(Article from Insurance Law Alert, July/August 2019)
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A Louisiana federal district court ruled that issues of fact exist as to whether a pollution exclusion bars coverage for losses stemming from an oil spill, notwithstanding state precedent holding that oil spills are recognized as “pollution” under such exclusions. Cent. Crude, Inc. v. Liberty Mut. Ins. Co., 2019 WL 3227580 (W.D. La. July 16, 2019).
Central Crude, an oil transport company, sought coverage for property damage and remediation costs stemming from an oil pipeline leak. Great American argued that a pollution exclusion in its umbrella policy barred coverage for the loss. The court acknowledged that under Louisiana law, oil spills are recognized as “pollution” for the purposes of pollution exclusions, but nonetheless declined to grant Great American’s summary judgment motion on this issue.
The court reasoned that in the context of this case, the exclusion is ambiguous or potentially invalidated based on Following Form Endorsements in the Great American policy. Those endorsements indicate that excess coverage mirrors the coverage provided under a primary policy, which expressly encompasses property damage and cleanup costs arising from the discharge or release of pollutants at any premises owned or occupied by Central Crude. The court further noted that a Premises Operations Liability Endorsement in Great American’s policy excludes liability arising out of Central Crude’s premises or operations, “unless such liability is covered by valid and collectible Underlying Insurance.”
The court acknowledged that explicit exclusions in umbrella policies are not nullified by follow form clauses, but concluded that application of Great American’s pollution exclusion raised questions of fact. The court stated:
Given Central Crude’s line of business—the transport of oil—it could yield absurd results to interpret the [premises operations liability] endorsement in a way that gave it any independent effect while simultaneously barring any coverage for oil spills under the Pollution Exclusion. In other words, such a reading would require the court to find that Central Crude purchased an umbrella policy that provided no coverage for one of the major risks of its line of business. While this may ultimately be the case, Louisiana law still permits further interpretation in light of the potential absurdity.
We will keep you apprised of further developments in this matter.