Sudden and accidental pollution coverage and Greek gods are both myths. People
gave up on believing the Greek gods would do them any good more than a thousand
years ago. However, due to the crafty work of insurance marketing spin doctors,
the sudden and accidental coverage myth in general liability insurance policies
persists in the US insurance business.
Pollution exclusions have been the cause of more litigated insurance
coverage disputes than any set of words in the history of insurance. The words
"sudden" and "accidental" are at the root of many of these
coverage disputes.
Looking at the insurance marketing slang used to describe pollution
exclusions, it is not surprising that there is so much insurance coverage
litigation over denied pollution-related claims. Insurance coverage litigation
is created when insurance buyers think they are covered for a loss that the
insurance company thinks is excluded. It turns out that insurance sellers and
buyers and their lawyers often have some very different ideas about what sudden
and accidental pollution might mean.
Sudden and Accidental Pollution Coverage
Representing a "pollution exclusion" as "pollution
coverage" is a great way to create coverage litigation. It is still common
to hear in the insurance brokerage community that "this policy has sudden
and accidental pollution coverage."
Much of the new insurance coverage litigation over pollution exclusions in
property and liability insurance policies could be avoided if the insurance
marketing spin doctors could be reined in from developing feel-good words to
disguise the effects of pollution exclusions. Sudden and accidental pollution
"coverage" has as its foundation an exclusion in the comprehensive
general liability insurance policy that has not been used for over 30 years. In
my opinion, the use of the words "sudden and accidental pollution
coverage" on new insurance policies should go the way of Greek myths; both
make interesting reads, but neither is based on facts.
History of the Pollution Exclusion
The introduction of the first pollution exclusion over 40 years ago came at
a time when new media attention was being given to human-caused environmental
damage and degradation. In the 1960s, the mainstream media began covering
pollution story lines and the harmful effects on human health and the
environment in general. Happenings such as the surface of the Cuyahoga River
catching fire because it was so polluted were brought into the public eye by
the 6 o'clock evening news. Similarly, Rachel Carson's Silent
Spring was published in 1962 and brought the environmental effects of
synthetic pesticides to the attention of the public.
These and many other incidences acted as driving forces to an overhaul of US
environmental protection laws, public policy, and governmental agencies. New
legislation like the Superfund law and the creation of new governmental
agencies such as the Environmental Protection Agency meant drastic changes in
the liability faced by businesses and industries for pollution and
environmental loss exposures.
The insurance industry's very predictable response to the changing and,
therefore, unpredictable public attitude to make polluters pay for the damage
they may cause was to introduce an exclusion to minimize the insurance
companies' loss exposure to contamination and pollution claims. Starting in
1970, insurance rating organizations introduced mandatory endorsements that
were intended to exclude contamination and pollution claims under general
liability (GL) insurance policies.
The original contamination and pollution exclusion endorsement for GL
policies contained an exception to the exclusion; if the pollution discharge,
release, or escape of pollutants was "sudden and accidental," the
exclusion did not apply.
The original pollution exclusion (f.) itself was relatively short and
seemingly simple. As a point of reference, this is the 1971 version of the
contamination and pollution exclusion endorsement with a sudden and accidental
pollution exception in the GL policy.
It is agreed that this insurance 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
materials, or other irritants, contaminants, or pollutants into or upon land,
the atmosphere, or any watercourse or body of water; but this exclusion does
not apply if such discharge, release, or escape is sudden and accidental.
In 1973, the Insurance Services Office, Inc., incorporated the wording from
the pollution exclusion endorsement into the new comprehensive general
liability policy under Exclusion (f.) Pollution, which was introduced as the
industry standard GL policy form in that year.
Due to the creative work of insurance marketers, this new exclusion came to
be known as "sudden and accidental pollution coverage" in the
insurance business in the United States. Importantly for this discussion, the
US insurance market completely abandoned the sudden and accidental exception to
the pollution exclusion by the late 1980s. Today, insurance policies do not use
the words "sudden" and "accidental" to define an exception
to a pollution exclusion.
In the 1971 Fire, Casualty, & Surety Bulletin introducing this
standardized pollution exclusion endorsement for the GL policy, the authors
referred to the new exclusion as the contamination or pollution exclusion.
There are two significant points contained in that title of the endorsement.
First, the authors of the pollution exclusion never called the new exclusion
"sudden and accidental pollution coverage." Insurance marketing folks
trying to put a positive spin on a new form of exclusion must have come up with
the idea that the new exclusion could be sold as a new form of coverage if the
right spin was used to describe the change in coverage. By any objective
measure, referring to a brand-new exclusion as some form of new
"coverage" has been an insurance marketing scam from day one. Since
when is a new exclusion new coverage?
The second important point in the title of the new pollution exclusion
endorsement was evidenced by the title of the endorsement. From the beginning
days of pollution exclusions, the authors intended to exclude losses from
contaminants in addition to pollution, which explains why pollution
exclusions can be applied to losses arising from bacteria-contaminated
sandwiches today. Confusion on what is a "pollutant" in an insurance
policy has led to decades of unnecessary insurance coverage litigation, brought
by policyholders who were surprised that pollution exclusions eliminate GL
coverage for contamination-related losses.
