On May 30, the U.S Court of Appeals for the First Circuit held that an insured’s broad allegations of pollution over a course of decades are enough to trigger a liability insurer’s duty to defend environmental contamination lawsuits. Barrett Paving Materials, Inc. v. Continental Insurance Company, et al., Nos. 06-1951 and 06-2017, 2007 WL 1545781 (1st Cir. May 30, 2007).
The dispute arose when the City of Bangor, Maine, brought a lawsuit against Citizens Communications Company, a local gas plant operator, seeking damages for pollutants allegedly discharged by Citizens into the nearby Penobscot River since 1851. Citizens, in turn, launched a lawsuit against its neighboring industrial facilities operators, including Barrett Paving Materials, Inc., seeking contribution and indemnification on the City’s claims. The allegations against Barrett in Citizens’ complaint were rather broad, stating only that on one or more occasions since Barrett acquired the facility in 1979, poly-aromatic hydrocarbons were released from Barrett’s facility into the Penobscot River.
Barrett’s insurer, Continental Insurance Company, denied coverage to Barrett for Citizens’ lawsuit under a duty-to-defend liability policy. Citing an exclusion for all pollution-related liability except when the “discharge, dispersal, release or escape is sudden and accidental,” and in reliance on Barrett’s own stipulation that it was unaware of any “sudden or accidental” discharges into the Penobscot River, Continental contended that the generalized facts alleged in Citizens’ complaint were inadequate to establish “sudden and accidental” discharges from the Barrett facility, and that the lawsuit did not fall under the scope of coverage. In response, Barrett filed an action for a declaration of coverage against Continental in the U.S. District Court of Maine, which granted summary judgment in Barrett’s favor.
The First Circuit upheld the district court’s ruling. The appellate court’s analysis focused on the fact that Citizens’ complaint “did not specify how the pollutants may have been released from the facility into the soil or the sewers, i.e., suddenly or accidentally, or through routine operations.” The court further found that “[m]oreover, the underlying allegations are not entirely inconsistent with a sudden and accidental discharge.” As for Barrett’s stipulation that no “sudden or accidental” discharge occurred, the court found such evidence irrelevant, stating that in determining the existence of a duty to defend, “Maine law is very clear that the inquiry is based exclusively on the facts as alleged rather than on the facts as they actually are.” Since Citizens’ allegations brought the underlying lawsuit within the potential of coverage under the policy, the First Circuit held that Continental’s duty to defend was triggered.