Covered Versus Non-Covered Environmental Costs

REMEDIAL COSTS V. PREVENTIVE COSTS

Policyholders and insurers should remember that it is the majority rule that costs associated with the remediation of environmental contamination are covered but purely preventive measures intended to prevent future releases of hazardous waste are not covered.
Most recently, the Indiana Supreme Court has adopted and the Indiana appellate courts have followed the majority rule that the costs to install government mandated emissions control equipment are not covered under the standard general liability policy. See Cinergy Corp. v. Assoc. Elec. & Gas Ins. Serv., Ltd., 865 N.E.2d 571 (Ind. 2007); Newman Mfg., Inc. v. Transcontinental Ins. Co., 871 N.E.2d 396 (Ind. Ct. App. 2007); Cinergy Corp. v. St. Paul Surplus Lines Ins. Co., 873 N.E.2d 105 (Ind. Ct. App. 2007). The Indiana Supreme Court has stated:
The policy thus applies only if damages claimed by the power companies/[policyholders], the costs associated with the installation of equipment to contain further excess emissions, constitutes damages because of bodily injury or property damage caused by an accident, event or exposure to conditions. The clear and unmistakable import are the phrase “caused by” is that the accident, event or exposure to conditions must have preceded the damages claimed – here, the costs of installing emission control equipment.
Id. at 582. In other words, “what the power companies here claim to be covered, the installation costs for equipment to prevent future emissions, is not caused by the happening of an accident, event, or exposure to conditions, but rather result from the prevention of such an occurrence.” Id. at 582-583.

Gaps In Coverage When Switching Carriers

Switching insurance companies can result in a gap in coverage.

All policy holders, and especially companies purchasing Directors & Officers Liability coverage, need to be mindful of a major pitfall that can result when changing insurance companies. Most companies may have a Directors & Officers Liability policy which provides claims made coverage to its directors and officers. If the company switches to a new insurance company and obtains a new policy, the new Directors & Officers policy will often exclude claims based on actions that took place prior to the issuance of the new policy. If shareholders were to file suit based on a director’s misconduct during the prior policy period, the previous insurance company will deny coverage because the claim was not made until after that policy expired, and the new insurance company will deny coverage based on the exclusion for prior acts.

Similarly, policy holders need to be aware of changing from a claims made policy to an occurrence policy. As long as the policyholder continues to purchase claims made policies, there will always be coverage for a claim that is made. However, when a change is made to an occurrence policy, and a claim is made during the pendency of the occurrence policy for conduct that happened under the prior policy, that claim will not be covered under the occurrence policy. If the policy holder seeks to obtain coverage under the prior policy, the prior carrier will deny coverage because the claim was not made while that policy was in effect.