Energy companies and policyholders with significant oil or pollution-related risks that purchase “time element pollution” endorsements can easily be surprised by denials of coverage when a release occurs. Insurers frequently question how the accident occurred and when it was discovered or reported; whether the policyholder or an employee expected or intended the accident or the events that led up to it; the timing, effectiveness or thoroughness of the response; the identity of the claimants; or even seemingly irrelevant criteria, such as who conducts the cleanup, where the cleanup is situated (on governmental property versus non-governmental or private property or natural resources), or whether the cleanup involves one type of environmental “media” versus another (such as polluted land versus water, air, sediments, flora or fauna).
Insurers have raised all of these issues in claims, but the last group may be the most surprising when they are asserted. For example, where the policyholder purchases time-element pollution coverage that includes “third party clean up loss, cost or expense,” the policyholder could suddenly face esoteric questions about the meaning of “third party” and what the term is modifying. Does this phrase imply coverage for the cleanup of a “third party’s” property, or does it mean that only a cleanup performed by a third party is covered? If the former, what exactly is “third party property,” and how should damage to public property and natural resources be treated? These issues, and policyholder arguments in support of a commercially sensible reading of these coverages, are set forth below.