The First and Second Circuits find themselves in potential conflict as a result of a suit for defense costs relating to environmental cleanup costs. The central issue is whether the discharge of pollutants fell within the policy’s pollution exclusion. When interpreting whether an event falls within a pollution exclusion, the threshold question is whether the event was “sudden and accidental.” If so, the event falls outside a policy’s relevant pollution exclusion and an insurer likely owes coverage.
In <em>The <a href="http://blog.wcmlaw.com/wp-content/uploads/2016/07/Narragansett.pdf">Narragansett</a> Electric Co. v. Century Indemnity Co.,</em> a cache of long buried waste was discovered, triggering a release of hazardous chemicals. Applying Massachusetts law, the district court found coverage was triggered and the event was “sudden and accidental,” which caused it to fall outside the policy’s relevant pollution exclusion. On appeal, the Second Circuit panel reversed, stating simply “any property damage alleged in this case plainly arose out of the NEC's intentional disposal of wastes on the Mendon Road site.” <em>The Narragansett Elec. Co., Plaintiff–Appellee–Cross–Appellant, v. Century Indem. Co., Defendant–Appellant–Cross–Appellee., </em>No. 15-1137 -CV(L), 2016 WL 3450187, at *1 (2d Cir. June 23, 2016). Narraganset (“NEC”) claims the Second Circuit created a standard in which a policyholder will never be entitled to coverage once waste is disposed of on the subject property, no matter what may have triggered the dispersal of the dormant pollutants.
In response to the ruling, NEC filed a motion to reargue, claiming the Second Circuit failed to consider controlling law. To support their contention, they cite to the First Circuit’s decision in <em><a href="http://blog.wcmlaw.com/wp-content/uploads/2016/07/Millipore.pdf">Millipore</a> v. Travelers Indemnity Co</em>. In <em>Millipore</em>, pollutants were released following attempts to douse a raging chemical fire at one of the covered properties. The First Circuit found the explosion was sudden and accidental as defined in the policy, and the remediation efforts were directly related to that event. Applying Massachusetts law, the First Circuit found the event qualified as “sudden and accidental” and was outside the pollution exclusion.
According to NEC, the facts in both cases are so similar the Second Circuit should have taken <em>Millipore </em>into account. NEC contends it was improper for the Second Circuit to distinguish the remediation efforts in Millipore with the accidental discovery of waste that had been buried for fifty years. In each case, Narragansett claims, the actions of a third party caused a separate, unexpected release that was potentially sudden and accidental.
In our view, Narragansett’s allegations fail on two grounds. First, they misconstrue the meaning and reasoning behind the Second Circuit’s ruling. The Second Circuit’s ruling was based almost entirely on the allegations in the complaint. The allegation in the underlying complaint in <em>Narraganset </em>stated “Maurice C. Brunelle uncovered blue sludge that was contaminated with chemical substances [from NEC's waste]. ... [and thereby] caused hazardous chemicals to be released to the environment.” <em>The Narragansett Elec. Co., Plaintiff–Appellee–Cross–Appellant, v. Century Indem. Co., Defendant–Appellant–Cross–Appellee.,</em> No. 15-1137 -CV(L), 2016 WL 3450187, at *1 (2d Cir. June 23, 2016). The Second Circuit could find nothing in those allegations supporting a finding the release was “sudden and accidental.” As the Court wrote, “[T]he Commonwealth's complaint, by contrast, ‘cannot reasonably be read’ to describe a ‘sudden and accidental’ release of pollutants separate from the NEC's intentional release of pollutants into the environment over the course of decades.” <em>Id</em> at 1. On that basis, the Second Circuit found the Pollution Exclusion applied to bar coverage and thus no duty to defend. In contrast to the claims put forth by Narraganset, no precedent setting standard was created.
Second, the facts in <em>Millipore</em> and <em>Narraganset</em> are not as similar as NEC contends. In <em>Millipore</em>, an unanticipated fire and the ensuing remediation efforts were the direct causes of the hazardous release of pollutants. The insured was able to show the release was sudden and accidental. In<em> Narraganset</em>, the third party “uncovered blue sludge” which apparently spawned the release of dormant chemicals. NEC was unable to demonstrate the third party’s actions caused the spread of the pollutants or that the phenomenon was sudden and accidental. As such, the mere allegation of uncovering a pollutant did not present a scenario similar enough to implicate the ruling in <em>Millipore</em>.
In our view, <em>Millipore</em> and<em> Narraganset</em> are distinct enough to exist in harmony with one another.
Thanks to Joshua Gornitsky for his contribution to this post. For more information, please email Dennis M. Wade at <a href="mailto:email@example.com"><u>firstname.lastname@example.org</u></a>.