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Utica Mut. Ins. Co. v. Weathermark Invs., Inc.

Citation: 32 ELR 20720
No. No. 01-1767, 292 F.3d 77/(1st Cir., 06/11/2002)

The court holds that the pollution exclusion clause in an equipment repair company's insurance policy did not foreclose its insurer's obligation to indemnify the company for nonremediation property damages caused by an oil spill. An oil distributor hired the company to fix a fuel pump. The repairs led to the spillage of 3,000 gallons of fuel oil, which contaminated the distributor's property and a neighboring company's property. The distributor remediated the oil spill and sought indemnification from the company. The insurer subsequently filed an independent action seeking a declaration of no responsibility to indemnify the company. The district court held that the company could not recover response costs under its policy, but could recover nonremediation costs. The distributor and the insurer appealed. The court first holds that the oil distributor's arguments are waived because they were not raised below. The company's pollution exclusion clause is ambiguous as to its coverage of nonremediation damages and therefore must be construed against the insurer. The pollution exclusion clause applies to requests, demands, or orders that an insured or others test for, monitor, clean up, remove, contain, treat, detoxify, or in any way respond to the effects of pollutants. When a property is contaminated, two distinct types of damages frequently result: remediation damages, known as response costs, and nonremediation damages. By employing the term "respond," the company's pollution exclusion clause gave rise to an ambiguity, particularly since the preceding listing of activities in the clause pertain exclusively to remediation efforts. Further, the pollution exclusion clause specifically excludes from coverage property damage arising out of the actual discharge of pollutants, but only lists four circumstances on which the exclusion applies, none of which pertain to the oil spill at issue. Moreover, under rules of construction for insurance policies, even though the exclusion clause purports to address the discharge or pollutants, it only applies to "property damage" from the discharge of pollutants. Further, the case law cited by the insurer is irrelevant or unpersuasive.

Counsel for Plaintiff
Rachel E. Smith
Shaw Pittman
2300 N St. NW, Washington DC 20037
(202) 663-8000

Counsel for Defendant
William D. Gillis Jr.
Massery & Gillis
101 Merrimac St., Boston MA 02114
(617) 523-1125

Morris, J. Before Selya, Cyr, and O'Toole, * JJ.

* Of the District of Massachusetts, sitting by designation.