Policy’s Pollution Exclusion Found Applicable To Bar Indemnity For The Release Of Dry-Cleaning Chemicals Where Releases Were Not “Sudden and Accidental”

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June 06, 2011Policy’s Pollution Exclusion Found Applicable To Bar Indemnity For The Release Of Dry-Cleaning Chemicals Where Releases Were Not “Sudden and Accidental”House Of Clean, Inc. v. St. Paul Fire and Marine Ins. Co.  (D. Mass., May 27, 2011)

This breach of contract action arises out of the refusal of several insurance companies to provide coverage under liability policies held by a dry cleaning business, House of Clean, Inc. ("HOC"). HOC's insurance claims were made after the release of certain hazardous material on real property in Andover, Massachusetts.  The parties filed motions for summary judgment as to the insurer’s duty to defend and indemnify.

HOC operated a dry cleaning business which used perchloroethylene (PCE) as part of a two-step cleaning process.  Over the years, the PCE was released into the environment via numerous small spills.  In April 2006, the Massachusetts DEP issued a notice of responsibility (NOR) requiring a response plan.  In October 2006, HOC notified its insurers of the contamination and the action by the DEP. 

HOC sought defense and indemnity for the claims as a result of the NOR and the subsequent third-party action alleging that the insurer breached its duty in failing to cover the claim.  The insurer maintained it had no duty to defend or indemnify because HOC did not provide evidence of property damage taking place during the policy period and that coverage under the 1973 to 1981 policies was barred by the pollution exclusions in those policies.  The dispute as to this issue was whether the release of PCE was “sudden and accidental” under the terms of the policies thereby excepting the exclusion.

In assessing the insurer’s duty to indemnify, the court noted that whether a pollution event is sudden and accidental is a question of law, and that under Massachusetts law, “sudden” carries a temporal element requiring an abrupt, non-gradual release.  The insurer contended that the releases were not sudden and accident because, but for HOC’s practice of storing PCE in cardboard boxes in the basement, flooding would not have released the chemicals into the environment.  However, the court cited conflicting case law indicating that unexpected, one-time events, such as a fire or flood, are sudden accidental occurrences, but that pollution discharges caused by an insured’s routine business practices are not considered “sudden and accidental.”  The court acknowledged that the fact pattern involving both mechanisms for the release presented a “challenging inquiry.”

After a review of the applicable case law, the court concluded that the first time HOC’s basement flooded, the release of PCE qualified as “sudden and accidental,” but thereafter, HOC’s continued practice of storing PCE in the same manner for 16 years was intentional and the resulting pollution was not accidental, despite purported infrequent flooding events. Consequently the court held that the PCE discharges caused by the flooding of HOC’s basement were not “sudden and accidental” and, as a result, the pollution exclusion in the 1973-1981 policies applied to bar coverage for the losses. 

For a copy of the decision click here

Paul Steck and Tom Segalla

Posted at 10:58 AM | Permalink

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