National Indemnity Co. v. State decision

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In this blog post Historic Montana Supreme Court Decision Serieswe are discussing the court ruling on the exclusion of pollution in National Indemnity Co. v. State499 P.3d 516 (Mont. 2021).

The exclusion at issue was the standard qualified pollution exclusion used in some CGL policies in the mid-1970s. It excluded cover for:

bodily injury or property damage resulting from the discharge, dispersion, release or release of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, wastes or other irritants, contaminants or pollutants in or on the ground, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersion, release or leakage is sudden and accidental.

Identifier. at 539. Recall that Montana sought coverage for claims alleging that it failed to warn plaintiffs of the dangers of asbestos exposure to workers at a mine operated by WR Grace. Since Montana was not involved in the use of asbestos, the parties argued over whether this exclusion applied. Montana argued that the exclusion only applied where Montana was the alleged polluter. The insurer claimed that the exclusion applied to all pollution, regardless of who polluted it.

In Hunton’s brief for United Policyholders (UP), UP highlighted representations of the insurance industry to state regulators regarding the pollution exclusion. These representations argued that the pollution exclusion was only a clarification of the coverage that previously existed in the standard CGL form and that the exclusion was only intended to prohibit coverage of actual polluters.

The Montana Supreme Court ruled in favor of the state. It concluded that the insurer’s position would result in an “absurd or preposterous result of coverage” because it “would be covered for liability arising from the failure to warn of a ‘sudden and accidental’ discharge—an apparent impossibility, since sudden accidents necessarily occur without warning, but would not be covered for liability arising from failure to warn of an intentional discharge in progress. Identifier. at 540. Thus, “applying the disclaimer to third party dumps is not a reasonable reading of the provision.” Identifier. Thus, “only the state’s reading is reasonable,” and the Court held that the exclusion did not preclude coverage. ID.

Copyright © 2022, Hunter Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 26

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