The Absolute Pollution Exclusion (“APE”) contained in current general liability insurance policies excludes coverage for costs related to the cleanup of environmental pollution. Insurance companies have taken the position that any damages arising from “pollution,” regardless of the circumstances under which they occur, are excluded by the APE. However, in certain situations Courts have ruled that the APE is inapplicable. The recent New Jersey Law Division decision in Westwood Products, Inc. v. Great American E&S Insurance Company, L-2320-13 (May 12, 2014) is an example of the Court’s erosion of the absoluteness of the APE.
Westwood Products, Inc. manufactures and sells heating and plumbing supplies. Westwood was sued by a third party, Roy and Joanna Wilson (the “Wilsons”), in a Canadian court alleging that a Westwood-built oil filter, which had been installed in their fuel oil tank, failed, causing contamination at their property. After Westwood notified its insurer, Great American E&S Insurance Company (“Great American”), of the claim, Great American denied coverage based on the APE. Westwood subsequently initiated a declaratory judgment action against Great American seeking coverage.
When the Wilsons sued, Westwood had a “Products-Completed Operations Hazard” liability policy. The policy had an APE, which excluded coverage for bodily injury and property damage arising from environmental contamination. Westwood contended that under New Jersey law, the APE only applies to intentional environmental pollution and not to product liability-related contamination cases.
Great American countered by arguing that the underlying environmental action falls squarely within the APE clause and, therefore, coverage should be denied. The Court reviewed the history of the approval of the APE. The Court cited to a New Jersey Supreme Court case, Nav-Its Inc. v. Selective Ins. Co., in which the insured was provided coverage for bodily injury claims arising from fumes inside a building. In that case, the Court noted that the pollution exclusion was designed to eliminate coverage for gradual environmental contamination and government required cleanup such as Superfund response costs. The Court stated that Nav-Its restricted the APE to “traditional environmental pollution” situations, concluding that Nav-Its was much broader than Great American’s interpretation. Specifically, the APE would not apply to claims that were not “traditional environmental pollution” claims.
The Court ultimately held the allegations in the complaint against Westwood were made based on negligence as opposed to intentional acts, and were not a “traditional environmental pollution” situation that would exclude coverage based on the APE. The Court held that the APE was inapplicable.
The lesson from this case is that a claim, either for bodily injury or property damage, which arises out of contamination, is not automatically excluded by a policy’s APE clause. As an insured, you must evaluate the situation carefully to determine the cause of the contamination. In certain situations, claims that arise from environmental contamination indeed may be covered under your policy.