The terms and conditions of pollution liability policies have often created disputes between insureds and insurers, resulting in litigation. In a recent Best’s Review article, Milliman’s Christine Fleming explores three oft-disputed areas of these policies: “the definition of a ‘claim’; the timely notice requirement; and the ‘known loss’ condition.”
The following excerpt offers perspective concerning the meaning of a claim:
Most pollution liability policies are claims-made, meaning that the claim has to be made against the insured during the policy period. Although this requirement seems clear, the question of what constitutes a claim has been the basis of coverage disputes.
For example, in Hatco Corp. v. W.R. Grace & Co., the insured was a prior owner of a contaminated site. The insured received a letter from the current owner of the site that included an administrative order directed to the current owner, and a warning that the current owner would hold the prior owner liable for any costs it incurred in connection with the administrative order.
The insured had a pollution liability policy in which “claim” was defined as a “demand for money.” The court held that the letter was not a demand for money, but rather a threat. Thus, the court reasoned that it was notification of a potential future claim and not a claim as defined under the policy.
In another case, Alan Corporation v. International Surplus Lines Insurance Co., the insured purchased a pollution liability policy. The government contacted a third party, not the insured, during the policy period regarding contamination at the insured’s site. That third party spoke to the insured about the contamination, also during the policy period. After expiration of the policy period, the government initiated action against the insured related to the site.
The insurer’s position was that no claim had been made against the insured during the policy period. The insured argued that the communication with the other party discussing the contamination constituted a claim because it set off a chain of events that eventually led to the government action. The court held for the insurer, and rejected the insured’s position that a claim had been made during the policy period.
…The Takeaway: Don’t assume that a “claims made” policy resolves the issues raised by occurrence policies, or that the report date will now be clear. Questions will continue to be raised and litigation will continue to revolve around when a claim was brought against the insured and, indeed, even what it means to have a claim.