IN THIS GROUNDWATER POLLUTION CASE, THE POLLUTION EXCLUSION IN THE INSURERS’ POLICIES APPLIED AND THE INSURERS ARE NOT OBLIGATED TO DEFEND AND INDEMNIFY THE INSURED OIL COMPANY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the pollution exclusion in the plaintiffs’ insurance policies applied and plaintiffs were not required to defend and indemnify the defendant, which allegedly caused a gasoline additive (MTBE) to pollute groundwater. The fact that the additive was a legal substance required by the EPA did not matter:

… [I]t is clear that even if MTBE was not a pollutant in the context of its use as a gasoline additive, it was a pollutant in the context of its release into groundwater … . * * *

Qualified pollution exclusions are characterized by an exception for pollution where the discharge or release of the pollutant is “sudden and accidental” … . The terms “sudden” and “accidental” each “have separate meanings, [both] of which must be established for the exception to nullify the pollution coverage exclusion” … .. “[T]he meaning of sudden in the pollution exclusion exception” has a “temporal quality” (id. [emphasis omitted]), which is only met where the discharge occurs “abruptly or within a short timespan, of a significant quantity of the pollutant sufficient to have some potentially damaging environmental effect” … .

Here, with respect to the plaintiffs’ … policies that contained qualified pollution exclusions, the defendant failed to meet its burden to “demonstrate a reasonable interpretation of the underlying complaint[s] potentially bringing the claims within the sudden and accidental discharge exception to exclusion of pollution coverage, or to show that extrinsic evidence exists that the discharge was in fact sudden and accidental” … . In other words, the type of pollution alleged, which occurred undetected over many years, was not sudden within the meaning of the applicable law … . St. Paul Fire & Mar. Ins. Co. v Getty Props. Corp., 2024 NY Slip Op 03510, Second Dept 6-26-24

Practice Point: A “pollution exclusion” in an insurance policy applies where, as here, the pollution occurs over years, as opposed to occurring suddenly and unexpectedly.

Practice Point: A substance can be legal and approved for use in gasoline by the EPA but constitute a “pollutant” when found in groundwater.