Of Fish and Fruit

by R. Hugh Lumpkin


A. Scope of this Article.
This article is limited to a discussion of four of the five issues that typically affect the application of standard-form comprehensive general liability (CGL) insurance policies in the context of environmental litigation, especially the issues relating to the disposal of hazardous wastes, whether intentional or not, by a policyholder. These issues are as follows:
  1. What is the definition of occurrence, and the expected or intended defense;
  2. What is the proper application of the pollution exclusion set forth in, or appended as a rider to certain CGL policies issued after 1970;
  3. What constitutes "damages" recoverable under the CGL policy; and
  4. What is the proper application of the owned property exclusion to policyholder liability for a release or dispersal of hazardous waste.(1)
B. General Observations.
There is relative unanimity among the cases which have addressed coverage issues under CGL policies in the environmental context. With regard to the definition of occurrence and the owned property exclusion, most courts considering these exclusions have been inclined to find insurance coverage.
With respect to the pollution exclusion, the cases are more divided and tend to be fact-sensitive. As noted in Pepper's Steel & Alloys, Inc., etc., et al. v. United States Fidelity & Guaranty Company, etc., et al., in the United States District Court, Southern District of Florida, Case No. 86-1531-CIV-SPELLMAN (August 12, 1987):
This court recognizes that there is a plethora of authority from jurisdictions throughout the United States which, depending upon the facts presented and the allegations of the underlying complaints, go 'both ways' on the issues presented today. The cases swim the reporters like fish in a lake. The defendants would have this court pull up its line with a trout on the hook, and argue that the lake is full of trout only, when in fact the water is full of bass, salmon and sunfish too. See, Pepper's, slip. op. at 15.
Notwithstanding, the majority of courts which have construed the pollution exclusion have ruled in favor of the policyholder and against the carrier. This strong tendency to find coverage is not judicial legislation. It is what the insurance industry intended when drafting the CGL policy, and is a necessary corollary of the rules of construction which favor policyholders.
C. Scope of the Risk Sought to be Shifted.
Most lawyers dealing with the issue of insurance in the environmental context recognize the vast scope of the risk sought to be shifted in insurance cases. In its December 1984 final report, the Environmental Protection Agency (EPA) projected that of the 19,000 sites currently listed in its Hazardous Substance Releases Inventory, 1,500 to 2,500 sites could be added to the SuperFund National Priority List (NPL). The Extent of the Hazardous Release Problem and Future Funding Needs, CERCLA {301(a)(1)(C) Study, Final Report (Dec. 1984). This estimate may indeed be too low by as much as 10,000 sites. See, Congressional Office of Technology Assessment, SuperFund Strategy (Mar. 1985), reprinted in C.R.W.L.R. 752, 761 (1985). The average cost of the clean-up of a SuperFund site is now estimated by EPA to be between 30 and 50 million dollars. 17 Env'Rep. 779 (1986).
As noted by Chesler, Rodburg and Smith:
Considering the estimated costs of the EPA's projected 1,500 - 2,500 NPL sites, and adding the estimated costs associated with additional state sites and related private citizens' claims, results in an industrial hazardous waste site liability of monumental dimensions. Chesler, Rodburg and Smith, Patterns of Judicial Interpretation of Insurance Coverage for Hazardous Waste Site Liability, 18 Rutger's L.J. 9, 12 (1987).
Litigation costs alone will likely rise to over 8 billion dollars, and may even exceed the cost of remedial action in any given case. See, Chesler, Rodburg and Smith at 13; Insurance Issues and SuperFund: Hearing Before the Senate Committee on Environment and Public Works, 99th Cong., First Sess., April 3, 1985 at 115-37. See also, United States v. Conservation Chemical Company, 653 F.Supp. 153 (D.Mo. 1986).
As a result of this staggering liability, "[many insurance companies faced with such claims have run for cover rather than coverage. The small print suddenly has been magnified, and insurance companies can been seen scurrying about the courts of this country in search of ways to avoid honoring their policies." Sandoz, Inc. v. Employer's Liab. Assur. Corp., 554 F.Supp. 257, 258 (D.N.J. 1983). It is no wonder, given the magnitude of potential liability and risk transfer, that many carriers are backpedaling as quickly as possible to "rewrite" policy language, to avoid coverage they contracted to provide.(2)
D. Drafting History and Industry Statements.
Only a few courts which have considered the meaning of the provisions in the CGL policy have had drafting history before them when rendering their decisions. See e.g., United Pacific Insurance Company v. Van's Westlake Union, Inc., 34 Wash. App. 708, 664 P.2d 1262 (1983); Asbestos Insurance Coverage Cases, supra. However, with the increasing tendency of Courts to hold policy language ambiguous, including the definition of occurrence and the pollution exclusion, drafting history and insurance industry statements concerning the meaning of these provisions takes on added importance. This drafting history, and insurance industry pronouncements can be a useful tool in divining the meaning of ambiguous policy provisions.
Drafting history is not widely available, yet favors policyholders on virtually all of the issues discussed in this article.(3) As noted in Sayler and Zolensky, and as reflected in the appendices attached to this article, both drafting history and public pronouncements by members of the insurance industry differ from their present posture in cases pending before the courts. Compare, GAO Briefing Report to Congressional Requestors - November, 1986: Liability Insurance, Changes in Policies Set Limits on Risks to Insurers, with Sayler and Zolensky, supra. The insurance industry's present position is at best misleading, and at worst a deliberate attempt to rewrite history to its advantage.
Drafting history is difficult to obtain, and has not widely been disseminated. One possible avenue to obtain this information would be to lay a demand on the Insurance Services Office, Inc. (ISO), the organization which provides rating, statistical, actuarial and policy form services to its member insurance companies. See e.g. New Castle County v. Hartford Accident and Indemnity Co., Case No: M8-85 (mel.) in the United States District Court for the Southern District of New York, (May 1, 1987). Unfortunately, this tact is of limited utility to the policyholder bar in general, for the ISO has successfully imposed broad restrictions by way of protective orders on dissemination of this information to those not actually involved in that specific litigation. Some of this information has been made available, and where appropriate is discussed in this article.(4)
There is also undeniable evidence by way of the ISO's "subsequent remedial act" that the insurance industry is capable of restricting coverage if it chooses to do so. The industry's new standard form policy purports to expressly exclude coverage for pollution on the basis of restrictions that insurers are seeking to have courts read into the old policy language.(5)
Regardless of the form used to obtain drafting history and insurance industry public pronouncements, policyholder lawyers must try and obtain it, and use drafting history to educate courts. Failure to do so may cause the policyholder to fall prey to the insurance industry's recent concerted briefing efforts, which include the filing of amicus briefs by insurance industry organizations which are not parties to particular proceedings.
E. History of the Standard Form Comprehensive General Liability Policy.
The primary purpose of comprehensive general liability insurance is to protect policyholders against liability for third party damages which policyholders become legally obligated to pay. CGL policies are designed to cover the broadest range of possible claims which can be made against a policyholder, for which coverage is not generally available under more specific policies.
