A Brief History of the Pollution Exclusion in Comprehensive General Liability Policies

On a daily basis Restorical Research is diligently working across the US to locate historical insurance policies and capitalize on coverage for remediating environmental contamination. The value of these old policies is immeasurable and unfortunately, it is a badly kept secret from most property owners and companies. Over the years, I have spent hundreds of hours discussing the intricacies of ‘why’ and ‘how’ these old policies may afford coverage, in present day, for pollution that occurred 40+ years ago. Invariably, these conversations usually start off with an explanation of the history of the pollution exclusion in Comprehensive General Liability (CGL) policies.

I have found that it is a helpful first step to understand the backstory of the pollution exclusion.

Throughout the 1950’s and 1960’s the American public was generally unsatisfied with the governments inability to effectively address the threat of pollution from industry and corporations to the environment. There were multiple failed attempts in both houses of Congress to pass legislation that held polluters accountable.

Then, in 1969 the Cuyahoga River in Cleveland caught fire for the 13th time since 1868. The river had become polluted from 100 years of industry: steel mills, paint factories, oil refineries and manufacturers were all discharging their waste directly into the water.

The 1969 fire was put out in less than an hour but the impact on the national consciousness would have an everlasting effect. Less than 6 months later, bowing to pressure from environmentalist groups, President Richard Nixon signed the National Environmental Policy Act into law on January 1, 1970 which led to the creation of the Environmental Protection Agency (EPA) to oversee the responsibilities of the federal government.

With the creation of the EPA, the federal government began sending demand letters to corporations throughout the US to curtail their pollution activities and clean up their contamination. The EPA’s actions and funding provided a model for State agencies who also sent demand letters to these corporate property owners.

When these companies received these demand letters in 1970 they were perplexed and concerned. The companies did not know how they were going to address the pollution and more importantly who was going to pay for it. Most companies turned to their Insurance carriers and tendered these demand letters under their CGL policies.

Why did they do this?

Because, the CGL policy generally states that the carrier will pay all sums which the insured shall become legally obligated to pay due to property damage.

And more importantly, the CGL policies in 1970 (and for all years prior to 1970) did not contain a pollution exclusion.

Well, the insurance carriers did not like this so they denied coverage for all of these claims in all 50 states. When the claims were denied the carriers were subsequently sued by thousands of corporate policyholders.

After lengthy lawsuits, the courts of each state generally agreed that if the insurance policy does not exclude pollution then the carriers have to defend the policyholder from these claims and pay for the pollution to be cleaned up.

The insurance companies were not happy. They were facing untold billions of dollars in claims and it was due to the fact that they did not have a pollution exclusion in their policy. In response to this, several rating bureaus and insurance underwriters consolidated to form the Insurance Services Office (ISO) in 1971. One of the first tasks of the ISO was to create a pollution exclusion that the carriers could insert into their CGL policies. The ISO also began drafting pre-printed ISO policy forms which are used extensively to this day by all of the major insurance carriers. The ‘ISO form’ has become a common term in the insurance industry.

The first pollution exclusion was inserted into the CGL policy in the early 1970’s and by 1973 this exclusion had become known as the Qualified Pollution Exclusion (QPE) and was present in all policies:

(1) Arising out of pollution or contamination caused by oil or (2) 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 the land, the atmosphere or any water course of body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. (emphasis added)

This exclusion was short on words but it seemed pretty clear, or was it?

Not exactly. The last three words of the exclusion left a lot to the imagination. You see, the terms ‘Sudden’ and ‘Accidental’ were not defined in the CGL policy. Since these terms were not defined the corporations and their attorneys argued that you had to use a dictionary. The term ‘Sudden’ has numerous definitions and so does ‘Accidental’. It then became a question of determining what did the insurance policy intend to say by using these undefined terms.

The insurance policy is a contract and this contract was ambiguous with terms that were not defined. So, these claims turned into lawsuits and in the 1980’s and 1990’s state courts are filled with litigation between corporations and their insurance carriers with arguments like:

Corporation:             'Sudden’ is ambiguous. “I was suddenly made aware of the pollution”.

Insurance company:  ‘Sudden’ was intended to mean a “Sudden explosion”.

Corporation:               ‘Accidental’ is the same as ‘Unintentional’

Insurance company:   You purchased the policy knowing there was a pollution exclusion, regardless of definitions. 

…and so on 

The end result of this costly and lengthy litigation across the US was that the majority of States agreed with the insurance companies: The QPE bars claims regarding contamination.

A small minority of States agreed with the corporations: The QPE is not effective in barring claims regarding contamination.

As a response to the growing pressure from the Insurance industry, the ISO created a new pollution exclusion that was incorporated into the CGL policies in 1985. This exclusion was named the Absolute Pollution Exclusion (APE) and it contained new language that revised the definition of pollution to deny coverage arising out of the:

“…actual, alleged or threatened discharge, dispersal, release or escape of pollutants.” 

And yes, each of the terms were defined in the policy.

Over the years the APE has been revised several times and is an effective pollution exclusion that is found in liability policies.

During this same period in the early 1980’s the ISO began making Pollution Liability Policies available. These Pollution Liability Policies exist today in various forms and are a vital part of insurance coverage for companies throughout the US.

Coverage laws and insurance policy interpretations vary tremendously by each State due to the litigation surrounding the QPE and various other aspects of the CGL policy. With that in mind, it is ALWAYS a good idea to locate and hold onto your old insurance policies.

This article (and future articles) are intended to be used as a resource for interested parties in learning more about the esoteric world of historical insurance policies. These publications will continue to explore the various ways old insurance policies can be utilized to fund environmental cleanups.

If you found this valuable, please give it a like and let me know your thoughts in the comments.

If you want to discuss a specific project or have any questions regarding this article please send me an email [email protected]

Restorical Research is an insurance archaeology firm specializing in locating historical insurance policies that do not contain an effective pollution exclusion. We pride ourselves on our ability to successfully assist our policyholder clientele and their legal counsel in making good faith claims to insurance carriers to fund the remediation of polluted properties. 

I am not an attorney and Restorical Research is not a law firm. This article and the opinions contained herein are not legal advice.