Absolute Pollution Exclusion Definition

What Is Absolute Pollution Exclusion?

The term absolute pollution exclusion refers to a commercial liability insurance policy clause that does not include coverage for pollution that stems from regular business operations. Absolute pollution exclusions became common for comprehensive general liability (CGL) insurance policies after 1986 when standard pollution exclusions no longer contained “sudden and accidental” pollution incidents.

How Absolute Pollution Exclusion Works

Absolute pollution exclusions came about in response to government regulations of environmentally harmful materials. The passage of the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act set the stage for lawsuits against companies that were involved in industries that were believed to pollute the natural ecosystem.

Perhaps the most well-known case involved the Montrose Chemical Corporation of California, which produced dichloro-diphenyl-trichloroethane or DDT. The company discharged waste into the Pacific Ocean for decades, and a federal lawsuit required the company to pay for the environmental cleanup costs resulting from the waste it produced.

In response to claims made against Montrose, insurers brought a number of lawsuits, including Montrose Chemical Corp. v. Admiral Insurance, in an effort to push responsibility for the claims to Montrose. Their argument was that pollution was not "sudden and accidental" and had been going on for several years. Hence, they were not liable for it. After several cases left the insurance companies responsible for cleanup coverage, insurers began excluding coverage of pollution as a standard coverage item.

Absolute pollution exclusions are not true absolute exclusions. That's because they allow coverage for incidental pollution events, such as those caused by events not related to normal business operations. Specifically, they contain six exceptions:

• Three apply to pollutants that arise from any property that is owned, occupied, rented, or loaned out to someone else
• Three apply to other locations where pollutants are brought to these areas, such as when materials are brought to a worksite for repairs to be done by contractors

Special Considerations

Because it may provide coverage in certain situations, the clause for absolute pollution in insurance contracts is sometimes referred to as a broad form of pollution exclusion. A clause that denies coverage for all pollution events would be considered a total pollution exclusion and may exclude liability coverage for bodily injury or property damage caused by a pollution event.

The use of absolute pollution exclusion may still leave the definition of what is considered pollution moot. Courts may address the issue of what is considered pollution. Insurers have the incentive to consider a broad range of events that are related to pollution, including lead paint and asbestos damage, to be excluded because they do not want to pay for claims.

Common Exceptions to Absolute Pollution Exclusion

As noted above, there are some exceptions to absolute pollution exclusion. The first three apply to cases that happen at the premises:

• Building Heating Equipment: When injury stems from a by-product of heating equipment, such as fumes or smoke. This doesn't necessarily apply to any equipment related to air conditioning or ventilation.
• Owner as Additional Insured: This exception applies to injury or damage that results in a location away from the premises of the insured entity if they are a contractor.
• Hostile Fire: This exception applies to smoke, fire, or fume damage that results from an uncontrollable fire that breaks away from where it started. The damage from fumes that spill into a residential neighborhood from a tire fire may be covered.

The other three are used as exceptions that occur "away from your premises":

• Mobile Equipment: This exception applies to any pollutants that are released from any mobile equipment, such as fuel from a motor vehicle, only when the release is unintentional. For instance, if a vehicle is involved in an unintentional collision and releases diesel fuel onto the foundation of a building.
• Operations Within Building: This exception applies when someone brings in a pollutant to complete their duties. Contractors may be covered if the fumes from paint thinners they bring with them to use on a job make someone sick in the building.
• Hostile Fire: There is coverage under this exception if, like above, a fire erupts and damage from the smoke, fumes, and/or heat when the incident takes place outside the coverage location, such as a work site.

The Bottom Line

Insurance can be a complicated concept to understand because there are so many different policies and contract types around. And when you add in different types of coverage and clauses that insurance companies and their clients can add to customize their contracts, things can become a little more clouded. Consider absolute pollution exclusion. This clause relieves insurance companies of their liability when it relates to certain types of pollutants. But there may be exceptions that apply. Insured parties should educate themselves about what the clause means for them and whether any exceptions apply.