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Insurer’s denial of coverage based on pollution exclusion upheld


An insurer can deny coverage based on a policy’s pollution exclusion even though it did not raise that issue in its original denial letter, a federal appeals court said Monday in affirming a lower court.

Century Communities of Georgia LLC, which owns land in Sugar Hill, Georgia, entered into a subcontractor agreement with Magnum Contracting LLC under which Magnum agreed to add Century as an additional insured on its commercial general liability policy with Selective Insurance Group unit Selective Way Insurance Co., based in Branchville, New Jersey, according to the ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Century Communities of Georgia LLC v. Selective Way Insurance Co.

In August 2018, Peachtree, Georgia-based Century demanded defense and indemnification for a lawsuit that alleged that grading of its property before implementation of an erosion control program caused a runoff of water, sediment, silt, mud and other pollutants.

Selective denied coverage, and Century sued the insurer in U.S. District Court in Atlanta.

Selective filed a motion for summary judgment arguing, among other things, it had no duty to defend based on its policy’s pollution exclusion. Century responded that Selective had waived its ability to assert the exclusion as a defense because it had not cited it in its coverage denial letter.

The district court ruled in Selective’s favor and was affirmed by a three-judge appeals court panel, which said the insurer “retained the ability to rely on the Pollution Exclusion to deny coverage,” even if it did not include it in its denial letter.

Attorneys in the case did not respond to requests for comment.