§17.1 - Introduction

• Jurisdiction: Washington

§17.1 Introduction

Insurers and policyholders in Washington have been litigating and resolving environmental insurance claims for more than 20 years. As one would expect, over that time, the case law has continued to evolve and now provides greater guidance for insurers, policyholders and practitioners in this area than was available 10 years ago. This chapter will review the relevant case law in this area, with a view toward identifying key issues from the standpoint of the insurer. Practice pointers and traps for the unwary are noted as appropriate.

(1) Types of claims

Environmental insurance claims may involve property damage or bodily injury, as discussed below.

(a) Property damage claims

The Washington courts have held that costs incurred to clean up property and groundwater damage (i.e., response costs) constitute property damage under general liability policies. Pedersons Fryer Farms, Inc. v. Transam. Ins. Co., 83 Wn.App. 432, 444, 922 P.2d 126 (1996), review denied, 131 Wn.2d 1010 (1997). Under Washington law, groundwater constitutes third-party property because it is owned by the public. Id. Thus, for example, if a leaking underground storage tank on the insureds property contaminates both soil and groundwater, there may be coverage for all of the cleanup costs under a liability policy if the migrating contamination to third-party property causes covered property damage. Id. at 448. Further, cleanup costs incurred voluntarily may also be covered damages under a liability policy if a statute imposes liability and there has been property damage. Olds-Olympic, Inc. v. Commercial Union Ins. Co., 129 Wn.2d 464, 473, 918 P.2d 923 (1996). Even so, the costs for implementing preventative or prophylactic cleanup measures to avoid future pollution are not costs incurred because of property damage. See Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wn.2d 869, 784 P.2d 507 (1990).

Under Washington law, consequential damageslike loss of usearising from covered damage to tangible property also may be covered. Mut. of Enumclaw Ins. Co. v. T & G Constr., Inc., 165 Wn.2d 255, 199 P.3d 376 (2008); Yakima Cement Prods. Co. v. Great Am. Ins. Co., 93 Wn.2d 210, 219, 608 P.2d 254 (1980). However, the standard commercial general liability form seeks to limit the property damage to tangible property, which generally is interpreted to mean property that is capable of being physically handled or touched. Eric Mills Holmes, Holmes Appleman on Insurance §129.2 (2d. ed.1996); see also Wash. Pub. Util. Dists. Utils. Sys. v. PUD 1, 112 Wn.2d 1, 14 n.3, 771 P.2d 701 (1989). It is important to note that in the definition of tangible property, the property must sustain some form of visible harm or impairment. Holmes at §129.2. To recover, the insured must show some physical injury to tangible property. Id. In a substantial number of cases, courts hold that damage to intangible property, such as investments, lost profits, copyrights, goodwill, and similar economic losses, cannot constitute property damage. Holmes, §129.2(E)(3); see also Wash. Pub. Util. Dists. Utils. Sys. v. PUD No. 1, 112 Wn.2d at 14 n.3...