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Personal injury coverage invoked in pollution cases.

A little-known provision in many comprehensive general liability insurance policies affords coverage for personal injury. Personal injury coverage affords liability insurance for environmental pollution damage and toxic tort claims. It affords coverage for environmental harm arising out of intentional waste discharges. And the coverage is not subject to a pollution exclusion.

Insurance industry representatives were well aware of the potential pollution liability coverage created by the personal injury insuring agreement and have expressed their concern about it repeatedly-and in writing. Yet policyholders have only recently begun to invoke the personal liability insuring agreement when faced with pollution-related claims and liabilities.

CGL insurance policies are the policies requiring interpretation in the majority of coverage disputes involving pollution-related claims. Many large insurance companies that have historically offered CGL coverage wrote their policies on standard forms drafted and published by the Insurance Services Office. Other insurers, while not employing ISO's forms, incorporated provisions into their policies taken from those forms.

In ISO's 1973 revised, standard-form CGL policy, the insuring agreements for bodily injury and property damage and personal injury were set out on separate forms. The form containing the personal injury insuring agreement was an optional insert. Its addition to the CGL policy provided additional coverage and often required payment of additional premium.

In ISO's 1973 form, the personal injury insuring agreement provides that "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury (herein called personal injury) sustained by any person or organization and arising out of one or more of the following offenses committed in the conduct of the named insured's business: ... Group C-wrongful entry or eviction, or other invasion of the right of private occupancy; if such offense is committed during the policy period..."

Personal injury coverage is also afforded by the Broad Form Comprehensive General Liability Endorsement, published by ISO in 1976, which includes an insuring agreement for personal injury and advertising injury liability coverage. Although the latter insuring agreement differs somewhat from ISO's 1973 personal injury insuring agreement, the features of personal injury coverage addressed in this article are common to both.

Personal Injury Claim

The "offenses" covered under the personal injury insuring agreement include trespass, nuisance and violation of another's right to use and develop property. In many instances, the environmental and toxic tort claims advanced against CGL policyholders threaten them with liability based on those legal theories and, consequently, are within personal injury coverage.

"Trespass" claims are covered under the personal injury insuring agreement by way of the wrongful entry" offense, according to the 8th U.S. Circuit Court of Appeals' ruling in Hartford Accident and Indemnity Company v. Krekeler in 1974. Although the claim against the policyholder in Krekeler was not an environmental claim, the court's recognition that trespass claims are within personal injury coverage is relevant.

A trespass to property is an invasion that interferes with the right to exclusive possession of that property. The invasion may be effected by an object or a substance and may be on, above or under land. Harm caused by the discharge or emission of pollutants onto the property of another has long been actionable on the trespass theory. Indeed, plaintiffs' complaints in many environmental and toxic tort suits advance claims based on this theory.

In Titan Holdings Syndicate v. City of Keene, NH, a 1990 case in the 1st U.S. Circuit Court of Appeals, the claims against the policyholder, the City of Keene, involved allegations that the plaintiffs, who lived near the city's sewage treatment plant, had been injured by exposure to "odors, gases and particulates" emanating from the plant. The city sought coverage under the terms of its liability insurance policies, including the insuring agreements that afforded personal injury coverage.

In its decision, the 1st Circuit agreed with the Krekeler court in finding that the wrongful entry offense of the personal injury insuring agreement included trespass claims. (That finding was not central to the court's ultimate ruling on the city's coverage claim in Titan Holdings, however, because the court determined that the neighbors' complaint against the city had not adequately alleged trespass.)

Claims based on the policyholder's alleged violation of another's right to use and develop property are also within personal injury coverage by way of the "invasion of the right of private occupancy" offense. This was established by the holding in Town of Goshen v. Grange Mutual Insurance Co. The case involved an underlying claim, advanced by a property owner, that the policyholder, the town, and its planning board had "created economic hardships that destroy[ed] the viability of the [claimant's] development project," and denied [his] right to the free enjoyment of his property ..." The New Hampshire supreme court concluded that the underlying claim alleged "invasion of the right of private occupancy" and was therefore within the personal injury coverage of the CGL insurance policy.

Although Town of Goshen was not a pollution case, the court's holding is pertinent. Alleged limitations on the claimant's ability to use and enjoy contaminated property are often at the heart of pollution-related claims.

Titan Holdings represents a case in point. The complaint against the city contained allegations that odors, gases and particulates from its sewage treatment plant had "unreasonably and substantially interfered with [the neighbors'] quiet enjoyment of [their] homestead and substantially deprived [them] of the use of the homestead." The court cited the Town of Goshen case in ruling that those allegations amount to "invasion of the right of private occupancy," as that term is used in the personal injury insuring agreement in one of the city's insurance policies. The court did, however, give the insurer an opportunity to produce evidence showing that the parties had agreed to give the term a different meaning. If the insurer fails to produce such evidence, coverage of the claims against the city will presumably be ordered based on the personal injury insuring agreement.

