Supreme Court Argument in State v. Underwriters at Lloyd's Regarding Pollution Exclusion

by John Green

The Supreme Court heard argument today in this case, involving the Stringfellow site. Two main issues were argued. First, what is the relevant "discharge" for purposes of the pollution exclusion's "sudden and accidental" exception: if contaminants were placed in pits intentionally, but escaped accidentally, does the sudden and accidental exception to the pollution exclusion apply? The second issue was the scope of coverage, or the allocation, for claims where there are both sudden and gradual pollution events at the site.

On the first issue, the insurers were met with a great deal of skepticism. Justice Kennard was clearly not buying the carrier argument that placing contaminants in an unlined pond (which was intended to contain the waste) constituted a "discharge, dispersal, release or escape" of contaminants. From other comments and questions, it appeared that at least three other justices shared her skepticism. It looks like the court will find that a sudden and accidental escape from an unlined pond is covered, even though the initial placement in the pond was obviously intentional.

It was harder to get a read on the second issue. The State argued the matter largely as a question of "all sums." The State made the point several times that the Insuring Clause of the CGL policy covers "all sums" the insured is "legally obligated to pay" as damages because of a sudden spill, and that the sudden spill rendered the State jointly and severally liable for the entire clean-up. Alternatively, the State argued that, as a factual matter, the contamination from both sudden and gradual events were so intermingled that clean-up of the sudden spill effectively required clean-up of the entire site. The carriers argued that the State's statement it was unable to allocate was a fatal failure of proof, and second that it would be unfair to impose full liability on the carriers based on a one time spill, when there was a long history of gradual leakage. The questioning gave little clue as to the Justices' leanings. While some may say I am prejudiced in the matter, I think the State came out ahead in the argument, persuasively arguing both the joint and several liability point, and the practical point that the contamination was co-mingled and that the entire clean-up was part of the necessary clean-up of the sudden spill viewed in isolation.

We will see shortly. A ruling is due from the court within 90 days.

Posted in General Liability Policies, Pollution Claims | Permalink