The critical definition of a covered risk under pre-1966 CGL policies was the term "accident." This term first came into use back in the 1930's when standardized policies were first developed. See, Chesler, Rodburg and Smith at 13-16; Snow, Occurrence vs Accident - Just What is Covered?, 21 Ins. Counsel J.30, 31 (1954); Wheeler, "Caused by Accident" as Used in Comprehensive Liability Policies, 397 Ins. L.J. 87 (1956); Bean, The Accident versus the Occurrence Concept, 440 Ins. L.J. 550 (1959); Visscher, The Use of "Occurrence" for "Accident" as an Extension of Coverage, 261 Ins. L.J. 587 (1944). It is beyond the scope of this article to discuss those cases decided under the accident form of policy. Suffice it to say, the insurance industry was faced with a string of defeats in arguing that an accident did not include damage caused over a period of time. See e.g., Wolk v. Royal Indemnity Co., 27 Misc. 2d 478, 210 N.Y.S.2d 677 (Sup. Ct. 1961); Taylor v. Imperial Casualty & Indemnity Co., 82 S.D. 298, 144 N.W.2d 856 (1966). The term "accident" accordingly
does not limit policyholders' claims, as the term is inherently ambiguous and subject to judicial construction.
In 1966 the CGL policy was modified to cover liability for an "occurrence":
The company will pay on behalf of the insured all sums which the insured shall become legally liable to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence. . ..
An occurrence is defined as:
An accident, or an injurious exposure to harmful conditions which results, during the policy period, in personal injury or property damage neither expected nor intended from the standpoint of the insured. . ..
In 1973, the definition of occurrence was changed. The phrase "injurious exposure to harmful conditions" was deleted, and "continuous or repeated exposure to conditions" was substituted in its stead. This change was caused, in part, by the insurance industry's reaction to Maurice Pincoffs Co. v. St. Paul Fire and Marine Insurance Co., 447 F.2d 204 (5th Cir. 1971), in which the Fifth Circuit determined that each sale of a defective product constituted a separate occurrence.
F. History of the Pollution Exclusion.
In 1970, the pollution exclusion came into being as a rider to CGL policies. The exclusion was drafted by the Mutual Insurance Rating Bureau, a predecessor of the ISO, and reads as follows:
Contamination of pollution exclusion. Bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere, or any water course or body of waters; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.(6)
By 1970, Congress passed the Clean Air Amendments, and was in the process of passing the Water Pollution Control Act Amendments of 1972. See, Clean Air Amendments of 1970, Pub.L.No. 91-604, 84 Stat. 1676 [Codified as Amended at 42 U.S.C. {{7401 to 7462 (1971)]; Federal Water Pollution Control Act Amendments of 1972, Pub.L.No. 92-500, 86 Stat. 816 [Codified as Amended at 33 U.S.C. {{1251 to 1376 (1976 & Supp. III 1979)]. As a result of these enactments, the insurance industry should have been able to predict at least two things: that potentially lawful or unlawful discharges of pollution might occur, whether by permit or otherwise; and that pollution could result in bodily injury or damage to property as part and parcel of a permitted business' everyday activities.


There is no question that the rules of judicial interpretation and construction of policies of insurance favor the policyholder. The legal issues which arise in insurance litigation are fundamentally questions of state contract law, and while states may vary somewhat in applying these rules of construction, there is general agreement on what rules apply.
There are some basic principles which are unique to the insurance relationship. For example, in Florida, as elsewhere, a contract of insurance prepared by a carrier compensated for its efforts must be construed liberally in favor of the policyholder and strictly against the carrier. Time Insurance Company v. English, 391 So.2d 768 (Fla. 3d DCA 1980); Tropical Park, Inc. v. United States Fidelity and Guaranty Company, 357 So.2d 253 (Fla. 3d DCA 1978); see also, Seaboard Surety Co. v. Gillette Co., 64 N.Y.2d 304, 476 N.E.2d 272, 46 N.Y. Supp.2d N.Y.S.2d 873, 876 (1984); Reliance Insurance Co. v. Martin, 126 Ill. App. 3d 94, 467 N.E.2d 287, 289 (1st Dist. 1984); Harris v. Glen's Falls Insurance Co., 6 Cal.3d 699, 493 P.2d 861, 100 Cal.Rptr. 133, 134 (1972).
Exclusionary clauses in insurance contracts must be construed liberally against the carrier and in favor of the policyholder in order that the purpose of the insurance will not be defeated. Town of Surfside v. Morrison Assurance Company, Inc., 394 So.2d 530 (Fla. 3d DCA 1981). Where the terms of an insurance contract are susceptible to two reasonable constructions, the interpretation which will sustain coverage for the policyholder will be adopted. Tropical Park at 256.
Accordingly, a court is not authorized to determine as a matter of law which interpretation of an ambiguous policy provision is more logical or correct. To the contrary, any ambiguity or uncertainty in an insurance policy is to be resolved against the carrier, and the contract will be given such construction as will fairly achieve its object of providing indemnity for the loss to which the insurance relates. Harris v. Glen's Falls at 134. See also, 13 J.A. & J. Appleman, Insurance Law and Practice, {7401 at 197-296 (Rev. Ed. 1976) (collecting decisions from all jurisdictions). A carrier wishing to exclude coverage via policy language must do so in clear and unmistakable language. National Grange Mutual Insurance Co. v. Continental Insurance Co., 650 F.Supp. 1404 (S.D.N.Y. 1986). "Any such exclusions or exceptions from policy coverage 'must be specific and clear in order to be enforced. They are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction.'" Id., quoting Kratzenstein v. Western Assoc. Co., 116 N.Y. 54, 59 (1889).
Equally important to the policyholder is the principle that courts should seek to uphold the purpose of the contract, which is to give protection to the policyholder. To this end, some courts have focused on the expectation of the policyholder, and have sought to protect that expectation in a particular context. See e.g., Reserve Insurance Co. v. Pisciotta, 30 Cal.3d 840, 640 P.2d 764, 180 Cal.Rptr. 628, 633 (1982); Lansco, Inc. v. Department of Environmental Protection, 138 N.J. Super. 275, 350 A.2d 520 (Ch. Div. 1975), aff'd. 145 N.J. Super. 433, 368 A.2d 322 (App. Div. 1976) cert. denied, 73 N.J. 57, 372 A.2d 322 (1977). As noted in Appleman, Insurance Law and Practice, {7403 at 312-13,
[the insured need only offer an interpretation which is not in itself unreasonable. Conversely, to sustain its construction of the contract, the insurer has the burden of establishing not only that the words used in the policy are susceptible of its construction, but also that such construction is the only construction that can fairly be placed on the language in question. See also, Vargas v. Insurance Co. of N. America, 651 F.2d 838, 840 (2nd Cir. 1981); McLaughlin v. Connecticut General Life Insurance Co., 565 F.Supp. 434, 441 (N.D.Cal. 1983).
Many courts refer in this context to the doctrine of contra proferentum, which states that uncertainties in written contracts are construed against the drafter. This doctrine is clearly applicable to standard-form insurance contracts, such as the CGL policy, which was drafted by insurance industry experts.
The rule that ambiguity in an insurance contract should be strictly construed against the insurer is now a basic tenet of insurance law. The raison d'etre is the unequal bargaining position that typically exists between the parties to an insurance contract. The insurance contract is usually written by the insurer in standardized language 'to meet its own needs, and offered to the weaker party on a "take it or leave it" basis.' Gray v. Zurich Insurance Co., 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168 (Cal. 1966). It is the classic adhesion contract.
