Dallas National Ins. Co. v. Sabic Americas, Inc., No. 01-08-00758-CV (Tex. App.--Houston [First Dist.] March 10, 2011) See Decision
This case is worth a look for two reasons. First, it shows that it is still possible (maybe I should say, now possible) to obtain some pollution coverage in a commercial general liability policy. Second, the court held that the term, "governmental authority" was ambiguous. Policyholder-side lawyers throughout Texas will add this to a list of cases finding ambiguous policy terms. They can be the silver bullets of coverage litigation.
Sabic was one of scores of defendants sued by cities and municipal water districts alleging that their water supply systems were contaminated by methyl tertiary butyl ether (MTBE) that the defendants had added to their petroleum products since the 1970's. The plaintiffs alleged that Sabic and others knew or should have known the unique dangers that MTBE would cause to groundwater and sought:(1) removal of contaminants from groundwater, (2) testing and monitoring of groundwater, and (3) recovery of damages, both for testing and monitoring and for damage to water wells and other property.
The insurer, Dallas National, had issued CGL policies to Sabic from 2003-2007, but refused to defend or indemnify on 3 grounds: the suit does not allege "property damage," Sabic knew of the loss well before 2003, and the pollution exclusion barred coverage. The court curtly dismissed the first two arguments (the suit explicitly alleged property damage, and the plaintiffs alleged both intent and negligence, so voiding a known-loss defense). The pollution exclusion, however, gave the court pause. The provision excluded coverage for:
any loss, cost, or expense arising out of any: (a) request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants": or
(b) claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of "pollutants."
The court accepted the insurer's premise that there would be no duty to defend if the plaintiffs were "governmental authorities." Sabic won, however, by persuading the court that the term was ambiguous. Ok. Stop here for a minute. How could the court believe that cities and municipal water districts were not "governmental authorities"? Before answering, it is important to understand two important rules of policy construction in Texas. First, the court may not consider any evidence beyond the terms of the policy and the pleading (although the insurer may have missed a step by not asking the court to take judicial notice of state statutes creating the various plaintiffs). Second, The policyholder wins by persuading the court that its interpretation of the disputed exclusion is merely reasonable, even if the insurer's interpretation is also reasonable, or even more reasonable.
Sabic argued that "governmental authority," in the context of this pollution exclusion, should be limited to a government agency that has some authority to issue and/or enforce environmental cleanup demands or orders. After noting that the term was undefined in the policy, the court distinguished several cases offered by the insurer that characterized munipalities as "governmental authorities." These cases, said the court, were not dealing with CGL interpretation issues. From there, it was a short step to finding that, all in all, Sabic's interpretation was not unreasonable, so Dallas National is flushed.
Reading between the lines, I think the insurer became overconfident. How could cities not be governmental authorities? But I doubt it would have had to look very far to find insurance cases that identify municipalities or water districts as governmental authorities, or at lease as governmental somethings. Having no insurance cases even in the ball park left the court free to make what seems to be a pretty bold distinction.
In Texas, "governmental authority" in any exclusion is now fair game for policyholders to attack as ambiguous.
David S. White, Thompson & Knight LLP
www.tklaw.com
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