Court Decision Deals Blow to Insurers Expressing Denial of Coverage

A recent New Jersey Superior Court decision added to the growing pile of jurisdictions that recognize the insurer’s denial of a duty to their insured under the “A Potentially Responsible Party (“PRP”) letter from the regulator doesn’t trigger coverage argument” as fatally flawed.

Cooper Industries, LLC v. Employers Ins. Of Wausau a Mutual Company, et al.[i] found plaintiff Cooper Industries served with a PRP letter from the U.S. Environmental Protection Agency (“EPA”) in regards to contamination of the Passaic River in Newark. Multiple parties had been identified as potentially contributing to the 17 miles of contaminated waterway, so the EPA suggested that Cooper Industries collaborate with the other PRPs to investigate and remediate the river. They also cautioned Cooper Industries that declining to participate would end in CERCLA proceedings being brought against it. As part of its response to EPA, Cooper Industries tendered a claim to its insurer, OneBeacon Insurance Company. OneBeacon’s response was a denial of coverage, justifying it with the well-worn excuse that a PRP letter isn’t a suit and therefore doesn’t trigger coverage.

Cooper Industries filed suit against OneBeacon and the court found that not only does an EPA PRP letter function as a suit, New Jersey had recognized that for over twenty years: Morton International Inc. v. General Accident and Indemnity Company of America[ii] established that ‘the actual or threatened use of legal process to coerce payment or conduct by a policyholder’ language included in the PRP letter was sufficient to trigger coverage. EPA’s PRP letter under CERCLA certainly contains the threat of legal process, including PRPs obligation to remove and remediate contamination, CERCLA’s strict liability with very few affirmative defenses, and possibility of extensive fines and damages.

Although there are certainly legitimate exceptions to coverage, the oft-repeated contention that a PRP letter doesn’t constitute a law suit triggering coverage is slowly but surely being driven towards extinction to the benefit of policyholders nationwide. If you or your company has received an EPA PRP letter, or you feel that you may be in a position of potentially receiving one in the future, your past general liability insurance policies may be of use. The search for potentially valuable, old general liability policies is a unique part of what we offer to our clients. This court decision adds more value to our efforts to find those policies, and assist our clients through what can often times be a very difficult process.
[i] Docket No. L-9284-11
[ii] 134 N.J. 1 (1993)

U.S. District Court Adds to Kiger Progeny

In a recent legal decision that reinforces existing case law in Indiana, Judge Jon E. DeGuilio of the U.S. District Court for the Northern District of Indiana (Hammond Division) ruled in favor of a policy holder in an environmental contamination coverage dispute.

Old Republic Insurance Company v. Gary/Chicago International Airport Authority (No. 2:15-CV-281-JD) saw Old Republic seeking declaratory relief and reimbursement from the Airport Authority for defense costs expended in defending the Airport Authority against IDEM’s claims for investigation and cleanup of fifty-two separate different contaminants.

Old Republic argued that its non-specific pollution exclusion (which read “This policy does not cover claims directly or indirectly occasioned by, happening through or in consequence of:…(b) pollution and contamination of any kind whatsoever,” was distinguishable from language Indiana courts had previously identified as ambiguous (under Indiana law, which interprets insurance contracts as it would any other, ambiguity in coverage exclusions must be interpreted in a way that finds for coverage).

Although different than the absolute pollution exclusion by means of excluding “pollution” and “contamination” rather than the language found in American States v. Kiger 662 N.E.2d 945 (Ind. 1996) and its progeny, “pollutants and contaminants,” the district court was not convinced that the minor modification of the language was sufficient to overcome the Indiana Supreme Court’s approach. In the view of the Indiana Supreme Court, in the event that an insurer wishes to exclude coverage, it must specifically exclude the substances for which it would negate coverage; a moderate change of broad exclusionary language is insufficient to resolve the ambiguity Kiger and its progeny identified and held against its drafters.

Although Indiana is unique in the stringency of its courts’ identification of ambiguity in commercial general liability insurance contracts, this most recent decision simply adds another layer to the stratifying case law requiring insurance contracts to specifically identify hazards against which they will not insure.

