A lert
INSURANCE COVERAGE
MAY 2000
Groundbreaking Ruling By The Washington Supreme Court
Finds Coverage Under Property Policies For Environmental
Claims
In the first appellate decision of its type, the
Washington Supreme Court on May 4 ruled
decisively in favor of Kirkpatrick & Lockhart LLP’s
client, Alcoa, Inc., finding coverage for
environmental cleanup costs under property policies
on a “joint and several” basis. The groundbreaking
ruling will assist other policyholders seeking
insurance coverage for latent damage claims under
property insurance policies, which often lack
exclusions found in liability insurance policies.
BACKGROUND
Like many other policyholders, Alcoa brought suit
against numerous insurers seeking to recover
environmental cleanup costs at numerous sites
throughout the country. Alcoa sought coverage
under both liability insurance policies and property
insurance policies. Pennsylvania law applied to the
parties’ disputes.
Alcoa reached settlement with its liability insurers
whose policies lacked a “pollution exclusion.”
Relying on pro-insurer Pennsylvania law, the trial
court subsequently dismissed Alcoa’s claims against
the liability insurers whose policies contained a
pollution exclusion.
Nonetheless, because Alcoa included its property
insurance program in its suit – and the property
policies did not contain pollution exclusions –
Alcoa proceeded to trial on three “test sites” against
the property insurers. The jury largely found in
Alcoa’s favor; nonetheless, on post-trial motions, the
trial court reduced Alcoa’s recovery substantially.
Specifically, the trial court “pro-rated” Alcoa’s claims
over each year of damage, including the many years
in which Alcoa did not have available property
insurance. In addition, the trial court ruled that
Alcoa’s suit was untimely with respect to most of the
property policies based on a “suit limitation”
provision found in such policies.
PRINCIPAL RULINGS OF THE
WASHINGTON SUPREME COURT
The principal rulings of the Washington Supreme
Court favor Alcoa. First, the Supreme Court opinion
makes clear that “all risk” property insurance policies
do cover environmental property damage claims,
including claims arising out of cleanup of
groundwater not owned by the policyholder.
Second, the Washington Supreme Court ruled that a
suit limitation clause appearing in an important policy
issued from the Commonwealth of Massachusetts
was invalid due to a Massachusetts statute
invalidating such provisions. (Certain other states
have similar statutes.) Third, and most importantly,
the Washington Supreme Court rejected the
proration approach, noting that Alcoa’s policies (like
many other property policies) contain broad
language with no reference to proration of a
policyholder’s recovery. For that reason, the court
adopted the J.H. France approach, which allows the
policyholder to “pick and choose” the policy year or
years in which to slot its claim and which precludes
the targeted insurers from reducing their obligation
based on “uninsured” time periods.
CONSEQUENCES FOR OTHER POLICYHOLDERS
Prior to the Washington Supreme Court’s decision,
no appellate court had addressed policyholder claims
for coverage of environmental claims, at least with
Kirkpatrick & Lockhart LLP
processes. The fact that a policyholder may be
uninsured for some or most of the time when
progressive damage takes place is not likely to
reduce the insurance recovery under the
reasoning of the Alcoa decision. The logic of the
Court’s ruling applies not only to environmental
claims but also to other gradual latent damage
claims.
respect to the “allocation” and “groundwater” issues
described above. The significant consequences for
policyholders include the following:
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The Supreme Court’s ruling confirms that all risk
property policies do cover environmental cleanup
claims. This is significant because property
policies prior to the mid-1980’s typically lack
“pollution exclusions.” In contract, most liability
policies in effect after 1970 contain some type of
pollution exclusion. Even if a policyholder (like
Alcoa) is confronted with unfavorable law on the
pollution exclusion or has settled its
environmental claims against liability insurers,
untapped property insurance policies may provide
a substantial source of recovery.
The Supreme Court’s ruling endorses the propolicyholder position regarding allocation of
claims arising out of progressive damage
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The Supreme Court’s ruling opens up possibilities
for avoiding what otherwise may appear to be
insurmountable insurer defenses based on suit
limitation provisions in property policies.
If you wish additional information concerning the
Alcoa decision or Kirkpatrick & Lockhart LLP’s
insurance coverage practice, please contact one of
our attorneys or any of the office contacts listed
below.
The Insurance Coverage practice group at Kirkpatrick & Lockhart Nicholson Graham LLP
offers an international policyholder-oriented practice on behalf of Fortune 500 and numerous
other policyholder clients. Its lawyers have authored Policyholder’s Guide to the Law of
Insurance Coverage and edited the Journal of Insurance Coverage. For further information,
please consult our website at www.klng.com.
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should
not be used or relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.
© 2000 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.