Expert Commentary

The CGL Pollution Exclusion

Today's basic or unendorsed Insurance Services Office, Inc. (ISO), commercial general liability (CGL) coverage form policy (the April 2013 edition) provides very little pollution coverage. Policyholders would do well to either extensively amend their CGL or obtain separate pollution coverage for more than minimal or incidental pollution exposures.

Liability Insurance
May 2021

One of the most litigated portions of the CGL policy, the "pollution exclusion," has vexed policyholders and insurers alike for over 30 years. Why such confusion and controversy? What exactly does the CGL policy exclude as pollution? What pollution coverage, if any, is left? This article will offer some responses to those questions and attempt to provide some explanations as to how the "pollution exclusion" applies.

A Historical Perspective

The late 1970s and early 1980s saw two major environmental laws enacted that dramatically changed the way our society and the law viewed environmental contamination. Responsibility for the environment that had never before existed was now being imposed on business and industry with the passage of two federal laws: the Resource Conservation and Recovery Act (RCRA) and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

The former regulated and tracked the life cycle of hazardous waste, the latter provided the US Environmental Protection Agency (EPA) broad authority to respond to releases of hazardous substances. CERCLA, also known as Superfund, imposed liability, without regard to fault, on those deemed responsible for environmental contamination, including strict liability for the cost of cleanup and remediation. The liability imposed was also joint and several, meaning everyone that was deemed responsible was liable for the full amount of the cost—both separately and collectively. State environmental laws and resulting regulations with similarities to the federal laws and regulations soon followed. While these environmental laws are far more complex than is pertinent here, their effect was clear—environmental contamination that had been tolerated for many years was not only to be stopped but had to be cleaned up.

In accordance with the new laws, federal and state environmental authorities began sending out letters to businesses and organizations, called potentially responsible party (PRP) letters (or the state equivalent), putting all on notice of their potential legal obligations to clean up the entire contaminated site. If your business or organization's name appeared on an RCRA manifest, it was inescapable that you would receive a PRP letter.

This was the backdrop for testing of the then-current sudden and accidental CGL pollution exclusion, as well as an impetus for the development of the absolute CGL pollution exclusion.

The Comprehensive General Liability Policy—Sudden and Accidental

Testing of the sudden and accidental CGL pollution exclusion began when the businesses or organizations started to tender to their insurers' demands pursuant to the new environmental laws and regulations, seeking defense of these government orders and reimbursement of remediation costs being imposed. Insurers began to review these claims and frequently determined contamination had been taking place over an extended period of time—in some cases, for almost 100 years—and concluded that such claims were not "sudden and accidental" and, therefore, denied coverage.

As large sums were involved, litigation quickly followed. Although many of the claims were the result of years of accumulated contamination, some courts found CGL coverage still applied and found that "sudden and accidental" pollution exclusion wording was ambiguous or should be read to mean "unexpected or unintended." The following is an example.

If the foregoing readings of the words "sudden" and "accidental" are given effect, the phrase "sudden and accidental" could be synonymous with the phrase "unintended and unexpected." St. Paul Fire v. McCormick & Baxter Creosoting, 923 P.2d 1200,1217 (Ore. 1996)

In a few other states, policyholders' counsel asserted that insurers should be prevented from applying the pollution exclusion unless the insured intentionally discharged a pollutant. This position stemmed from representations made to regulators that adding the "sudden and accidental" pollution exclusion to the CGL policies in 1970 did not decrease coverage. In short, several courts adopted this "regulatory estoppel" approach,1 concluding the insurance industry cannot assert one coverage position when filing the policy change and another when a claim is made by a policyholder.

In misrepresenting the effect of the pollution-exclusion clause to the Department of Insurance, the IRB misled the state's insurance regulatory authority in its review of the clause, and avoided disapproval of the proposed endorsement as well as a reduction in rates. As a matter of equity and fairness, the insurance industry should be bound by the representations of the IRB, its designated agent, in presenting the pollution-exclusion clause to state regulators. Morton Intern. v. General Acc. Ins.,134 NJ 1, 76 (NJ 1993)

In such states, insurers were ordered by courts to pay hundreds of millions in remediation costs. Perhaps more importantly, insurers concluded what was needed was a "bulletproof" pollution exclusion—one that would be upheld by the courts. As the insurers saw it, absent an enforceable pollution exclusion, the alternative was to not offer any liability coverage—contributing to the liability crisis of the mid- and late 1980s.