Appellate Court Ruling Favors Insured on Excess Policy Issue

The New York Appellate Court recently advised the Delaware Supreme Court on the complexities of New York insurance law on coverage allocation. In the matter of Viking Pump, Inc. & Warren Pumps LLC v. TIG, et al, TIG argued that it was only obligated to indemnify Viking Pump for the time they insured the company (Pro Rata), while Viking Pump sought coverage for the entirety of its defense (All Sums). The Delaware Supreme Court asked the New York Appellate Court to interpret its own laws in order to determine the answers to these questions: If excess insurance policies exist that have non-cumulation provisions and follow the form of underlying policies, which allocation method is appropriate? “All sums[1]” or “pro-rata[2]?” Is vertical or horizontal exhaustion[3] necessary in order to trigger this excess coverage? [AM4]

If an excess policy ‘follows form,’ it adopts, word-for-word, provisions from the underlying (primary and umbrella) coverage. The non-cumulation provision says, in effect: if your injury spans more than one policy period and an insurer other than us insured you for that period, then the amount we indemnify you for is going to be reduced by the amount your other insurer pays for the injury that occurred during their policy period. 

There was agreement from the court of Chancery all the way to the New York Appellate Court: in this case, the non-cumulation provisions in the underlying policies were clear in their intent to allocate using an all-sums method (which Liberty Mutual, the underlying insurer, customarily used).

TIG adopted the policy part-and-parcel by following form, but wanted a pro-rata approach – a legal fiction that takes an injury that occurred/continued to occur over multiple policy periods and treats it as if a discrete injury occurred in the separate policy periods. Pro-rata exists in a universe where, unless there was overlapping coverage, the injured party/insured can only recover under one policy at a time.

Non-cumulation policies, on the other hand, absolutely expect that more than one policy may be indemnifying the insured and, as a result, nullify a pro-rata approach. (A precept of contractual interpretation is that you do not interpret a provision of a contract in such a way as to nullify another provision in the contract rendering it redundant or insignificant; it’s called surplusage). In addition, several of the excess policies contained ‘continuing coverage’ provisions which expressly extend coverage past the policy period which, again, is completely incompatible with a pro-rata approach. The New York Appellate Court found for Viking Pump on the allocation question.

That left the second question to be answered. What kind of exhaustion applies to the excess policies: do the insureds need to exhaust all underlying coverage prior to triggering any excess policies (horizontal) or can the insureds simply exhaust one primary policy in order to trigger the overlying policy (vertical)? The court found that, mainly due to the fact that the excess policies’ form-following and specific identification of the underlying policies to which they provided excess coverage for meant that vertical exhaustion was the proper approach.


[1] In “all sums,” instances one insurer may be responsible for paying “all sums” related to the defense of the policyholder. After (or perhaps during) the claim, the insurer may pursue other carriers for equitable contribution.
[2] In “pro rata,” instances, an individual carrier is only responsible for paying those sums that occur while the carrier was ‘on the risk’ or insuring the policyholder while a long-tail claim (like an environmental spill) is occurring.
[3] In vertical exhaustion, excess or umbrella coverage is triggered as soon as the policy underneath it is exhausted. In horizontal exhaustion, all primary policies must be exhausted before the first excess or umbrella policy is triggered.

Circuit Court Issues Big Victory for the Insured

A groundbreaking ruling in the environmental cleanup industry. The Ninth Circuit Court of Appeals recently issued a decision that effectively broadens the scope of protection of a policy holder by triggering an insurance company’s “duty to defend” more quickly for policy-holders living in the Ninth Circuit. In short, if the Environmental Protection Agency issues a request for information (a “104(e) letter”) regarding the release of a hazardous chemical, a property owner can go to his or her insurance companies and request that his or her insurer provide financial coverage for any legal defense needed during the regulatory process.

