The duty to defend can be triggered where there is a lack of specificity in a complaint.
In USA Environment LP v. American Int’l Speciality Lines Ins. Co., the Southern District of Texas recently rejected an insurer’s denial of coverage to insureds that transported millions of gallons of hazardous waste materials to what was later designated a superfund site. The “potentially responsible parties” (PRPs) identified by the EPA sued hundreds of companies involved with the Suprefund site, including the insureds who filed a separate action seeking coverage. The insurer issued policies to the insureds from 2003 to 2014, and denied coverage under waste disposal site and auto exclusions.
The Court observed that the policies issued after 2011 had deleted the waste disposal site exclusion, and created an exception to the applicable pollution exclusion. The underlying complaint filed by the PRPs did not specify when the releases of pollutants occurred or the years the insureds’ services were performed, but did note the insureds transported different kinds of hazardous materials over the course of many years. The complaint further alleged the release of hazardous materials was ongoing. Accordingly, the Court held coverage was triggered because it was possible damages occurred during a policy issued after 2011.
Similarly, the Court held the allegations in the complaint were too vague to conclude all the hazardous materials were transported by the insureds in an “auto,” as defined by the policy. As a result, some of the property damage alleged may not have arisen from the use of an auto, and the Court ruled the duty to defend was triggered.
When in a four or eight corners jurisdiction, an insurer is generally beholden to the allegations in a complaint, no matter how vague. If these allegations potentially fall within coverage, under the liberal standard embraced by courts across the nation, the duty to defend is likely triggered. As with any general rule, there are exceptions and aggressive positions can be warranted. However, particularly in high value cases, an aggressive position should be weighed against the certainty of litigation and its potential result.
Thanks to Chris Soverow for his contribution to this post.