"Nuisance" claims represent invasions of the right of private occupancy and, consequently, are also within personal injury coverage. That has been acknowledged by at least one insurer, "on the record." In Martin v. Brunzelle, an Illinois federal court case, State Farm Fire & Casualty argued that covered invasions of the right of private occupancy include violations of the right to use and develop property (as in Town of Goshen) and private nuisance claims, according to the court's paraphrase of the insurers' brief.

A nuisance is an interference with the interest in use and enjoyment of property (as distinct from the right of its exclusive possession, which is the province of trespass). Interference with the use and enjoyment of property resulting from pollution has for many years been subject to suit on the nuisance theory.

To summarize, pollution-related claims may fall within the personal injury insuring agreement, either as trespasses, nuisances or other violations of rights to use and develop property. The insurance injury recognized the applicability of personal injury coverage to pollution-related claims. Indeed, ISO committees involved in the policy-drafting process, clearly aware of that potential for coverage, addressed more than once proposed measures to exclude pollution-related claims from personal injury coverage. Those steps were never taken by ISO during the period in which CGL coverage was being written on its 1973 standard CGL form. As a consequence, many millions of dollars of potential coverage for pollution-related claims was written and remains available to CGL policyholders.

Intentional Waste Disposal

The personal injury insuring agreement affords coverage for harm arising out of intentional waste-disposal activities. The CGL policy's coverage for bodily injury and property damage depends on whether the harm was caused by an occurrence"; in other words, that the injury or damage was "neither expected nor intended from the standpoint of the insured." Most courts have held that the occurrence qualification limits bodily injury and property damage coverage only when evidence establishes that the policyholder subjectively and specifically intended to do the exact harm that resulted. A few courts, however, have relied on the occurrence requirement in denying coverage when, in the courts' view, the injury or damage involved was "foreseeable" (or "expectable"), not expected," the term actually used in the occurrence definition.

Policyholders invoking the personal injury insuring agreement should not fear an unfavorable judicial construction of the occurrence requirement, because personal injury coverage does not require that the alleged harm arise out of an occurrence. Again, personal injury coverage is afforded by its own insuring agreement. Under the terms of that agreement, it is harm arising out of one of the listed personal injury offenses that triggers the coverage, not harm caused by an occurrence. At least one appellate court has recognized that.

The underlying claims in Ranger Insurance Co. v. Bal Harbour Club, Inc., a Florida case, charged the policyholder, Bal Harbour, with religious discrimination which denied the underlying plaintiffs the use and occupancy of a residential property they had contracted to purchase. Bal Harbour paid the underlying plaintiffs a sum to settle their claims, and instituted a declaratory judgment action against its liability insurer, Ranger, to determine whether Ranger owed Bal Harbour indemnification under the terms of its policy. The trial court found coverage under two provisions of the Ranger policy, including the personal injury insuring agreement.

In Florida's district court of appeals in 1987, Ranger did not dispute that the underlying claims alleged offenses within its policy's personal injury coverage. Ranger argued, however, that the underlying claims alleged that the policyholder's actions were conscious and intentional." Ranger urged that those allegations "do not meet the definition of occurrence, and therefore, the policy does not provide coverage."

The court succinctly framed the issue presented by Ranger's argument: "Despite the plain language of [the personal injury insuring agreement], Ranger argues that this court should read into [that] provision a requirement that any [personal injury] claim must be based on an occurrence." The court rejected that argument by stating: "Although we agree that the underlying allegations of the club's actions take those actions outside the definition of occurrence, nowhere in the personal injury liability coverage provision is there a requirement that any claim be based on an occurrence." Although the Florida supreme court reversed the appeals court's decision in Bal Harbour in 1989, the reversal was based on public policy considerations and not a determination that the appeals court had erred in construing the policy's terms.

In fact, the essence of personal injury coverage is antithetical to the notion that the coverage is afforded only for liability arising out of an occurrence. Courts construing the personal injury insuring agreement have recognized that the listed personal injury offenses include, and the agreement consequently affords coverage for, intentional torts. It would make no sense to accord the policy a reading pursuant to which harm arising out of intentional acts is afforded coverage, unless those acts were "intended."

An ISO committee considering revisions to the 1973 standard form CGL policy believed that the personal injury coverage afforded by that form policy is not subject to the "caused by an occurrence" requirement. A 1978 draft revision of the 1973 standard form CGL policy prepared by ISO's Ad Hoc Committee on Special Comprehensive Forms and Rules proposed adding personal injury coverage to the basic policy, apparently to obviate the need for a separate endorsement. The proposed revision also redefined occurrence as: "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage, or an offense included within personal injury."

The fact that the committee's proposed redefinition refers to personal injury is significant, because it highlights the absence of any such reference to "personal injury" in the 1973 occurrence definition. Even more telling, the committee recognized the inappropriateness of adding personal injury" to the 1973 definition, and to thereby define occurrence as: "an accident which results in bodily injury, property damage or personal injury ... "

Since the personal injury insuring agreement affords coverage for injury arising out of intentional torts, it would be anomalous to speak of "an accident which results in personal injury." Thus, if they wished to have all of the basic policy's coverages, including personal injury, triggered by an occurrence, the authors of the proposed revision recognized that occurrence would have to be redefined so as not to render personal injury coverage meaningless.