The facts in Ash Grove Cement Company v Liberty Mutual Insurance Company involved the EPA issuing a 104(e) letter to Ash Grove regarding contamination at the Portland Harbor Superfund Site, which is a 12-mile sediment cleanup project along the Willamette River in Portland, Oregon. Liberty Mutual denied coverage on the basis that their policy only covered “suits” and “property damage.” Luckily for Ash Grove, the circuit court found that a 104(e) letter or any other communication from the EPA that could result in a policy-holder being identified as a Potentially Responsible Party (PRP) order is considered a “suit,” under the theory that the information provided to the EPA by the insured could place them under some kind of liability. The court held that the imminent need for money to cover defense costs in court makes the letter the “functional equivalent” of a “suit.”

Moving forward, this decision is likely to have an impact in the way Superfund investigations and clean-ups are funded, particularly in the early stages. Insureds who may be Potentially Responsible Parties under CERCLA will be more inclined to come forward with information and historic records about their site, since it will be in their best interests, both environmentally and financially. They’ll also have more institutional control throughout the process, deciding costs of the investigation and cleanup with the EPA overseeing the project. The alternative is less forgiving to the insured: the EPA takes action, sends in its own crews to clean things up, and then files a lawsuit against the responsible party to recover the funds used on said cleanup. Although this decision only applies to the Ninth Circuit, it sets a strong legal precedent for courts in other circuits that have not yet decided this issue.

How Not to Fail to Find Your Company’s Old Insurance to Defend Against Environmental Property Damage Claims

Yours is a middle-sized manufacturing company headquartered in the Midwest. Last year, the bank handling your company’s refinancing required that you conduct a Phase One environmental assessment. The Phase One report showed that past use of degreasers had contaminated the soil and possibly the groundwater beneath your plant. As required by law, you reported the findings to your state’s environmental authority. The state then sent a letter requiring that your company take action to determine the extent to which groundwater or adjoining land may have been polluted. Your attorney explained that your company’s general liability insurance policies from years past could provide coverage for the cost of responding to the state’s directives. So he asked you to provide him with copies of any and all general liability insurance policies in your company’s possession.

Your risk manager pulled together your policies from the last seven years and your attorney reviewed them. He then requested that you provide earlier policies because the policies you gave him have language that absolutely excludes pollution. Your risk manager informed you that those were all the insurance records he had in his files.  He then placed a call to your company’s current insurance agent who surprised everyone by saying that his agency has purged its files of policies older than seven years.

Stating that those insurance companies that issued your seven recent policies are likely the same ones that issued policies in the preceding years, your attorney wrote letters to each of them, placing them on notice of the potential property damage. Each of these carriers has now responded negatively, stating their policies do not cover and they can find no earlier policies issued to your company.  Now what?


Your attorney’s latest suggestion is an odd one. Professionals that conduct searches for lost insurance policies, known as insurance archeologists, could expand the search beyond your risk management files and beyond your insurance agent in search of older policies.  Aware that hiring specialists may be expensive, you ask him to determine the cost of hiring an insurance archeologist and the likelihood that this new search for policies would be effective.

It turns out that most insurance archeologists are situated in large cities on the East Coast where they service America’s largest corporations by searching through the archives of the large insurance brokers.  Could they send someone out to your neck of the woods you wonder?  And how effective would they be in the Midwest?  After all, your company did not purchase its insurance from the large insurance brokers in New York.

Well fortunately, there are some insurance archeologists headquartered nearby. These work primarily for mid-sized Midwestern firms like your own. And their services are reasonably priced. They are acquainted with insurance agencies in the Midwest and would not require an expensive travel budget to visit them.  What is more, they routinely work for mid-sized manufacturers like yours and they have success rates in the 70% range. You have checked them out and have selected one but he wants to begin by coming to your place of business and reviewing your records. Wouldn’t this be a waste of money?  After all, your risk manager and your attorney have already pulled your policies together. No, actually not to allow the insurance archeologist to begin at the beginning would be a waste of money. Because insurance archeologists search for missing policies every day, they recognize evidence of insurance that the untrained eye might not recognize. They are not just looking for policies but parts of policies, such as endorsements or declarations; and searching for accounting records such as audits, premium notices, cancelled checks, etc. that might identify insurance.

