Claims Made Bites: How Pollution Claims Got Us Here

In this recent case an insured learned the hard way the prohibitive nature of retroactive dates. They were sued for damages arising from pollutants that were spilled starting in the 1950s up through the 1990s. Their Petroleum Industry Insurance Policy had a retroactive date of 2001, so the claim, while made during the policy period, is barred from coverage since the wrongful acts occurred prior to the retroactive date of the policy.

I’m sure this insured is wondering, “How could I have gotten this exposure covered?” The simple answer is purchasing that same policy without a retroactive date, or with full prior acts (assuming of course such an option was available). Without a retroactive date the insured could bring claims as they were being made to the carrier irrespective of when the wrongful act occurred.

Anyone who works with Claims Made coverages is well aware of these facts. What intrigued me about this particular story is the stark reminder of how if this same claim was made 50-60 years ago, it most likely WOULD have been covered. The fact that these types of pollution claims were getting covered at all is what prompted the insurance industry to update the policy triggers that we have today.

A Coverage Trigger History Lesson

Before Claims Made, before Occurrence, there were simply “Accident” triggers in the Comprehensive General Liability policy. The CGL policy was itself a 20th century innovation, first formed in 1939 and rolled out on a national basis in 1941.

It was during the 1960s when an avalanche of pollution claims began to pile up. Prior to this, many American manufacturers were, shall we say, a bit ambivalent about their pollution controls. Some firms simply dumped their waste onto sites where pollutants would over time contaminate the local water supply.

Remember that the CGL policies of the early 1960s had an “accident” trigger, which was generally defined as “a distinctive event that takes place by some unexpected happening at a date that can be fixed with reasonable certainty.” The idea was that the claim must be sudden and unexpected. Courts adopting a more narrow definition of an “accident” generally ruled that waste-dumping was not a sudden event and policyholders could not trigger their CGL policies whenever they got sued for their negligent waste-dumping. Over time this narrow reading was less utilized as courts allowed CGL policies to be triggered for pollution claims, reasoning that the unintended consequences of the emitted pollutants—bodily injury—were themselves accidents, and should therefore be covered.

In 1966 the insurance industry shifted to Occurrence-based coverage, the coverage form we still use today for most Casualty products. An “Occurrence” was now defined as:

an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

One of the goals of this update was to broaden the scope of coverage, making the policy more comprehensive, which of course runs counter to the insurers’ goal of mitigating future pollution claims. However, the carriers thought that by limiting coverage to an occurrence, they would not be picking up pollution claims where the insured was knowingly releasing pollutants into the environment.

The ensuing litigation over pollution claims proved this assumption to be false. The same reasoning that allowed accident-triggered CGL policies to respond to claims continued to pervade the occurrence-triggered CGL policies. The damages from the waste dumping were accidental and unintended. It’s not like these companies were TRYING to hurt their neighbors by negligently dumping their toxic waste into their vicinities. If the insurers wanted the courts to affirm their claim denials, then it was incumbent upon the insurers to demonstrate that the insureds emitted the pollutants to intentionally cause damage.

The “Sudden and Accidental” Era

It wasn’t until 1970 when the following pollution exclusion endorsement was formed, later embodied into the CGL policy form in 1973:

This policy does not apply . . . to bodily injury or property damage arising out of the discharge, dispersal, release, or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion shall not apply if such discharge, dispersal, release or escape is sudden and accidental.

The social policy behind this exclusion was articulated clearly by New York Governor Nelson Rockefeller, who in 1971 pushed legislation to prohibit pollution liability insurance entirely. His reasoning was straightforward: a polluting corporation might continue to pollute the environment if it could buy protection from potential liability for only the small cost of an annual insurance premium, whereas it might stop polluting if it had to risk bearing the full penalty for violating the law. The exclusion was designed to punish active industrial polluters.

But even this exclusion did not prevent CGL policies from being triggered to respond to pollution claims. The landmark law review article “Pollution Exclusion Clauses: Problems in Interpretation and Application under the Comprehensive General Liability Policy” by Robert Tyler and Todd Wilcox noted one particularly instructive case where the pollution exclusion did not save the insurer from providing coverage.

In Rangen, Inc. v. McDonald (Idaho, 1980), a custom farmer named Curt Duggan carried a CGL policy from St. Paul Fire & Marine Insurance Company. The policy included a custom farming endorsement that specifically covered “the furnishing or use of any dusts, sprays, fungicides, herbicides, poisons, fertilizers or other substances in connection with any such farming operation.” The policy also included the standard pollution exclusion.

While applying anhydrous ammonia fertilizer, Duggan vented ammonia vapors from his application tank into an irrigation ditch. The ammonia was absorbed by the water and carried downstream to the Snake River, where it killed numerous trout at Paulson Fish Farm. Rangen, Duggan’s client, settled with Paulson and sued for reimbursement. St. Paul sought to deny coverage based on the pollution exclusion.

