Pollution exclusions have been a standard feature of commercial general liability (CGL) insurance policies since the 1970s. The standard Insurance Services Office CGL Coverage Form includes an “absolute” pollution exclusion, and a “total” exclusion endorsement is available for insurers to use. The insurers providing CGL coverage almost always exclude or limit pollution coverage. This coverage is a more complicated underwriting risk that is mostly available through the specialty markets. Even so, pollution exclusions can become the subject of litigation between insurers, their agents and their insureds.
A group of West Virginia companies and individuals purchased a number of properties in 2014. One of the properties was a warehouse that stored chemical substances. The group hired an insurance consultant to advise them on the types and amounts of insurance they needed. The consultant prepared, among other things, a document describing policy specifications for the CGL coverage. Those specifications included a modification of the pollution exclusion that would provide coverage in the event of a hostile fire. The parties later argued about the purpose and use of the document.
Ultimately, the owners asked a producer from a local insurance agency to obtain their insurance, and the producer did so.
The warehouse caught fire in 2017, and some of the contaminants stored there were released into the air. This resulted in lawsuits against the property owners. The court’s opinion does not mention the amount of damages sought. Given the seriousness of pollution claims, the damages were likely at least equal to the policy limits – seven figures.
The insureds sought defense and indemnity from their CGL insurer. However, the insurer denied coverage. When the insureds sued, the court agreed that the policy’s pollution exclusion applied to the loss. The case against the insurer was dismissed.
The insureds proceeded with actions against the insurance agency and its producer. Among other things, they accused the agent of negligence in obtaining the insurance, misrepresenting its terms, and recklessness. The agency and producer asked the court for summary judgment, meaning that there was no argument over the facts and that they should be found not liable based on the law.
The judge didn’t see it that way. He found that the CGL policy specifications prepared by the consultant established that the owners had a legitimate claim. He also noted that the two sides were arguing over the intended use of the specifications and how the owners actually used them. Declaring, “It is not this Court’s role to determine the intention of the parties,” he ruled against the agency and producer. He ruled similarly about the meaning of an email from the producer to the owners that described the CGL coverage. He also found that it was possible that the claim would have been covered had the hostile fire exception to the exclusion been obtained. For all these reasons, he ruled in favor of the insureds.
In most states, agents are obligated to obtain the coverage the insureds request or let them know promptly if they cannot. In this case, the record included a document requesting a hostile fire exception to the pollution exclusion. The agent either failed to review this document or failed to inform the insureds that the hostile fire exception was unavailable. Had they communicated in writing that the policy did not provide this exception, they would have had a powerful defense against this errors and omissions claim. Instead, they became embroiled in an argument in court.
Insureds frequently ask for coverage that is unavailable. Documented communications with them reduces the likelihood of misunderstandings and can lead to conversations about next steps. They can also help defeat E&O lawsuits, as other agencies in this situation have found.
