No Coverage for Defense Costs Incurred in Response to CERCLA Demand


U.S. Court of Appeals for the Fourth Circuit

In Industrial Enterprises, Inc. v. Penn America Ins. Co., ___ F.3d ___, 2011 WL 925451 (4th Cir. (Md.) March 18, 2011), the U.S. Court of Appeals for the Fourth Circuit ruled that a commercial general liability (CGL) policy providing coverage for “sums which the insured shall become legally obligated to pay as damages because of "property damage” did not cover an insured’s defense costs incurred in response to the Environmental Protection Agency’s (EPA) demand under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) to remediate the presence of hazardous substances on the insured’s land. The court ruled that the insured’s defense costs did not constitute “property damage” under the CGL policy because the insured’s potential liability under CERCLA arose from the EPA’s regulatory authority rather than the federal government’s rights as a property owner.

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