Policy Interpretation/Practice Tip, Insurance Litigation Reporter, April 1987 edition at page 103. Cf., Fireman's Fund Insurance Co. v. Fiberboard Corp., 227 Cal.Rptr. 203 (Cal. App. 1986).
These rules of construction have their basis not only in contra proferentum, but also in the purpose of insurance which is to give protection and certainty to the policyholder. See, 2 Couch on Insurance 2d, {15:81 at 392-98 (Rev. Ed. 1984). Contra proferentum serves to effectuate the social and economic objectives of insurance which is to spread the risk of loss efficiently.(7)
A. The Duty to Defend.
The allegations in the complaint brought against the policyholder control in determining the carrier's duty to defend. Thus, the actual facts of a situation are not pertinent to the issues on the duty to defend. Pepper's, supra, slip op. at 8; Jonesville Products, Inc. v. Transamerica Ins. Group, ____ Mich. App. ____, 402 N.W.2d 46 (Mich. Ct. App. 1986); National Grange Mut. Ins. Co. v. Continental Casualty Co., 650 F.Supp. 1404 (S.D.N.Y. 1986); Baron Oil Company v. Nationwide Mutual Fire Insurance Company, 477 So.2d 810 (Fla. 1st DCA 1985); Jackson Township Mun. Util. Auth. v. Hartford Accident & Indem. Co., 186 N.J.Super. 156, 451 A.2d 990 (Law. Div. 1982); Federal Insurance Company v. Applestein, 377 So.2d 229 (Fla. 3d DCA 1979); Grand River Lime Co. v. Ohio Casualty Insurance Co., 32 Oh. App. 2d 178, 289 N.E.2d 360 (1972). See also, Trizec Properties, Inc. v. Biltmore Construction Co. Inc., et al., 767 F.2d 810 (11th Cir. 1985) (insurer has duty to defend if the complaint alleges facts within the policy coverage even if later facts demonstrate there is no coverage); Tampa Electric Co., et al. v. Stone & Webster Engineering Corp., et al., 367 F.Supp. 27 (M.D. Fla. 1973) (the duty to defend is determined when the action is brought, not when it is reduced to judgment). See generally, Annot., 50 A.L.R. 2d 458 (1956).
An insurer's duty to defend a policyholder is also much broader than the duty to indemnify. Florida Insurance Guaranty Association v. Giordano, 485 So.2d 453 (Fla. 3d DCA 1986); Baron Oil, supra; Logozzo v. Kent Insurance Company, 464 So.2d 605 (Fla. 3d DCA 1985); Klaesen Brothers, Inc. v. Harbor Insurance Company, 410 So.2d 611 (Fla. 4th DCA 1982); Niagra County v. Utica Mutual Insurance Company, 80 A.D.2d 415, 439 N.Y. Supp.2d 538 (App. Div. 1981); National Union Fire Insurance Company v. Lenox Liquors, Inc., 342 So.2d 532 (Fla. 2d DCA 1977); Garden Sanctuary, Inc. v. Insurance Company of North America, 292 So.2d 75 (Fla. 2d DCA 1974).
As stated in Baron:
The duty to defend is distinct from and broader than the duty to indemnify the insured against damages assessed, and if the complaint alleges facts showing two or more grounds for liability, one being within the insurance coverage and the other not, the insurer is obligated to defend the entire suit.
Baron at 813, 814. If the allegations of the complaint against the policyholder leave any doubt regarding the duty to defend, the question must be resolved in favor of the policyholder, requiring the carrier to defend. Id.
The Court in Pepper's put the issue this way:
There is no question but that an insurer's duty to defend an insured is broader than the duty to indemnify. In this regard: 'the duty of the insurer to defend the insured depends upon the allegations in the complaint of the third party in his or her action against the insured. This duty is not limited to meritorious suits and may even extend to actions which are groundless, false or fraudulent, so long as the allegations against the insured even arguably come within the policy coverage. An insurer has a duty to defend, despite theories of liability asserted against any insured which are not covered under the policy, if there are any theories of recovery that fall within the policy. The duty to defend cannot be limited by the precise language of the pleadings. The insurer has the duty to look beyond the third parties' allegations to analyze whether coverage is possible. In case of doubt as to whether or not the complaint against the insured alleges a liability of the insurer under the policy, the doubt must be resolved in the insureds favor.'
Pepper's, supra, slip. op. at 8, citing Jonesville Products, Inc. v. Transamerican Ins. Group, ____ Mich. App. ____, 402 N.W.2d 46, 47 (Mich. Ct. App. 1986). See also, Couch on Insurance, 2d {51:44 at p. 458 (Rev. Ed. 1982); 44 Am. Jur.2d Insurance {1411 p. 355 (1982).
These rules of construction strongly favor the policyholder in coverage actions, and lead to a couple of observations and suggestions. First, one should never assume that there is no coverage, because in almost every instance a policyholder is at least entitled to its defense costs. Second, policyholders should file a motion for summary judgment on the duty to defend as soon as practicable. The duty to defend is determined solely from the allegations in the underlying complaints against the policyholder, so discovery is seldom warranted at this stage. Therefore, policyholders should, if possible, separate the defense and indemnity issues in developing their litigation strategy.(8)
B. The Burden of Proof.
It is an unavoidable concomitant of the rules of construction that the burden of proving the applicability, and indeed the factual basis for exclusions in a policy rests at all times on the carrier. This rule applies with equal force to that portion of the definition of occurrence which limits covered acts to those neither expected nor intended by the insured. Asbestos Insurance Coverage Cases, slip. op. at 73, 74; Allstate Ins. Co. v. Klock Oil Co., 73 A.D. 34 486, 426 N.Y. Supp.2d 603 (1980). Accordingly, the burden of proof on each of the exclusions which will be discussed is on the carrier, and not the policyholder.


The initial argument the carrier makes when faced with a demand from a policyholder for defense and/or indemnity is that no occurrence has taken place within the purview of the CGL policy. Carriers typically rely on that portion of the occurrence definition which focuses on "property damage, neither expected nor intended from the standpoint of the insured." Almost without exception, and even in those cases wherein the courts have ruled against policyholders on other grounds, this argument has not been well received by the courts.
The general rule is that a polluting event constitutes an occurrence within the meaning of the standard form CGL policy, and that coverage exists for a given policyholder unless the policyholder intended to cause not only the act causing the pollution, but the specific resulting harm as well. See e.g., Pepper's, supra; Payne v. United States Fidelity and Guaranty Company, 625 F.Supp. 1189 (S.D. Fla. 1985); Buckeye Union Ins. Co. v. Liberty Solvents and Chemicals Co., 17 Ohio App. 3d 127, 477 N.E.2d 1229 (1984); United Pacific Insurance Company v. Van's Westlake Union, 34 Wash. App. 708, 664 P.2d 1262 (1983); Traveler's Indemnity Company v. Dingwell, 414 A.2d 220 (Me. 1980); Willet Truck Leasing Co. v. Liberty Mutual Ins. Co., 88 Ill. App. 3d 133, 43 Ill. Dec. 376, 410 N.E.2d 376 (1980). This doctrine is in keeping with the general view of courts and commentators that the change in the 1960's from an accident to an occurrence form of policy was an attempt by the insurance industry to broaden coverage for claims of this nature. See, Insurance and its Role in the Struggle Between Protecting Pollution Victims and Producers of Pollution, 31 Drake L.Rev. 914 (1982).
