Analyzing Environmental Insurance Coverage Claims Under Connecticut Law

JurisdictionConnecticut,United States
Publication year2021
CitationVol. 66 Pg. 275
Connecticut Bar Journal
Volume 66.

66 CBJ 275. Analyzing Environmental Insurance Coverage Claims Under Connecticut Law


Analyzing Environmental Insurance Coverage Claims Under Connecticut Law


The purpose of this article is to analyze, under Connecticut law, the duties and responsibilities of an insurer upon receipt of a claim made in a Notice of Potential Liability letter ("PRP' letter") against its insured from the United States Environmental Protection Agency. This article will describe, generally, how these claims typically arise; the nature of the PRP letter and whether it constitutes a "suit"; the relevant parts of the Comprehensive General Liability ("CGL") policy which may provide coverage defenses for these claims, including the definition of "property damage," "occurrence" and the so-called 11 pollution exclusion." The article will then review, with respect to each such policy provision, how to analyze whether the claim is covered.

The resolution of these issues is decidedly difficult and all the more so in Connecticut because of the undeveloped state of the law on virtually every fundamental environmental insurance issue. Resolution, if there is any, is based upon a review of the trends in other jurisdictions and general principles of contract interpretation employed by Connecticut courts.

For the purposes of discussion, consider the quintessential scenario through which claims of this nature arise: the EPA's designation of a landfill as a Superfund site pursuant to the Comprehensive Environmental Response, Compensation and Liability Act. (fn2) Such a designation occurs as the result of the discovery of a "release" (fn3) or a "threat of release" (fn4) of "hazardous


substances (fn5) into the environment that causes the incurrence of "response costs." (fn6) Generally, the release of hazardous substances at a landfill occurs by means of a leaching process whereby pollutants seep through the waste materials into the groundwater and migrate offsite, at times contaminating public or private drinking water supplies.

Upon the discovery of a release or threatened release, the EPA, the federal agency charged with the responsibility for enforcement of the nation's environmental protection laws, will seek to identify "potentially responsible parties" who may be liable for response costs and natural resource damages caused by the contamination. Under § 104 of CERCLA, the EPA has broad investigatory powers "to undertake such investigations, monitoring, surveys, testing and other information gathering as [it] may deem necessary or appropriate to identify the existence and extent of the release or threat thereof, the source and nature of the hazardous substances, pollutants or contaminants involved, and the extent of the danger to the public health or welfare or to the environment. (fn7)

Among other things, the EPA will seek to discover the identity of every person who may be liable under § 107. These would include: (1) the current owner of the site; (2) any person who owned or operated the site at the time hazardous substances were disposed on it; (3) any person who contracted or otherwise arranged for the disposal of hazardous substances at the site; and (4) any person who accepted the hazardous substances for transportation or disposal at the site. The methodology used to identify all such potentially liable persons is to inspect the records of the owner/operator of the landfill which should result in the identification of persons with whom the owner/operator contracted to allow disposal at the site. These will generally be transporters-waste haulers-of hazardous waste or municipal


solid waste (fn8) to the landfill. Next, examination of the transporters' records will reveal the identities of each customer who arranged for the transportation of such waste to the landfill. These persons are called "generators," that is, persons who in the course of their business (or otherwise) generate waste that contains hazardous substances. At this point in the EPA's investigation, it will have identified as persons potentially liable one or more owner/ operators, maybe a dozen transporters and several hundred generators-a large pool of persons from whom it will seek to recover its "response costs" and compensation for "natural resource damages." (fn9)

The EPA must then, of course, prove that each such generator disposed of waste that contained "hazardous substances." Before a CERCLA lawsuit is filed, the EPA will send to each generator, pursuant to § 104(e), a detailed "request for information" regarding the nature of the generator's activities, the identification and amounts of hazardous substances that it uses in its processes, the means by which it disposes of its waste and the identity of each transporter it uses to get rid of the waste. Furthermore, the potentially responsible party must permit the EPA to have access to, and to copy all records relating to such substances, and permit the EPA entry upon its premises to inspect or take samples. Failure to comply with § 104 may result in civil penalties of up to $25,000 per day for each day of noncompliance. Thus, before the lawsuit is formally commenced by the filing of a complaint, the EPA is well on its way to establishing the liability of a number of potentially responsible parties.

In turn, these owners/operators, transporters and generators will (sometimes in a timely fashion, sometimes not) demand that their insurers defend and indemnify them for liability arising out of these circumstances. The insureds will generally notify each insurer who sold to them policies from the date of demand going back until the insured's first involvement with the site. It is not uncommon that the events giving rise to liability span up to 20 years, involving a number of different policies and insurers. Thus


begins the adventure of determining whether, indeed, a particular insurance policy may trigger a duty to defend or indemnify the insured for response costs and natural resource damages sought under Section 107 of CERCLA.


By means of a PRP letter, the EPA notifies a person of its potential liability under CERCLA for all costs incurred by the government in responding to a release or a threatened release of hazardous substances at a particular site. The PRP letter also notifies the insured that it may also be liable to pay damages for injury to, destruction of, or loss of natural resources, including the costs to assess such damages proximately caused by such releases or threatened releases.

The PRP letter will also state that based upon the EPA's evaluation of a large body of evidence in connection with its investigation of the site, including operator business records, state records, information submitted by PRPs in response to requests for information and information from interviews of landfill employees, waste transporters, local citizens and past and present employees of PRPs, it "has reason to believe" that the insured owned and operated the site or transported or arranged for the transportation of hazardous substances to the site.

The EPA's PRP letter will then "encourage" the insured to reimburse the EPA for costs incurred to date (fn10) and "to voluntarily perform or finance the response activities that the EPA has determined necessary." Those response activities typically include:

1. Remedial investigations to identify the local characteristics of the site and to define the nature and extent of soil, air, surface water and groundwater contamination at the site;

2. Feasibility studies to evaluate the feasibility of possible remedial actions to remove or contain hazardous substances, pollutants and contaminants at the site;

3. Design and implementation of the remedial action selected and approved by the EPA for the site; and

4. Operation, maintenance and monitoring necessary at the site.

Upon receipt of the PRP letter, the insured will typically


notify its insurance broker or attorneys and inspect its records for copies of all insurance policies that may be applicable, starting with those in effect at the time of receipt of the PRP letter, and going back in time to the insured's earliest involvement with the site. The insured, its broker or its attorney will then write to each of the insurers who issued those policies and demand that each of them defend the insured against the EPA's claims and to indemnify it for all sums which the insured may become legally obligated to pay as damages.

II. THE CGL Policy

The insurer's duty to defend or indemnify is governed by the language of the insurance policy. In order for coverage to occur, the insured must become legally obligated to pay "damages" on account of "property damage" caused by an occurrence.

In addition, policies in existence from 1973 to 1986 contain a "qualified" pollution exclusion. The "qualified" pollution exclusion negates coverage for property damage caused by an occurrence unless the event falls within an exception to the pollution exclusion. Policies in existence post-1986 contain an "absolute" pollution exclusion for which there are no exceptions. Set forth below is the typical language contained in 1973-1986 CGL policies defining the terms "suit," "damages," "property damage," and occurrence" and the "qualified" pollution exclusion:


"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

"A. bodily injury or

"B. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage ....



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