The Absolute Pollution Exclusion

Rushed to the market as an endorsement to the 1973 nonsimplified comprehensive general liability policy in early 1985, the absolute pollution exclusion changed the CGL policy wording to remove coverage for bodily injury or property damage that arose from the release of pollutants, regardless of whether pollutants were released quickly or gradually. However, fearing some courts may negate any pollution exclusion wording and still find coverage, ISO felt compelled to file an extraordinarily broad exclusion for pollution—one that potentially eliminated coverage for claims that were traditionally intended to be provided by a CGL policy.

ISO Comments and Publications

Minutes of an October 25, 1984, ISO Underwriting/Legal Review Committee provide some insight into the mindset of ISO when drafting this new “absolute pollution exclusion.”

The Committee agreed that the proposed language for this exclusion accomplishes a ‘total pollution’ exclusion (except for ‘products’) in the CGL policy. However, such an exclusion precludes some bona fide fortuitous loss which should be insurable under a CGL policy.

Incorporated into the basic simplified CGL policy in 1986, ISO offered the following explanation of the new pollution exclusion in their Commercial Lines Manual, Division Six—General Liability, 1985 (page 4).

Old versus New Pollution Exclusion
Pollution Liability—The new pollution exclusion differs from the old exclusion in the following ways:
  1. There is no distinction between sudden/accidental and gradual events.
  2. All pollution coverage for bodily injury/property damage is excluded under most circumstances, including the following situations:
    1. The emission originates on the insured’s premises.
    2. The emission originates from a waste disposal or treatment site.
    3. The pollutants are handled or treated as waste.
    4. The emission comes from a site where operations are being performed by the named insured or a subcontractor, and the pollutants are brought onto the site in connection with the work being done, or if the work involves containment or treatment of pollutants.
  3. Cleanup costs and similar costs are specifically excluded.

Pollution arising from Products/Completed Operations hazard is covered under the new policy.

The above is still a useful reference guide regarding the general scope of the CGL pollution exclusion. Because several subsequent changes were made to the CGL pollution exclusion, a complete analysis of the exclusion requires giving full consideration to the actual wording, including all of the numerous subsequent changes, all of which refine the scope of coverage.

From Ancient History to Present Day

While a few of the changes that have been made to the CGL pollution over the past 30 years have been to "strengthen" the exclusion, most of the changes were an exception to the certain sections of the exclusion necessitated in response to a number of overreaching coverage denials. But such exceptions aside, misuse of such a broadly drafted "absolute" pollution exclusion was both foreseeable and inevitable—and continues today, perhaps a little less frequency than when first introduced. After all, ISO's committee did voice the concern that the "absolute" pollution exclusion, as drafted, "precludes bona fide fortuitous loss which should be insurable under a CGL policy." To add context, at the time, it appears ISO was willing to sacrifice coverage that should have been provided by the CGL policy as a trade-off for developing a pollution exclusion that would be enforceable.

All of this is to say that an understanding of today's CGL pollution exclusion requires some insight into the exclusion's historical development. Thus, the preceding history lesson may be as important today as it was in the 1980s.

The CGL Pollution Exclusion—The First Paragraph (f. (1))

Bodily Injury or Property Damage Arising out of Pollution. The first section of the pollution exclusion f. (1) does not exclude pollution—it excludes bodily injury or property damage arising out of the release of a pollutant. This is no small matter—the exclusion may still be applied when there is no pollution, at least in the general sense of the word, which usually involves some form of environmental contamination. And the resulting bodily injury or property damage must only arise out of the release of the pollutant. "Arising out of" indicates a wider range of causation than proximate causation.2 Most courts have determined that "arising out of" requires only some causal relationship or connection between the bodily injury or property damage and the excluded risk. In this instance, the excluded risk is the release of a pollutant.

Slip and Fall. Consider a container of motor oil that is accidentally knocked off the shelf of an auto parts store, bursting open when hitting the floor and releasing the motor oil. When a passing patron slips on the motor oil, falls, and suffers bodily injury, the patron's claim against the auto parts store would not normally be considered a pollution claim but rather a slip and fall claim. In other words, a release from a small container of motor oil can be easily cleaned by using absorbent materials and would hardly be deemed environmental contamination. Nonetheless, this claim is bodily injury that arises out of the release of a pollutant—and insurers have argued the auto parts store's CGL policy pollution exclusion eliminates coverage for this slip and fall claim. This is but one example of the peculiar consequences of applying a literal reading of the CGL absolute pollution exclusion to certain claims.