The court found this argument meritless. St. Paul could not offer a custom farming endorsement which provided coverage for fertilizer application services AND expect the pollution exclusion to preclude coverage when a claim arose from that very activity. The pollution exclusion, the court reasoned, could not be interpreted to defeat the very purpose and object of the insurance.

This was the judicial philosophy of the era: courts were willing to read policies as coherent documents, reconciling exclusions with the coverage grants and endorsements the carrier had sold.

CERCLA Changes Everything

The landscape shifted dramatically in 1980 when President Carter signed the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund. CERCLA imposed strict liability, joint and several liability, without regard to fault. Suddenly, any party connected to a contaminated site—past or present owners, operators, transporters, even lenders—could be held liable for the entire cost of remediation.

The “sudden and accidental” pollution exclusion proved woefully inadequate against this new liability regime. Carriers faced catastrophic losses as courts continued to find coverage for pollution claims under the “accidental” exception.

The Absolute Exclusion Arrives

The insurance industry’s response was swift. In early 1985, carriers rushed an “absolute pollution exclusion” to market as an endorsement. ISO’s October 25, 1984 Underwriting/Legal Review Committee minutes explicitly stated the goal was to accomplish a “total pollution exclusion.” By 1986, this absolute exclusion was incorporated into the standard CGL form.

The new exclusion barred coverage “based upon, or arising out of…” any pollution-related claims. Gone was the “sudden and accidental” exception. This is the pollution exclusion we see not just in CGL policies, but also in claims-made policies. Further, the absolute exclusion formula (“based upon or arising out of”) is now used to exclude not just pollution claims, but any exposure that carriers are not comfortable with. If you want to clearly and unambiguously carve out a particular exposure, you do so by using absolute exclusion policy language.

The Absolute Exclusion World We Live In

Readers of the Claims Made Bites blog will remember this previous article where I looked at a claim denial for an environmental consultant. To recap: the environmental consultant had a claim arise from conducting a site assessment and failing to find and inform their client about pollutants on a property the client was purchasing. Their claim was denied based on the absolute pollution exclusion, even though the insured had been underwritten as an environmental consultant who presumably would have E&O claims arising from pollution exposures.

What allows carriers to prevail where St. Paul failed in Rangen? Two developments working in tandem:

First, the absolute exclusion language itself—”based upon or arising out of”—is far broader and leaves courts less room for interpretation.

Second, the “eight corners rule” (also known as the “complaint allegation rule”) limits judicial review to the four corners of the policy and the four corners of the complaint. Courts applying this doctrine cannot consider applications, underwriting correspondence, premium calculations, or other extrinsic evidence that might show what the parties actually intended. The eight corners rule was established in 1965—predating the pollution exclusion developments by years—so the procedural mechanism was already entrenched when the absolute exclusion arrived. Carriers received a double benefit: exclusion language stripped of exceptions, interpreted by courts forbidden from examining underwriting intent.

Due to the clear and unambiguous reading of the absolute pollution exclusion under the eight corners framework, carriers can now deny coverage for environmental consultants—professionals whose entire business involves assessing pollutants—with judicial blessing.

Looking Back to Look Forward

It’s remarkable how pollution exposures specifically prompted carriers to adapt and create the policy language we see proliferate in nearly every kind of coverage we handle. The effects of the early 20th-century’s ambivalence towards waste have created large, expensive implications whose ripple effects we feel many decades later.

There’s an irony worth noting: a tool designed to hold industrial polluters accountable—to make manufacturers think twice before dumping waste into rivers and aquifers—now traps environmental consultants who help identify and clean up pollution. The absolute exclusion has drifted far from Governor Rockefeller’s original purpose.

Maybe for this holiday season we can be thankful that companies are at least being more careful about how they manage their waste. We may not see another major revision to the CGL policy in our lifetime, barring of course another onslaught of pollutant claims. But we should remain vigilant about how the tools carriers developed to address one problem can create unintended consequences for entirely different classes of insureds.

Disclaimer: This article is intended for educational purposes only and does not constitute legal or insurance advice. Coverage determinations depend on specific policy language, jurisdiction, and individual circumstances. Readers should consult with qualified legal counsel or insurance professionals regarding specific coverage questions.

Meet the Author

Lucas Roberts

Wholesale Broker, Anzen

Lucas Roberts is a professional lines specialist with experience in both underwriting and wholesale brokerage. He maintains an active LinkedIn presence, regularly sharing insights on professional liability developments. This blog takes a deeper dive into developments that have far-reaching consequences for the professional liability market.

You can see more of Lucas’s Claims Made Bites on his LinkedIn.