A recent pronouncement on the occurrence issue is Pepper's Steel, which affirmed what policyholders' lawyers have been saying all along: coverage exists under CGL policies for injuries occurring over time, and in cases wherein the policyholder may have committed an intentional act, but where the specific harm that resulted is unintended. See, Pepper's, slip op. at 10-12, and cases cited therein.
In adopting the general rule, Judge Spellman relied in part on Grand River Lime Co. v. Ohio Casualty Ins. Co., 32 Ohio App.2d 178, 289 N.E.2d 360 (1972). This reliance is well placed.
In Grand River, some 200 residents of the village of Fairport Harbor brought suit against Grand River alleging property damage and personal injury caused by Grand River in its quarrying and manufacturing operations as a result of the emission of air pollution for a period of seven years. The carrier argued that the use of the word "occurrence" in its policies must be viewed in conjunction with the word "accident" in the definition of occurrence. Accordingly, where the activity would produce the damages intended, and the residual by-product of the activity was foreseeable, the activity and damage was expected or intended from the standpoint of the insured.
The Court in Grand River disagreed, holding:
We adopt the argument as propounded by the plaintiff that the word 'occurrence' is much broader than the term 'accident.' Such proposition is well stated in Aerial Agricultural Service v. Till, (N.D. Miss. 1962), 207 F.Supp. 50, 57:
'To begin with, the word "occurrence," to the lay mind, as well as to the judicial mind, has a meaning much broader than the word "accident." As these words are generally understood, accident means something that must have come about or happened in a certain way, while occurrence means something that happened or came about in any way. Thus, accident is a special type of occurrence, but occurrence goes beyond such special confines and, while including accident, it encompasses many other situations as well.'
We further adopt the plaintiff's proposition to the effect that while the activity which produced the alleged damage may be fully intended, and the residual results fully known, the damage itself may be completely unexpected and unintended.
Grand River at 65.
The approach in Grand River and Pepper's has been followed in other cases as well. See e.g., Buckeye Union Insurance Co. v. Liberty Solvents and Chemicals Co., Inc., 17 Ohio App. 3d 127, 477 N.E.2d 1227 (1984) (holding that "releases" and "threatened releases" of hazardous waste materials are "occurrences" within the common understanding of that term); Payne v. United States Fidelity and Guaranty Company, 625 F.Supp. 1189 (S.D. Fla. 1985). See also, Allstate Ins. Co. v. Steinemer, 723 F.2d 873 (11th Cir. 1984).(9)
These decisions are consistent with the drafting history of the occurrence form of CGL policies. See, Sayler and Zolensky, supra; Chesler, Rodburg & Smith, Patterns of Judicial Interpretation of Insurance Coverage for Hazardous Waste Site Liability at 20-34 (1986).
These decisions are consonant with Florida law on the expected or intended aspects of the occurrence definition. As noted in Allstate Ins. Company Co. v. Steinemer, 723 F.2d 873 (11th Cir. 1984):
Under the majority rule the exclusion applies if the insured intended to do a particular act, and intended to do some harm, even if the harm actually done was radically different from that intended. (Citation omitted.) On the other hand, an 'intentional injury' exclusion will not apply if the insured intentionally does an act, but has no intent to commit harm, even if the act involves a foreseeable consequence of great harm or even amounts to gross or culpable negligence.
Allstate at 875. See also, Hartford Insurance Co. v. Spreen, 343 So.2d 649 (Fla. 3d DCA 1977); Clemmons v. American States Ins. Co., 412 So.2d 906 (Fla. 5th DCA 1982) (summarizing Florida cases on intentional act exclusion clauses).
In addition, Florida law accepts the proposition that occurrences include injury or damage taking place over a protracted period of time. "There has been frequent litigation over the word 'occurrence' in the insurance field. Insurance coverage for occurrences is generally interpreted to include liability for damages which are inflicted over a period of time." Rumbough v. City of Tampa, 403 So.2d 1139 (Fla. 2d DCA 1981).
It is clear, therefore, that ordinarily argument on the nature of an "occurrence" is not, and should not be useful from the carriers' point of view.


There is some authority to support raising the pollution exclusion as a bar to recovery in certain fact-sensitive situations. However, the majority of courts held the pollution exclusion ambiguous, and not applicable in the pollution context. Representative cases that have held the pollution exclusion ambiguous, and to be construed against insurance companies in favor of coverage for policyholders, are listed in Appendix "B." Representative cases that have held the pollution exclusion applies only when the insurer can demonstrate the policyholder intended both the act causing the pollution and the specific resulting harm are collected in Appendix "C."(10)
A. Ambiguity in the Pollution Exclusion.
An ambiguity generally exists where a phrase in a contract is of uncertain meaning and may be fairly understood in more ways than one: where a phrase is obscure in meaning through indefiniteness of expression, has a double meaning, or is doubtful or uncertain. See, Continental Casualty Company v. Borthwick, 177 So.2d 687 (Fla. 1st DCA 1965); Friedman v. Virginia Metal Products Corp., 56 So.2d 515 (Fla. 1952). This test has been applied to the pollution exclusion, and the pollution exclusion's language has been found ambiguous by a majority of courts.(11)
In the case before us the liability insurance policy on the one hand covers an 'occurrence,' which by policy definition includes conditions which are continuing in nature (as the insured argues), while on the other hand the pollution exclusion clause in the policy excludes from coverage damages arising out of the escape of liquids, gases and other substances unless the escape is sudden (as the insurer argues is the situation presented). Both cannot be true yet both positions are reasonable, hence, the policy is ambiguous and requires judicial interpretation. It then follows that ambiguities in the policy are to be construed against the insurer who wrote the policy and in favor of the insured - particularly where an exclusion is involved as it is here. United Pacific Ins. v. Van's Westlake Union, 34 Wash.App. 708, 664 P.2d 1262, 1265 (1983).
See also, United States v. Conservation Chemical Company, 653 F.Supp. 153 (D.Mo. 1986); Payne v. United States Fidelity and Guar. Co., 625 F.Supp. 1189 (S.D. Fla. 1985). The inartful manner in which the exclusion is drafted, by creating an exception to an exclusion which is itself a limitation of comprehensive liability, has led to the result in United Pacific, and other cases collected in Appendices B and C to this Article.