In summary, when coverage for pollution or toxic tort claims is sought under the personal injury insuring agreement, it will be improper for the insurer to respond that a discharge or emission was knowing or even intentional. Intent is included among the elements of intentional torts, and the personal injury insuring agreement affords coverage for intentional torts.

The Pollution Exclusion

The so-called "pollution exclusion" contained in the standard form CGL policy is a non-issue when coverage is sought under the personal injury insuring agreement. Under the terms of the agreement, pollution-related injury is not excluded from coverage, and insurers know it.

The pollution exclusion to which bodily injury/property damage coverage is subject under the 1973 CGL policy provides that "This insurance does not apply: to bodily injury or property damage 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 land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental."

Much judicial attention has been devoted to constructing the term "sudden and accidental" in the "exception" to the pollution exclusion. While several courts have found the term ambiguous, and have followed general principles of construction in construing that ambiguity against the insurers, others, finding the provision's meaning to be plain," have construed it against policyholders.

It will be unnecessary, however, for a court adjudicating a policyholder's coverage claim under the personal injury insuring agreement to wrestle with competing constructions of the pollution exclusion. The pollution exclusion is simply inapplicable to personal injury coverage. The personal injury insuring agreement is self-contained and includes all applicable exclusions. The pollution exclusion is not one of them.

In Titan Holdings, the 1st U.S. Circuit Court of Appeals held that the pollution exclusion clauses in the liability policies before it did not apply to personal injury coverage. In another case, American Universal Insurance Co. v. Whitewood Custom Treaters, Inc., the U.S. District Court for the District of South Dakota in 1989 held that the liability insurance policy's pollution exclusion did apply to the policy's personal injury coverage. In Whitewood Custom Treaters, as in Titan Holdings, the pollution exclusion provision in issue was not contained in the personal injury insuring agreement. The Titan Holdings ruling was correct, while Whitewood Custom Treaters' was wrongly decided.

It is a basic principle of insurance contract construction that policy exclusions are construed strictly in accordance with their terms and are not to be broadened by interpretation or implication. The pollution exclusion made applicable by the terms of the relevant insuring agreement to bodily injury and property damage coverage may not be added by implication to the exclusions applicable to personal injury coverage.

Not only the terms but also the structure of the CGL policy compels the conclusion that personal injury coverage is not subject to the pollution exclusion. In discussing the basic scheme of the 1966 revised CGL policy, which was not altered in any relevant respect by the 1973 revision, insurance industry representatives acknowledged following an important principle of policy drafting: "Only one rigid rule must be followed, viz, the exclusions of coverage must follow immediately after the statement of coverage. This requirement results in giving emphasis to the exclusions equal to that given to coverage."

That principle was embodied in the instructions for printing and assembling liability policies ISO gave insurers in 1966. A paragraph of those instructions states: "Any one or more of the Standard Coverage Parts may be printed or assembled, together with such of these Standard Provisions as pertain thereto, to form a policy, and when so printed or assembled, the various provisions may appear in such sequence and arrangement as the company may elect except that the exclusions must appear at the end of the coverage agreement of which they form a part." The pollution exclusion does not appear in the personal injury insuring agreement.

Finally, there is compelling evidence that ISO, which was responsible for developing the pollution exclusion embodied in the 1973 standard form CGL policy, was well aware of its inapplicability to personal injury coverage. Indeed, a proposed revision of the standard form CGL policy, developed but not adopted by the ISO committee in 1978, contained changes designed to subject personal injury coverage to the exclusion (see author's article, "Personal Injury Insurance Coverage for Environmental and Toxic Tort Liabilities," in the spring 1990 issue of Environmental Claims journal). As the ISO committee clearly recognized, an exclusion which did not, by its express terms, apply to personal injury coverage, was inapplicable to that coverage.

In summary, personal injury coverage is not subject to the pollution exclusion. The vast, confusing and contradictory body of case law which addresses the terms of that exclusion is irrelevant when coverage is sought under the personal injury insuring agreement.

Insurers' Reactions

There are likely to be cries of outrage from insurers as CGL policyholders seek defense and indemnification against pollution-related claims and liabilities under the policies' personal injury insuring agreements. Insurance companies likely will argue that personal injury coverage is clearly inapplicable to such claims, and that the insurance industry never imagined that the insuring agreement could or would be so construed. If such arguments are made, they would be demonstrably false.

In fact, personal injury coverage may clearly apply to claims and liabilities arising out of discharges of pollutants, even if intentional. That coverage, moreover, is not subject to or limited by the pollution exclusion. And significantly, published reports prove that the insurance industry was aware of those features of personal injury coverage at the time that many of the policies were being sold.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Dvorkin, Stephen A.
Publication:Risk Management
Date:Jun 1, 1991
Words:3005
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