Pollution Coverage in the New York Business Auto Policy

Question: We understand that pollution is not excluded under the Business Auto in NYS.  For example, if a fuel dealer is delivering fuel or has an accident, the pollution liability would not be excluded as it can be in other states. 

Many contractors have mobile equipment at job sites.  They put portable fuel tanks in the bed of pick up trucks and go to the job sites to refuel the equipment.  We are questioning pollution liability from this situation.  My first thought is that since the tanks are portable equipment, they would be covered under the CGL and not BA.  However, since the fueling operation applies to unloading of a vehicle, perhaps there could be coverage. 

We would appreciate your input.

Answer: In the ISO Business Auto Policy, CA 00 01 03 10, SECTION II – LIABILITY COVERAGE, A. Coverage, the insuring agreement states: 

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto". 

We will also pay all sums an "insured" legally must pay as a "covered pollution cost or expense" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of covered "autos". However, we will only pay for the "covered pollution cost or expense" if there is either "bodily injury" or "property damage" to which this insurance applies that is caused by the same "accident". [EMPHASIS ADDED] 

We have the right and duty to defend any "insured" against a "suit" asking for such damages or a "covered pollution cost or expense". However, we have no duty to defend any "insured" against a "suit" seeking damages for "bodily injury" or "property damage" or a "covered pollution cost or expense" to which this insurance does not apply. We may investigate and settle any claim or "suit" as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

All business auto policies issued in New York contain the equivalent of ISO endorsement CA 01 12 04 09, New York Changes in Business Auto, Business Auto Physical Damage, Motor Carrier and Truckers Coverage Forms. That endorsement changes the definition of “covered pollution cost or expense” to state: 

"Covered pollution cost or expense" means any cost or expense arising out of: 

a. Any request, demand, order or statutory or regulatory requirement; or 

b. Any claim or "suit" by or on behalf of a governmental authority demanding that the "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". 

As you pointed out, the endorsement also deletes the Pollution Exclusion from the Liability Coverage. 

To see how this applies, suppose a contractor loads a 20-gallon container of gasoline or diesel on the back of a pickup truck for delivery to a job site. While en route to the site, the driver is stung by a bee that flies in through an open window. He loses control, strikes a car that had slowed down for traffic in front of him, and a pile-up ensues. During the collision, the fuel container flies off the back of the truck and breaks when it hits the ground, spilling its contents all over the grassy median. Subsequently, the NYS Department of Environmental Conservation orders the contractor to clean up the spilled fuel and treat the contaminated ground. The Liability Coverage in the BAP should cover the cost of the clean-up and soil treatment because it is a cost arising out an order by a governmental authority and covered property damage occurred as a result of the same accident. 

Now take the same situation, but instead of striking a vehicle, the pick-up veers onto the median and overturns. The only property damaged is the insured’s own truck. In this situation, there is no coverage for the cost of cleaning up the spilled fuel and treating the soil because there was no bodily injury or property damage, covered by the Liability Coverage, caused by the same accident. The driver is probably injured and the insured’s truck has been damaged, but neither of these losses is covered by the Liability Coverage (PIP and Physical Damage are the applicable coverages for those losses.) 

To summarize, the pollution coverage under a New York BAP is tied to the simultaneous occurrence of covered bodily injury or property damage. If there’s no covered BI or PD, there’s no coverage for pollution.

Follow-Up Question: Understood that there has to be an accident to trigger the BA pollution coverage.  

So if the pick up that is hauling the portable fuel tank is in an accident and we have a spill there could be coverage, while a spill during the fueling process where no accident involved would not trigger coverage. 

However, since this is not a permanently attached tank, would that perhaps put it the arena of CGL coverage in lieu of BA?  I recall in ’86 when ISO made change that the example of a cherry picker could trigger BA or CGL depending on circumstances.

Answer: I don’t think the CGL policy will cover the loss because of the following in the exclusions:

This insurance does not apply to:… 

f. Pollution

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":…

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured or any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the "pollutants" are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

(i) "Bodily injury" or "property damage" arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of "mobile equipment" or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the "bodily injury" or "property damage" arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured, contractor or subcontractor;… [EMPHASIS ADDED] 

Therefore, coverage does not apply to injury or damage arising out of the dispersal of fuel (which certainly falls within the policy’s definition of “pollutants”) if the fuel was transported by the insured or brought to the site by the insured and the fuel was not contained within a vehicle part (i.e., fuel tank.)

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Comments

[hgstern]

Cavalcade of Risk #148: Anti-Obsolescence edition

IronMan does an outstanding job with this week's round-up of risk-related posts, and your post is in it:

http://politicalcalculations.blogspot.com/2012/01/cavalcade-of-risk-148.html

Please tell your readers.

And a friendly reminder to newbies and regulars alike that, while it's not mandatory to give a link back, it’s the way that carnivals work best. If your submitted post has been included in the Cav, please remember to post about it on your blog because it helps us all.

Thanks!

Hank Stern

[Steve - Lettings Business Owner]

Oh dear... just another attempt to cover their behinds.

[David Martin]

Should Take A strict action against pollution..!! nice article