Prior to 1986, your company, Southern Platers, Incorporated (Southern) operated a chrome plating facility in Tampa, Florida. You used tetrachloroethylene, commonly referred to as perchlorethylene or "perc" as a solvent to degrease parts at your facility before switching to unchlorinated solvents. The main perc supply at the site was held in a one thousand gallon above ground storage tank. The perc at the site would be transferred to 55-gallon drums on site, which were moved around at the site using forklifts.
In early 1988, your local environmental enforcement agency found large levels of PERC contamination in the site's groundwater. You immediately hired an environmental engineering company to test for contamination. Tests coupled with a review of records and further investigation revealed that four PERC releases had occurred at the site: in September 1978, a truck backed into and ruptured a 55-gallon drum of perc on a loading dock. This incident caused about 30 gallons of perc to be released into the soil at the plant. In August 1982, a 55-gallon drum of perc was pierced with the fork on a fork lift and approximately twenty gallons of perc spilled into the soil. In July of 1983, a transfer hose ruptured while filling a 55-gallon drum from the above ground storage tank spilling about ten gallons of perc. Then came the release that caused your company to stop using perc altogether. In May of 1985, while transfering a 55-gallon drum of perc from the storage tank, a forklift operator pierced the side of the perc storage tank just four inches from the bottom. Nearly eight hundred gallons of perc spilled into the soil. It is estimated that your company recovered less than half of the spilled perc.
After the initial determination that a large amount of perc had to be remediated from the soil and groundwater, your company entered into a consent order with the Florida Department of Environmental Regulation in August 1994 to remediate the perc contaminated soil and groundwater. However, the cost of the remediation is expected to cost millions. You would like to shift the cost over to your insurance carriers, if possible, but you are unsure of whether or not your insurance companies are required to provide coverage under these circumstances.
After weeks and months of searching through old boxes of records, your company finally locates two insurance policies that were applicable to your business at the time of the perc spills. At the time of the spills, your company held comprehensive general liability ("CGL") insurance under Old Hampshire Insurance Company, and occurrence-based umbrella liability insurance under Total Insurance Company ("Total"). You notified Old Hampshire of the environmental situation and asked that each accept responsibility for the environmental contamination. Both insurance companies refused to defend or indemnify your company. You expected that there was nothing that could be done. "If the insurance company won't pay, the insurance company won't pay," you said to your self.
However, just to be certain, you decided to ask your attorney if there exists any right to appeal an insurance company holding on this case. Your attorney reviews your old insurance policies that you fortunately found in your files and advises you that no coverage was provided for pollution unless the pollution was "sudden and accidental." However, your attorney advises you that the area of insurance coverage for environmental liability is still an unsettled area of the law. After reviewing the facts behind the four perc releases at your facility, and after reviewing your insurance policies in detail, your attorney advises you that the four identified perc releases were "sudden and accidental" under your policy. As a "sudden and accidental" occurrence, your company is entitled to collect its damages from the insurance company. You ask your attorney to explain.
Your attorney explains that your insurance companies define the term "occurrence," "sudden and accidental" and "pollution exclusion" as follows:
This "occurrence-based" policy defines the term "occurrence as:
an accident which takes place during the policy period, or that portion within the policy period of a continuous or repeated exposure to conditions, which causes personal injury, property damage ... neither expected nor intended by the insured.
The policy's pollution exclusion clause provides:
It is agreed that this policy does not apply to ... property damage arising out of the discharge, dispersal, release or escape of smoke, vapors ... toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land ...; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
Your attorney advises you that your insurance company does not deny that the four identified releases were sudden and accidental. However, the insurance company denies liability for the ongoing release of perc into the soil and groundwater that occurred for years after the sudden and accidental release. According to the insurance company's philosophy, the ongoing release, which of course caused most of the environmental harm, is not a covered event since the on going release lost its character as "sudden and accidental."
However, it is your attorney's opinion that since the four identified releases at your company were separate and distinct events which were not the result of day-to-day operations, the insurance company must provide coverage. Your attorney advises you that under Florida law, specifically Dimmitt Chevrolet, Inc. v. Southeastern Fidelity Insurance Corp., 636 So.2d 700 (Fla.1993), he believes that the discharge must be sudden and accidental, not the resulting environmental damage. Accordingly, your attorney believes that the insurance company must pay. You ask your attorney to explain his conclusion.
Your attorney explains that in Dimmitt, the Supreme Court of Florida construed a policy containing a similar pollution exclusion clause to mean that:
(1) basic coverage arises from the occurrence of unintended damages, but (2) such damages as arise from discharge of various pollutants are excluded from the basic coverage, except that (3) damages arising from the discharge of these pollutants will fall within the coverage of the policy where such discharge is sudden and accidental.
Dimmitt, 636 So.2d at 705 (emphasis added); see also St. Paul Fire and Marine Insurance v. Warwick Dyeing, 26 F.3d 1195, 1203 (1st Cir.1994) (pollution exclusion plainly refers to the discharge and not to the environmental damages themselves); Hartford Accident & Indemnity Co. v. United States Fidelity & Guaranty Co., 962 F.2d 1484, 1491 (10th Cir.1992) (the discharge must be sudden and accidental to qualify for coverage, not the pollution damage). Based on the holding in Dimmitt and the unambiguous terms in the policy issued by your insurance company, your attorney concludes that it is clear that the actual discharge, not the resulting damages or contamination, must be sudden and accidental in order to fall within the exception to the pollution exclusion clause.
You instruct your attorney to file suit against your insurance companies for breach of contract. Your attorney smiles and informs you that it would be his pleasure, especially when the laws of some states allow the attorneys to recover attorney fees from insurance companies for failing to provide legally required insurance coverage.
I always advise clients never to throw away old insurance policies. Often the most difficult part of claiming insurance coverage is showing that coverage ever existed. Occasionally, if coverage can be proven, without the policy, the exclusions cannot be determined. Insurance companies do not maintain a copy of old policies, and the burden of proving that coverage existed is on the person or company making the claim for coverage -- not with the insurance company. In the above example, only because the policies were discovered, and the exclusions were written in such a manner that "sudden and accidental" releases were covered could the company recover its remediation costs -- a savings to the company of millions of dollars. Without the policy, coverage could be impossible to prove, and the company would pay for the entire cost of the multimillion dollar remediation.