Origins of Pollution Insurance

Unlike other fields of insurance, which can be traced back hundreds of years, Pollution Insurance is a relatively new class. In fact we need only go back to the 1960s and 1970s at which time America’s growing concern for the environment led to passage of a number of federal and state laws regarding liability for environmental cleanups. The best known and of significance is the Comprehensive Environmental Response Compensation and Liability Act of 1980—the “Superfund” act, named after the trust fund it set up to pay for cleaning some of the nation’s most polluted sites. Many of these laws imposed liability for cleanup on polluters. Polluters sought protection under their general liability policies.

Insurers wanted pollution to be excluded. The standard policy’s original pollution exclusion, dating to 1973, was intended to make clear that the general liability policy was not intended to cover pollution that the insured party intended or expected to produce—like a factory spewing air pollutants up a smokestack. It also tried to clarify that the only pollution covered was “sudden and accidental.”

Over time, court decisions frequently interpreted the word “sudden” to mean unanticipated or unforeseen, exposing the insurance industry to losses it never intended to cover. Insurers tightened their policy wording, excluding almost all pollution losses in 1986, then adjusted wording gradually for the next decade.

Today the standard general liability policy excludes most pollution losses.  It is replaced by a separate environmental liability coverage.