The Fifth Circuit Court of Appeals has determined that an insurer must pay defense costs in a Clean Air Act (CAA) violation action brought by the U.S. Environmental Protection Agency (EPA) against the insured, an electricity generating utility. La. Generating L.L.C. v. Ill. Union Ins. Co., No. 12-30651 (5th Cir. 5/15/13). EPA alleged that the insured’s generating plant made major modifications without the requisite CAA permit, resulting in excess emissions. The insurance policy covered defense costs resulting from a “pollution condition” only, and the court deemed EPA’s claim that significant pollution had been released a “pollution condition” allegation. The court further found that several counts in EPA’s complaint could plausibly be read to aver “remediation costs” that the policy also covered. While the policy’s fines and penalties section excluded coverage for injunctive relief, the court found that the insured’s construction of that phrase—applying to types of relief that are akin to punitive fines and penalties only—was plausible. It said, “[I]f the Fines and Penalties exclusion is a complete bar for coverage of costs associated with injunctive relief, the exception would potentially swallow the coverage afforded by the policy.”

The court did not decide what potential substantive relief, including civil penalties, would be covered, because under applicable law, the insurer was required to defend the entire suit, not just the substantive claims that the policy might cover.