In Louisiana Generating LLC v. Illinois Union Insurance Co., a federal district court ruled that costs incurred by an electric utility under a settlement with the EPA for measures in lieu of work to bring the utility into compliance with the Clean Air Act were recoverable from the utility’s liability insurer. The case arose after resolution of an EPA enforcement action against Louisiana Generating to redress air emissions from the utility’s Big Cajun II power plant. Although the alleged emissions were from Units 1 and 2 of the plant, Louisiana Generating settled EPA’s claims by taking various actions other than bringing Units 1 and 2 into compliance. In particular, the utility agreed to install emission-reducing technology at Unit 3 of the Big Cajun II plant, to surrender its emission allowances for the entire plant, and to undertake certain “mitigation projects” unrelated to the plant, such as funding efforts by the National Park Service to address air pollution.

It remains to be seen how influential this decision will be on other cases, particularly those outside Louisiana, in which utilities or other manufacturers seek reimbursement from their insurers for costs they incur to reduce discharges to the environment. On one hand, even under the holding of this case, costs to bring a facility into compliance with requirements imposed by law will likely not be recoverable. But this court’s holding that costs to reduce future discharges that are not necessary to achieve compliance may be covered by liability insurance could have far-reaching implications. At the least, it should make insurers hesitant to refuse coverage for such costs out of hand.