Beginning in the early 1980s and continuing on to this day, policyholders
submit claims under the GL policies that were in place when the environmental
damage was incurred. In some cases, that includes GL policies that expired many
decades ago.
Courts Respond
The ambiguity of the phrase "sudden and accidental" in the GL
policy's pollution exclusion led to an onslaught of litigation over the
meaning of the word "sudden." Courts were asked to determine, does
sudden mean really darn quick? No one knew the answer. In insurance coverage
litigation that could go on for over a decade, many courts gave up on trying to
define sudden and took the stance that accidental meant "unexpected and
unintended," and by doing so, found coverage under GL policies for
pollution releases that took place over many years, if the claim resulting from
pollution and, not the pollution itself, was unexpected and unintended.
Once the words "sudden and accidental" were made irrelevant by the
courts in insurance coverage litigation, the insurance companies needed to come
up with another way to exclude pollution losses from ongoing business.
The 1986 and Later Versions
In response to an onslaught of pollution and asbestos-related claims in the
early 1980s and the general demise in the courts of the sudden and accidental
wording in the pollution exclusion (f.), in 1986 the comprehensive
general liability (CGL) policy was replaced with the more simplified and
easier-to-use commercial general liability (still CGL) policy. With
this policy form overhaul came a completely revamped pollution exclusion, which
remains in use to this day after many modifications over 30 years.
The pollution exclusion in the 1986 CGL policy, titled Exclusion (f.)
Pollution, expanded the pollution exclusion in the CGL policy from six lines to
a full page, making it much more complex than the 1973 version. This new
version of the pollution exclusion is often referred to in insurance slang as
the "absolute pollution exclusion," even though the term
"absolute" is never used in the policy itself and the exclusion does
not absolutely exclude all losses arising from contamination or pollution.
The 1986 pollution exclusion also totally eliminated the use of the words
"sudden and accidental."
The modern pollution exclusion in GL policies basically precludes coverage
for bodily injury or property damage "arising out of the actual, alleged
or threatened discharge, dispersal, seepage, migration, release or escape of
pollutants" in the following situations.
- At or from any premises, site, or location that is or was at any time
owned or occupied by, or rented or loaned to, the insured
- At or from any premises, site, or location that is or was at any time
used by or for the insured or others for the handling, storage, disposal,
processing, or treatment of waste
- That are or were at any time transported, handled, stored, treated,
disposed of, or processed as waste
- At or from any premises, site, or location on which any insured is
performing operations if the "pollutants" are brought on or to the
premises, site, or location in connection with such operations by such
insured, contractor, or subcontractor
- At or from any premises, site, or location on which any insured is
performing operations if the operations are to test for, monitor, clean up,
remove, contain, treat, detoxify, or neutralize, or in any way respond to or
assess the effects of, "pollutants"
- Any loss, cost, or expense arising out of any of the following.
- 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"
- 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."
Exclusions/Exceptions to Pollution Coverage
Many of the specific exclusions paraphrased above have coverage givebacks
that are essentially exclusions to the exclusion, with the double negative
creating coverage for the narrowly defined set of circumstances. For example,
section 4 of the exclusion above has a coverage giveback if the bodily injury
or property damage arises out of the escape of fuels, lubricants, or other
operating fluids needed to perform the normal electrical, hydraulic, or
mechanical functions necessary for the operation of "mobile
equipment" or its parts if such fuels, lubricants, or other operating
fluids escape from a vehicle part designed to hold, store, or receive them.
However, there is another exception built into this section of the GL policy
that amounts to an exclusion to the exclusion to the exclusion. The exception
to the exclusion to the exclusion does not apply if bodily injury (BI) or
property damage (PD) arises out of the intentional discharge, dispersal, or
release of the fuels, lubricants, or other operating fluids, or if these
materials are brought on or to the premises, site, or location with the intent
that they be discharged, dispersed, or released as part of the operations being
performed by the insured.
The other "exclusions to the pollution exclusion" to create
coverage givebacks within exclusion (f.) are almost as complex and
unpredictable in their effect on coverage. But none of these exceptions to the
pollution exclusion are dependent upon pollution being sudden and
accidental.
The above discussion reveals how complex and unpredictable it is to rely on
exceptions to an exclusion for "pollution coverage."
Exceptions to exclusions are unpredictable in their effect. The exceptions
to modern pollution exclusions found in GL policies enable insurance buyers to
play the thrilling game of insurance roulette. In insurance roulette, the
insurance coverage available to pay for a loss can only be predicted after a
loss, based on a completely random and uncontrollable set of facts established
by the exact cause of the loss. No other insurance product enables insurance
buyers to purchase such utterly unpredictable insurance coverage.