Here are a couple of additional examples of rather notorious insurer coverage denials citing the CGL "absolute" pollution exclusion, all of which have resulted in ISO drafting additional exceptions to the pollution exclusion.

  • Fumes from flooring material being applied by a contractor that damaged food products stored on-site
  • Carbon dioxide released by a leak in a vent stack of a heating boiler that resulted in injury to others
  • Smoke from a hostile fire that resulted in property damage

Traditional Environmental Damage. Some courts have responded to a literal reading of the pollution exclusion—for example, the slip on the motor oil—by ruling the exclusion applies only to bodily injury or property damage that results from traditional environmental damage. Traditional environment damage would be typified by industrial pollution of the atmosphere, water, ground, or groundwater. Such courts would not apply the CGL pollution exclusion to the motor oil slip and fall claim. The following is an example.

Our review of the history of the pollution exclusion amply demonstrates that the predominate motivation in drafting an exclusion for pollution-related injuries was the avoidance of the "enormous expense and exposure resulting from the 'explosion' of environmental litigation." We would be remiss, therefore, if we were to simply look to the bare words of the exclusion, ignore its raison d' etre, and apply it to situations which do not remotely resemble traditional environmental contamination.

Given the historical background of the absolute pollution exclusion and the drafters' continued use of environmental terms of art, we hold that the exclusion applies only to those injuries caused by traditional environmental pollution. The accidental release of carbon monoxide in this case, due to a broken furnace, does not constitute the type of environmental pollution contemplated by the clause. American States Ins. Co. v. Koloms, 687 N.E.2d 72,81,82 (Ill. 1997).

Of course, the pollution exclusion says nothing about traditional environmental damage or industrial pollution of the atmosphere, water, ground, or groundwater.

In fact, not only is the term "pollution" not defined in the CGL policy, it does not appear anywhere within the exclusionary wording. Whether the policyholder has caused pollution is irrelevant to the strict application of this exclusion. While some courts, as above, have looked beyond such a strict interpretation and have allowed coverage when no environmental damage occurred, court interpretation is decidedly mixed on this issue. Some courts have outright rejected the notion that the pollution exclusion applies only when environmental damage takes place.

Looking through the prism of what one might expect to find based on this previously determined "purpose" and "historical evolution," the dissenters concluded that the pollution exclusion clause "can" reasonably be read as being "limited to what is commonly or traditionally considered environmental pollution." Nothing in the text of the pollution exclusion clause supports such a reading. In short, the dissenters' focus on extra-textual sources of interpretation led them to find ambiguity in the pollution exclusion clause where there is none. Reed v. Auto-Owners Ins. Co., 667 S.E.2d 90, 92 (Ga. 2008)

"Pollutants." What is very relevant and is defined (in the CGL's definition section) is the term "pollutant," the understanding of which is central to the pollution exclusion. "Pollutant" is a very expansive term that includes just about any type of irritant or contaminant, whether it is a solid, liquid, gas, or by heat (thermal). The definition specifically mentions but is not limited to smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.

Substances that would normally be expected to be considered "pollutants," and which have been found by courts to be "pollutants," include ammonia, benzene, chemical fumes, DDT, petroleum, diesel fuel, oil, waste oil, insecticide, PCB, and TCE.

Some substances that may not normally be considered "pollutants" have been found by courts in some circumstances to be "pollutants," including cement dust, foundry sand, manure, salt water, sewage, and skunk spray.

The Pollution Exclusion—Part One—f. (1)

At the outset, the very first paragraph of the pollution exclusion establishes that, in order to activate the exclusion, there must first be a pollutant that has some causal connection to bodily injury or property damage. And that the pollutant can travel in any number of ways, as expressed in the wording "actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape." But this first paragraph only provides the preliminary measure for applying the exclusion—subparagraphs (a) to (e) and the exceptions in each subparagraph, when read together with paragraph f. (1), provide the specific circumstances to which the exclusion applies.

Exclusion f. 1. (a)—"Premises." The first set of circumstances in which the exclusion applies is related to premises or site pollution. That is, exclusion f.(1)(a) applies to releases or escapes of pollutants at or from any premises, site, or location owned, occupied, rented, or loaned to any insured at any time. This premises exclusion is very broad—the insured's connection to the premises does not have to be current—it could involve a past location or site that was rented or owned decades ago. But there are three exceptions to the "premises" pollution exclusion—meaning the exclusion would otherwise apply but does not apply to the circumstance described in the exceptions. The three exceptions are the following.