Why wouldn’t you spend a few thousand dollars on an effort to retrieve old insurance policies that could net you several hundred thousand dollars in defense and indemnity costs? Hiring a Midwestern-based insurance archeologist will be the optimum way to approach this problem.  The proofs of insurance they provide your attorney will be the start of a process that ultimately settles this matter and allows you to move on to focus on running your business.

This blog post was originally posted on the PolicyFind website, located here.

About the Author:

David A. O’Neill, J.D.
Director of Investigations, PolicyFind


David A. O’Neill is the Director of Investigations for PolicyFind, the Insurance Archeology division of Environmental Forensic Investigations, Inc., where he has been locating proofs of lost and misplaced historical liability insurance policies for clients since 2003. Mr. O’Neill holds a law degree from Case Western Reserve University and has been engaged in insurance archeological investigation since 1993.

At PolicyFind, Mr. O’Neill has primarily worked on behalf of businesses in search of a defense to state environmental authority property damage enforcement actions. In this regard he has specialized in the location and retrieval of lost general liability policies for dry cleaners. Also, his activities have included finding lost product liability insurance policies for building supply companies defending against asbestos and silica exposure claims. Mr. O’Neill has also worked on projects managed by insurance company claims specialists seeking policies issued by other carriers in efforts to spread the risk in environmental or asbestos related claims defenses. Further, on occasion PolicyFind’s clients have included churches and school boards seeking to locate policies to provide defense against long-tail claims of sexual battery by teachers and clergy. He has served as an expert witness for policyholders engaged in litigation with their insurers.

As the Insurance Research Manager for Risk International Services, Inc. from 1993 to 1998, Mr. O’Neill’s primary responsibility was to locate proofs of insurance for a nationally known waste hauling corporation engaged in an effort to settle its claims and sell its policies back to insurers prior to a sale of its assets. This was an insurance archeology effort that spanned five years and focused on the retrieval of insurance policies issued to nearly 2000 acquisitions.

Mr. O’Neill previously spent several years investigating property damage claims for the insurers of major U.S. Corporations named as responsible parties at hazardous waste sites throughout the Midwest. Earlier, he conducted Potentially Responsible Party Searches as a subcontractor for United States Environmental Agency Regions V and VIII.

Mr. O’Neill is a member of the Insurance Library of Boston.


Using Historical Insurance to Cover Investigation and Cleanup Costs

by: Steve Henshaw, CEO of EnviroForensics & PolicyFind

As seen in Cleaner & Launderer
Clothes hanging in dry cleaning warehouse
Underground contamination can be a problem at a dry cleaning site that used chlorinated solvents in the past, but it this doesn’t have to be something that ruins a business owner’s savings or reputation.

More often than not, environmental contamination and historical operations of a dry cleaning business go hand in hand. While this may sound unfair, one could say the same thing about the historical operations of a gas station, a metal plater, and even a computer microchip manufacturer. This was particularly true for activities in the 1970’s and 1980’s. Industries that used chemicals for cleaning and degreasing were not aware that when those chemicals spilled, even accidentally and in small quantities, they could (and often) have led to soil and groundwater contamination.

Why are degreasing chemicals harmful?

Degreasing chemicals fall under a general organic chemistry category called chlorinated hydrocarbons or chlorinated solvents. These chemicals are characterized as being heavier than water (meaning they sink into the groundwater), persistent in the environment (meaning they don’t decompose very fast), volatile (meaning they prefer being in the gas phase over the liquid phase) and carcinogenic (meaning they have been determined to either cause cancer or may likely cause cancer at certain exposure levels). No matter which side of the argument you stand on, whether cleaning solvents cause cancer or not, one thing everyone should agree on is that investigating and remediating chlorinated solvent sites with Perchloroethylene (PERC) or Trichloroethylene (TCE) is very expensive.

Who’s responsible for the clean up?