B. The Pollution Exclusion Was Not Intended to Exclude Coverage for Environmental Contamination.
The pollution exclusion was designed to exclude only intentional acts that result in intentional harm to the environment. It is clear from the long line of cases interpreting the pollution exclusion, as well from the drafting history and various statements by insurance industry executives that interpret the exclusion, that the sudden and accidental language of this exclusion is merely a restatement of the definition of the term occurrence. The occurrence definition precludes coverage only for intentional acts with intended results.(12)
G. L. Bean, assistant secretary of Liberty Mutual, wrote an article in 1965 discussing the then new CGL policy. The article was delivered as a lecture to the Mutual Insurance Technical Conference on November 15-16, 1965. In that article, Mr. Bean stated that, under the new CGL policy:
It is in the waste disposal area that a manufacturer's basic premium - operations coverage is liberalized most substantially. Smoke, fumes or other air or stream pollution have caused an endless chain of severe claims for gradual property damage. These waste disposal cases have been difficult ones, because when the injury or damage first starts to emerge, no corrective action is taken in many cases, because the manufacturer is reticent to admit his waste disposal is causing it. This is probably an honest doubt. When the cause is pinpointed, it may or may not be easy to make a quick elimination of the cause. The cost of an alternative method of waste disposal may be terrifically expensive or might even force the manufacturer out of business, and even if it can be made, it may take months to convert. Our new policy requires the insured to promptly take reasonable steps to correct conditions causing gradual injury or damage, once discovered. Opinions as to what is reasonable may vary widely. Meanwhile, losses continue.
This brings into focus one important change in our policy. The fact that coverage no longer attaches when the accident occurs, but rather when the injury or damage takes place. This means that the policy in force when a particular injury or damage takes place is the one which applies, regardless of when the causing accident took place. So if the injury or damage from waste disposal should continue after the waste disposal ceased, as it usually does, it could produce losses on each side of a renewal date, and in fact, over a period of years, with a separate policy applying to each year. . ..
This brings us logically to a discussion of the impact of the new CGL program on a manufacturer's products liability coverage. . .. Our new occurrence basis includes the gradual injury or damage which may result from either accident or exposure to conditions. Manufacturing risks producing insecticides, plant foods, fertilizers, weed killers, paints, chemicals, thermostats or other regulatory devices, to name a few, have severe gradual PD exposure. They need this protection and should legitimately expect to be able to buy it, so we have included it.(13)
By the insurance industry's own admission, the pre-pollution exclusion CGL policy covered pollution incidents such as the ones being litigated in the courts today. Coverage was not altered by the addition of the pollution exclusion. When the exclusion was submitted to state insurance commissioners for approval in the early 1970's, insurance industry trade associations represented that the pollution exclusion was merely a clarification of the "occurrence" definition in the CGL policy and did not reduce existing coverage. For example, an order of the West Virginia Insurance Commissioner approving the pollution exclusion provides:
The said companies and rating organizations having represented to the insurance commissioner, orally and in writing, that the proposed exclusions, with the exception of a proposed exclusion for oil and other petroleum substances, are merely clarifications of existing coverages as defined and limited in the definitions of the term 'occurrence,' contained in the respective policies to which said exclusions would be attached.(14)
The Mutual Insurance Rating Bureau, in a letter to the Honorable Samuel H. Weese, Commissioner of the Insurance Department of the State of West Virginia, declared the new pollution exclusion to have the following effect:
Coverage for pollution or contamination is not provided in most cases under present policies because the damages can be said to be expected or intended and thus are excluded by the definition of occurrence. The above exclusion clarifies this situation so as to avoid any question of intent. Coverage is continued for pollution- or contamination-caused injuries when the pollution or contamination results from an accident except that no coverage will be provided under certain operations for injuries arising out of discharge or escape of oil into any body of water.(15)
The majority view, as reflected in the cases -- and the one formerly held by the insurance industry -- is that the pollution exclusion is simply a restatement of the definition of occurrence. If an occurrence has taken place, then coverage exists regardless of the pollution exclusion. The insurance industry's present position on this issue, as disclosed in the GAO report described above, is clearly inconsistent with what was said when the pollution exclusion was promulgated. The insurance industry is attempting to rewrite history at the expense of its policyholders.
On the other hand, there are also some cases that have held the pollution exclusion effective in precluding coverage under certain specific conditions as described in those cases.(16) These are the "trout" adverted by the carriers in the Pepper's case. Pepper's Steel and Alloys, Inc. at 15.
These cases can be distinguished from the majority of cases finding for the policyholder. Four of the decisions have held that the insurer was not obligated to defend because the underlying complaints alleged pollution related damage, but failed to specifically allege that contamination was "sudden and accidental." Great Lakes Container Corp.; American States Insurance Co.; Waste Management of Carolinas; and Techalloy. These decisions are directly contrary to the settled rule in Florida and indeed the majority rule, that an insurer has a duty to defend if the allegations in the underlying complaints allege facts potentially within a policy's coverage. See e.g., Baron Oil at 814.
Five of the decisions from other jurisdictions looked to "facts" beyond the allegations of the underlying complaints to find that the releases and damages complained of were not "sudden and accidental." Great Lakes Container; Barmet; American States; Waste Management; and Fischer & Porter. In American States, the court considered testimony from an underlying trial, and in Fischer & Porter and Waste Management, the courts considered evidence submitted in connection with the motion for summary judgment. The majority view, at least on the issue of duty to defend, is to the contrary.
This is the distinction alluded to earlier. Where the sole issue before the court is the duty to defend, wherein only the underlying complaint is before the trial court, the policyholder is in a better position to argue coverage than if the issues of duty to defend and indemnification are before the court for trial, or on motion for summary judgment.
In Techalloy, the application of the pollution exclusion apparently had been neither brief nor argued. The court cited not a single decision of any jurisdiction in support of its finding that the releases were not "sudden or accidental."
Transamerica presents several special problems. First, the issue before the court was the duty to indemnify, not the duty to defend. Second, the Transamerica court, against the clear weight of authority, held that the pollution exclusion bars coverage when the insurance company merely establishes that the policyholder performed an intentional act which results in pollution, even if the resulting harm was unintentional. The overwhelming majority of the courts considering this issue, however, have held that coverage exists for the unintended results of even an intentional act.(17)


The issue of what constitutes "damages" recoverable under a CGL policy is in reality two issues. The first is whether environmental damage is "property damage" within the meaning of CGL policies. The second is whether response and clean-up costs are payable "as damages," where the relief sought may be characterized as equitable rather than legal.
With respect to the first issue, environmental damages have almost uniformly been held to constitute "property damage" within the purview of CGL policies. The argument that environmental claims are not property damage has been explicitly rejected in a number of cases. For example, the court noted in Lansco, Inc. v. Department of Environmental Protection, 138 N.J.Super. 275, 350 A.2d 520 (Ch.Div. 1975), aff'd. 145 N.J. Super. 433, 368 A.2d 363 (App. Div. 1976), cert. denied, 73 N.J. 57 372 A.2d 322 (1977):
[the insurer] urges. . .that the term 'property damage' must be read as meaning measurable damage to identifiable physical property. The argument is without merit. It has long been established that the sovereign's interest in the preservation of public resources and the environment enables it to maintain an action to prevent physical injury thereto. . .the State. . .has fixed as the measure of damages the cost of eliminating the harmful substance from the waters of the state. Id., 350 A.2d at 524, 525.
The Lansco court based its ruling on the declared public policy of the state to clean up and preserve the environment found in the preamble to the environmental statute. The State of Florida, and many other states have like declarations. See e.g., {403.021 Fla.Stat. (1985). This is a necessary implication if not a stated holding of all cases which have ruled in favor of policyholders on the duty to defend issue in environmental litigation, including Pepper's,and Payne v. United States Fidelity and Guaranty Co.
