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Terms Used in the Complaint Determine Defense Coverage to the Insured

June 12, 2017

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In <a href="">Hillcrest Coatings Inc v Colony Ins Co</a>, the Appellative Division recently affirmed the trial court’s order requiring Colony Insurance provide a defense to its insured in an underlying environmental tort action despite the CGL policy’s hazardous materials exclusion.
The allegations in the underlying environmental action stated that Hillcrest Coatings operated their glass and recycling facility in a negligent manner, causing hazardous materials to contaminate the surrounding areas.  The underlying complaint also alleged that Hillcrest’s negligent actions “caused a malodorous condition to be created in the surrounding neighborhood.”
In disclaiming coverage to Hillcrest, Colony relied upon an exclusion that excepts from coverage all bodily injury and property damage resulting from “actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.”  ‘Hazardous materials’ was defined by the policy as “pollutants” including any “solid, liquid, gaseous or thermal irritant or contaminant…” The court found that ‘Malodorous’ is not necessarily ‘Hazardous,’ and Colony owed a duty to defend its insured.
The <em>Hillcrest</em> decision serves to underscore the breadth courts attribute to the insurer’s duty to defend.  The Court stated that Colony had failed to meet the high burden of establishing that the hazardous materials exclusion precluded coverage in this instance because, despite the fact that the underlying complaint specifically alleged that the “malodorous condition” resulted from hazardous materials, “foul odors are not always caused by the discharge of hazardous materials.”  Thus, because “malodorous” may not be hazardous, Colony was ordered to provide a defense and to reimburse its insured for costs expended.
This decision is a reminder that in terms of coverage, courts can find even an unlikely possibility of coverage to be “reasonable” when assessing the insurer’s duty to defend.
Thanks to Vivian Turetsky for her contribution to this post.


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