For example, a pollution loss arising from a hostile fire or lightning is
not excluded in one section of the pollution exclusion, but there is no mention
of windstorm as a cause of loss. A windstorm can cause a much bigger pollution
loss than a fire; fires through rapid oxidation can reduce the contaminating
effects of a material. A windstorm spreads the material around in its original
form and can cause much greater pollution-related damages. Yet, the pollution
exclusion applies to a windstorm but not a fire.
The Total and Absolute Pollution Exclusions
To add to the insurance coverage roulette excitement, there is also a
separate endorsement called a "Total Pollution Exclusion" that can be
slipped into the CGL policy. This exclusion endorsement eliminates the handful
of exceptions to Exclusion (f.) Pollution. What makes it exciting is the
majority of insurance practitioners completely underestimate the effects of the
total pollution exclusion endorsement. For example, a total pollution exclusion
knocks out coverage for products and completed operations for a loss caused by
"pollutants"—which Exclusion (f.) Pollution is silent on.
The double negative exclusions found in Exclusion (f.) Pollution can, under
the right fact pattern, create positive coverage for BI and PD plus defense
costs, for a completely unpredictable set of circumstances. However, if there
is a total pollution exclusion, most, if not all, of these coverage givebacks
are eliminated. Trying to figure out which pollution incidents are covered and
which ones are not gets very difficult very quickly. For this reason, I like to
say in the continuing education classes I teach on pollution exclusions,
"If you think you can accurately predict the effects of a pollution
exclusion pre-loss, that is only because you're confused."
Superimpose on a modern GL policy containing an "absolute" and a
total pollution exclusion endorsement with another endorsement to try to
provide the policy holder with "sudden and accidental pollution
coverage," and it is easy to see why pollution exclusions are the most
litigated words in the history of insurance. This practice invariably produces
insurance coverage with the predictability of a roulette wheel.
Time Element Pollution Coverage
True "sudden and accidental" exceptions to the pollution exclusion
as detailed above in the 1971 form above have not been available to purchase in
the US insurance market place for decades. When you see or hear about
"sudden and accidental" coverage givebacks on a GL policy today, they
are actually time-element-based exceptions to the pollution exclusion,
regardless of what an insurance marketing spin doctor titles the endorsement in
a guise to turn an exclusion into a facade of coverage. A coverage giveback for
pollution-caused damages in a GL policy will virtually always be defined by
specific time frames today.
In a time-element-based endorsed exception to a pollution exclusion, covered
damages arising from a pollution release that begins and ends within a discrete
time frame, usually measured in hours, and is discovered and reported to the
insurance company within a set time, usually measured in days, will not be
excluded from coverage for bodily injury and property damage. Any covered
damages in the GL policy that arise from a pollution release or condition that
lasts longer than the allotted time frame or a claim that is not reported to
the insurer within the set time period will not qualify for coverage.
Time-element-based exemptions to pollution exclusions are clearly not the
same as the sudden and accidental-based exception to the pollution exclusion
used between 1970 and 1986.
Summary
The importance of full and accurate descriptions of pollution coverage
givebacks is apparent when it is considered that, at its core, "sudden and
accidental pollution coverage" was a misleading insurance marketing trick
from the beginning. The GL policies in the 1960s did not have pollution
exclusions at all; the insurance companies introduced a new exclusion in the
1970s, which the insurance marketing spin doctors called "pollution
coverage."
In the late 1980s, the US-based insurance industry completely abandoned the
use of "sudden and accidental" coverage givebacks in the pollution
exclusion on GL policies. Thirty-plus years later, insurance marketers still
refer to limited exceptions to pollution exclusions in GL policies as
"sudden and accidental pollution coverage," instead of time element
exceptions. What is wrong with that picture? It's no wonder pollution
exclusions are the most litigated words in the history of insurance.
Time-element-based exceptions to pollution exclusions continue to be
represented as "sudden and accidental pollution coverage" even though
the entire coverage determination must be based on an exclusion in the GL
policy that does not contain the words sudden and accidental. Because of the
common use of insurance slang, which often represents a pollution exclusion as
"pollution coverage," there are needlessly uninsured insurance buyers
who are forced to turn to the courts to try to collect on the "pollution
coverage" they thought they were buying.
There is no reason for contamination and pollution losses to be
unintentionally uninsured today. There has been a surplus supply of real
environmental insurance capacity available over the past 25 years that can
cover virtually any type of business activity. Some of these policies can erase
the insurance coverage flaws of the past. The surplus supply of environmental
insurance exists to this day.
Elimination of the words "sudden and accidental" in the insurance
business, less reliance on remnant coverage in the form of exclusions to the
pollution exclusion in insurance program designs, and the more informed use of
real environment insurance policies designed to cover losses arising from
pollution and contamination would go a long way in reducing the amount of
coverage litigation on needlessly uninsured contamination and pollution losses
today. With the widespread availability of low-cost environmental insurance,
there is no reason to leave it up to the Greek gods or to equally mythical
"sudden and accidental pollution coverage" to insure losses arising
from contamination events.