This view of clean-up costs as "property damage" was recently adopted by the Eighth Circuit in Continental Insurance Companies v. Northeastern Pharmaceutical and Chemical Co., 811 F.2d 1180 (8th Cir. 1987), pet. for reh. granted (March 30, 1987). The court held that environmental damage and clean-up costs are "property damage" within the meaning of the CGL policy. The Eighth Circuit based its ruling on a series of Supreme Court decisions which stressed that state and federal governments have "quasi-sovereign" proprietary interests in preserving and protecting the environment. Id. at 1185-86. The court also relied upon numerous cases and statutes which found that the state and federal governments have a property interest in wildlife, water resources and natural resources. Id. at 1186. The Eighth Circuit concluded that "[the policies' definition of 'property damage' as damage to 'tangible property' or 'physical injury' seems to contemplate damage to tangible property such as land, trees and water." Id. at 1186.
The Northeastern Pharmaceutical court, having concluded that property damage occurred, held that recovery by the government for clean-up costs was property damage within the CGL policies.
In light of these extensive statements of governmental property interests in environmental resources, it does not seem unreasonable to assume that an insurance company providing liability coverage for a chemical producer, would contemplate environmental damages as a form of covered 'property damage for which governments may seek recovery.' Id. (Quoting Lansco.)(18)
See also, Kutscher's Country Club Corp. v. Lincoln Ins., 465 N.Y.S.2d 136, 119 Misc.2d 89 (1983); United States Aviex Co. v. Travelers Ins. Co., 125 Mich. App. 579, 336 N.W.2d 838 (1983); Chemical Applications Co., Inc. v. The Home Indem. Co., 425 F.Supp. 777 (D.Mass. 1977); Reihl v. Travelers Ins. Co., No. 83-0085, 22 Envt.Rptr. Cas. 1544 (W.D. Pa. August 7, 1984), rev'd. on other grounds, 772 F.2d 19 (3d Cir. 1985); Fireman's Fund Insurance Companies, etc., et al. v. Ex-Cell-O Corporation, et al., Civil Action No. 85-71371, United States District Court, Eastern District of Michigan (May 18, 1987).
Viewing the clean-up costs as "property damage" also comports with the plain meaning of CGL policies. There is clearly no requirement in the policies that damage be sustained directly by the party asserting the claim, as the policy obligates the carrier to defend and indemnify the policyholder for all sums it becomes obligated to pay "as damages because of. . .property damage." The policy language simply compels the carrier to pay all sums that flow from the property damage. Therefore, funds that may be expended by an appropriate governmental authority to remedy environmental damage are simply a measure of damages attributable to the property damage. See, Independent Chemical Corp. v. Aetna Casualty and Surety Co., No. 83-3347. Slip. op. at 23 (D.D.C. May 2, 1986); Solvents Recovery Service, Inc. v. Midland Insurance Co., No. L-25610-83, slip. op. (N.J.Super. Law Div. Nov. 17, 1986).
Even where the relief sought against a policyholder may be characterized as equitable rather than legal, a good argument may be made that the cost of complying with an injunction is "damages."
Carriers faced with equitable claims against their policyholders cite to cases like Aetna Casualty and Indemnity Insurance Co. v. Hanna, 224 F.2d 499 (5th Cir. 1955). This is a 32-year-old case that did not involve a pollution claim and has been held by other courts in other jurisdictions not to apply to government mandated clean-up actions. See e.g., Solvents Recovery Service, Inc. v. Midland Insurance Co., No. L-25610-83, slip. op. at 21 (N.J.Super. Law Div. Nov. 17, 1986). The plaintiff in Hanna did not allege that his property had been damaged, whereas the typical pollution case alleges damages to certain sovereign interests. Damage to groundwater for example, necessarily involves clean-up costs in order to contain the harm and to mitigate potential damage to third parties. Solvents Recovery, slip. op. at 21.
Moreover, most courts have held that the distinction made in Hanna between equitable and legal claims is inapplicable in clean-up actions. For example, the Solvents Recovery court analyzed the case law and concluded that the overwhelming weight of decisions hold that CGL policies provide coverage for injunction and remedial relief.
The key to each of these cases is not whether the state chose to style its complaint as one for compensatory damages or equitable relief, but rather the essential nature of the damages in issue. If the insured seeks insurance coverage for costs which it is legally obligated to incur because of property damage, the courts have found that coverage exists. Id., slip. op. at 23.
The Solvents Recovery court adopted this view, and held that clean-up costs are essentially compensatory damages for injury to common property which the court deems "the more enlightened view of the nature of property damage. . .." Id., slip. op. at 23-24.
This position has been adopted by a number of other courts in coverage actions involving clean-up claims. See, Northeastern Pharmaceutical, 811 F.2d at 1188-89; The Upjohn Co., et al. v. New Hampshire Insurance Co., No. 85-288651-CK, slip. op. at 11-13 (Mich. Cir. Ct. January 5, 1987); Consolidated Rail Corp. v. Certain Underwriters at Lloyds, et al., No. 84-2609, slip. op. at 7-12 (E.D.Pa. June 3, 1986); Bankers Trust Co. v. Hartford Accident and Indemnity Co., 518 F.Supp. 371, 373-74 (S.D.N.Y.), vacated due to settlement, 621 F.Supp. 685 (1981); Chemical Applications Co. v. Home Indemnity Co., 425 F.Supp. 777, 779 (D.Mass. 1977); United States v. United States Aviex, 336 N.W.2d at 842-43; Lansco, 350 A.2d at 525-36; Kutcher's Country Club Corp. v. Lincoln Insurance Co., 119 Misc.2d 889, 465 N.Y.S.2d 136, 139 (Sup. Ct. 1983); Broadwell Realty Service, Inc. v. Fidelity and Casualty Company of New York, et al., No. L-082294-84, slip. op. at 4, 6 (N.J.Super., Law Div. May 23, 1986), appeal docketed.
These courts reject the distinction between equitable and legal relief in the environmental context for several reasons. First, they regard the distinction between monetary damages and injunctive relief as a formal and antiquated one with no applicability to environmental clean-up claims. If the government cleaned up the property and then sued for its own clean-up costs, rather than seeking an injunction to force the policyholder to do the clean-up, coverage should be available. The courts are concerned not with the form of pleading, but "rather with the essential nature of the damages at issue." Solvents Recovery at 23.
As noted in United States Aviex Co.:
It is merely fortuitous from the standpoint of either [the policyholder] or [the insurer] that the State has chosen to have the plaintiff remedy the contamination, rather than choosing to incur the costs of clean-up itself in suing [the policyholder] to recover those costs. The damage to the natural resources is simply measured in the cost to restore the water to its original state. . .defendant must defend and indemnify plaintiff. . ..
United States Aviex Co., 336 N.W.2d at 843.
Secondly, a policyholder's clean-up costs are actually mitigation costs that are covered by the CGL policy. In Consolidated Rail Corporation v. Certain Underwriters at Lloyds, supra, the District Court rejected the insurance company's argument that the policyholder's clean-up expenses were not damages. The court held that such expenses were incurred to fulfill the policyholder's "lawful and necessary duty to mitigate liability." Slip. op. at 9. See also, Broadwell Realty at 4, 5.
