Insurance Claims: Key Issues
from the Policyholder’s Perspective
Gita F. Rothschild
“EIL” refers to environmental impairment liability; “RCRA,” to the Resource
Conservation and Recovery Act; and “SIR,” to self-insured retentions.
1. By now, two decades after the first claims were asserted, the existence of cov-
erage for environmental cleanup responsibility under standard general liabil-
ity insurance policies is well established. Moreover, extensive nationwide lit-
igation over the interpretation and application of operative policy terms (e.g.,
“occurrence”; “damages”; “suit”; “sudden and accidental”; and the like), has
defined the general bounds of available coverage in most jurisdictions.
2. Initially, these issues were thought to be the key to resolving environmental
coverage disputes; once they were decided, litigants would be able to value
cases realistically and relatively quickly. History has demonstrated, however,
Gita F. Rothschild is a partner in McCarter & English, LLP, Newark, New Jersey. She is a frequent
lecturer and writer on insurance and toxic tort litigation topics. She served on the editorial board
of The New Jersey Lawyer from 1996-1999 and was a faculty member of the Defense Trial Academy
(1996). The views expressed in this outline do not necessarily reflect the views of McCarter &
English, LLP or any of its clients.
A complete set of the course materials from which this outline was drawn may be purchased
from ALI-ABA. Call 1-800-CLE-NEWS and ask for Customer Service. Have the order number of
the course materials—SFA3—handy.
6 ALI-ABA Business Law Course Materials Journal February 2002
that judicial rulings have not resulted in fewer cases being filed or less pro-
tracted litigation. Instead, either because the opinions inevitably fail to answer
all of the questions, or because the insurers have devised new defenses in
their continuing effort to avoid their contractual obligations and delay pay-
ment, there continues to exist a long list of largely unresolved issues present-
ing new impediments to the quick and efficient settlement of environmental
insurance claims. Some of the more hotly contested issues are dealt with in
summary fashion, and in no particular order, below.
B. Choice of Law
1. The threshold, and often most important question in these cases, is often not
easily answered: Which state’s law applies?
a. Most environmental insurance cases implicate the interests of different
i. The place where the contract was “made”;
ii. The place or places where the parties reside; and
iii. The location of the sites being remediated and for which coverage is
b. The case law in these states may, of course, differ on key points. For exam-
ple, unlike most jurisdictions, New York bars coverage if notice is “late,”
without regard to whether the insurer has been prejudiced. See, e.g., Ameri-
can Home Assurance Comp. v. Int’l Ins. Co., 684 N.E.2d 14 (N.Y. 1997); Vraden-
burg v. Prudential Prop. & Cas. Ins. Co., 622 N.Y.S.2d 623 (N.Y. App. Div.
1995); Reynolds Metal Co. v. Aetna Cas. & Sur. Co., 696 N.Y.S.2d 563 (N.Y.
App. Div. 1999). California has ruled that defense and indemnity pay-
ments made in response to an administrative order or governmental pro-
ceeding are not insured “damages.” Certain Underwriters at Lloyd’s of Lon-
don v. Superior Court Los Angeles County, 16 P. 3d 94 (Cal. 2001). Choice of
law can therefore be critical.
i. To date, few jurisdictions have specifically decided choice of law for
environmental coverage. Some courts have recognized the applicability of
lex loci contractus, the law of the place of contracting, to these insurance
contracts. See, e.g., Briggs & Stratton Corp. v. Royal Globe Ins. Co., 64 F.
