THREE STATE POLLUTION RULINGS UNFAVORABLE TO POLICYHOLDERS

The Delaware Supreme Court has joined 14 other state high courts in ruling that the pollution exclusion used in policies first issued in the 1970s is unambiguous.

The court ruled that the contract language involving "sudden and accidental" pollution is clear and not subject to regulators' objections.

Supreme courts in Minnesota and Maine also handed down decisions that included rulings that were unfavorable to policyholders late last month.

In E.I. du Pont de Nemours & Co. vs. Allstate Insurance Co., the Delaware Supreme Court upheld a Superior court ruling that the pollution exclusion in commercial general liability policies is unambiguous.

"The Superior Court held that the term 'sudden' in context has only one meaning-abrupt. We agree," court papers say.

The decision denies coverage for pollution incidents at several DuPont sites.

Delaware's Supreme Court also ruled on contract issues that it previously returned to trial court for consideration.

"Contract language is not ambiguous simply because the parties disagree on its meaning," the high court ruled.

The clarity of the contract language also means that regulatory estoppel should not be applied, the court ruled.

"Regulatory estoppel is inapplicable where, as here, the contract language is clear and unambiguous," court papers say.

Eleven state high courts have found the pollution coverage wording ambiguous, finding coverage for policyholders that insurers say they did not intend to provide.

In another ruling, Minnesota's Supreme Court ruled that insurers are not liable for pollution cleanup costs that are attributed to uninsured periods.

In Domtar Inc. vs. Niagara Fire Insurance Co., the Minnesota Supreme Court affirmed lower court rulings that Domtar must pay cleanup costs attributable to the years 1933 to 1956, for which it has no record of insurance coverage. The company's insurers have to pay for cleanup costs attributable to the years 1956 to 1970, when insurance policies were in force.

Domtar owned and operated a coal tar processing plant in Duluth between 1924 and 1948. It closed the plant in 1948 and sold it in 1955. The company started polluting the site through spills and dumping in 1933. In 1987, the Minnesota Pollution Control Agency investigated the site and in 1991 named Domtar as a responsible party.

Domtar sought insurance coverage for the entire period it polluted the site, arguing that the insurers agreed to pay "all sums which the assured shall become legally obligated to pay."

But the court ruled that "insurers are consecutively, not concurrently, liable," court papers say.

The court properly recognized that a polluter must be held responsible for uninsured periods, said Thomas W. Brunner, a partner at Wiley, Rein & Fielding in Washington, which represents the Insurance Environmental Litigation Assn.

"A policyholder cannot expect that a loss attributable to a 60-year period can be foisted onto insurers that provided coverage only for 14 years," he said.

Meanwhile, the Maine Supreme Court on May 15 refused to reconsider a decision that allows about two dozen domestic insurers for Central Maine Power Co. to deny coverage for the cost of a government-ordered pollution cleanup.

Its earlier decision, though, found that London market policies covered those costs.

Under settlements with federal and state environmental authorities, the Augusta, Maine-based utility has agreed to clean up land where a salvage company for 25 years recycled used electrical equipment it purchased from the utility. During the recycling process on the property, which the salvage company owned, polychlorinated biphenyls, or PCBs, drained into the ground.

The utility, which was held liable for the cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, has incurred $20 million in costs, said policyholder attorney Joan L. Lewis, a partner with Anderson Kill & Olick P.C. in New York.

In a summary judgment that relied on a 1990 Maine Supreme Court ruling, a lower court ruled that none of the utility's insurance covered those costs.

In its April 22 decision, the state Supreme Court overturned a portion of the lower court's decision. The Supreme Court ruled 6-0 that the utility's London market policies and some others that followed form cover those costs. The utility has about $38 million of coverage under those policies.

The court noted that those policies, written from 1951 through 1962, stated they covered sums the policyholder is held liable to pay "by reason of damage to or destruction of property."

It pointed out that the policy at issue in its 1990 ruling, which barred coverage for government-ordered cleanups, covered sums the policyholder was liable to pay "as damages." The court reiterated that such language means the policy covers only third-party property damage and bodily injury claims.

The utility's two dozen other policies, most of which were written by U.S. insurers from 1968 through 1972, provided coverage for "damages," "expenses" and "ultimate net loss." More than $50 million of coverage was at stake under those policies.

Because the Maine Supreme Court was evenly split on how those policies should respond to government-ordered cleanups, it did not comment on them in its April 22 decision. Instead, it affirmed the lower court's summary judgment in favor of the insurers.

The high court last month refused to reconsider that portion of its decision. Ms. Lewis argued that the fact the court was split showed the policy language is ambiguous and should be construed in favor of the policyholder.

The case heads back to the trial court, which will decide issues such as whether the utility expected the recycling operations would pollute the property.