The “sudden and accidental” discharge exception to the pollution exclusion provision of most environmental insurance policies has been the subject of hundreds of environmental coverage decisions throughout the years, mainly because “sudden and accidental” is not defined in the policy. Recent decisions concerning “sudden and accidental” relate to pollution incidents that occurred many years ago, with some courts applying the exception while others do not.
Travelers Indemnity v Northrop Grumman1
Northrop Grumman Corporation (NGC) sought insurance coverage from Travelers Indemnity Company (Travelers) and another carrier for the clean-up of its Bethpage, New York plant where it manufactured and tested airplanes, weapons and satellites beginning in the 1930s. In its operations, NGC used and stored volatile organic compounds such as trichloroethylene (TCE), which was used as a cleaning solvent for metal parts. TCE and other contaminants were found in the groundwater in the 1970s.
The New York State Department of Environmental Conservation (NYSDEC) inspected and tested the site, eventually providing a 1980 report in which the plant was designated a hazardous waste site. On December 6, 1983, the NYSDEC initiated a formal adversarial proceeding against NGC who in turn allegedly notified its insurance carriers in January 1984. Travelers has no record of ever receiving this notice.
In October 1990, NGC entered into a consent order with the NYSDEC to investigate and study the Bethpage facilities. In 1995 and 2001, the NYSDEC issued Records of Decisions (RODs) which set out remedial measures that NGC was required to implement. Travelers was not notified of the consent order or the RODs.
In 2012, NGC sent a letter to Travelers stating that it had spent $40,600,000 to date to remediate the property. After denying coverage, Travelers brought a lawsuit to determine whether it must cover the clean-up and remediation costs.
The court decided that the pollution exclusions in the policies applied because NGC intended to use the TCE in its operations. The policies that were in effect from 1972 to 1983 excluded coverage from liabilities “arising out of pollution or contamination caused by the discharge, dispersal, release or escape of any pollutants, irritants or contaminants into or upon land, the atmosphere or any water course or body of water unless such discharge, dispersal, release or escape is sudden and accidental.” Here it clearly was not. According to the court, the lawfulness of NGC’s acts in discharging or disposing of its wastes was not at issue. Rather the relevant question was whether the act of discharge or disposal was intended, and it was.
The 1983 to 1985 policies did “not apply to bodily injury or property damage arising out of any emission, discharge, seepage, release or escape of any liquid, solid, gaseous or thermal waste or pollutant if such emission, discharge, seepage, release or escape is either expected or intended from the standpoint of any insured or any person or organisation for whose acts or omissions any insured is liable.” The court stated that NGC knew what it was doing by intentionally using TCE in its operations.
At oral argument, NGC urged that at least the initial release of TCE-contaminated water was “sudden” within the meaning of the exception. The court found no cognisable factual basis for this assertion. Every release has some instant of commencement. To read the word “sudden” to incorporate the initiation of every release would be to render that word meaningless.
It should be noted that the court also denied coverage because NGC had failed to provide timely notice under the terms of the policy and it had voluntarily assumed payments without Travelers’ consent.
Narragansett Electric Company v American Home Assurance2
Narragansett Electric Company’s (NEC) predecessor released hazardous wastes in the 1930s and 1940s in Massachusetts. In 1987, the state brought a lawsuit against NEC to clean-up that location. NEC asked for coverage from American Home Assurance Company (American Home). American Home denied coverage, stating that this was not a “sudden and accidental discharge” that would be covered.
The court decided that there was a duty to defend. Applying Massachusetts law, the court ruled that “releases occurring over extended periods of time as part of the insured’s regular business activities are not sudden and accidental, absent additional facts” but the compliant was reasonably susceptible to the interpretation that [a co-defendant’s subsequent] residential excavation caused a separate, abrupt and unintentional release by exposing the waste products to the elements, which triggered a duty to defend.
Ross Development v PCS Nitrogen3
Beginning in 1906, Ross Development Corporation operated a phosphate fertiliser manufacturing facility near Charleston, South Carolina, which generated a slag byproduct containing high concentrations of arsenic and lead. In 1963, a fire destroyed a large portion of the plant. After constructing a new plant building, Ross sold the property and its equipment in 1966.
Years after selling the site Ross purchased insurance policies to provide basic liability coverage for unexpected and unintentional damages to third-party property. Several of the policies contained a qualified pollution exclusion barring coverage for the discharge of pollutants onto land unless sudden and accidental. A second group of policies contained an absolute pollution exclusion, but would allow coverage if the discharge was “caused by heat, smoke, or fumes from a hostile fire.” The court ruled that, because there was no dispute Ross intentionally used materials that created the harmful byproducts, the “sudden and accidental” exception did not apply. Also Ross failed to offer any evidence that the fire actually caused any third-party property damage.
United Nuclear v Allstate Insurance4
United Nuclear Corporation (UNC) operated several uranium mines in New Mexico from the 1960s through the early 1980s. Among other environmental incidents through those years, in July 1979, about 94 million gallons of radioactive liquid escaped from a tailings pond and poured into the nearby Rio Grande. UNC’s insurance policies provided coverage if the pollutant discharge was “both sudden and accidental.”
The New Mexico Supreme Court reasoned that since the policies lacked a definition of the term “sudden” and there was no consensus concerning its meaning among other state courts, it could take notice of dictionary definitions and look to the insurance industry’s drafting history of the qualified pollution exclusion. Reviewing these sources, the Court held as a matter of law that the term “sudden” in the pollution exclusion clause meant “unexpected,” rather than indicating a temporal limitation on the occurrence. The Court remanded the case to allow UNC the opportunity to prove that its operations led to discharges that were in fact “sudden and accidental.”
These decisions demonstrate that the “sudden and accidental” exception to the pollution exclusion provision contained in environmental insurance policies will continue to be a topic of much legal concern and analysis in the years to come.