In Sunbeam Corp. v. Liberty Mutual Insurance Co., the Pennsylvania Supreme Court authorized insured property owners to proceed on two theories that could require their insurers to cover environmental clean-up costs under old comprehensive general liability (CGL) policies.
Beginning in the early 1970s, the standard CGL policy form contained a pollution exclusion clause which excluded insurance coverage for pollution liability unless the pollution was "sudden and accidental." The insured manufacturers at Sunbeam claimed that "sudden and accidental" as used in the pollution exclusion meant "unexpected and unintended" and did not require an element of abruptness and brevity.
Under that interpretation, coverage would be provided for gradual pollution, as long as it was unexpected and unintended. The manufacturers based this contention on statements made in a 1970 insurance industry memorandum submitted to the Pennsylvania Insurance Department requesting approval of the pollution exclusion clause.
In that memo, the insurers allegedly represented that the new pollution exclusion, which contained the "sudden and accidental" language, would not significantly reduce coverage under a CGL policy.
The Pennsylvania Supreme Court, rejecting the reasoning of several lower courts, decided the manufacturers were entitled to prove at trial that the 1970 memorandum prevented the insurers from denying coverage for clean-up costs that would have been covered under pre-1970 policies, which did not contain the pollution exclusion. The Supreme Court also held that the manufacturers could try to show at trial, based in part on the 1970 memo, that the "sudden and accidental" language had a "peculiar usage" in the insurance industry, under which coverage for unintentional, gradual pollution would not be excluded.
A decision in favor of the manufacturers should greatly improve the ability of property owners to obtain insurance coverage for the cost of cleaning up contaminated Pennsylvania industrial sites.
Michael R. Borasky
Eckert Seamans Cherin & Mellott