing the staggering retroactive pollution clean-up costs imposed by the 1980 enactment of [CERCLA]. Essex Ins. Co. v. Tri-Town Corp., 863 F.Supp. 38, 39-40 (D.Mass.1994) ( quoted in Nationwide II, 348 U.S.App.D.C. at 128-29, 270 F.3d at 952-53). Specifically, insurers introduced the absolute pollution exclusion in a form very similar to the one at issue in this case. Doerr, 774 So.2d at 126-27; Brief for Commissioner at 12-13. The Supreme Court of Louisiana explained that [b]y 1986, the absolute pollution exclusion had been introduced which omitted from the exclusion the sudden or accidental exception. [Citation omitted.] [7] Throughout its development, the general purpose of these pollution exclusions has remained constant: to exclude coverage for environmental pollution, and under such interpretation, [the] clause will not be applied to all contact with substances that may be classified as pollutants. [9 COUCH] at § 127:6 n. 62 (citing Stoney Run Co. v. Prudential-LMI Comm. Ins. Co., 47 F.3d 34, 37 (2d Cir.1995)). . . . . Importantly, there is no history in the development of this exclusion to suggest that it was ever intended to apply to anyone other than an active polluter of the environment. Doerr, 774 So.2d at 126-27. Indeed, the changes that led to the absolute pollution exclusion were intended by the insurance industry to bar coverage for the costs of environmental cleanups. Nationwide II, 348 U.S.App.D.C. at 128, 270 F.3d at 952 (citations omitted). In Andersen, see note 3 to this opinion, a case factually almost identical to the present one in all relevant respects, the insurer sought to apply the absolute pollution exclusion to death and injury allegedly caused by the inhalation of carbon monoxide fumes from a faulty heating unit in an apartment complex. In ruling in favor of the insured, the Supreme Court of Ohio described the circumstances under which the absolute pollution exclusion came into being: [T]he genesis of the pollution exclusion does not support the notion that it was created to preclude the kind of claim involved in this case. In June 1970, the insurance industry went on record as being `against' intentional polluters and promulgated the qualified pollution exclusion for insertion in all comprehensive general liability (CGL) insurance policies. (Footnotes omitted.) Reiter, Strasser & Pohlman [ The Pollution Exclusion Under Ohio Law: Staying The Course, 59 U. CIN. L. REV. 1165, 1168 (1991) ]. The insurance industry explained that accidental pollution continued to be insured under a CGL policy, but deliberate polluters would remain uncovered, unable to use insurance to avoid the financial consequences of their acts. On the basis of these representations, nearly every state, including Ohio, allowed the introduction of this new, qualified pollution exclusion. (Footnotes omitted.) Id. The exclusion disputed in the case at bar, the absolute pollution exclusion, was drafted during the early 1980s and was incorporated into the standard form CGL [policies] in 1986. Stempel, Reason and Pollution: Correctly Construing the Absolute Exclusion in Context and in Accord With Its Purpose and Party Expectations (1998), 34 Tort & Ins.L.J. 1, 5. The purpose of the new exclusion was to replace the 1973 `sudden and accidental' [exception] because insurers were distressed by judicial decisions holding that the 1973 exclusion did not preclude coverage for gradual but unintentional pollution. Id. Further, [t]he absolute exclusion was designed to bar coverage for gradual environmental degradation of any type and to preclude coverage responsibility for government-mandated cleanup[s]. Id. Andersen, 757 N.E.2d at 332-33; accord, Western Alliance, 686 N.E.2d at 999. The parties to this appeal are emphatically at odds over the meaning of the pollution exclusion clause in REO's policy. There appears to be no substantial dispute, however, as to the clause's history or as to the events that led to its introduction into ISO's form CGL policy. See Koloms, 227 Ill.Dec. 149, 687 N.E.2d at 79 (describing the events leading up to the insurance industry's adoption of the pollution exclusion as well-documented and relatively uncontroverted). [8]