Supp.2d 1340 (M.D. Ga. 1999) (holding that Georgia adheres to the lex loci
Environmental Insurance 7
contractus in matters involving insurance contracts, but under Georgia’s
choice of law rules, application of another jurisdiction’s is limited to stat-
utes and common law construing those statutes).
ii. Other courts have held that the law of the site applies to all issues. See,
e.g., Reichhold Chemicals, Inc. v. Hartford Acc. and Indem. Co., et. al., 703 A.2d
1132 (Conn. 1997).
iii. Other courts have taken an issue-by-issue approach involving some
combination of the two. See, e.g., Pfizer Inc. v. Employers Ins. Of Wausau, 712
A.2d 634 (N.J. 1998); HM Holdings, Inc. v. Aetna Cas. & Sur. Co., 712 A.2d
645 (N.J. 1998); Unisys Corp. v. Insurance Co. of N. Amer., 712 A.2d 649 (N.J.
c. Consequently, when the forum state has made no definitive ruling on the
issue, and there are significant differences in the potentially applicable law,
the first fight—and therefore the first obstacle to settlement—is over what
C. “Expected and Intended”
1. Virtually every liability policy at issue in environmental coverage litigation
defines the insured “occurrence” in substantially similar terms: an accident or
repeated exposure to conditions resulting in property damage during the pol-
icy period “neither expected nor intended” by the insured.
a. Some jurisdictions have refused to enforce the “sudden and accidental”
pollution exclusion literally based on:
i. Ambiguity, see, e.g., American States Ins. Co. v. Kiger, 662 N.E.2d 945
ii. Regulatory estoppel, Morton Int’l v. General Acc. Ins. Co., 629 A.2d 831
(N.J. 1993) cert. denied, 512 U.S. 1245 (1994); see also, Essex Chemical Corp. v.
Hartford Acc. and Ind. Co., No. 00-1839, Slip Op. (3d Cir., March 7, 2001),
(holding that regulatory estoppel bars enforcement of the exclusion even
against insurers who weren’t in existence at the time regulatory approval
of the provision was sought); Sunbeam Corp. v. Liberty Mutual Ins. Co., 753
A.2d 1265 (Pa. 2000); or
8 ALI-ABA Business Law Course Materials Journal February 2002
iii. Other grounds, see, e.g., Vermont American Corp. v. American Employers
Ins. Co., No. 330-6-95 (Vt. Super. 1997) (holding that the exclusion was not
applied because pollution exclusions were not filed with or approved by
the Vermont Insurance Commissioner).
b. These jurisdictions have interpreted the coverage afforded by policies con-
taining the exclusion as co-extensive with the coverage provided under
the “occurrence” definition, that is, for unexpected and unintended injury.
c. Accordingly, the insurers assert in virtually every case—no matter wheth-
er the policy contains a pollution exclusion—that the damage for which
coverage is sought was expected and intended by the policy holder.
2. Two important questions attend to that defense.
a. The first question concerns burden of proof. If the issue is raised only in
the context of a non-literal application of the pollution exclusion, the mat-
ter is relatively simple: the insurer has the burden of proving that the envi-
ronmental harm was expected and intended. The burden of proving the
application of an exclusion is almost universally placed on the insurer. See,
e.g., Carter-Wallace v. Admiral Ins. Co., et. al., 712 A.2d 1116, 1125 (N.J. 1998).
When the condition is articulated only in the policy’s insuring provisions
(i.e., as part of the “occurrence” definition), however, courts that have
ruled on burden of proof—and not many have—are split. Compare Queen
City Farms v. Central Nat’l Ins. Co. of Omaha, et. al., 882 P.2d 703, 716 (1994)
(holding that the burden of proof should be on the insured to establish that
subjective injury or damage was neither expected nor intended) to Hoechst
Celanese Corp. v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania,
1994 WL 721786, at *2 (Del. Super. Ct. April 22, 1994) (ruling that “although
jurisdictions differ on the issue of whether the burden of proof should fall
on the insured when this seeming “exclusion” is listed in a coverage pro-
vision, this court is in agreement with the courts which have held that the
burden of proof is with the insurer.”) Although uncertainty regarding bur-
den of proof alone probably does not hinder settlement, when coupled
with a lack of judicial standards for application of the condition, viability
of the expected and intended defense in the specific case can be a signifi-
cant source of disagreement. For instance, many courts have not decided:
i. Whether, to bar coverage, the insurer must prove that the property
damage was expected and intended, see, e.g., James Graham Brown Found. v.