One of the most common pollution exclusions in older general liability policies is the standard-form 1973 “qualified” pollution exclusion (often called the “1973 Exclusion”).[1] The 1973 Exclusion excludes pollution coverage unless the “occurrence” that caused the damage was “sudden and accidental.”  In Oregon, this exclusion will not apply if the pollution results from “discharges, dispersals, releases, or escapes that are unintended and unexpected.”  St. Paul Fire & Marine Ins. Co., Inc. v. McCormick & Baxter Creosoting Co., 324 Or. 184, 216, 923 P.2.d 1200 (1996) (emphasis added).   These policies often provide companies with a critical source of funding for environmental liabilities.

But the 1973 Exclusion, although common, was not the only one in use in the ’70s and ’80s.  An Oregon Circuit Court case, Allianz vs. Ace Property and Casualty Ins. Co., et al.[2], highlights how a slight difference between the 1973 Exclusion and a similar exclusion on the same topic can, in the hands of a jury armed with less-than-clear instructions, produce puzzling results.

The Allianz case involved a contribution claim brought by Allianz against numerous other insurers who had issued policies to a single insured, to recover defense and indemnity cost that Allianz paid relating to over 1500 asbestos suits and three superfund sites.  Unlike many long-tail claims, rulings were sought on defense and indemnity liabilities simultaneously.  This strategic decision was likely because of the nature and number of the underlying claims.  But as a result, Allianz had to prove that what it had paid was actually covered by the defendants’ policies, rather than potentially covered.  The defendant carriers had the burden of proving that Allianz’s indemnity payments were excluded under the terms of its policies.

As noted above, the 1973 Exclusion is limited by the language “sudden and accidental.”  In Allianz some of the policies contained the 1973 Exclusion, but some (written by Lloyd’s[3] and the General Insurance Company of America) contained an exclusion that substituted the words “sudden, unexpected and unintended,” for “sudden and accidental.”  This language does not appear substantively different.  But apparently the jury did not see things that way – and that may be because the jury instructions unintentionally conveyed to the jury that the two exclusions were not, in fact, the same.

The jury instruction regarding the 1973 Exclusion expressly stated that under Oregon law “sudden and accidental” is interpreted to mean “unexpected and unintended.”  However, the instructions did not provide similar guidance to the jury regarding the exclusions with the “sudden, unexpected and unintended” language.

The jury found that the 1973 Exclusion did not apply, but that the “sudden, unexpected and unintended” exclusion did apply.  Thus the result was that the “sudden and accidental” policies provided coverage, but the “sudden, unexpected and unintended” policies did not provide coverage.

Allianz moved to set aside the judgment based on the court’s failure to provide a jury instruction regarding the legal meaning of “sudden, unintended and unexpected.”  Specifically, Allianz argued that “sudden and accidental” and “sudden, unexpected and unintended” are legally synonymous such that the court should have instructed the jury that both are to be interpreted to mean “unexpected and unintended.”  Accordingly, it should have been impossible for the jury to find that a discharge was “sudden and accidental,” but not “sudden, unexpected and unintended” under Oregon law.  The trial court denied Allianz’s motion without discussion, and the issue is currently on appeal.

In Allianz the court did not expressly draw a legal distinction between an exclusion with the “sudden, unexpected and unintended” language and one with the “sudden and accidental” language.  However, the court’s refusal to vacate the judgment suggests that the court may have viewed them differently.  If that is the case, insurers may begin arguing that “sudden, unintended and unexpected” exclusions somehow fall outside the scope of McCormick & Baxter.  To avoid falling into the Allianz pitfall coverage attorneys should seek legal rulings on the implications of exclusions that have different language than those that have been discussed in the case law.  Without clear legal rulings and guidance, a trier of fact may perceive meaningful differences in seemingly synonymous policy language, which might then hurt the coverage claim, as occurred in Allianz. This case should be a wake-up call to policyholders to seek legal rulings and clear jury instructions on the implications of pollution exclusions – and other policy language — that can be pivotal on coverage.

[1] The “sudden and accidental” exclusion is often called the 1973 Exclusion because it was included in the 1973 ISO form that served as the template for many CGL policies.

[2] Allianz Global Risks US Ins. Co. and Allianz Underwriters In. Co. v. Ace Property & Cas. Ins. Co., et al., No. 1204-04552, (Multnomah Cnty. Cir. Ct.).

[3] “Lloyd’s” or “London Insurers” refers collectively to Certain Underwriters at Lloyd’s, London and Certain London Market Companies.