In Whittier Properties, Inc. v. Alaska National Insurance Co., 2008 Alas. LEXIS 84 (Ala. June 13, 2008), the Supreme Court of Alaska held: (1) that the absolute pollution exclusion (applicable to “bodily injury” and “property damage”) precludes defense and indemnity coverage for “property damage” caused by gasoline that leaked from the broken fill pipe of an underground storage tank utilized by the insured gas station; and (2) that the contamination is not otherwise covered by “personal injury” coverage defined to include injury that arises from “[t]he … wrongful entry into .. premises that a person occupies by or on behalf of its owner, landlord or lessor.”  Lexis.com subscribers may access the Whittier Properties opinion here.

The Supreme Court also rejected the insured’s other arguments in favor of coverage, including: (1) that application of the absolute pollution exclusion was contrary to its reasonable expectations; (2) that the exception to the contractual liability exclusion applied to restore coverage; (3) that the absolute pollution exclusion did not apply to the products-completed operations hazard; and (3) that an exception to the “government-required cleanup” exclusion applied to restore coverage.

This decision is noteworthy for several reasons.

First, in ruling that the absolute pollution exclusion applied, the Court sided with the “majority” and “better-reasoned approach” and held that even though the gasoline was the insured’s product, “when the gasoline escapes or reaches a location where it is no longer a useful product it is fairly considered a pollutant.” In so ruling, the Court rejected two cases -- American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996) and Hocker Oil Co. v. Barker-Phillips-Jackson, Inc., 997 S.W.2d 510 (Mo. App. 1999) -- that insureds commonly rely on in support of their contentions that the absolute pollution exclusion is ambiguous in certain limited circumstances.

Second, in rejecting the insured’s contention that the contamination was covered by “personal injury” coverage supposedly not subject to the absolute pollution exclusion, the Court specified that the “personal injury” coverage for injury that arises from “[t]he … wrongful entry into .. premises that a person occupies by or on behalf of its owner, landlord or lessor” applies only to landlord-tenant situations. Thus, because the insured was not the owner, landlord or lessor of the damaged property, the “personal injury” coverage was not invoked. The Court, thus, limited the scope of the “personal injury” coverage.

Perhaps more importantly, the Court held that “accepting [the insured’s] interpretation of Coverage B would render the pollution exclusion in Coverage A meaningless.” The Court, therefore, affirmed the position that a majority of courts have adopted across the country: that the absolute pollution exclusion unambiguously excludes coverage for environmental contamination.

Daniel E. Feinberg
Sonnenschein Nath & Rosenthal LLP