What Is Absolute Pollution Exclusion?
Absolute pollution exclusion is a commercial liability insurance policy clause that removes coverage of pollution resulting from regular business operations. Absolute pollution exclusions to comprehensive general liability insurance policies became common after 1986 when standard pollution exclusions no longer contained “sudden and accidental” pollution incidents.
Understanding Absolute Pollution Exclusion
Absolute pollution exclusions came about in response to government regulations of environmentally harmful materials. Passage of the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) set the stage for lawsuits against companies involved in industries that resulted in pollution to the natural ecosystem.
Perhaps the most well-known case involved the Montrose Chemical Corporation of California, which produced dichlorodiphenyltrichloroethane, commonly known as 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 Co., 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 in insurance contracts help insurance companies remove their liability for pollution-related lawsuits involving their customers.
- The exclusions became popular in the 1980s after a wave of lawsuits against polluting companies left insurers holding the bag for claims.
- Absolute pollution exclusions are not total pollution exclusions, which exclude company liability from all pollution-related claims, and contain six exceptions.
Absolute pollution exclusions are not true absolute exclusions in that they do allow coverage for incidental pollution events, such as those caused by events not related to normal business operations. Specifically, they contain six exceptions. Two are related to owner/occupant express exclusion and four are related to contractors.
Because it may provide coverage in certain situations, the absolute pollution clause in insurance contracts is sometimes referred to as a broad form of the 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 an absolute pollution exclusion may still leave the definition of what is considered a pollution moot. Courts may address the issue of what is considered pollution. Insurers have an incentive to consider a broad range of events as 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
- Bodily injury sustained in a building owned by, occupied by, rented to, or loaned to an insured if caused by smoke, fumes, vapor, or soot produced by or originating from equipment that is used to heat, cool, or dehumidify the building, or heat water for personal use by the building’s occupants or guests.
- Bodily injury or property damage in a building owned by, occupied by, rented to, or loaned to an insured, or at a premises on which an insured contractor is working if from heat, smoke, or fumes from a hostile fire.
- Bodily injury or property damage arising out of the unintentional escape of fuels, lubricants, or other operating fluids that are needed to perform necessary functions for the operation of mobile equipment or parts. The loss must occur at an off-premises site at which the insured is performing operations.
- Bodily injury or property damage sustained within a building and caused by the release of gases, fumes, or vapors from materials brought into that building in connection with operations being performed by the insured or its subcontractor.