Even as briefing has begun before the Massachusetts Supreme Judicial Court with respect to the issue of allocation, Vermont has joined the growing number of Northeastern states adopting a “time on the risk” approach in long-tail cases.

In its first comprehensive assay into the murky world of environmental jurisprudence, the Vermont Supreme Court has ruled in Towns v. Northern Security Ins. Co., 2008 VT 98 (Vt. August 1, 2008), that (1) a continuous trigger is appropriate, not “manifestation;” (2) the own property exclusion does not apply to groundwater contamination; (3) even de minimis levels of environmental contamination constitute “property damage;” and (4) a waste hauler’s use of debris from his business to redevelop his personal home is not subject to the “business pursuits” exclusion in a homeowner’s policy.

This dispute arose out of dumping activity by Richard Towns between 1972 and 1987. Towns operated a waste hauling business. Over time, he culled some of the debris from his business and used it to fill in a steep embankment at his house. Some of the debris was also used to fill in a swimming hole in front of the property. Towns sold his home in 1987. Thereafter, the new owners, concerned about the fill, contacted the Vermont Attorney General’s Office which ultimately issued an order to Towns directing him to engage an environmental consultant and clean up the property.

Towns initially sought coverage for the state’s claim from Vermont Mutual, which had insured him after he sold the property in 1987. Ultimately, the Vermont Supreme Court affirmed a lower court’s ruling that the Vermont Mutual policy did not cover the loss. Towns v. Northern Security Ins. Co., 726 A.2d 65, 67 (Vt. 1999).

Thereafter, Towns sued Northern Security, which had insured him between 1983 and 1987.  Northern Security disputed its claimed obligations, citing the “business pursuits” exclusion in its homeowners’ policy and contending that the loss in question had “manifested” after its policies had expired.  These arguments were for the most part rejected by a state trial court although the court declared that Northern Security was only liable for its “time on the risk” (25%) as its coverage had only been in effect for four of the sixteen years that Towns had lived there. 

On appeal, the Vermont Supreme Court agreed with the trial court that the “business pursuits” exclusion did not apply.  Although the debris had been generated in the course of the insured’s business, the court held that what was relevant was the dumping activity, which is subject to the non-business exception to the exclusion.  This point was contested by Chief Justice Greiber, who argued in a dissenting opinion that the sheer amount and duration of the fill activity was clearly integral to the insured’s waste hauling business.

The Supreme Court also rejected Northern Security’s reliance on the “own property” exclusion.  In keeping with the approach followed by most courts, the court held that groundwater contamination was a public resource and not the insured’s “own property.” The court also rejected Northern Security’s argument that because the groundwater contamination was below state action levels, it did not satisfy the policy’s requirement of “property damage.”