Obtaining Insurance Coverage For Environmental Liabilities

Barry Needleman Headshot
Barry Needleman
Managing Director and Director, Administrative Law Department
Published: McLane.com
October 1, 2004

Businesses often do not appreciate the opportunities that may exist to offset current environmental liabilities with insurance coverage. Now is an especially good time to consider this issue. The United States Environmental Protection Agency recently designated over two thousand (2,000) potentially responsible parties, most from Massachusetts and New Hampshire, at the Beede Waste Oil Superfund Site just over the border in Plaistow, New Hampshire. Many businesses that never had to contend with environmental liabilities may suddenly be forced to do so. Moreover, court decisions in recent years, both in New Hampshire and elsewhere, have clarified the circumstances under which insurance coverage may be available in these circumstances.

Insurable environmental liabilities may arise in numerous ways. Businesses may be designated as a responsible party at a waste site. In addition, accidental environmental harm may result from chemical releases, waste spills, and leaking underground storage tanks. Contaminants may also migrate to another person’s property, thus giving rise to third party liability. In each of these cases, insurance coverage may be available.

Older policies offer the best opportunity for recovery, though even newer policies may provide some coverage. Policies sold between approximately 1970 and 1986 generally contained a type of pollution exclusion clause that may not be effective in jurisdictions like New Hampshire for several reasons. Most policies sold prior to 1970 did not contain any pollution exclusion clauses.

Because contamination may migrate through the environment and cause new and continuing damage to soil, surface water and ground water, many courts have ruled that insurance policies must provide coverage in successive years. For example, On April 23, 2004 the New Hampshire Supreme Court issued its decision in EnergyNorth Natural Gas, Inc. v. Underwriters at Lloyds, Utica Mutual Insurance Company, Century Indemnity Company and St. Paul Fire and Marine Insurance Company. The decision focused on the threshold issue in environmental insurance contamination cases: what is the applicable “trigger” of coverage. “Trigger,” according to the court, is “that which, under the specific terms of an insurance policy must happen in the policy period in order for the potential of coverage to arise”. In other words, how does the policy get activated? This is an important issue because in many contamination cases, the events in question occurred long ago and contamination then migrated through the environment. Often, in such circumstances, policy holders had coverage spanning many years. This decision clarifies that in New Hampshire, the trigger of coverage will now be viewed broadly.

Policyholders are frequently surprised by how easy it is to uncover evidence of coverage. Often, businesses have retained copies of old insurance polices that may have long been forgotten. Even if copies of the actual policies are not available, other evidence may be used to establish coverage, including policy fragments. These fragments can be used to reconstruct a policy’s key coverage provisions because, in most cases, insurance policies were written on standard industry forms. Sometimes, simply having records of premium payments or policy numbers may be enough. Quiet often, a diligent search in the right place will uncover what may turn out to be very valuable evidence of coverage.

Settling claims with insurers is almost always preferable to litigating them. However, policyholders must be aware that strict deadlines apply to the filing of insurance coverage law suits. Any failure to adhere to these deadlines could potentially be fatal to a policyholder’s efforts to obtain coverage. Therefore, it is essential that anyone facing an environmental liability move aggressively to assess coverage issues.

Businesses should never discount the possibility that insurance may be available for environmental losses. Quite often, the availability of such coverage can have a significant financial impact. It therefore makes sense to analyze these issues thoroughly and promptly in order to understand what options may exist.