Over the last 40 plus years, the evolution of the pollution exclusion has taken many different twists and turns. As the most litigated policy language in the history of the Commercial General Liability (CGL) form, the establishment and numerous revisions of this exclusionary wording continue to create coverage disputes and discussion.
In general, policy exclusions are a leading driver of coverage disputes when a claim occurs. As far as the CGL policy is concerned, the pollution exclusion language has been the subject of extensive revision by insurance companies and the springboard for more confusion and insurance litigation cases than any other exclusion or policy language in the insurance sector.
Contractors with the slightest pollution exposure and their brokers must be well versed in the shortcomings of the CGL while actively protecting themselves with a pollution liability policy. To explain and clarify the need for this specialized coverage, we will discuss how the CGL pollution exclusion began, evolved, and what it means for today’s contractors.
Make certain your businesses and the assets of your clients are safeguarded in the event of a pollution event.
The early history of the pollution exclusion
Claim litigation often occurs when there is a difference of opinion between policyholder and carrier over how the policy itself should respond to a loss or claim. In the world of legal maneuvering, it is not surprising that two conflicting opinions arise from the same policy language. In the case of the earliest pollution exclusion on the CGL, the confusion stemmed from a simple misrepresentation. Insurance professionals on both the carrier and broker side attempted to soften the new pollution exclusion language by referring to the exception to the pollution exclusion as a coverage.
Pollution exclusion wording began to surface in the 1970s around the same time environmental awareness was coming to the forefront. Americans were becoming informed of the impact pollution had on human health and the environment. The government was also responding to the changing tide and created the Environmental Protection Agency and the first Superfund laws. Insurance carriers, sensing the sea change and the growing liability that the industry could face, produced a pollution exclusion to be attached to CGL policies.
The original exclusion from the 1970s contained an exception. The exclusion stated that if the pollution discharge was “sudden and accidental” the exclusion didn’t apply. The exclusion and the “give back” were so simple, it is illustrative to read it in its entirety:
“It is agreed that this insurance does not apply to 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 watercourse or body of water; but this exclusion does not apply if such discharge, release, or escape is sudden and accidental.”
The language appears straightforward. The exclusion intended to eliminate coverage for pollution discharges which occurred over long periods of times but allow some coverage in instances where a pollution incident was “sudden and accidental.” The lack of a clear definition of “sudden and accidental” along with a clever marketing scheme where the exclusion was miscast as coverage led to a litany of confusion and ultimately litigation.
Courts tried to determine what “sudden and accidental” meant. Unable to define “sudden” the court began granting coverage for pollution events that were “unexpected and unintended.” The interpretation left insurance carriers paying for pollution accidents that were ongoing for many years. Eventually, carriers went back to the drawing board to limit their pollution exposure under the CGL.
A new CGL form
In response to the deluge of pollution claims and the court’s unfavorable interpretation of sudden and accidental language, in 1986, insurance carriers revamped the Comprehensive General Liability form and renamed it the Commercial General Liability form. The policy form was streamlined, making it easier to understand, and most importantly, contained a revised pollution exclusion.
The 1986 pollution exclusion is more comprehensive and sophisticated than the original exclusion from the 1970s. The modern exclusion is referred to as the “absolute pollution exclusion.” Notably, the exclusion doesn’t contain the word absolute nor does it exclude every instance of pollution or contamination. Something else the exclusion doesn’t include? The words “sudden” and “accidental.”
Total Pollution Exclusion
Adding to the confusion for policyholders is an additional pollution exclusion that is often attached to current CGL policies. This endorsement, known as the Total Pollution Exclusion, eliminates exceptions to the pollution exclusion found in the CGL form.
The combination of the standard pollution exclusion and the total pollution exclusion endorsement attempted to make it clear there was no pollution coverage granted under the policy at all. The fact remains that this language is still disputed today and litigation continues. In the end, reliance on
potential coverage being granted after a claim is both risky and unwise for both the contractor and the insurance broker.
Current CGL policies and pollution coverage today
As we have seen, pollution coverage under a CGL is spotty and ambiguous at best. A prudent contractor should make a contractors pollution policy an integral part of their overall risk management program. Relying on your CGL policy to respond after a pollution event or loss has happened is both risky and potentially costly.
There are better solutions for you. Partner with McGowan for comprehensive protection from pollution risk. McGowan’s Contractor Pollution Liability Program is structured to support contractors when pollution events happen. Our market-leading coverage, an experienced claims-handling team with over 30 years of providing expertise, and an industry-leading environmental emergency response program will allow you and your clients to gain deeper confidence in your risk management program.
Don’t wonder if you are covered for pollution—be sure. Protect yourself with McGowan.
Learn more about our environmental contractors insurance today.