  • Building Heating Equipment Exception—f. (1) (a)(i). Bodily injury sustained within a building caused by fumes, smoke, vapor, or soot from equipment used to heat, cool, or dehumidify the building is covered. The exception also applies to equipment used to heat water, but only water for personal use by the building's occupants or guests. The commonly litigated claim made by tenants against landlords for bodily injury caused by fumes from a faulty boiler or furnace is no longer excluded—and thus, this is an important exception.
  • Owner as Additional Insured Exception—f. (1) (a)(ii). Bodily injury or property damage away from the named insured's premises is covered if the named insured is a contractor, and the exception applies even if the site's owner is listed as an additional insured on the named insured contractor's CGL policy. Absent this exception, a contractor may not have coverage under its own CGL policy for operations away from the contractor's own premises solely because the owner is listed as an additional insured on the contractor's CGL policy. Recall the premises pollution exclusion applies to any insured that occupied any site at any time—this exception restores coverage for the circumstances described here.
  • Hostile Fire Exception—f. (1) (a)(iii). Coverage applies to bodily injury or property damage arising from heat, smoke, or fumes from a "hostile fire." A "hostile fire" is a fire that becomes uncontrollable or breaks out from where it is intended to be. For instance, if a chemical plant catches fire, releasing toxic fumes into the neighborhood, any resulting bodily injury is covered.

Exclusions f. (1) (b) and f. (1) (c)—"Waste." The second set of circumstances to which this exclusion applies is to waste. Waste includes but is not limited to materials to be recycled, reconditioned, or reclaimed. This portion of the exclusion has no exceptions—waste is excluded regardless of where or how it causes bodily injury or property damage. For example, it is customary for an auto repair shop or an auto dealership to handle and store small quantities of motor oil that have been removed from customers' motor vehicles. Any bodily injury or property damage arising from this used motor oil is excluded, including at an off-site oil disposal facility owned by others but used by the auto repair shop or dealer.

Exclusion f.(1)(d)"Away from Your Premises." This portion of the exclusion applies to the third set of circumstances. It applies to the site, location, or premises of others where any insured (or any of the insured's contractors or subcontractors) are performing (present tense) operations if the pollutants are brought to the premises by the insured or their contractors or subcontractors in connection with the operations. In other words, unlike the first set of circumstances (f. (1) (a)), which applies to almost any activity or use of your premises, subparagraph f. (1) (d) of the exclusion is significantly more limited. This section of the exclusion applies only to circumstances when the insured (or the insured's contractor or subcontractor) has brought the pollutants to the site, location, or premises of others to do a job and the pollutants are released while the job is being performed. This section of the exclusion is sometimes applied to a painting contractor that spills or oversprays paint that ends up in well water. There are, however, at least three instances when this section of the exclusion does not apply, even if the insured brings pollutants to the location or site. The three exceptions are the following.

  • Mobile Equipment Exception—f. (d) (i). Coverage applies to releases from the insured's mobile equipment if the pollutants are for the normal operation of the mobile equipment, such as diesel fuel, motor oil, or hydraulic fluid if they escape from a vehicle part designed to hold such pollutants. This exception does not apply if the release is intentional, such as oiling down a road prior to paving. As an example of how this exception might apply, consider a contractor who hits a large boulder with a bulldozer and rips open the diesel fuel tank, causing the diesel fuel to wash into the nearby wetlands. Coverage applies to property damage caused by the diesel fuel.
  • Operations within Building Exception—f. (d) (ii). If an insured or its contractors (or subcontractors) are performing operations, releases of fumes, gases, or vapors from materials brought into the building in connection with the operations are covered if the bodily injury or property damage is sustained within the building. This exception would provide coverage if fumes from varnish make tenants ill after a flooring contractor has brought the varnish into the building to finish the hardwood floors of an office building.
  • Hostile Fire Exception—f.(d) (iii). The "hostile fire" exception also applies away from the premises—if bodily injury or property damage arises from heat, smoke, or fumes from a hostile fire away from an insured's premises, coverage applies.

Exclusion f. (e)—Away from Your Premises—Environmental Services. This fourth set of circumstances eliminates coverage if any insured or an insured's contractors or subcontractors are involved in performing certain environmental services, such as testing, cleaning up, treating, or responding to pollutants. There are no exceptions to this portion of the exclusion.

Products and Completed Operations.