With respect to responsibility, any person or company that owned or operated a business where chlorinated solvents were used should know that with very few exceptions, they are legally liable for contamination associated with that business and operation. Worse yet, the law states that an individual or the business is held jointly and severally responsible. Finally, like taxes, environmental liability is considered a long-tail liability in that it never goes away.
On the face of it, what I’ve presented seems so unfair. After all, chlorinated solvents were considered to be safe and state of the art since they were not explosive or flammable like petroleum based products (e.g. kerosene or Stoddard solvent). People were handling the solvents in accordance with the laws of the time some 50 years ago and now they are considered an environmental risk subject to legal enforcement. Businesses that operated with good housekeeping practices and followed the rules are subject to be in the same category as a business that showed blatant disregard for the laws or the environment and operated a business with intentional pollution. In addition, a business that operated only for one year is just as liable for the environmental contamination as a business that operated for 20 years. Who makes this stuff up? It most certainly is not fair. Enough of the doom and gloom though.

“Absolute Pollution Exclusion”

After ~1985, most insurance companies added very specific language to CGL policies that contained absolute pollution exclusion. In other words, they were not covering individuals and businesses for pollution or contamination associated with dry cleaning operations. A separate environmental policy would be required to cover environmental pollution and contamination. Better yet, the courts in some states have ruled that the term “pollution” and therefore “pollution exclusion” is an ambiguous term due to the way insurance policies were written, even after the nationwide changes that took place in ~1985.

Consider these two examples:

  1. If an accident happened while you were filling your car’s gas tank at that gas station and you or someone you were with was injured, then you would expect the gas station’s insurance to cover any injuries.
  2. Yet, if the gasoline from a gas station drained into the ground and caused contamination to drinking water, this situation would not be covered by insurance because the gasoline is now considered a contaminant. I think this logic was in play when courts of some states ruled that the word “contamination” was ambiguous.

So, if you or your business bought CGL insurance before the policies contained absolute pollution exclusion language, you are likely to have insurance coverage that can address environmental contamination, even if that contamination has only been recently discovered. In addition, if you acquired the business, the business before you may have insurance that would cover environmental contamination costs.

You might say, “That’s all great, but what if I can’t find my old policies or the policies that were bought by former owners?”. In my experience, more times than not, those old policies (or evidence of insurance) can still be found. There are companies, like PolicyFind™, with investigators called insurance archeologists that focus on finding old policies or evidence of old policies. In my experience, more often than not, a good insurance archeologist can find evidence of old insurance.

Let’s say you found old insurance. Now what? Insurance is designed to defend and indemnify a policyholder against a claim. The claim is the demand from the regulatory agency or third party requiring action to mitigate the damage or harm. In some states, a claim or suit could be a letter from the regulatory agency or a neighboring property owner demanding a response to identified environmental contamination. In other states, the courts have determined that the insurers must only defend an actual lawsuit.

insurance archeologist looking through files
A consultation from an experienced insurance archeologist can uncover millions of dollars in usable assets to pay for environmental cleanup and legal fees.

In pulling this concept together, a defense would include paying for lawyers dealing with the environmental contamination. A defense would also include quantifying an individual or business’s environmental exposure and liability. The only way to quantify environmental liability is to collect environmental samples (e.g. soil, soil gas, indoor vapor, and groundwater). It would also mean determining how expensive a cleanup would be, which means that aquifer tests, feasibility studies, and remediation technology evaluations, should be covered.

Obviously, the process of using old insurance policies has many parts and can include an insurance archeology component, a legal component, and a technical component. All three parts have to work together to get the business back in good standing. Understanding all aspects of the process is not your job, that’s why you hire experts like EnviroForensics® and PolicyFind™ to take care of the process for you.

If you’re facing an environmental liability of hundreds of thousands of dollars, you should look into historical insurance policies and see how they could work for you and your situation. We have worked with hundreds of business owners who have used historical insurance to help pay for environmental investigations and remediation. Depending on the set of facts, known environmental insurance claims can be sold and assigned to other third parties to manage and run. Small businesses, including their stock, insurance assets and liabilities can be bought and sold. There are numerous permutations to the business side of managing environmental claims and a whole new industry is in front of us. It might be encouraging to know that there are companies out there still fighting the good fight.

