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Legal Notes: Pollution liability insurance provides a shield against CGL exclusion clauses

John Bleasby
Legal Notes: Pollution liability insurance provides a shield against CGL exclusion clauses

Environmental concerns during construction apply to anything that could potentially pollute the worksite area.

A pollutant can be defined as, “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, odour, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed,” writes Vancouver-based law firm Lawson Lundell.

Contractors who regularly handle various forms of hazardous material likely already have pollution liability insurance that cover their risks. However, because the unexpected can happen on any project, all contractors need to assess their risks.

“If you don’t carry a policy, you could be exposing your company to a potentially devastating pollution or environmental lawsuit which could easily exceed $1 million,” Matt Daniels, contractor team lead insurance broker at Zensurance, told the Daily Commercial News.

In fact, he said pollution coverage is now an owner expectation.

“It is becoming very common that owners, including municipalities, are contractually requiring that contractors carry pollution liability, even if there is not a high exposure for a pollution claim.”

It’s important that contractors never assume that pollution liability insurance is covered under their Commercial General Liability (CGL) policies. This is due to exclusion clauses that allow an insurer to deny coverage.

“Much like automobile related claims being excluded from a CGL, pollution is also typically excluded,” said Daniels, adding there may be also limited extensions for “sudden and accidental” pollution coverage.

CGL exclusion clauses have been the subject of litigation over the years, particularly regarding what Daniels terms the “sudden and accidental” release of pollutants. Given the financial implications surrounding a claim, carriers are often inclined to look for ways to apply these clauses in order to deny coverage.

One strategy is to attempt to expand the definition of “pollutant.”

For example, a developer in British Columbia was sued for allegedly dumping excavated material. The insurer denied coverage.

However, in its ruling, the B.C. Supreme Court “adopted a very restrictive interpretation” of what constituted a pollutant and found that the insurer had a duty to defend the developer.

In its commentary, Lawson Lundell wrote, “the ingredients in the mix of excavated material in question might well contaminate topsoil but they are not necessarily contaminants in the abstract.”

The applicability of CGL pollution exclusion clauses sometimes comes down to a matter of distinguishing between environmental pollution and faulty equipment.

Law firm Siskinds references two Ontario lawsuits. In the first, it was alleged that gas bar storage tanks leaked and contaminated nearby Crown land. The insurer invoked the pollution exclusion clause in its CGL policy and denied coverage. Ultimately the Ontario Supreme Court affirmed the insurer’s position.

Yet in a second case, an insurer denied coverage when class action plaintiffs alleged they had been injured as a result of carbon monoxide poisoning from a faulty furnace in an apartment complex. Here, the Ontario Court of Appeal affirmed the decision of the original applications judge and ruled that the insurer could not invoke the exclusion clause, and therefore must defend the insured party.

In that ruling, the late Justice Stephen Borins noted, “The history of the exclusion demonstrates that it would produce an unfair and unintended result to conclude, in the context of a CGL policy, that defective machinery maintenance constitutes ‘pollution,’ even when it gives rise to carbon monoxide poisoning. Given that the exclusion is capable of more than one reasonable interpretation, it is ambiguous and should be interpreted in favour of the respondent.”

Pollution liability coverage is available either as part of annual CGL packages or as standalone coverage for site-specific coverage.

Daniels says contractors can even apply online to Zensurance for what they call immediate “custom curated” quotes for annual coverage up to $5 million through the company’s network of 50 underwriting partners.

Since no result is ever guaranteed in court, and appropriate pollution coverage is so easily available, contractors should ask why they should risk time and expense arguing with insurers over CGL exclusion clauses.

 

John Bleasby is a Coldwater,-Ont. based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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