Massachusetts Appeals Court Limits Scope of Pollution Exclusion
Although Massachusetts courts have generally given effect to absolute pollution exclusions, recent case law has developed an interesting distinction between claims for “clean up costs” and damages attributable to more traditional forms of property damage, such as diminution in the value of the plaintiff’s property due to the presence of pollutants. A new opinion of the Appeals Court has suggested that this distinction is broad enough that it may swallow the exclusion itself.
The distinction between clean up costs and “permanent” property damage,” which so far as the author is aware is unique to Massachusetts jurisprudence, dates back a decade to Utica Mutual Insurance Company v. Hall Equipment, Inc., 73 F.Supp.2d 83 (D. Mass. 1999), aff’d, sub nom, 292 F.3d 77 (1st Cir. 2002), a case in which the insured negligently repaired a pumping mechanism on the plaintiff’s property, causing a spill of fuel oil. In 1999, Judge Lasker had ruled that the absolute pollution exclusion applied to the cost of cleaning up pollution but did not eliminate coverage for permanent damage to the plaintiff’s property in the form of diminution in the fair market value of the property, loss of rental income and the like were separate and distinct from environmental response costs that were meant to be excluded.
On appeal, the First Circuit conceded that the language in Utica’s exclusion was sufficiently broad that it could reasonably be argued that these non-remediation damages nonetheless constituted a "loss, cost or expense arising out of a[ ] ... demand ... that [Hall] ... in any way respond to ... the effects of pollutants," since such non-remediation damages arose from the Weathermark lawsuit and would not have been incurred but for the oil spill. Nevertheless, the court declared that a reasonable businessman could also have interpreted this language in the manner that the District Court did and that it was, therefore, ambiguous and must be construed in favor of coverage. Further, the court found that the District Court’s interpretation was consistent with terms in the exclusion, which suggested an intention to restrict this section of the exclusion to actual clean up measures and other “response costs” and remediation damages.
This distinction between remedial and non-remedial damages was also explored in Nascimento v. Preferred Mut. Ins. Co., 513 F.3d 273 (1st Cir. 2008). However, whereas the U.S. District Court had relied on the fact that the plaintiff’s claim was solely for remedial damages, the First Circuit affirmed on the alternative basis that the leaking tank in question had been used by the insured during the period in question and was therefore “occupied” by the insured so as to fall within Section 1(a) of the exclusion.
Most recently, the Appeals Court has ruled in Clean Harbors Environmental Services, Inc. v. Boston Basement Technologies, No. 08-P-576 (Mass. App. Ct. November 9, 2009) that an exception to Section 2 of the total pollution exclusion for “liability for damages because of property damage that the insured” would have had in the absence of a governmental cleanup directive provided coverage for damage to the property of an individual where Clean Harbors was installing a waterproofing system.
In the course of the insured’s work, a heating oil line was broken, causing approximately 150 gallons of heating oil to leak into the plaintiff’s basement. Boston Basement Technologies hired Clean Harbors to clean up the work at a cost of $12,638. After Boston Basement Technologies failed to pay Clean Harbor’s bill, Clean Harbor sued Basement Technologies, which filed a third-party complaint against its liability insurer (Admiral).
Although the Superior Court granted summary judgment to Admiral, holding that the costs in question were subject to the total pollution exclusion in its liability policy, the Appeals Court ruled on November 9, 2009 that questions of fact precluded summary judgment with respect to the scope of the exclusion. The court held that even absent the DEP’s issuance of a Notice of Responsibility to Basement Technologies, the insured would still have had common law liability for the cost of cleaning up the oil spill. The court declined to accept Admiral’s proposed distinction between cleanup costs (which would be excluded) and long-term damage to the property itself, such as diminution in the value as the result of the oil spill.
The Appeals Court declared that diminution in property value resulting from an oil spill clearly fell within the exception to this exclusion for statutory cleanup costs. However, the court ruled that diminution in value is not the sole measure of damages for harm negligently caused to property. Rather, the court noted the traditional distinction between temporary damage, where the cost of repairs is the appropriate measure of damage, and permanent injury where diminution in value is the measure of damage. In cases involving common law recovery for damage caused to property by pollution, the court concluded that the cost of restoring the property may be the more appropriate measure of damages since remediation essentially results in the restoration of the property to its pre-damaged value. As such, it held that cleanup costs might form a traditional common law value of “property damage” subject to this exception.
The Appeals Court distinguished the federal court’s analysis in Hall Equipment, in which the court had distinguished between damage to the property and cleanup costs, noting that in this case, the policy lacked an exception to the exclusion for property damage for which the insured would be liable at common law and thus eliminated the “remediation v. non-remediation distinction” that the Hall Equipment court had relied on. Further, the court found that this analysis was consistent with the intent of the underwriters since an insurer was able to assess risk when considering common law liabilities in a manner that might not exist with respect to statutory claims that could far exceed the diminution in value of the contaminated property. The court concluded, therefore, that it could discern no rationale in the policy language or case precedents “for excluding common law restoration costs from coverage when their recovery is a more appropriate remedy than recovery for diminution in property value.” However, the court found that questions of fact remained with respect to the costs involved and, in particular, with respect to a potential overlap between claims for costs of restoration and diminution in value.
The Appeals Court therefore directed the court below to determine whether Admiral’s indemnification for Clean Harbors’ cleanup work would be duplicative of amounts paid to the property owner and damages for diminution in value. The court declared that coverage also depends on the portion of Clean Harbors’ services that constituted appropriate or reasonable restoration costs under principles of common law recovery whereas tasks performed solely to meet statutory requirements over and above what was necessary for common law property restoration, would not be covered.
