Insurer has a Duty to Defend Policyholder for Clean Air Act Violations

Louisiana Generating LLC et al v. Illinois Union Insurance Company, U.S. Dist. Ct. Louisiana, January 30, 2012

In this case, both parties made motions for summary judgment seeking a declaration on the insurer’s duty to defend the policyholder in the underlying suit. The suit was brought by the Federal Government against the policyholder for Clean Air Act violations. The underlying suit alleged that the policyholder, a subsidiary of NRG Energy Inc., made major modifications to a coal plant within notifying the government or obtaining the necessary permits. The federal government sought a mitigation plan and civil penalties for the harm done by the excess emissions caused by the illegal modifications to the plant.

The underlying action alleged that the major modifications to the plant resulted in increased emissions. The court first ruled that the underlying action fell under the policy’s coverage period and then ruled that the insurer had a duty to defend the policyholder as the allegations, on their face, were covered by the policy.

The insurer argued that the government allegations did not relate to covered claims as there was no property damage and no remediation demanded in the complaint. The court found that, although the insurer may ultimately prove otherwise, the air injury alleged in the action and the retrofitting sought in the action constituted remediation.

The court also found that the fines and penalties exclusion in the policy, which excluded coverage for criminal fines, did not apply because the penalties sought by the federal government were civil and not criminal penalties. The court thus found that the insurer owed a duty to defend.

The decision can be found here

Joanna Roberto and Paul Steck

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