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When Does the Discovery of Historic Contamination Qualify as a "Sudden and Accidental" Release?

Many insurance policies contain a "pollution exclusion" which seeks to exclude coverage for losses arising from pollution, except in the case of a "sudden and accidental" release. "Sudden and accidental" may bring to mind a burst pipe or overturned tanker truck, but a recent decision in the United States District Court for the Southern District of New York suggests that the interpretation can be much more complicated.

In Narragansett Electric Company v. American Home Assurance Company, et al., No. 11-Civ-8299 (PKC) (S.D.N.Y. Apr. 1, 2013), the court ruled that allegations of the discovery of historic contamination through excavation can qualify as a "sudden and accidental" release, even where the contamination was dumped decades before. The ruling triggered the insurer's duty to defend its insured, and could open the door for similar insurance claims in environmental remediation cases.

Narragansett stemmed from a lawsuit by the Commonwealth of Massachusetts against the Narragansett Electric Company brought in 1987 (the "Commonwealth Suit"). A contractor discovered contamination in 1984 while building a house on a former gravel mine where Narragansett's predecessor had dumped its wastes almost half a century before, and alerted the authorities. After receiving notice of the Commonwealth Suit, Narragansett alerted its insurers, who denied coverage on the basis of the pollution exclusions contained in the various policies it had issued to Narragansett.

Narragansett brought suit in the Southern District of New York, seeking a declaratory judgment that its insurers were obligated to defend it in the Commonwealth Suit. Applying Massachusetts law, the court relied on the Massachusetts Supreme Judicial Court's decision in Liberty Mut. Ins. Co. v. SCA Servs. Inc., 588 N.E.2d 1346 (Mass. 1992), which concluded that the "sudden and accidental" exception had a "temporal element" which focused only on the "circumstances of the release" as alleged in the complaint.

Because the complaint in the Commonwealth Suit alleged that the release occurred due to the latter-day "residential excavation activities," and not from the site's historic ordinary operations (i.e. gravel mining), the court determined "that the residential excavation [at the former gravel mine] caused a separate, abrupt, and unintentional release by exposing the waste products to the elements" (emphasis added).

In other words, because of the way the complaint was worded, it didn't matter that the waste had been buried at the site for decades. In fact, how the waste came to be buried at the site never entered into the equation. The fact that the Commonwealth Suit alleged the release occurred from the contractor's excavation-regardless of how the waste came to be located on the property-was enough to trigger the insurers' broad duty to defend its insured.

While the Southern District reached its decision by applying Massachusetts law, Narragansett highlights the complexity of environmental insurance claims, and the different rules governing an insurer's broader duty to defend its insured, versus its more narrow duty to indemnify an insured. If you have questions about insurance coverage in an environmental case, contact the environmental attorneys at Periconi, LLC.

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