Lastly, the technical distinction between law and equity does not appear anywhere in the CGL policy. It arguably does not reflect the ordinary and accepted meaning of damages. See, Port of Portland, 796 F.2d 1994-95. Moreover, to the average policyholder, a complaint seeking an injunction to compel the policyholder to clean up ground water and the environment is an allegation of third party property damage from the policyholder's perspective. Such a claim merely seeks recovery of damages so that by finding coverage, a court merely confirms the policyholder's reasonable expectation of coverage. See, Lansco at 524.
At the very least, the term "damages" as used in CGL policies is ambiguous, for it is unclear whether damages applies only to third party property claims, or to claims seeking to prevent and mitigate harm to third party property.
It is quite clear from counsel's arguments, and other evidence adduced, that if the preventive work had not been done on the insured's property, gasoline would have continued to seep on to the adjoining property. In the face of this situation, [the insurance company] argues that the clause of the insurance instrument properly construed, dictates that the cost incurred in the clean-up of the Broadwell site property is not covered under the [CGL insurance policy]. In this case, the clause is ambiguous as to coverage of costs of preventing third party damage. Any ambiguity in an insurance policy is to be resolved in favor of the insured.
Broadwell Realty, slip. op. at 4.
Carriers have had limited success in arguing that the cost of remediating a toxic waste site is not "damages" recoverable under CGL policies. See e.g., Mraz v. Canadian Universal Insurance Co., 804 F.2d 1325 (4th Cir. 1986); Maryland Casualty Co. v. Armco, Inc., 643 F.Supp. 430 (D.Md. 1986); Ladd Construction Co. v. Insurance Company of North America, 73 Ill. App. 3d 43, 391 N.E.2d 568 (1979). The court in Mraz, for example, made three findings, any one of which could have disposed of the case, and any two of which are dicta. In Mraz, there was only one policy on the risk from January 1, 1969 through January 1, 1970. The underlying complaint apparently did not allege damage occurring during the policy period, thereby obviating the duty to defend. Second, the court implied that because the government had cleaned up the property, the claim was not for "damages" but simply for reimbursement of costs. "One cannot equate response costs with injury to or destruction of tangible property." Third, Mraz held that Canadian Universal, the defendant carrier, had been released from liability.
The Mraz decision simply does not make sense. If someone is punched in the nose, and goes to a doctor to have the nose reapportioned to its previous condition, and then sues the tort feasor for the medical expenses as damages, there would be no argument. Likewise, whether the government cleans up the property and then sues the policyholder for reimbursement, or whether the government orders the policyholder to clean up the property, seems to be a distinction without a difference. Both circumstances relate to damage to governmental sovereign interests in the environment, and both are third party claims for damages.(19)
A useful analogy can be drawn from Bankruptcy law pertaining to the damage/injunction issue. Perhaps some bright lawyer can make fine fodder with Ohio v. Kovacs, 105 S.Ct. 705 (1985), and its progeny, including In re: Robinson, 46 Bankr. 136 (M.D. Fla. 1985), rev'd on other grounds, 55 Bankr. 355 (M.D. Fla. 1985). Typically, a discharge in bankruptcy releases the debtor from all debts arising before bankruptcy. 11 U.S.C. {{727; 1141; 1328(b). A dischargeable "debt" is a "liability on a claim." 11 U.S.C. {101(11). There was formerly some doubt as to whether monetary claims, such as claims for governmental response costs, are dischargeable debts. The issue was unresolved as to whether clean-up orders, or injunctive orders give rise to a "right to payment," thereby being dischargeable in bankruptcy.
In Kovacs, the Supreme Court held that the debtor's obligations under a state injunction ordering clean-up of a hazardous waste disposal site was a dischargeable debt. The Supreme Court reached this decision for "on the facts before it, and with the receiver in control of the site," the clean-up order "had been converted into an obligation to pay money" and was thus dischargeable in bankruptcy. Id. at 711. In other words, the debtor could not perform his obligations except by paying money, which is a dischargeable debt or damage under the bankruptcy code. On its face, the Supreme Court recognized that an injunctive order requiring a debtor to spend money is nothing more than the enforcement of a judgment by seeking money from the debtor. This is exactly what the courts in Solvents Recovery and Broadwell have held, and what the court in Mraz seemingly has not. There is no question but that this will be a ripe area for future litigation.


The last fruit from the exclusion orchard is the owned property exclusion. This exclusion typically reads as follows:
This insurance does not apply:
to property damage to
  1. property owned or occupied by or rented to the insured,
  2. property used by the insured, or
  3. property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control;. . ..
This exclusion was left for last for the simple reason it is the weakest argument upon which insurance companies rely in the environmental context. It is invariably raised by the carriers, and typically held inapplicable by the courts. Courts have sensibly held sovereign interests, such as groundwater, are not capable of being owned by any one person. Accordingly, the exclusion does not apply.
Most recently, the court noted in Pepper's Steel and Alloys, Inc.:
This exclusion is not applicable insofar as the underlying complaints allege damage to the property of adjoining landowners and the public. In this regard, this court holds that where the property damage alleged constitutes damage to the environment, in this case the Biscayne Aquifer and the underlying waters which are the very source of the drinking waters for much of South Florida, that such property in truth belongs not to the plaintiffs, but rather to the state and the citizens thereof, and simply is not capable of being privately owned.
Pepper's, slip. op. at 16-17.
Other courts which have dealt with the issue agree. See, United States Aviex Co. v. Travelers Insurance Co., 125 Mich. App. 579, 336 N.W.2d 838, 843-44 (Mich. Ct. App. 1983); Fireman's Fund Ins. Co. v. Ex-Cell-O Corp., No: 85-71371-Civil-Feikens (E.D. Mich. May 18, 1987); United States v. Conservation Chemical Company, 653 F.Supp. 153 (D. Mo. 1986); Lansco, Inc. v. Department of Environmental Protection, supra; Banker's Trust Co. v. Hartford Accident and Indemnity Co., 518 F.Supp. 371 (S.D.N.Y. 1981); Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188 (9th Cir. 1986); Riehl v. Travelers Ins. Co., 772 F.2d 19 (3d Cir. 1985); Powers Chem. Co., Inc. v. Federal Insurance Co., Index No. 8462/85, in the Supreme Court, Nassau County, New York, New York (April 3, 1987).
One problem that has been discussed in Powers Chem. Co. is that the typical environmental case encompasses more than just the clean-up of sovereign interests, but includes owned property as well. That court accordingly held that the exclusion will bar coverage to the extent clean-up costs can be attributed solely to property owned by the plaintiff. The court may have been exhibiting dry wit when it reflected that this will not be easy. I would submit that in the normal case apportionment is impossible. The burden of proving apportionment falls on the carrier who typically will not be able to apportion damages.


The court in Pepper's noted that the lake of pollution/insurance litigation is full of trout, bass, salmon and sunfish. Some of these fish swim both ways. There are, however, distinctions which can be drawn between fish and fish. Judicious use of drafting history, insurance industry pronouncements, law, and proper timing will aid in creating these distinctions. The exclusions and policy provisions discussed in this article should be construed so as to apply in the manner intended by the insurance industry, and in accordance with the reasonable expectation of policyholders.
