CHAPTER § 5.06 Exclusions

• Jurisdiction: United States

§ 5.06 Exclusions

An exclusionary clause serves to prohibit or limit coverage.¹⁵⁰ The object of an "exception" is to exclude that which otherwise would be included within coverage, so as to prevent misinterpretation.¹⁵¹ Where a policy contains specific exceptions, exclusions, or reservations, courts must give them full effect in accordance with their language and the fair meaning expressed.¹⁵² However, courts will typically construe exclusions and other provisions seeking to limit the scope of coverage narrowly.¹⁵³ Similarly, courts typically construe ambiguities as to the meaning or application of such provisions in favor of coverage.¹⁵⁴ Insureds should review all provisions of a policy, as insurers frequently seek to include limiting or exclusionary language in definitions and other policy provisions outside of the specific "Exclusions" section.

[1] Environmental/Pollution

Insurance policies often contain exclusions for injuries caused by environmental pollution. The Illinois Supreme Court's comprehensive review of this history provides the background for this exclusion:

The events leading up to the insurance industry's adoption of the pollution exclusion are "well-documented and relatively uncontroverted." Prior to 1966, the standard-form COL policy provided coverage for bodily injury or property damage caused by an "accident." The term "accident," however, was not defined in the policy. As a result, courts throughout the country were called upon to define the term, which they often interpreted in a way as to encompass pollution-related injuries. In response, the insurance industry revised the COL policy in 1966 and changed the former "accident"-based policy to an "occurrence"-based policy. The new policy specifically defined an "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury and property damage that was neither expected nor intended from the standpoint of the insured." Despite these changes, courts continued to construe the policy to cover damages resulting from long-term, gradual exposure to environmental pollution. . . .
Meanwhile, at about the same time, the United States Congress substantially amended the Clean Air Act in an effort to protect and enhance the quality of the nation's air resources. Pub. L. No. 91-604, 84 Stat. 1676 (1970) (now codified at 42 U.S.C. §§ 7401 through 7642 (1983), as amended). The passage of these amendments, which included provisions for cleaning up the environment, imposed greater economic burdens on insurance underwriters, particularly those drafting standard-form CGL policies. The insurer's burdens further increased with the . . . environmental disasters of Times Beach, Love Canal and Torrey Canyon.
In the wake of these events, the insurance industry became increasingly concerned that the 1966 occurrence-based policies were "tailor-made" to cover most pollution-related injuries. To that end, changes were suggested, and the industry proceeded to draft what was to eventually become the pollution exclusion. . . .
The result of these efforts was the addition of an endorsement to the standard-form CGL policy in 1970 [adopted as exclusion (f)]. The endorsement provided in pertinent part:

[This policy shall not apply to 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 watercourse or body of water; but this exclusion does not apply if such dis- charge, dispersal, release or escape is sudden and accidental.

During the next 13 years, various courts labored over the exact meaning of the words "sudden and accidental." Much of the litigation focused on whether the word "sudden" was intended to be given a strictly temporal meaning such that, in order for the exception to apply, the discharge of pollution had to have been "abrupt." This controversy generated an enormous amount of litigation, leading one commentator to describe the dispute as one of "the most hotly litigated insurance coverage questions of the late 1980's." Not surprisingly, insurance companies responded by drafting a new version of the exclusion, which, first appearing in 1985, is now commonly known as the "absolute pollution exclusion." . . . The two most notable features of this latest version are (i) the lack of any exception for the "sudden and accidental" release of pollution, and (ii) the elimination of the requirement that the pollution be discharged "into or upon land, the atmosphere or any watercourse or body of water."¹⁵⁵

[2] Intentional Acts

In keeping with the idea that insurance policies are intended to cover fortuitous events, insurance policies often exclude coverage for injuries caused by intentional acts of the insured. Insurers, therefore, typically do not deem damage that is either expected or intended from the insured's standpoint an "occurrence."¹⁵⁶

Even when a policy excludes intentional acts from coverage, there are often disputes as to what exactly constitutes an intentional act. Three general rules have emerged with respect to the construction of an intentional tort exclusion:

(1) The majority view is that the insured must have intended the act and intended to cause some kind of bodily injury;
(2) The minority view follows the classic tort doctrine of looking to the natural and probable consequences of the insured's act; and
(3) A third, but less widely-adopted, view is that the insured must have had specific intent to cause the type of injury suffered.¹⁵⁷

The majority view can be summarized as: (1) it is necessary that the insured intended the act and intended to cause bodily injury in order for the exclusion to apply; (2) intent may be actual or may be inferred by the nature of the act and the accompanying reasonable foreseeability of harm; and (3) once it is found that harm was intended, it is immaterial that the actual harm caused is of a different character or magnitude than that intended.¹⁵⁸

Under the minority view:

an insured's intent to injure can be inferred if the resulting injury, from the standpoint of the insured, is the natural and probable consequence of the act ultimately causing the injury. A finding of specific intent to injure is not necessary. Alternatively, even if an act itself is intentional, it may result in an unintended injury. Therefore, when determining whether an insurer is required to defend an insured under a policy barring coverage for intentional injuries, the courts must examine, from the standpoint of the insured, whether the injury for which insurance coverage is

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