Earlier this month, an appeal of an insurance dispute to New York's highest court was withdrawn by mutual stipulation. This leaves the Appellate Division's decision in Griffith Oil Co., Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 892 N.Y.S.2d 711 (4th Dept., Dec. 2009) as established New York law.
John G. Nevius, a shareholder in the insurance recovery group of Anderson Kill & Olick, P.C., represented the Petroleum Marketers Association of America and the nonprofit advocacy group United Policyholders, which filed an amicus brief in the case.
In the above holding, environmental coverage was found to exist for a petroleum distributor because the "products and completed operations" exception to standard pollution-exclusion language applied to an off-site petroleum spill from a leaking pipeline.
At issue was whether "products and completed operations" coverage, not subject to any pollution exclusion in the insurance policy issued by National Union, an AIG company, was available for damage caused by the leak. The leak occurred in a spur pipeline prior to Griffith taking actual possession at its premises of the oil it had purchased. The fact that Griffith never took possession of the oil at its premises was held not to preclude "products completed operations hazard" coverage.
More specifically, the Griffith Court held that the "completed operations" definition did not require that petroleum distributors like Griffith take physical possession of their product at their premises before off-site release of the petroleum product is covered. That is, the words "still in your physical possession" do not imply that a product must first be located at the policyholder's premises. The rejected implied condition is at odds, not only with the reasonable expectations of policyholders like Griffith, but with the fundamental purpose of the liability insurance that distributors like Griffith purchase.
Also, as argued on appeal by Amicus, United Policyholders, the implied restrictive condition upon coverage is inconsistent with how most energy is distributed today. Energy providers routinely trade resources and may never, in fact, take actual possession at their premises of petroleum or other forms of energy. This promotes efficient distribution, lowering consumer costs, and, presumably is known by insurance underwriters. It is up to these same underwriters and their insurance companies to clearly state restrictions or conditions upon coverage.
The Griffith Court ruled that under New York law, even where a pollution exclusion may seem to apply, in this case at least "the exception to that exclusion [for products and completed operations] applies because the [petroleum] damage occurred away from premises owned by [petroleum-distributing] plaintiffs and was caused by [their] product during the storage or transportation of fuel." The Court further found that "The phrase 'still in your physical possession' does not require that the product have been sent into the stream of commerce from plaintiffs' facility." Insurance companies often seek to use pollution exclusions broadly to deny coverage.
This case shows that pollution and other types of coverage exclusions may not always apply. In fact, policyholders should be afforded coverage where exclusionary language is unclear or where valid exceptions exist. This case also shows that policyholders should think twice and obtain experienced coverage advice before simply accepting policy-language interpretations that purport to forfeit coverage.
Griffith Oil was represented by Knauf Shaw LLP of Rochester. National Union was represented by Goldberg Segalla LLP of Albany and Law Offices of Beth Zaro Green of Brooklyn. Anderson Kill & Olick, P.C. represented Amicus, United Policyholders in both appeals. Wiley Rein LLP of Washington, D.C. and Chamberlain D'Amanda Oppenheimer & Greenfield LLP of Rochester represented Amicus, the Complex Insurance Claims Litigation Association.
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