Mass Tort/Environmental - Court Upholds “Sudden and Accidental” Pollution Exclusion; Rejects Regulatory Estoppel
In M & M Metals International, Inc. v. Continental Casualty Co., 2008 WL 683970 (Ohio Ct. App. March 14, 2008), the Ohio Court of Appeals for the First District, Hamilton County, upheld application of the “sudden
and accidental” pollution exclusion to a claim involving a scrap metal dealer’s liability arising out of its shipments to numerous metal processing sites over a period of years. On an issue of national importance, the
Court rejected the policyholder’s effort to use “regulatory estoppel” to bar the insurers from arguing that the term “sudden” has a temporal component. The insurers prevailed on all issues on appeal.
Karen Ventrell, a partner in Ross, Dixon & Bell’s Washington, DC office, argued the case for Continental Casualty Company and Transportation Insurance Company.
The decision addressed several key issues arising in environmental insurance coverage disputes. First, the court held there was substantial evidence warranting application of Ohio law (as opposed to Pennsylvania law where two sites
of the six sites at issue were located) to the interpretation of the insurance policies. The Court rejected the policyholder’s Rule 56(f) request for additional discovery, finding that discovery regarding other CERCLA sites
was immaterial because the policyholder could not show it had any liability in connection with those sites. The Court also rejected the policyholder’s request for third-party discovery regarding pollution at the two sites
as to which the policyholder had settled its CERCLA liability. The Court found that because the policyholder had settled its CERCLA liabilities based on the volume of its shipments to the sites (which began in 1973), earlier events
at the sites (such as a 1964 fire and 1972 hurricane) could not have served as the basis for the policyholder’s liability for the settlement. In so ruling, the Court rejected the policyholder’s argument that indemnity
coverage should be determined on the basis of the insured’s potential joint and several liability under CERCLA.
With respect to the pollution exclusion, the Court held that the insurers bore the initial burden of showing that the environmental liabilities for which the policyholder sought coverage were within the scope of the exclusion. The
policyholder then bore the burden of showing that its liabilities arose from a sudden and accidental release of pollutants. The Court found that events occurring prior to 1973 (such as a 1964 fire or 1972 hurricane) could not have
served as the basis of the policyholder’s liability at the sites and thus did not qualify as “sudden and accidental” discharges sufficient to invoke the exception to the exclusion. The Court also rejected the
policyholder’s argument that periodic rainstorms and resultant soil erosion could have led to sudden and accidental pollution, noting that erosion is gradual by definition and rain should have been expected as a matter of
law.
With respect to the burden of proving the existence of the pollution exclusions in the Continental and Transportation policies, the Court held that because the policyholder’s cross-motion for summary judgment on regulatory
estoppel was predicated on the existence of pollution exclusions in all policies issued during and after 1970, the policyholder had admitted the existence of the pollution exclusion in the Continental and Transportation policies.
Thus, the Court found “feckless” the policyholder’s argument that Continental and Transportation had failed to prove the existence of pollution exclusions in each of their policies.
Regarding regulatory estoppel, the Court agreed with the insurers that Ohio courts consistently have construed the term “sudden” as used in the exception to the pollution exclusion to have a temporal component. It also
held that extrinsic evidence (such as drafting history) could not be considered to vary the terms of a “clear and unambiguous pollution exclusion.”