Insurance Coverage for Environmental Claims
| Publication year | 1996 |
| Pages | 87 |
| Citation | Vol. 25 No. 2 Pg. 87 |
1996, February, Pg. 87. Insurance Coverage for Environmental Claims
Although the question of coverage will depend in each case on the specific language of the comprehensive general liability ("CGL") policy at issue, Colorado courts have generally recognized that damages for environmental contamination and the response costs incurred in cleaning up such contamination may be covered under CGL insurance policies.(fn1) However, finding such coverage raises unique legal issues, such as determining what constitutes the covered "occurrence" and whether exclusionary provisions aimed at limiting an insurer's liability for such claims apply.
CGL coverage is generally written in one of two ways: on a "claims made" basis, or on an "occurrence" basis. If the insured's CGL policy is a claims made policy, the insured must look to the policy in effect at the time the claim is made for coverage. Such policies provide coverage for
those sums which the Insured becomes legally obligated to pay as damages because of Bodily Injury or Property Damage to which this insurance applies. . . . This insurance applies to Bodily Injury and Property Damage only if a claim for damages because of the Bodily Injury or Property Damage is first made against the Insured during the policy period.
If the coverage is written on an occurrence basis, the insured may seek coverage under any policy in effect when the covered occurrence took place, regardless of when the claim is made. A standard occurrence-based CGL policy provides coverage as follows:
The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of Bodily Injury or Property Damage to which this insurance applies, caused by an occurrence.
Under either type of policy, the contamination or pollution giving rise to the claim must have been caused by an "occurrence," which is generally defined as a "happening" or
an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
In construing an insurance policy, the term "occurrence" is given a broad construction.(fn2) Accordingly, Colorado courts have recognized that costs incurred in cleaning up environmental contamination may constitute damages arising from property damage recoverable under a standard CGL policy.(fn3) However, determining the scope of the occurrence or the number of occurrences causing such property damage presents a more difficult problem.
For a typical claim under a liability policy, such as an automobile accident or an explosion, the occurrence is a discrete and obvious event, even though all of the damage may not manifest immediately. However, environmental claims frequently arise from events that are neither obvious nor discrete. The release of contamination may be concealed, as in the case of a leaking underground storage tank or seepage from a landfill, and the resultant damage may arise from a continuous, progressive migration that can go undiscovered for years or even decades. Further, repeated spills or instances of dumping over time may cause or contribute to the contamination. Under these circumstances, it may be difficult to determine when the occurrence begins or even how many occurrences caused the damage for which coverage is sought.
In other contexts where property damage has resulted from a continuous, progressive process, the damage has been recognized as a single occurrence, even though damage may have occurred over several consecutive policy periods. For example, in American Employers Insurance Co. v. Pinkard Construction Co.,(fn4) the Colorado Court of Appeals considered a claim for property damage resulting from corrosion in materials used in the construction of a roof that later collapsed. The court noted that "damage which begins in one policy period, and continues through several more, is but one occurrence."(fn5) By analogy, this principle has been applied to insurance claims for property damage resulting from the continuous, progressive spread of contamination.(fn6)
Defining the occurrence permits the insured to identify the policy or policies under which it may seek coverage for an environmental claim. If the occurrence takes place over a number of consecutive policy periods, questions may arise as to which policy provides...
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