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OLYMPIA, Wash. -- For the first time, a state supreme court has ruled that personal injury liability provisions of general liability insurance policies cover environmental liabilities.
If followed by other courts nationwide, the unanimous decision by the influential Washington Supreme Court on Oct. 1 could help policyholders skirt the pollution exclusions in their general liability policies and allow them to tap their insurance to cover the cost of government-ordered cleanups, some policyholder attorneys said.
The decision will help policyholders with general liability policies that contain either sudden and accidental or absolute pollution exclusions, policyholder attorneys said.
While acknowledging the ruling's significance, insurer attorneys contend the decision's impact would be limited to private-party claims against policyholders. Those claims typically are far less costly to resolve than are coverage disputes over government-mandated cleanups, they said.
Although Washington's Supreme Court is the first state high court that has found environmental liability claims may be covered by personal injury liability provisions in CGL policies, the 1st and 7th U.S. Circuit Courts of Appeal ruled similarly in the early 1990s.
The New York Court of Appeals, the only other state high court that has considered this coverage question in an environmental liability case, decided in 1994 that personal injury endorsements do not cover pollution-related property damage claims.
The Minnesota Supreme Court in January 1998 and the Nebraska Supreme Court in May 1995 also rejected policyholders' attempts to trigger the personal injury provisions of their CGL policies to cover third-party claims of trespassing. But, those cases did not involve third-party environmental liability claims.
Several lower courts have ruled that personal injury provisions cannot apply to environmental contamination claims, the defendant insurers also argued. But, the Washington Supreme Court refused to consider those decisions. The court observed that many of the personal injury provisions at issue in those cases were far more restrictive than the provisions in the policies in the case the court reviewed.
The case before Washington's high court centered on whether the pollution-related trespassing and nuisance claims that property owners filed against Kitsap County, Wash., amounted to covered personal injuries under the primary and excess general liability policies that 19 insurers wrote for the county over 30 years.
Washington's high court equated the property owners' trespassing and nuisance claims to covered acts of "wrongful entry" and "other invasion of the right of private occupancy" that were enumerated in some of the county's insurance policies.
The decision does not mean, however, that Kitsap County's insurers now must indemnify the county under the personal injury provisions of its CGL policies. Insurers at a later coverage trial could raise other defenses to coverage.
For nearly two years, U.S. District Court Judge Rothstein has stayed a trial in the case for various reasons. Among those was to give the county and its insurers an opportunity to settle their dispute.
The decision is "obviously a big disappointment" for insurers, but there are bright spots, said insurer attorney Laura Foggan, who filed an amicus brief in the case on behalf of the insurer-sponsored Insurance Environmental Litigation Assn. Among those bright spots is that the insurers in the case still can argue other defenses at trial, said Ms. Foggan, a partner with Wiley Rein & Fielding in Washington, D.C.
Ms. Foggan also said that other courts nationwide likely would not be influenced by a decision from a court with what she called extreme pro-policyholder leanings.
In addition, many lower courts nationwide have recognized that attempts to tap CGL policy limits under personal injury provisions are "a back-door effort" to trigger policies that insurers never intended to respond, she said.
Insurer attorney Curt Feig, who represented Home Indemnity Co. in the case, agreed that the Washington high court's influence on other courts will be limited because the decision "is out on the fringe." Insurers never intended to cover environmental liabilities under personal injury provisions, said Mr. Feig, a partner with Cozen & O'Connor P.C. in Seattle.
But, insurer attorney Michael J. Bond, who represents Transamerica Insurance Co. in the litigation, predicted the court's decision would have "a broad impact across the country." He, as well as policyholder attorneys, said the court "is seen as a leader on these issues."
He predicted, though, that the decision's impact would be limited to private-party lawsuits against polluters. "Any municipality sued by people who live next to a landfill will be very encouraged by this decision," said Mr. Bond, a partner with Gardner Bond Trabolsi McDonald & Clement P.L.L.C. in Seattle.
Some policyholder attorneys disagreed. They said the decision could be helpful to policyholders seeking indemnification for the cost of government-ordered cleanups in jurisdictions where courts have ruled either that those costs are not covered damages or that pollution exclusions bar recovery for those costs.
That is because the federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund Act, is rooted to an extent in common-law trespass and nuisance concepts, explained policyholder attorney William Greaney, a partner with Covington & Burling in Washington, D.C.
Therefore, in cases that involve either offsite migration of pollution or the contamination of landfills not owned by the policyholder, policyholders could argue that cleanup orders issued under federal and equivalent state cleanup laws amount to claims for trespass and nuisance, he said.
If the cleanup orders are worded broadly, "I'd make that argument," said policyholder attorney Edward M. Joyce, a partner with Anderson, Kill & Olick P.C. in New York.
