Pollution Exclusion Held to be Unambiguous

The insured brought an action against the insurer seeking a declaration that the insurer had a duty under the CGL form to defend the insured in an underlying environmental cost recovery action. This case is Hussey Copper v. Arrowood Indemnity Company, 2010 WL 3297246 (C.A.3, Pa. ).

 

Hussey sued Arrowood seeking defense and indemnity pursuant to its commercial general liability policy for a lawsuit brought against Hussey by the Kane County Public Building Commission. The complaint against Hussey alleged that lead-coated copper roofing panels, produced by Hussey, had eroded, resulting in the contamination of a retention pond adjacent to the site of a judicial center. The Kane County Commission cleaned up the pond and then sought recovery of the costs from Hussey. Hussey turned the lawsuit over to its insurer, Arrowood.

 

Arrowood declined coverage, claiming that the pollution exclusion in the policy prevented any coverage for loss, cost, or expense arising out of any clean up or removal or treating or in any way responding to the effects of pollutants. Hussey ultimately settled with the Commission and then filed a lawsuit against Arrowood, alleging that the insurer violated the insurance contract when it failed to defend and indemnify Hussey. The trial court found in favor of the insurer and this appeal followed.

 

Hussey raised two issues on appeal: the pollution exclusion invoked by Arrowood does not unambiguously exclude coverage; and, the doctrine of regulatory estoppel did not bar Arrowood from relying upon the pollution exclusion to deny coverage. The appeals court said that its inquiry was straightforward. The court would look first to the terms of the policy since these are manifestations of the intent of both insured and insurer. If the terms are clear and unambiguous, the court would give effect to that language. Then, the court would compare the terms of the policy to the allegations in the underlying claim.

 

The appeals court agreed with the insurer that the underlying lawsuit fell squarely within the unambiguous language of the pollution exclusion on the CGL form. The exclusion was held not to be susceptible to multiple interpretations. The part of the exclusion invoked by the insurer was a sweeping exclusion; it excluded from coverage any loss, cost, or expense arising from any demand or order that any insured or others in any way respond to or assess the effects of pollutants. The court found that the liability of the insured to the Commission was without question a cost arising out of an order to test for and clean up the effects of a pollutant and that the insured was liable for this cost. The plain and ordinary meaning of the broad pollution exclusion clause unambiguously encompasses the liability of the insured to the Commission.

 

As for the estoppel argument put forth by Hussey, the court said that it was unconvinced. The court said that the gist of the argument was that the Insurance Services Office (ISO), on behalf of insurance companies like Arrowood, made representations to state insurance regulators in order to obtain regulatory approval for the pollution exclusion clauses. In these statements, Hussey contends that ISO indicated that the clauses did not apply to product-related claims, but now, Arrowood was trying to benefit by arguing that the exception did apply to this product-based claim against Hussey.

 

The court said that Hussey was correct that under the Pennsylvania doctrine of regulatory estoppel, an industry that makes representations to a regulatory agency to win agency approval will not be heard to assert the opposite position when claims are made by litigants. However, in this instance, the evidence that Hussey presented of industry representations to the state insurance regulators pertained to a different pollution exclusion provision in a different contract than the one at issue in this case; the statements simply were not found to be relevant to any claim for estoppel relating to the contractual language under consideration here. Moreover, even if the ISO representations were relevant to this case, the appeals court said that it agreed with the insurer that the statements, when read in context, showed that ISO consistently represented to regulators that the pollution exclusion would indeed apply to clean up costs like those the Commission incurred. In other words, the statements by ISO were not so contrary to the position of the insurer that Arrowood should be estopped from invoking the pollution exclusion.

 

The judgment of the trial court was affirmed.

 

Editor's Note: The pollution exclusion is upheld by the United States Court of Appeals for the Third Circuit. The facts of the case do seem very straightforward: the insured caused a pollution event and the government wanted the insured to clean up the pollution; the CGL form excludes any loss, cost or expense arising out of any request or demand or order that any insured clean up or in any way respond to the effects of pollutants; the exclusion is clear and unambiguous in this instance.

 

The court emphasized the use of the word “any” in the language of the pollution exclusion and found it to be not only unambiguous in this instance but also sweeping in its scope.