United States Court of Appeals
Environmental Law — pollution exclusion clause — duty to defend
A pollution exclusion from coverage in a public entity general liability insurance policy does not trigger a duty to defend tort lawsuits, nor to indemnify insureds.
“Insurers could have excluded coverage just for knowing or deliberate polluting, which would have done the trick in this case but would not be a complete solution to the adverse-selection problem. A shopper for pollution insurance who knows that he has a high risk of accidentally polluting and being sued for it would, if able to buy the insurance at the normal premium, contribute to the premium spiral that we’ve described. Forcing him to self-identify as a potential polluter by buying a pollution-coverage rider to his general liability policy (as otherwise he will fall within the pollution exclusion) separates high- and low-risk polluters.
“The concerns that animate the pollution exclusion were absent from the cases we discussed earlier, which were typical tort cases in the sense of involving a sudden occurrence the risks of which are well known and that injures one or a few persons. That the occurrence happens to be precipitated by a contaminant is incidental; its presence makes the risk or amount of loss no more uncertain than if, in our hypothetical case, the tanker truck had spilled milk rather than perc. Koloms along with many other cases makes clear that the type of injury illustrated by that case and the cases cited in the Pipefitters opinion fall outside the pollution exclusion. …
“The defendants point out that they didn’t originate the contamination. That is irrelevant. [Citations.] The exclusion is of liability for harms resulting from the ‘dispersal,’ ‘migration,’ or ‘release’ of contaminants, not their creation or just their first distribution. Initially the contamination by perc was confined to the groundwater drawn by the well. But by distributing the water to the residents of Crestwood the Village caused the perc to migrate throughout the Village and inflict (or so it is alleged) widespread personal injuries, along with contamination of soil or structures that is likely to be costly to eliminate. The insureds might as well be arguing that because the Village has never manufactured perc it is responsible for none of the harms that dispersing perc might cause. That would be like a murderer arguing that his victim was killed not by him but by his gun.”
11-2385, 11-2556, 11-2583 Scottsdale Indemnity Co. and National Casualty Co. v. Village of Crestwood, et al.,
Northern District of Illinois, Eastern Division, Kendall, J., Posner, J.