Insurers Prevail On Pollution Exclusion For Intentional Discharges With Unintended Consequences

Emerson Enterprises, LLC v. Hartford Accident & Indemnity Co. (2nd Cir., September 5, 2013)

This coverage action arises from a dispute as to whether an insurer must provide coverage for proceedings brought by the New York State Department of Environmental Conservation related to the intentional discharge of pollutants into a dry well. The policyholder agued that the district court erred in ruling for the insurers based on the pollution exclusions in each policy.  One policy included an exception to the pollution exclusion for “sudden and accidental” discharges, whereas the other policy excluded coverage if such discharge is either expected or intended from the standpoint of any insured. In holding for the insurers, the court noted that the policyholder conceded that pollutants were intentionally dumped in the well at issue, although it argued that any overflow due to rainwater was unintended, unforeseen and therefore, accidental under the policies.  The court held that under New Yorklaw construing this type of pollution exclusion, the unintended consequences of intentional discharges are not “accidental” (citing Technicon Electronics Corp. v. Am. Home Assur. Co., 74 N.Y. 2d 66 (1989)) and noting that the exclusion does not distinguish between intended or unintended consequences of intentional discharges; rather it excluded from coverage liability based on all intentional discharges of waste whether consequential damage were intended or unintended. The court further held that because the conduct resulting in pollution was intentional, and only its consequence were unintentional, as a matter of law, any overflow was not “accidental” and the pollution exclusion therefore applied to contamination resulting from rainwater overflow.  However, in holding for the insurer under this circumstance, the court did also acknowledge that under New York law, insurers may have a duty to defend claims for damages which accidentally arise out of a chain of unintended though expected or foreseeable events that occurred after an intentional act, citing City of Johnstown v. Bankers Std. Ins. Co. 877 F2d 1146 (2d Cir. 1989).  Here, however, the court noted that the pollutants were intentionally dumped into an unlined well in an area that routinely flooded, and as such, the court could not accept that the rainfall leading to an overflow of the dry well was unintentional or accidental.

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