Contact us today by filling out our Dry Cleaner Form

With over 30 years of experience, Steve Henshaw, PG has a wide range of experience in the environmental remediation field. As CEO of EnviroForensics, Henshaw serves as a client and technical manager on projects associated with site characterization, remedial design, remedial implementation and operation, litigation support and insurance coverage matters. These projects have included landfills, solvent and petroleum refineries, metal plating shops, food processors, chemical manufacturers and distributors, heavy equipment manufacturers, and transporters. Henshaw’s expertise includes knowledge of industry practices and procedures, and an extensive understanding of contaminants in soil and groundwater. He has also served as a testifying expert on behalf of individual landowners and facility operators at several Brownfields sites impacted by industrial activities.

Henshaw is passionate about access to clean water in developing countries and co-found a 501(c)(3) nonprofit called Water For Empowerment in 2015. The organization’s current project empowers women and girls in rural Nicaragua to create healthy futures through clean water initiatives.

DERF Goes Broke (Again): Historical Insurance Remains Source of Funding

For the second time in 5 years, the Wisconsin Department of Natural Resources’ (WDNR) Dry Cleaner Environmental Response Fund (DERF) has run out of funds necessary to keep pace with claims from dry cleaners dealing with perc cleanups. In the meantime, the WDNR has expressed no intention to slow down its enforcement activities.

The language from WDNR Hydrogeologist Theresa Evanson, P.H.’s letter to drycleaners specifically states, “Despite the projected DERF revenue shortfall and anticipated delays in reimbursements to eligible drycleaners, state law still requires that those responsible for contamination or who own contaminated property undertake investigation and cleanup of those properties.” This is an alarming statement to many drycleaners already involved in the DERF and uncertain when they’ll receive DERF aid. It’s even more disturbing if you’re a dry cleaner who’s trying to refinance or sell his business and who was counting on the DERF to be there if due diligence detected any contamination.

Continue reading “DERF Goes Broke (Again): Historical Insurance Remains Source of Funding”

Do You Know Your Company’s Most Valuable Assets?

Written by Steve Henshaw, P.G., President & CEO, EnviroForensics
As seen in the May 2012 issue of Cleaner & Launderer

PDF Version

When executives talk about a company’s assets, they generally refer to people, property, buildings, equipment, clients, job contracts, and intellectual property.  I’m sure there are more, but how often do executives think that some of their greatest and most valuable assets are old insurance policies that were purchased 10, 20, even 50 years ago?  It’s true – old insurance policies, normal commercial general liability (CGL) insurance policies, that were purchased to protect and cover against claims of bodily injury, other physical injury or property damage and to protect your businesses against incidents that may have occurred on your premises or at other locations where you conduct business could be worth millions of dollars.

If you already know this, then I’m sure you have all of your old insurance policies stored safely and securely.  You also have a summary that shows the coverage by year, along with the names of the insurance companies that issued the coverage, the policy numbers and the policy limits.  If you don’t have this information safely stored, protected from fire and water damage, then you should read on. Continue reading “Do You Know Your Company’s Most Valuable Assets?”

Indiana Supreme Court Stays the Course on Pollution Exclusion: General Liability Policies Continue to Provide Coverage in Indiana

Written By David O’Neill, Director of Investigations, EnviroForensics & PolicyFind

The Indiana Supreme Court has issued its long-anticipated decision in State Automobile Mutual Insurance Company v. Flexdar, Inc. and in so doing has re-affirmed its ruling in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996) that the absolute “pollution exclusion” typically appearing in commercial general liability (“CGL”) policies issued in policy periods beginning in 1986 and later is ambiguous and unenforceable as to most, if not all, types of environmental liabilities. 

Declining to take State Auto’s suggestion that it bring Indiana’s law more in line with those of other states, the Court rejected what it called “literal” as well as “situational” interpretations of the absolute pollution exclusion, opting instead to stay the course and reaffirm its prior rulings regarding the ambiguity of the exclusion. Continue reading “Indiana Supreme Court Stays the Course on Pollution Exclusion: General Liability Policies Continue to Provide Coverage in Indiana”