An “Absolute” Pollution Exclusion?
As environmental concerns have increased over the years, there has been a corresponding increase in the associated governmental response and in the number of lawsuits. Exposure to legal liability for the discharge or release of pollutants continues to be a real and a potentially very costly reality.
As a result, insureds have increasingly turned to their insurance policies in order to seek coverage for losses to their own property as a result of contamination or for environmental claims by others against them.
On the other hand, most insurers have sought ways to successfully reduce their exposure in favour of allowing insurers who concentrate on these specialized risks to step in.
In the commercial context, the most common form of liability coverage is found in a product known as a commercial general liability policy. Beginning in the 1970s, insurers have included some form of an exclusion for pollution liability in their insurance contracts.
The first attempts by insurance companies to limit or exclude their liability for pollution-related losses were largely unsuccessful in avoiding liability. This experience led, in turn, to changes in the insurance policy wording as these companies continued their efforts to avoid liability when the disputes landed in court. A variety of different wording has been used over the years, with highly variable degrees of success, but always with the hope of developing an “absolute” pollution exclusion.
In the recent case of Breton Petroleum Ltd. &/o Harbour Petroleum v. Aviva Insurance Company, 2014 NSSC 200, Justice Coady of the Nova Scotia Supreme Court determined that the “absolute pollution exclusion” in the commercial general liability policy in question was, in fact, absolute.
In that case, the dispute was between a group of insurance companies who insured Breton Petroleum against environmental liability and another insurer who had issued a commercial general liability (CGL) policy to Breton Petroleum. In 2003, Breton Petroleum sold and installed an oil tank and associated fittings for customers who later sued it for breach of contract and negligence when they discovered a fuel leak in 2009. The environmental liability insurers then sought a court order declaring that Aviva, who had issued a CGL policy to Breton Petroleum, had a duty to defend Breton Petroleum against the claim.
In a decision that somewhat belies the potential complexity of the matter, the Court held that Aviva Insurance’s pollution exclusion wording was clear, precise and unambiguous. It concluded that there was no possibility of liability coverage for the claim and, accordingly, there was no duty to defend. In other words, the Court accepted that the pollution exclusion was “absolute.”
As it now stands, Breton Petroleum is being defended by the group of insurers who challenged Aviva’s insurance policy in court. That defense is subject to a “reservation of rights” – basically, Breton Petroleum is on written notice that its environmental liability policy coverage may not actually apply and the group of insurers may ultimately decide to withdraw from defending the claim.
One is left to wonder if Breton Petroleum had been the actual litigant (as opposed to the environmental liability insurers) whether the analysis or the result might have been different. Courts have sometimes found creative ways to interpret exclusion clauses in a narrow way when motivated to do so by a particular set of facts.
The reality remains that the specific wording used in any particular insurance policy is of key importance. While there is often a great deal of similarity in the contractual language found in CGL policies irrespective of the insurance company who issued them, there are variations and they can be significant. The exact wording in any such CGL policy will have to be compared to that found in the CGL policy in issue in the Breton Petroleum case in order to assess how “absolute” one’s pollution exclusion actually is.
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