In Owens-Illinois, Inc. v. United Ins. Co., the New Jersey Supreme Court held that, in allocating insurance coverage for indivisible losses that trigger multiple coverage periods, the policyholder must share pro rata responsibility1 for self-insured, under-insured, and uninsured periods. When the policyholder has decided to forego insurance, as opposed to periods in which insurance was2 unavailable, it was reasonable to expect the policyholder to share in the allocation. Until recently, the 'insurance' referred to in this holding was generally assumed to be commercial general liability ('CGL') insurance, but carriers have recently added a second type of insurance to the mix. For the last year or so, they have been arguing in virtually every coverage case in New Jersey that environmental impairment liability ('EIL') insurance was available to the policyholder during the '80s and early '90s (usually beginning in 1985, when the absolute pollution exclusion was adopted), and that years during that period in which there was no insurance or under-insurance should be attributable to the policyholder. To the contrary, EIL coverage was not available at any price from 1984 to the early '90's to most of the PRP's involved in coverage actions over Superfund or RCRA sites, and was only marginally available during that period to the typical parties involved in contaminated property actions that resulted from the triggering of ECRA or ISRA.
EIL insurance evolved in response to the adoption of the RCRA financial responsibility regulations in 1980. At first, approximately 50 different CGL carriers entered the market, and many of their policies did provide some meaningful coverage for environmental liabilities at the typical Superfund or RCRA site -- that is, until 1984, when most of these companies had exited the market because their EIL programs were disasters. By 1985, the only company left was AIG, and it remained the sole market for EIL insurance (or, as it termed the coverage, 'PLL' - pollution legal liability-- insurance) until (This is not to say that other companies may not have continued to issue EIL or PLL policies on a sporadic basis after 1985; but they were no longer players in the market.)
In 1987, a group of AIG underwriters and the ECS subsidiary left AIG to form a second environmental insurance company within Reliance National in Philadelphia. In 1989, the industry began adding various coverages, such as contractors' pollution liability and consultants' errors and omissions, and, later, on-site coverages. However, between 1985 and 89, the AIG PLL policy was the only environmental coverage form generally available, and, until 1992 it was the only site-specific pollution liability form available.
In 1992, a second group of AIG underwriters left AIG to form a third environmental insurance company within Zurich. These three companies - AIG, ECS, and Zurich - completely dominated the market for PLL coverages until two or three years ago when some changes began to take place largely in response to the Brownfields movement. Two new companies, United Capitol and Kemper, became important players in the market, and, a year ago, Seneca Environmental Management also entered the scene. Also beginning two or three years ago, all of these companies began broadening coverage under the basic pollution liability form as well as creating new and innovative forms such as the cleanup cost cap policy (they also lowered premiums considerably). Until this time, however, the basic PLL form was notably restrictive and expensive, and was largely unavailable to the policyholders in future environmental coverage actions.
Coverage Under the Old PLL Policy
The old PLL policy issued by AIG, and, later Zurich and ECS, was a site-specific, third party pollution liability policy. It applied to a pollution condition (a release, discharge, etc. of pollutants) emanating from a specified location and resulting in off-site bodily injury, off-site property damage, or off-site cleanup costs. In short, on-site cleanup costs and remediation of on-site groundwater were not part of the basic coverage grant. The release could be sudden or gradual, and it could occur during the policy period or prior to the policy period so long as it was unknown. Another way of eliminating coverage for pre-existing conditions (the 'nose' as opposed to the 'tail') was through the frequent use of retroactive dates. The tail was eliminated by a double trigger of coverage -- the requirement that a claim be made and reported during the policy period, which was invariably one year in length. The policy did not have a duty to defend, defense costs were within the limits of liability, and there were numerous exclusions further limiting coverage. It is apparent that even if one could buy such a policy applicable to a specific site, coverage for certain aspects of the liability - especially on-site cleanup costs and known pollution conditions - was not available at any price, and also that coverage for a particular claim might prove to be elusive.
Unavailability of the Coverage to Most PRP'S
It is clear that most of the typical parties in Superfund actions could never have bought EIL coverage for the relevant sites in the first place. The policy was only sold to owners of a site, or to operators if they leased and controlled the site. It was not sold to ordinary operators or transporters, and was only sold to generators for the sites which they owned. Most of the policies were sold to large industrial or manufacturing companies (because they were the only ones who could afford them), but only, again, for sites that they owned.
