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Volume XII, Number 146


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Landmark Montana Supreme Court Decision Series: Pollution Exclusion

In this post in the Blog’s Landmark Montana Supreme Court Decision Series, we discuss the court’s ruling on the pollution exclusion in National Indemnity Co. v. State, 499 P.3d 516 (Mont. 2021).

The exclusion at issue was the standard qualified pollution exclusion used in some CGL policies in the mid-1970s. It excluded coverage for:

bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

Id. at 539. Recall that Montana sought coverage for claims alleging it had failed to warn claimants of the dangers of asbestos exposures to workers at a mine operated by W. R. Grace. Because Montana was not involved in the use of asbestos, the parties disputed whether this exclusion applied. Montana contended the exclusion applied only when Montana was the alleged polluter. The insurer claimed the exclusion applied to all pollution, regardless of who polluted.

In the Hunton brief for United Policyholders (UP), UP highlighted the insurance industry’s representations to state regulators about the pollution exclusion. Those representations supported that the pollution exclusion was only a clarification of the coverage previously existing in the standard CGL form and that the exclusion was only meant to bar coverage for actual polluters.

The Montana Supreme Court ruled in favor of the State. It found that the insurer’s position would result in an “absurd or nonsensical coverage result” because it “would be covered for liability arising from a failure to warn of a ‘sudden and accidental’ discharge—a seeming impossibility, given that sudden accidents necessarily occur without warning—but would not be covered for liability arising from a failure to warn of an ongoing, intentional discharge.” Id. at 540. Thus, “applying the exclusion to the discharges of third parties is not a reasonable reading of the provision.” Id. And so “only the State’s reading is reasonable,” and the Court concluded that the exclusion did not bar coverage. Id.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume XII, Number 26

About this Author

Lorelie S. Masters DC Partner Insurance Lawyer

A nationally recognized insurance coverage litigator, Lorie handles all aspects of complex, commercial litigation and arbitration.

Lorie has advised clients on a wide range of liability coverages, including insurance for environmental, employment, directors and officers, fiduciary, property damage, cyber, and other liabilities. She also handles various types of first-party property insurance claims, including claims under boiler and machinery, business-interruption, contingent business-interruption, extra expense, disability and other related coverages.

Lorie has handled and...

Patrick McDermott Insurance Litigation Richmond VA

Patrick counsels clients on all aspects of insurance and reinsurance coverage. He assists clients in obtaining appropriate coverage and represents clients in resolving disputes over coverage, including in litigation and arbitration.

During law school, Patrick served as a judicial intern for the Honorable Michael F. Urbanski in the US District Court for the Western District of Virginia and for the Honorable Ricardo M. Urbina of in US District Court for the District of Columbia.

Rachel E. Hudgins Associate Insurance Lawyer

Rachel represents clients in complex insurance coverage and bad faith litigation.

Rachel has litigated hundreds of insurance coverage and bad faith claims in state and federal courts across the country brought under a spectrum of insurance policies issued to individuals, public and private corporations, and government entities. Rachel’s success comes from cases ranging from the ordinary, such as storm-damaged properties, phishing-related data breaches, and wrongful employment termination, to the extraordinary, such as livestock deaths, grand jury investigations, parasailing-related...