Variation in Application of Pollution Exclusions

5 useful pieces of  knowledge about the application of pollution exclusions

The creation and enforcement of environmental laws in the 1970s and 1980s imposed liability to businesses for the remediation and cleanup of environmental contamination.  In response, to shield themselves from this ever-growing exposure, insurance companies introduced the first pollution exclusions on standard liability and property policies.  On a very basic level, pollution exclusions eliminate coverage for bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.

Probably the most widely-recognized pollution exclusion is the “Absolute” Pollution Exclusion that was brought into use in 1986.  The reason “absolute” is in quotation marks is because this exclusion was never formally referred to as such; it was an industry-given nickname of sorts.  The exclusion earned its name due to its removal of the “sudden and accidental” exception found in the original 1973 Commercial General Liability standard pollution exclusion.  Perhaps a better name for the infamous exclusion is the “broad form pollution exclusion”.

The effects of this pollution exclusion on insurance coverage litigation are curious, to say the least, and continue to this day.  As we know, insurance is regulated at the state level.  Because of this, states and jurisdictions widely vary in their application of this exclusion.  When it comes to litigation involving the “Absolute” Pollution Exclusion, courts generally apply one of two approaches for interpreting its application.

  1. The first takes the view of traditional environmental pollution. Under this interpretation, courts interpret pollution exclusions to preclude coverage for those claims that are commonly considered to be “traditional” environmental pollution (i.e. chemical pollutants that cause harm to natural resources).
  2. The second approach takes a much broader and literal interpretation of pollution exclusions. Here courts focus on the plain language of policies and apply pollution exclusions to all claims arising from contaminants or irritants that cause property damage or bodily injury.

    As you can imagine, this creates a lot of back and forth and overall uncertainty in the insurance industry when it comes to pollution exclusions and how they play out in claims scenarios.

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