Owned sites do not include non-owned disposal sites. Until 1992, it was extremely rare for the industry to endorse a non-owned landfill or disposal site onto a generator's policy unless the site was licensed and operating, already had its own environmental insurance, and provided the company with voluminous underwriting information. Retroactive coverage for the closed, non-licensed, troubled facilities that are the typical subjects of Superfund actions was completely out of reach.
Limited Availability to Some PRP's and ECRA/ISRA Parties
The policies were sold to owners of treatment, storage, and disposal facilities under Subtitle C of RCRA - that is who they were originally designed for. These TSD facilities could be on the sites owned by generators or manufacturers, or they could be separately operating TSD facilities. Theoretically, the coverage could also have been sold to the typical party involved in a a contaminated property action rising from the triggering of ISRA or ECRA. However, there is a good chance that coverage would not have been available for the particular TSD or ECRA/ISRA site in question. First, since the industry only would cover owned locations, ownership had to exist during the period of supposed availability - not before or after. Second, environmental site assessments and other extensive information were required for underwriting purposes. This meant that problems that were discovered upon the triggering of ECRA or ISRA or during the EPA's investigation of the TSD facility might have been discovered during the insurer's investigation - in which case the company would probably have declined coverage. There was no retroactive coverage for a site that had been put on the NPL list prior to 1985.
Even if the policy were written in the first place, the limitations on the basic coverage grant as well as the myriad exclusions meant that certain aspects of pollution liability were not insurable, and that a particular claim might very well be denied once it was made and reported to the company. On-site cleanup costs and known pollution would not be covered at all. The same factual issues that cause CGL carriers to deny on the basis of known loss, the definition of 'occurrence', or misrepresentation could also cause the EIL carrier to deny on the basis of the pre-existing, known conditions exclusion, the violation of statute exclusion, or 'expected and intended' language included in some definitions.
This writer has provided expert testimony in two cases in which CGL carriers claimed that EIL coverage was available to policyholders between 1984 or 1985 and 1992 In neither of these cases was there the slightest chance that the policyholder could have purchased a policy applicable to the site in question. One case involved environmental coverage for a cost recovery action in which the current owner, who had purchased this industrial site in 1979, sued the former owner when contamination was discovered in 1988 because of the triggering of ECRA. The CGL carriers who were third-partied into the action argued that the former owner could have purchased EIL insurance between 1984 and 1988 and that therefore those years were attributable to him. It is abundantly clear, however, that this policyholder never could have purchased EIL insurance for the site at any price after 1979. After 1979, he no longer owned it. Another case involved the availability of EIL coverage between 1985 and 1992 for contamination at various closed, off-site landfills to which the policyholder had shipped waste during the 70's. Obviously, coverage was never available to the policyholder for these non-owned, non-operating, off-site disposal sites.
Other cases in which the issue has been raised are also dubious. In one, the policyholder was fortunate enough to obtain EIL coverage between 1985 and 1988, but only for its owned site - not for the non-owned disposal sites involved in the coverage litigation. A fourth case involved three sites. One was a TSD facility which became a Superfund site . The policyholder was a generator to this off-site facility and therefore never could have purchased EIL insurance applicable to it - nor could anyone else. The other two sites were owned, manufacturing locations, where ECRA triggered a claim because of the company's acquisition by another company in the late '80s. At both of these ECRA sites, environmental problems were sufficiently obvious that an underwriter would have probably declined to write the risks.
Owners of TSD facilities and parties to ECRA/ ISRA actions might theoretically have been able to buy an EIL policy for their owned sites between 1984 or '85 and the early 90's, assuming no obvious environmental problems at the sites and their ownership of the sites in the relevant years. Even if such an owner could have purchased a policy for such a site, the policy would not initially cover crucial aspects of potential liability, such as on-site cleanup costs and known pollution, and there was a good chance that coverage for a particular claim would ultimately have been denied because the policy was so restrictive. However, most of the PRP's involved in environmental coverage actions were never in a position to purchase EIL coverage for the sites involved in those actions. Most of them were not site owners, and most of the sites were non- licensed, non-operating, non-insurable disposal sites. The idea that EIL coverage was generally available during this period is largely a myth.
1. 138 N.J. 437, at 471-73; 650 A2d 974, at 992-95 (1994).