The way the cases are going, it would seem that the prestidigitations of the insurance industry as a whole have not impressed the majority of courts considering the issues discussed in this article, and that the reasonable expectations of the policyholders are being protected.(20)


1. This article will not deal with the issue of "trigger" of coverage (the "fifth" issue) for that is a weighty issue in and of itself. Policyholders faced with trigger issues have not utilized drafting history to their best advantage, nor inquired into the insurance industry's own views on trigger. The majority view espoused by the insurance industry some ten years ago was that coverage exists for each carrier throughout the period of time the condition complained of develops: i.e., from first exposure through discovery and diagnosis. Each carrier on the risk during any part of the period should be fully responsible for the cost of defense and loss. See, Memorandum of Meeting of Discussion Group Asbestosis, April 21, 1977 held under the auspices of the American Mutual Insurance Alliance and American Insurance Association; Developments in the Law, Toxic Waste Litigation, 99 Harvard Law Review, 1458, 1581-83 (1986); Keene Corp. v. Insurance Corp. of North America, 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007 (1982). See also, excellent discussion contained in Coordination Proceeding Special Title [Rule 1550(b)] Asbestos Insurance Coverage Cases, Judicial Counsel Coordination Proceeding No. 1072, in the Superior Court of the State of California in and for the City and County of San Francisco, at pages 12-56.
2. Sayler and Zolensky, in their article on drafting history noted in fn.3, make reference to L. Carroll, Through the Looking Glass, at 125-126, from The Works of Lewis Carroll (Longmeadow Press 1982), as an analogy to present insurance industry retrenching.
3. Public record evidence including drafting history, and the insurance industry's own public pronouncements can be obtained from this writer, Gene Anderson with Anderson Russell Kill & Olick (New York) or David Zolensky, Esq., with Covington & Burling in Washington, D.C. See also, Sayler and Zolensky, Pollution Coverage and the Intent of the CGL Drafters, The Effect of Living Backwards, published in Mealey's Litigation Reports - Insurance, p.p. 4425-4439 (1987) (hereinafter "Sayler and Zolensky").
4. An excellent discussion of available and unrestricted public-record information and insurance industry pronouncements is contained in Sayler and Zolensky, supra.
5. The new exclusion is reproduced in Appendix "A" to this article.
6. Reference to what this exclusion means will be discussed later in this article.
7. Insurers can and have argued that this rule of construction does not apply where the insured is a large company. See e.g., McNeilab, Inc. v. North River Insurance Co., 645 F.Supp. 525 (D.N.J. 1986). There is no evidence to my knowledge that larger policyholders are any more capable than smaller companies of being able to purchase other than standard form policies. The CGL policy is an adhesion contract. Superior bargaining position has not enabled large companies to negotiate different coverage provisions. Indeed, what good is bargaining power if all that is being bargained for is standard form policy language? Contra proferentum is the right rule, and should be applied in all cases.
8. Most of the cases discussed in this article which favor the insurer, did so because defense and indemnity issues were decided concurrently, and were thus decided on a more complete factual record than would be available had the duty to defend been the sole issue before the court. This is a critical distinction, and if you represent a policyholder who is in the "gray area" of coverage, it is vital to have the duty to defend decided independently of the duty to indemnify. This distinction will be borne out more fully in the discussion which follows.
9. Compare, American Motorists Insurance Company v. General Host Corporation, etc., et al., Case No. 84-1802, United States District Court, District of Kansas (July 28, 1987), holding the definition of occurrence and the pollution exclusion effective to preclude coverage, as neither the definition of occurrence nor the pollution exclusion are ambiguous. This case was probably correctly decided on the facts, but for the wrong reasons. The case properly determined that the actual damage sustained was so foreseeable as to be "constructively intentional," and therefore barred by the definition of occurrence. However, the court went on to hold, unnecessarily and contrary to the clear weight of authority, that neither the definition of occurrence, nor the pollution exclusion are ambiguous. This case underscores the fact-sensitive nature of the cases which have gone against policyholders.
10. A host of commentators have already written good articles on whether the pollution exclusion accomplished its intended objects (or at least what the insurance industry now says it intended). See e.g., Patterns of Judicial Interpretation of Insurance Coverage for Hazardous Waste Site Liability, supra; Joest, Will Insurance Companies Clean the Augean Stables?, 50 Ins. Counsel J. 258 (Apr. 1983); Anderson & Moskowitz, How Much Does the CGL Pollution Exclusion Really Exclude?, Risk Management 28 (Apr. 1984); Weinberg & Davis, Insurance Issues in Hazardous Waste Litigation, 38 Environmental Analyst 9 (Oct. 1983).
11. See cases collected in Appendix "B."
12. See cases collected in Appendix "C" appended hereto.
13. A copy of the Bean memorandum is contained in Appendix "D."
14. A copy of the Order of the West Virginia Insurance Commissioner is contained in Appendix "E." As noted in Sayler and Zolensky, drafting history of the pollution exclusion is not yet public. In large part, these materials are redundant to the express representations contained in the policy filings with state regulatory bodies. Copies of filings are available for a number of states, including New York, Ohio and West Virginia.
15. A copy of this letter is likewise contained in Appendix "E."
16. See e.g., Great Lakes Container Corp. v. National Union Fire Ins. Co., 727 F.2d 30 (1st Cir. 1984); American States Ins. Co. v. Maryland Casualty Co., 587 F.Supp. 1549 (E.D. Mich. 1984); Autotronic Systems v. Aetna Life & Casualty Co., 89 A.D. 2d 401, 456 N.Y. Supp. N.Y.S.2d 504 (3d Dept. 1982); Waste Management of the Carolinas v. Peerless Ins. Co., 315 N.C. 688, 340 S.E.2d 374 (1986); Transamerica Ins. Co. v. Sunnes, 77 Or. App. 136, 711 P.2d 212 (1985); Fischer & Porter Co. v. Liberty Mutual Ins. Co., 656 F.Supp. 132 (E.D. Pa. 1986); Techalloy Co. v. Reliance Ins. Co., 338 Pa.Super. 1, 487 A.2d 820 (1984); National Standard Ins. Co. v. Continental Ins. Co., No. Ca-3-81-1015-d (N.D. Tex. Oct. 4, 1983); Barmet of Indiana, Inc. v. Security Ins. Group, 425 N.E.2d 201 (Ind. App. 1981); Milwaukee v. Allied Smelting Corp., 117 Wisc.2d 377, 344 N.W.2d 523 (Ct.App. 1983); American Motorists Insurance Company v. General Host Corporation, etc., et al., Case No. 84-1802-T (D. Kan. July 28, 1987).
17. See cases collected in Appendices B and C.
18. The United States government, in an amicus brief filed in the rehearing of the Northeastern Pharmaceutical case, has taken the position that clean-up costs are covered by the CGL policies for which the insurance company must pay.
19. Mraz can also be distinguished on the basis Mraz involved an active polluter. The typical environmental case does not. See e.g., Pepper's, supra.
20. The author wishes to express his appreciation to Mark F.C. Berner, Esq., Anderson, Russell, Kill & Olick (New York) for his assistance in editing the drafts of this article.