In my last blog, I noted that there is no case law under CERCLA analyzing whether an insurer can invoke the absolute pollution exclusion to avoid a duty to defend when a claim for recovery of Costs alleges joint and several liability against the Insured under Section 107 of CIRCLE. This includes responsibility for response costs necessary to reduce hazardous substances that may have emanated from property other than that owned or occupied by the insured. Under the first prong of the so-called absolute pollution exclusion, the insurer is not obliged to defend or cover losses for discharge of pollutants “into or from premises belonging to the insured”. However, the precise wording of the exclusion does not appear to correspond to the allegation that the insured could be deemed liable under section 107 for releases of property not owned or occupied by the insured.
The United States District Court for the District of New Mexico was confronted with this exact question in Chisholm’s Village Plaza, LLC c. Travelers Insurance, Co., et al, No. 2:20-CV-00920-JB-KRS. The from Chisolm the case involved the failure of two insurers to defend Chisholm’s Village Plaza, LLC (“Chisolm’s”), their insured, in the underlying CERCLA case of City of Las Cruces, et al v. United States of America, et al, No. 2:17-CV-00809-JCH-JBW, Federal District Court for the District of New Mexico. In this case, the responsible party sought contribution from Chisholm’s under Section 113 and also requested payment of all Section 107 response costs for the entire contamination plume, which was caused by unrelated third parties. Chisholm’s filed a claim for defense and indemnification benefits with its insurers in August 2019, but both insurers denied coverage and did not provide a defense to Chisholm’s under a reservation of rights. None of the defendants sued for declaratory relief to determine coverage or their respective obligations to defend Chisholm’s.
During oral argument on Chisholm’s motion for summary judgment, counsel of record (in this case, the author) argued that the insurers ignored allegations in the underlying complaint, which sought to impose liability on Chisholm not only for the release of hazardous substances from his property, but also for the hazardous substances released by other co-defendants from other properties. This action for joint and several liability under section 107 went far beyond imposing liability for the discharges of the insured’s property and thus triggered the obligation to defend the entirety of the complaint based on the long-standing principle that a potential cover for a claim invokes an obligation to defend all claims. The district court agreed, finding that the insurers had no basis for claiming the exclusion based on releases or releases of pollutants from locations other than premises owned or occupied by the insured.
Despite this decision, one of the carriers evaded its duty of defense by relying on the Court’s finding that, under the second branch of the pollution exclusion, the claim for reimbursement of costs arose from a “request, demand or order that any insured or others…respond to…effects of pollutants. The other insurer, however, was not so lucky. The policy issued by this insurer included an exception to the exclusion, which provided that the second part would be inapplicable if the insured demonstrated that he would face potential liability under other laws or regulations unrelated to the claim or demand that the insured or others respond to the effects of the pollutants. In the present circumstances, Chisholm’s has established the possibility of further liability due to the existence of a public nuisance law in New Mexico, which imposed liability on Chisholm’s separate and apart from any liability asserted under the CERCLA. Therefore, the Court ruled that there was no reason for the second insurer to deny its duty to defend.
With respect to the second insurer, the case now moves to the second phase, which includes the non-contractual claims asserted by Chisholm’s for the insurer’s failure to investigate or otherwise deal with the interests of the insured on an equitable basis. equality with his own.
Regardless of the outcome of the second phase, this case represents an important exception to the first prong of the absolute pollution exclusion that CERCLA practitioners should keep in mind when assessing the insurer’s potential liability. and the duty to defend.