Pollution Insurance Coverage: What Did the Insured Know and When Did It Know It?
A new Appeals Court decision (litigated on behalf of the insureds by Anderson & Kreiger) has restored the usefulness of pollution legal liability (PLL) policies, overturning a Superior Court decision and holding that an insurer cannot exclude coverage under a “known conditions exclusion” without proving that newly discovered contamination is connected to the contamination that the insured knew about. Market Forge Industries, Inc. v. Indian Harbor Insurance Co. (August 29, 2014).
Because insurers have succeeded in excluding most pollution claims from coverage under traditional liability policies with broad pollution exclusions, insureds are turning to newer types of policies intended to cover pollution, such as PLL policies. Under these policies, it is important to identify contamination that the insureds know about at the policy inception; the policies, though very expensive, are not intended to cover known contamination. Because these policies are often purchased for old commercial or industrial sites, the insureds may suspect contamination or even know of some. With this decision, insureds can take some comfort that their knowledge of contamination on one part of a property won’t foreclose coverage for contamination found elsewhere.
When Market Forge bought an old industrial property, it received a series of consultants’ reports from the previous owners. The reports identified volatile organic compounds (VOCs) in a groundwater monitoring well. They also identified a former degreaser/VOC storage tank area, approximately 170 feet away, as a potential area of concern for VOCs, but found no contamination or release there. They closed the site under the Massachusetts hazardous waste cleanup laws, finding it “unlikely that the TCA tank is the source of VOCs” at the monitoring well,” which “are likely the result of an isolated historical incident.” However, several years later, following several other environmental reports reaching similar conclusions, another consultant found VOCs in the former degreaser area for the first time.
The Policy and the Denial of Coverage
Market Forge’s PLL Policy required Indian Harbor to pay for remediation expenses for “Pollution Conditions” and to defend claims for such expenses.
Market Forge requested coverage for the VOC contamination in the degreaser area. However, Indian Harbor denied coverage based on the Known Conditions Exclusion, which barred coverage for Pollution Conditions pre-dating the policy that were reported to the insured and not disclosed in writing to Indian Harbor.
Market Forge had given Indian Harbor all the environmental reports it had received before the inception of the Policy, but it did not disclose the contamination in a specific document required by the policy.
The Appeals Court Decision
The Superior Court granted summary judgment to Indian Harbor, essentially agreeing that because Market Forge knew about the VOCs in the monitoring well and various other contamination around the property, it also knew about the VOCs in the degreaser area. However, applying New York law (similar to Massachusetts law on these issues), the Appeals Court rejected that approach. The court reaffirmed that, because Indian Harbor was relying on an exclusion to disclaim coverage, the insurer had to prove that Market Forge knew of the particular condition for which it seeks coverage. It then held that the VOCs in the degreaser area were not a “known” condition because “known contamination in one area of the site is not known contamination in all areas of the site.” It rejected Indian Harbor’s argument that Market Forge should have investigated the degreaser area and would have discovered the VOCs there if it had, because the policy required actual knowledge and imposed no such duty of inquiry.
The Appeals Court concluded that the two areas of VOC contamination could be hydrologically connected (i.e., the VOCs might have come from the same Pollution Condition and migrated from one area to the other), in which case Market Forge’s knowledge of one area could represent knowledge of the other. Finding disputed facts on that issue, it remanded the case to the Superior Court for further proceedings.
The case is Market Forge Industries, Inc. v. Indian Harbor Insurance Co. (2014 Mass. App. Unpub. LEXIS 957), August 29, 2014 (Rule 1:28). The judges were Green, Meade and Sullivan.
Image Credit: Mark Skipper
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