Exclusions Effecting Coverage In An Insurance Policy

Irving insurance lawyers should be able discuss with clients how exclusions in an insurance policy effect coverage. A 1994, Fort Worth Court of Appeals case is worth knowing about on this issue. The style of the case is, Union Pacific Resources Co. v. Aetna Casualty & Surety Co. Here is relevant information from that case.
Over a three year period Union Pacific (UP) disposed of potentially polluting waste in an industrial landfill. Even though dumping of such waste was legal and an accepted form of disposal at the time the EPA subsequently sued UP and others to recover clean up costs at the landfill site. UP entered into a partial consent degree agreeing to participate in limiting pollution hazards at the landfill. UP alleged that it had received third-party claims regarding the landfill and anticipated further claims.
Aetna denied coverage on the basis that the depositing of the waste in the landfill violated the various policies’ pollution exclusion clauses. Some of the policies contained a “sudden and accidental” exclusion which excluded liability for property damage arising out of the discharge, disbursal, release, or escape of waste materials or other irritants, contaminants, or pollutants into or upon the land, the atmosphere, or any water, course, or body of water.
However, such clauses also provided that the exclusion did not apply if such discharge, disbursal, release, or escape is sudden and accidental. Other policies contained a “sudden, unintended, and unexpected” exclusion which excluded liability for property damage directly or indirectly caused by seepage, pollution, or contamination. These clauses provided that the exclusion did not apply to liability for proper damage where the seepage, pollution, or contamination is caused by a sudden unintended and unexpected happening.
UP brought suit against Aetna for declaratory judgment. Aetna filed for summary judgment that no coverage was afforded UP since UP intentionally dumped the waste in question at the landfill and as the dumping was intentional, there was no accident. UP argued that the occasion that gave rise to the pollution claims was not the disposal of the waste, but the actual migration or seepage of the waste from the landfill.
The trial Judge rejected UP’s argument and ruled in favor of Aetna.
This Fort Worth Court of Appeals reversed the Judge and ruled that the definition of occurrence in the policies and the language in each of the pollution exclusion clauses demonstrated that it is the consequence of the event itself which must neither be expected nor intended in order for there to be coverage. According to the Court, UP’s deposit of pollutants into the landfill is not the triggering event in determining whether or not the pollution exclusions apply. Instead, the subsequent escape of pollutants from the disposal site is the relevant issue for purposes of determining coverage in such cases.
This Court further ruled that the trial Judge had abused its discretion in not permitting discovery permitting the interpretation of the pollution exclusions in the policies. The trial Judge should have permitted discovery to determine the intent of the parties from drafting history, regulatory history, and actions of the Texas Department of Insurance, as well as other circumstances surrounding the origination of the policy. In so holding, this Court noted that the interpretation of pollution exclusions for purposes of insurance coverage is “a novel one in Texas”. While recognizing that conflicting views of coverage and disputes regarding the coverage is not sufficient to create an ambiguity, this Court ruled that discovery is necessary to determine the meaning that would be attached to the language by a reasonably intelligent person acquainted with all the operative usages from the standpoint of the insured.