Environmental Case Scenarios
Understanding different types of insurance claims and how they relate to various insurance products can be helpful. Being able to identify possible exposures or gaps in coverage can be useful information when assessing coverage needs.
The information below is a general summary of the cited claim. Please refer to the citation itself for a complete copy of the cited claim. Additionally, the claims summary is not an affirmative statement as to the availability of insurance coverage for a particular client or insured. Please refer to the terms of your policy or quotation regarding definitive terms and conditions of coverage.
CLAIMS SUMMARY 1
An insured owned and managed an irrigation ditch near the Arkansas River in Colorado. The insured maintained Commercial General Liability coverage with a pollution exclusion. While repairing sections of the irrigation ditch, fill material, including sand, dirt, and sediments, was released into the river. The insured was required to perform remediation by the state environmental agency and was subject to a third-party property damage claim. The court found the sediment and fill material to be a “pollutant” within the meaning of the CGL exclusion and upheld the insurer’s denial of coverage. View Citation >
DID YOU KNOW: Stand-alone commercial general liability coverage can include pollution exclusion, which prevents coverage for a wide range of pollutants, such as silt and sediment. Combining general commercial liability and environmental liability into one comprehensive form can help prevent gaps in coverage.
CLAIMS SUMMARY 1
A crane crashed through the roof of a residential home. Significant damage resulted, including exposing the home’s interior. A contractor hired by the crane company tried to prevent further exposure by placing plastic sheeting in the portions of the damaged roof. A multi-day storm left more than two inches of rain in the home, leading to toxic mold development. The contractor hired by the crane operator exposed the residential roof to mold conditions, and cleanup costs were sought for mold remediation. The homeowners’ policy did contain a mold exclusion, but the policy did provide for build-back repairs and a partial payment for living expenses. The contractor hired by the crane operator eventually settled the claim for $250,000. Once expenses were deducted, a net amount of $121,611 remained, and $60,000 was retained in a trust account for the insurance company’s subrogation claim. Additional payment was requested from the insurance company but was denied. The insurance company was held liable for $1,380,000 in damages under the present circumstances. View Citation >
DID YOU KNOW: Property damage and cleanup costs are just some of the coverage options available under CPL when such damages are connected to a pollution condition resulting from the contracting operations performed by or on behalf of the insured. While the contractor involved ended up settling the claim, extensive damage and liability can result from creating a pollution condition, such as toxic mold development.
CLAIMS SUMMARY 2
A natural gas pipeline rupture caused by heavy construction equipment resulted in a fire, and over 300 people were injured by the pipeline explosion. The pipeline corporation sought indemnification and defense costs for the expenses related to the lawsuit brought in state court involving the rupture, which caused a fire and the release of natural gas. The pipeline owner was named as an additional insured under the comprehensive commercial liability and excess policies secured by the contractor. The case eventually settled for over $1.5 million. View Citation >
DID YOU KNOW: Bodily injury and defense costs are other liability coverage options available under CPL when that injury occurs from a pollution condition attributed to the contracting operations completed by or on behalf of the insured. If a CGL policy does not offer coverage due to an exclusion, for example, that will not allow an additional insured to secure coverage under the policy either because coverage for the primary insured is unavailable under the policy.
CLAIMS SUMMARY 1
Old sand and gravel pits located at a quarry were used to dispose of coal ash from coal-fired power plants, contaminating groundwater wells with arsenic, lead, and cadmium. Area residents brought a class-action suit against the owner and the quarry operator, alleging that the coal/fly ash had contaminated their drinking water, causing bodily injury and property damage. Ultimately, the case settled for $54 million in damages, which also shows how environmental contractors involved in the transport/disposal of coal and fly ash could potentially be impacted when multiple parties are involved. View Citation >
DID YOU KNOW: Environmental contractors are just one category of insureds who can be impacted from either a transportation or disposal perspective when pollutants, such as coal and fly ash, are involved. If a pollution event occurs, groundwater contamination may result and under a CPP policy, both third-party professional liability and first-party rectification and mitigation coverage options are available.
CLAIMS SUMMARY 1
A Louisiana chemical blending facility was acquired by another company, which secured primary and excess general liability and environmental exposure policies. A fire occurred at the facility, releasing chemicals on-site and off-site during the transfer of mineral spirits from one tank to another; however, a scheduled non-owned endorsement within the policy prevented coverage here. View Citation >
DID YOU KNOW: Company acquisitions of other companies that involve property that had known or unknown pollution incidents could impact the new property owner. EIL or pollution legal liability (PLL) can offer protection for pre-existing and new pollution conditions. This example also highlights how specific endorsements, such as a scheduled non-owned endorsement, may prevent coverage under similar circumstances.
