The financial consequences of environmental contamination potentially affect a large number of business and individuals. When dealing with this issue, the availability of insurance coverage is frequently very important. Unfortunately, policy holders overlook the fact that insurance policies — even those issued as far back as the 1950s — often provide coverage for claims related to or arising out of environmental contamination. Policy holders should, therefore, carefully evaluate insurance coverage when dealing with any environmental problems.
A recent decision from the New Hampshire Supreme Court will make coverage more likely in these circumstances. This summer the New Hampshire Supreme Court issued a decision that in many cases will benefit insurance policyholders seeking coverage for environmental claims. The case, Hudson v. Farm Family Mutual Insurance Company, focused on whether property damage caused by stray electrical current was covered by a farmer’s insurance policy. The policy contained a provision that excluded coverage if damage was caused by “sudden and accidental” artificially generated electrical current.
Thus, the focal point was the meaning of the phrase “sudden and accidental” and whether the exclusion barred coverage for the particular damage at issue. (This is also a key phrase in many policies which may provide environmental coverage.) At the heart of this inquiry is the question of whether “sudden and accidental” refers to the timing of the event in question, or whether it really means that the event was unexpected and unintended from the standpoint of the policyholder.
In the environmental context, one central and frequently debated element of insurance coverage disputes is whether pollution exclusion clauses, which also use the phrase “sudden and accidental,” preclude coverage for things such as groundwater contamination. In this context as well, the issue of whether “sudden and accidental” has a temporal meaning is often hotly contested. In its analysis, the court in the Hudson case specifically noted that the phrase “sudden and accidental” had been extensively litigated in the environmental arena. In that context, the court also observed that many other jurisdictions have found this key phrase to be ambiguous.
In New Hampshire, as in many other jurisdictions, if a policy term is ambiguous, courts will almost certainly interpret it in favor of the insured since it was the insurer who wrote the policy. With these issues in mind, the Supreme Court in the Hudson case suggested that “sudden and accidental” was ambiguous and interpreted it in favor of providing coverage. Of course, this case does not guaranty a favorable result for insureds seeking coverage for environmental claims. However, in this complex and shifting area of the law it does give policy holders an improved opportunity to obtain coverage.
Historically, insurers have relied in part on the “sudden and accidental” provision of pollution exclusion clauses to either deny coverage or increase their leverage in settlement negotiations. Moreover, the presence of a pollution exclusion clause in a policy frequently dissuades an insured from seeking coverage for environmental harms. In the wake of the Hudson ruling, insureds can approach these cases with an increased level of confidence that pollution exclusion clauses will not necessarily bar coverage for environmental claims. Of course, insureds should always have specific advice in particular circumstances since the facts of every case vary.