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Insurance pollution exclusion: entire pollution claim denied under exclusion, even if one of the sources of contamination was eligible for coverage

Does a pollution exclusion clause that bars coverage under an indemnification provision in an insurance policy as to one of the sources of contamination also bar coverage that should apply to another source of the same contamination that is not by itself excluded from coverage under that exclusion?

Yes, held the Appellate Division of State Supreme Court in New York, because of CERCLA's "joint and several" liability principles. In Matter of Midland Insurance Co., 2017 N.Y. App. Div. LEXIS 5065 (N.Y. 1st Dep't June 22, 2017), a mining and smelting company sought indemnification from its insurer for reimbursement costs relating to the U.S. Environmental Protection Agency's soil remediation of residential sites in Omaha, Nebraska. The soil was contaminated partially by the mining operation's lead emissions and partially by residential lead paint chips having nothing to do with the mining company's operations. Relying on a review of the insurance policies, the court noted that, even though the costs of remediation of lead paint chips (from homes) were not excluded from coverage under the policy, because the lead emissions from the mining company were excluded from coverage under the insurance policies, no claim could be made for indemnification.

The mining company argued that contamination resulting from lead paint chips should remove its claim from the pollution exclusion clause of its policy because some courts have held that contamination resulting solely from lead paint chips does not fall victim to similar pollution exclusions. The First Department disagreed with the mining company because in this case, the soil contained a mixture of lead contaminants, not just lead paint chips.

The important lesson to be learned here is that a party will be unable to collect on an insurance indemnification provision if some, even if not all, of the cause of the contamination is excluded from coverage under a pollution exclusion provision. The reasoning underling this is how CERCLA's "joint and several" liability scheme works. The contamination here resulted from two sources and "the combined effect of the lead emissions [from the mining operations] and the lead paint [from the residences in the community] was soil contamination - of the same soil." Where the different sources of contamination cannot be separated, and either one alone would require remediation, as here, the entire claim of indemnification under an insurance policy can be barred because of a pollution exclusion in an insurance policy that applies to any part (but not the whole) of the source of contamination.

And in case you think this decision is unfair to the mining company, consider that if the only source of contamination had been in the lead-based paint chips, the company would not have been a defendant in the first place.

Click here to review In Re Matter of Midland Insurance Co., 151 A.D.3d 624, 2017 N.Y. App Div. LEXIS 5065 (N.Y. 1st Dep't. June 22, 2017)

Call the attorneys of Periconi, LLC at (212) 213-5500 if you are faced with a CERCLA contribution claim or require legal counsel with issues concerning property contamination.

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