Environmental Liability Insurance and Voluntary Cleanups

Pollution Legal Liability (PLL) policies offer pollution liability protection to industrial, commercial and agricultural property owners for gradual, as well as sudden and accidental, first-party and third-party environmental liabilities. They have become an increasingly common method for property owners of potentially contaminated properties to protect themselves from unexpected liability for the costs of environmental site cleanup as well as against third-party claims for property damage and personal injury.

As is the case in nearly all insurance policies, the details of the specific language and scope of coverage (and exclusions from coverage) matter a lot. For example, in a recent Connecticut Federal District Court case, the plaintiff bought property contaminated with solid waste with the intent to sell and purchased a PLL. The plaintiff agreed to remediate the site and entered into a state-approved voluntary cleanup plan (VCP). Unfortunately (and not uncommonly), the site was more contaminated than originally thought. The plaintiff then sought reimbursement under the insurance policy. When the insurance company denied coverage, the plaintiff sued. The Court decided that voluntary cleanups were not covered by the specific policy at issue in the case and held that since the cleanup was not "required," there was no "claim" under the policy. Fischer and Dab Three LLC v. American Specialty Lines Ins. Co., 2010 WL 2573909 (D. Conn.)

This outcome was entirely dependent on the language of the policy. The policy at issue did not have a discovery trigger (i.e., coverage is “triggered” by the discovery of contamination, not by the assertion of an adverse claim) in the relevant coverage section for cleanup costs based on pre-existing conditions. Therefore, the policy was only triggered by a “claim” for "cleanup costs" as required by "Environmental Law."

The lesson of this case: pay close attention to the specific language of the policy and what triggers coverage. It makes sense to purchase a policy that has a discovery trigger, not just a claim trigger. While coverage under PLL policies can be triggered by the insured's discovery of contamination, policies often limit the scope of cleanup cost coverage to the extent cleanup is "required by Environmental Law." Be sure that the definition of "Environmental Law" includes voluntary cleanup and risk-based corrective action programs.

In this case, the insured plaintiff was just removing debris, so there was no "claim" for "cleanup costs" under "Environmental Law." There were no measured levels of contamination. As the court pointed out, the definition of "claim" is closely linked to the definition of "cleanup" which is closely linked with "environmental laws."