CLAIMS SUMMARY 2
A wrong delivery of heating oil occurred at a residence that resulted in more than 330 gallons of heating oil being pumped into a finished basement. The energy service provider incurred over $1 million in damages from the release, and the additional settlement of claims totaled $2.5 million; the energy service provider maintained a CGL and a separate business auto policy, and it was determined that the auto policy provided coverage, but that it was excluded under the CGL policy. The initial release of heating oil occurred during delivery. Even though subsequent damages may have occurred later (it was alleged that it took several days for the oil to migrate into subsurface soil beneath the two adjacent homes), it all arose from a single accident or occurrence during delivery. An Excess policy was also in place, but the Excess coverage required exhaustion of both the underlying Auto and CGL limits, so the Excess limits were unavailable for this claim. View Citation >
DID YOU KNOW: The wrong delivery of heating oil could result in a pollution event. EIL coverage helps to secure environmental liability protection for property owners, operators, or lessees. While the above example shows how a wrong delivery could occur in a residential context, similar situations could arise in commercial properties.
CLAIMS SUMMARY 1
Marine contractors who hold a marine leasehold can be impacted by sediment issues that arise. A San Diego shipyard operator repaired and maintained marine vessels, including paint removal and ship repainting. Increased copper, zinc, and tributyltin concentrations were found in sediment next to the shipyard, which was attributed to the shipyard’s activities. The water quality control board found that the shipyard operator did not adequately prevent discharges, resulting in potential long-lasting negative effects on the condition of San Diego Bay and its ability to be safe for human use. While the monitoring plans provided were adequate, the proper implementation had not occurred, violating the permit restrictions and the CWA and resulting in civil penalties of $799,000.00 and an injunction. It was noted that any cost of physical alterations offset the imposed civil penalty. This case illustrates how injunctive relief and civil penalties can be sought under such circumstances. View Citation >
DID YOU KNOW: The lack of proper monitoring and implementation plans to prevent discharges into a body of water can result in significant civil penalties and injunctive relief being imposed. Suppose contractors and consultants who provide environmental services decide to secure a packaged CGL and pollution liability policy. In that case, this combined form allows for general liability and pollution liability policies to be blended into one form, helping to reduce coverage gaps under a stand-alone CGL policy.
CLAIMS SUMMARY 2
During excavation work, a general contractor encountered a pressurized natural gas pipe and incorrectly concluded that it was not in use, eventually releasing natural gas into the air. The escaped gas exploded, causing a fire, damaging nearby buildings, and injuring several people in the vicinity of the explosion. Four lawsuits were brought against the contractor, including claims for bodily injury and property damage. These claims were ultimately settled for over $1.5M in damages. The contractor maintained a CGL policy and a separate contractor’s pollution liability policy. This contractor benefited from maintaining both CGL and Contractors’ Pollution coverage, as its insurers were required to share equally in providing a defense and indemnity to the third-party claims. The court’s holding that the release of natural gas represents a “pollution condition” means that an insured relying solely on a CGL policy for coverage may not be covered for similar claims. This case helps to illustrate how maintaining a CGL policy and a contractor’s pollution liability policy can work in tandem. View Citation >
DID YOU KNOW: If a contractor relies solely on a CGL policy and a pollution event occurs, a pollution exclusion could operate to deny coverage on that basis alone. Maintaining both a CGL and a pollution liability policy, which is possible with a packaged CGL and pollution liability policy, has the potential to work together when similar incidents occur.
CLAIMS SUMMARY 1
Colleges, universities, and environmental consultants can be affected by fuel discharge from an underground storage tank. An apartment complex property owner downhill from a Pennsylvania college sued the college when fuel was discharged from its underground storage tanks. A tank service remediated the issue, and as part of the remediation, the tanks remained in the ground even though they were closed, cleaned, and emptied. An environmental consulting firm was hired to address the remediation and contamination issues. The apartment complex owner found oil accumulations in the complex clubhouse. The college initiated a voluntary cleanup, and several remedial measures were also sought from the college. Benzene and levels of chrysene and phenanthrene were also discovered after on-campus well sampling. Claims were brought under RCRA and the CWA, and sufficient evidence supported CWA violations. Regarding the wetlands issue, no discharge was made from a point source into the wetlands area and was not actionable under the CWA. View Citation >
DID YOU KNOW: Third-party claims can be brought by those affected by a leak from an underground storage tank. Securing a storage tank liability policy and legal defense for third-party claims against the tank owner can be included under the policy offerings.
CLAIMS SUMMARY 2
A pollution exclusion within a professional liability policy can prevent coverage when an environmental engineering firm negligently performs an environmental site assessment. Following the property purchase, both 55-gallon drums and an underground storage tank were found at the purchased property, but the report did not indicate any recognized environmental conditions. The property owner brought claims against the engineering firm for negligence in failing to properly complete the Phase I ESA, and the engineering firm submitted the claims to its professional liability insurer. Because the professional policy contained a pollution exclusion, the insurer argued that it had no duty to defend or indemnify. The pollution exclusion within the professional liability policy was determined to exclude coverage for these claims. View Citation >
DID YOU KNOW: Cleanup costs at a tank owner’s facility associated with releases from the scheduled tanks named in the policy can be included under a storage tank liability policy. The above example shows how a pollution exclusion can be present in a professional liability policy. Still, it is also important for owners of properties that contain storage tanks to be aware of the presence of USTs on the property, the potential for releases, and the accompanying liability that can occur.
For more information on how a claim may relate to your specific risk, connect with a member of our team.
