Pennsylvania Supreme Court Issues Landmark Decision in Environmental Insurance Case

April 24, 2002

In the wake of a landmark decision in a case handled by Cohen & Grigsby, businesses across Pennsylvania should now receive coverage from their past liability insurers for many long-tail environmental claims that were previously denied.

Standard Comprehensive General Liability (CGL) insurance policies sold from 1970 to 1985 cover liabilities stemming from pollution if it was "sudden and accidental." In the past, Pennsylvania courts said that to qualify as "sudden and accidental," the pollution must have occurred abruptly and lasted only a short time, and insurers relied on this when presented with claims. This meant that many pollution claims were denied based on the simple fact that they occurred over time or, as the insurers would say, involved "gradual" pollution. As a practical matter, this excluded from coverage many classic pollution problems -- regardless of what the insured knew or did not know at the time -- such as leaking underground storage tanks, wastewater storage impoundments, or leachate from landfills.

The Pennsylvania Supreme Court's decision in Sunbeam Corp. v. Liberty Mutual Insurance Co., however, changes that. In a ruling handed down on October 19, 2001, the court recognized that there could be coverage under these standard CGL insurance policies for gradual as well as abrupt pollution or contamination that was neither expected nor intended by the insured. The Opinion of the Court was written by Chief Justice John P. Flaherty, and it continues his tradition of authoring major precedent-setting opinions that capture national attention. "We believe appellants have properly pleaded that the comprehensive general liability policies at issue do indeed provide coverage for both gradual and abrupt pollution or contamination so long as it was unexpected and unintended," Chief Justice Flaherty wrote for the court.

The ruling received extensive coverage in the trade press. Best's Insurance News reported that the ruling "could have a substantial impact on all commercial environmental coverages since 1970," and Pennsylvania Law Weekly called the decision a "huge blow to the insurance industry." Business Insurance reported that the ruling "could have significant ramifications outside of Pennsylvania," and Waste News called the case "a very important decision." Articles on the case also appeared in the Pennsylvania Journal of Environmental Litigation, Real Estate/Environmental Liability News, The Legal Intelligencer, Andrews Insurance Coverage Litigation Report, Andrews Hazardous Waste Litigation Report, and Mealey's Litigation Report: Insurance.

The ruling is all the more significant because CGL policies issued from 1970 to 1985 continue today to cover liabilities arising out of harm that took place during the time they were in effect, regardless of when the claim is made, and many environmental liabilities can be traced to activities before 1986.

The court's ruling means that CGL insurers can no longer routinely deny claims for environmental coverage that are governed by Pennsylvania law on the grounds that the pollution happened gradually or over time. The decision also calls into question all past claim denials that were issued on such a basis. Any businesses with environmental liabilities -- even past claims -- should revisit whether their environmental liabilities are covered by their CGL insurance policies.

The reasoning behind the Pennsylvania Supreme Court's decision has also sent a powerful message to the insurance industry, which by law must obtain prior approval from the Pennsylvania Insurance Department to use standard form insurance policy wordings in the Commonwealth: if, to obtain approval, you tell the Department that the wording will have a particular meaning or effect, you will not be permitted to change that position when claims are later submitted. This rule of "regulatory estoppel" will now guarantee that consumers of insurance in Pennsylvania receive the insurance coverage to which they are entitled -- not just in this case, but in future cases as well.

Cohen & Grigsby attorneys Andrew M. Roman, Richard A. Ejzak and Mark A. Grace represented Sunbeam in this suit, and they can be reached at aroman@cohenlaw.com, rejzak@cohenlaw.com and mgrace@cohenlaw.com, respectively. For more information on the Sunbeam decision or insurance coverage in general, please contact any one of them or your Cohen & Grigsby attorney.