Bodily injury or property damage arising out of an insured's products or completed operations is not eliminated by the paragraph f. (1), subparagraphs (a) to (e), of the CGL pollution exclusion. In other words, if pollutants escape or are released from an insured's product or from an insured's completed operations—both defined in the CGL policy—and that release or escape results in bodily injury or property damage, in most cases, the pollution exclusion does not apply. As noted in the text box, ISO offered this explanation of the "absolute" pollution exclusion: "Pollution arising from products/completed operations hazard is covered under the new policy."

However, even the exception to the exclusion for products or completed operations is not without qualification—based on the facts, it is conceivable the exclusion may apply. For instance, if an insured's product is considered waste, coverage would be excluded, despite the exception for products, as subparagraph f. (1) (b) and (c) applicable to waste sweeps broadly.

The Pollution Exclusion—Part Two—f. (2)

As the second paragraph of the pollution exclusion, f. (2), is an independent clause that stands alone, all of the previously noted exceptions to paragraph f. (1) are potentially limited by f. (2).

The full text of paragraph f. (2) is the following.

  • (2) Any loss, cost or expense arising out of any:

  • (a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, "pollutants"; or

  • (b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, "pollutants."

From the beginning (in this case, 1985), f. (2) has removed coverage for "cleanup and similar costs." A revision to f. (2) in 1988 "strengthened" this portion of the exclusion to eliminate coverage for "any loss, cost or expense arising out of any … request, demand or order that any insured … clean up, remove, contain, treat, detoxify … or in any way respond to … pollutants." Further, also expressly excluded are claims or suits "by a governmental authority for damages because of testing for, monitoring, cleaning up, removing … or in any way responding to … the effects of pollutants."

The Dilemma. At first blush, exclusion f. (2) appears to be a total exclusion for any cleanup of pollutants. How can pollution coverage be provided in the CGL (by the limited exceptions) and yet seem to completely exclude all cleanup costs? More to the point—how can ISO's representations of coverage based on exceptions to the pollution exclusion—for example, the exception for products and completed operations—be reconciled with the exclusionary wording in f. (2)? More than one insurer has pointed to paragraph f. (2) of the CGL pollution exclusion to deny coverage for property damage that clearly falls into an exception to f. (1).

A Potential Solution. First introduced in the July 1998 edition of the CGL, and included in today's ISO CGL policy, is a paragraph added to f. (2). According to the accompanying ISO circular, "Coverage is also clarified with respect to certain third-party property damage claims with respect to cleanup by indicating paragraph (2) of the exclusion does not nullify coverage not excluded by paragraph (1) of the exclusion." The added paragraph that modifies f. (2) states the following.

However, this paragraph does not apply to liability for damages because of "property damage" that the insured would have in the absence of such request, demand, order or statutory or regulatory requirement, or such claim or "suit" by or on behalf of a governmental authority.

Simply stated, the above property damage exception to f. (2) of the pollution exclusion means f. (2) does not apply to damages resulting from property damage (as defined in the CGL and that fall within an exception to f. (1)) if liability for those damages was may be imposed in the absence of environmental laws or regulations—or a government authority acting in accordance with those environmental laws or regulations.

That exclusion f. (2) applies only to government-mandated cleanup costs pursuant to environmental laws or regulations and not to tort damages has been recognized by the courts.

Obviously not excluded [by paragraph f. (2)] are any pollution-related costs, or expenses that do not arise "out of any request, demand or order that [an insured] monitor, clean up, remove [etc.] pollutants." The complaint, however, also alleges Blue Cross was damaged by having to … dispose of and recycle contaminated soil, and repair damage to its property where the leak occurred. None of these activities were requested, ordered, or demanded by the Los Angeles Fire Department, or any other agency as far as the evidence is shows. Therefore, these activities do not fall within the [paragraph f. (2)] pollution exclusion. Charles E. Thomas v. Transamerica Ins. Group, 62 Cal. App. 4th 379, 383, (Cal Ct. of App. 2d Dist. 1998)

An Illustration.3 A construction contractor is performing operations for a chemical manufacturer whose facility is located on a lake. In the course of the operations, the contractor's equipment ruptures a chemical storage tank and causes toxic chemicals to spill out onto the land.

Because the contractor did not bring the pollutants to the premises, none of the subparagraphs found in paragraph f. (1) of the pollution exclusion apply to this release of pollutants—the first section of the pollution exclusion does not apply. As a result of this incident, the contractor ultimately faces the following three legal actions.

