Sixth Circuit Affirms Dismissal of Coverage Case on Basis of Pollution Exclusion
This coverage case arose from an underlying case brought against the policyholder for violation of CERCLA for the policyholder’s alleged “contamination of two Superfund sites in eastern Arkansas.” The policyholder filed suit against the Pennsylvania Manufacturers' Association Insurance Company ("PMA") seeking coverage under several insurance policies allegedly issued from 1967 to 1978 and alleging that PMA acted in bad faith under Pennsylvania law for its failure to defend or indemnify it in the underlying suit. The policies from 1967 to 1972 were lost while the 1972 to 1978 policies existed and contained a pollution exclusion which contained an exception for “sudden and accidental” discharges.
The Sixth Circuit first affirmed the district court’s grant of summary judgment to PMA as to the 1967 to 1972 policies, finding that the policyholder failed to establish by clear and convincing evidence the existence and terms of the lost policies under Pennsylvania law. Relying only on a document filed with the district court by PMA which indicated the policyholder had coverage in 1967 (which PMA disputed as a typo in its filings), PMA’s computer records which indicate the 1972 policy was a "renewal" and the testimony of a former PMA employee that stated the pollution exclusion was not approved by the Pennsylvania Commissioner of Insurance until 1970, the court found the policyholder failed to meet its burden of proving the terms and conditions of the policies under Pennsylvania law.
As to the 1972 to 1978 policies, the policyholder argued that the underlying lawsuit fell within the “sudden and accidental” exception to the pollution exclusion. Agreeing with PMA that under Pennsylvania law “sudden and accidental” encompasses discharges which are both unexpected and "abrupt in time," the court affirmed the district court’s grant of summary judgment to PMA as the evidence produced by the policyholder could only be interpreted by a reasonable jury that discharges were “frequent, continuous and highly predictable.” As to the bad faith claim, the Sixth Circuit similarly affirmed the district court judgment finding that, under Pennsylvania law a bad faith claim may not be stated unless the “insurer lacked a reasonable basis for denying benefits.” Because the court affirmed the finding that the underlying lawsuit did not fall within the scope of the policies, PMA had a reasonable basis for denying benefits and did not act in bad faith.