The decision also will be helpful to some policyholders with CGL coverage that contains the absolute pollution exclusion, said policyholder attorney Robert Horkovich, a managing partner in New York with Anderson Kill.
Until 1996, CGL policies did not explicitly apply the absolute pollution exclusion to personal injury coverage -- a deliberate decision by the Insurance Services Office Inc., Mr. Horkovich said. That is important in light of an observation on pollution exclusions that Washington's high court included in its decision, he said. The court noted that insurers could have avoided the pollution exclusion dispute by explicitly applying the exclusion to personal injury coverage.
Mr. Horkovich also disagreed with the notion that the court's decision is "on the fringe" and therefore other courts would not follow it. He pointed out that the court has not been nearly as critical of insurers as the high courts in New Jersey and Georgia have been. Those courts have accused the industry of duping regulators when obtaining approval of the sudden and accidental pollution exclusion, he pointed out.
The Washington case stems from three lawsuits filed against Kitsap County in 1993. Two lawsuits were filed by current and former residents of a mobile home park that was built partially on a waste disposal site the county formerly owned. Also near the park was a landfill where the county had dumped hazardous waste. The mobile home park's owner and other commercial building owners also sued.
The plaintiffs sought to recover bodily injury and property damages caused by environmental problems that they argued the county created.
But, importantly, the causes of action the plaintiffs argued were for trespass and nuisance.
Kitsap County eventually settled with the plaintiffs and then sought third-party property damage coverage from its insurers. The insurers denied coverage, and the county sued.
After U.S. District Judge Barbara Jacobs Rothstein in Seattle ruled for the insurers in a summary judgment, the county sued the insurers for coverage under the personal injury provisions of the county's policies.
The insurers wrote 23 primary and excess policies for the county from the late 1950s through 1985, according to court documents and Mr. Bond, one of the insurer attorneys involved in the case. The policies provided the county more than $90 million in coverage over that period, Mr. Bond said. But, not all of the policies contained personal injury liability provisions, and some restricted such coverage to wrongful eviction, he said.
The federal district court asked the state high court for a ruling on whether the property owners' claims against Kitsap County constituted personal injuries.
In a decision written by Justice Gerry L. Alexander, the Washington Supreme Court noted that it squarely disagreed with the New York high court's 1994 decision in favor of insurers.
The Washington high court first rejected the insurers' argument that coverage is barred under Kitsap County's policies because "the essential character" of the property owners' claims against the county governs coverage.
The insurers argued that the property owners essentially sought damages for bodily injuries and property damage caused by their exposure to pollution but that many of the policies exclude such coverage.
The court instead found that coverage is governed by the nature of the offense that the property owners alleged against the county. If those alleged offenses are analogous to covered acts under the personal injury provisions, then the provisions provide coverage, subject to other policy exclusions, the court ruled.
The court then equated the property owners' claims of trespass and nuisance with the covered acts of wrongful entry and other invasion of the right of privacy. That finding was significant, because Kitsap County's policies do not specifically identify trespassing and the other claims as covered acts under the personal injury liability provisions.
The high court also rejected the insurers' argument that the wrongful entry and other invasion coverage is triggered only when a policyholder acted in its role as a landlord to withhold possession of property from another party. The court said such a relationship is unnecessary.
In addition, the court rejected the insurers' argument that the personal injury provisions cover only intentional acts or offenses.
Moreover, the court found that some of the insurers may have provided the county overlapping coverage. The court's finding means that all of the limits of even policies with sublimits for personal injury claims may have to respond to the claims against Kitsap County, according to Mr. Bond.
The court, though, did side with insurers in ruling that the property owners' claims against the county did not constitute wrongful eviction, another act covered by some of the county's personal injury provisions.
However, most personal injury provisions cover wrongful entry of property, which means there is environmental liability coverage under most policies, said Mr. Horkovich, the policyholder attorney with Anderson Kill.
The court did not rule on whether the pollution exclusions in some of Kitsap County's policies barred coverage for personal injury claims. But, the court telegraphed it does not support insurers' argument that the exclusions bar coverage for all environmental liability claims, many attorneys agreed.
For example, the court noted that the fact that only some insurers explicitly made their pollution exclusions applicable to personal injury claims "furnishes a strong argument for the point that this issue could easily have been removed from the case by all of the insurers had they chosen to do so."
The court also noted an opposing view to the insurers' argument that their pollution exclusions would be "read out" of the CGL policies if a court finds there is environmental liability coverage under personal injury liability provisions. The court said that argument "could be viewed as an undertaking by the insurers to read the personal injury provision out of the policies."
Mr. Feig, Home Indemnity's attorney, said that language, while not precedential, has "got to" send a message to the trial court.
But, Mr. Bond, Transamerica's attorney, said the court's language did not trouble him because the court ultimately did not rule on the issue.
Kitsap County vs. Allstate Insurance Co. et al., Washington State Supreme Court; No. 65601-1.