  • The contractor is sued by the chemical manufacturer, who must incur considerable expense in having the contaminated soil removed from the premises for the land to be usable again. The contractor's CGL insurer will pay these cleanup expenses, as the cleanup costs represent damages because of property damage, and the source of the contractor's liability is not an environmental regulation or order but rather common law negligence. This is the purpose of the above-noted property damage exception to f. (2)—paragraph f. (2) should not be used to nullify coverage not excluded by any of the subparagraphs of paragraph f. (1) of the pollution exclusion. In other words, the CGL policy applies in exactly the same manner as it would if, instead of polluting the claimant's land, the insured had accidentally damaged the claimant's house with a bulldozer.
  • Because of the possible release of escaping chemicals into the lake, the state environmental authority orders the manufacturer to conduct tests and establish an ongoing monitoring operation to detect possible water pollution. The manufacturer seeks recovery of the cost of these operations from the contractor. As these costs constitute a "demand that any insured or others test for pollutants," f. (2) of the pollution exclusion applies. The contractor's CGL insurer will not be responsible for paying the government-ordered monitoring and testing costs.
  • After the presence of chemicals in the lake is detected, the state environmental authority hires an environmental services company to treat the water in an attempt to neutralize the effects of the pollutant. Having determined that the contractor has caused the pollution incident, the state environmental authority demands, pursuant to the appliable environmental regulation, the contractor pay the cost of the cleanup operation. This claim is also excluded by f. (2) as it is a "claim by or on behalf of an environmental authority for damages because of … cleaning up … 'pollutants.'"

A Troubling Situation. As a practical matter, due to the expansive nature of environmental laws and regulations, a vast majority of liability for cleanup costs may be imposed on an insured because of such laws or regulations.

In the above illustration, it may be more common for the environmental authorities to not only order testing and cleanup of the lake but also to order the contractor to comply with appliable environmental laws and clean up the contaminated soil. Of course, because the immediate source of the liability for the soil remediation would not be tort damages but rather government-mandated cleanup costs, a coverage denial may seem justified.

But such coverage denials overlook the limitations on f. (2) and read out of the exclusion entirely the property damage exception to f. (2), which ISO explained was to avoid nullifying coverage not excluded in the first section of the exclusion—paragraph f. (1) and its subparagraphs. The better interpretation of paragraph f. (2), when considered in light of the property damage exception, is that f. (2) does not apply if the insured would have had liability in tort for the damages because of the property damage. After all, the property damage exception does state paragraph f. (2) does not apply to liability for property damage that the insured would have in the absence of statutory or regulatory requirements or claims by a governmental authority. Just because the insured was ordered by a government authority to clean up the pollution does not mean that the insured would not also have liability pursuant to tort law for the cleanup costs. Stated differently, if the facts are that the insured would have tort liability for the property damage, exclusion f. (2) does not apply, even if the immediate liability for the cleanup is by government order, regulation, or the law.

In the illustration, the contractor would have had liability for the cleanup expenses, even if the manufacturer never filed a tort complaint against the contractor. Coverage should not turn on the fact that the environmental authority issued its order before the manufacturer filed a tort complaint against the contractor. In other words, the insurer should not be able to exclude coverage for the contractor based on the mere fortuity as to whether the cleanup was initially imposed by an environmental authority issuing a cleanup order instead of a private third-party seeking reimbursement for tort damages.


The basic or unendorsed ISO CGL policy provides very little pollution coverage. And, for the pollution coverage that may be afforded, insurers may be tempted to apply the cleanup exclusion more broadly than warranted, despite the applicable property damage exception. A policyholder with any significant pollution risk, even in the area of exceptions to the exclusion, such as products and completed operations, may not have adequate coverage under the CGL policy.

Further, many insurers routinely replace the absolute pollution exclusion found within the ISO CGL policy with a "total pollution exclusion" endorsement, which has the effect of removing most, if not all, of the express exceptions applicable to f. (1), subparagraphs (a) to (e). In any event, policyholders would do well to either extensively amend the CGL or obtain separate pollution coverage for more than minimal or incidental pollution exposures.

1 The "regulatory estoppel" argument has also been asserted in a number of COVID-19 business income claims.

2 The phrase "arising out of" must be read expansively, incorporating a greater range of causation than that encompassed by proximate cause under tort law. Rischitelli v. Safety Ins. Co., 423 Mass. 703, 704 (1996).

3 This illustration has been used with the permission of the International Risk Management Institute, Inc. (IRMI), and is found in IRMI's CGL Pollution Cleanup Endorsement annotation.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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