February 20, 2018 Practice Points

Policyholder Loses Environmental Coverage Dispute after Expert Opinion Fails the Daubert Test

This case serves as a reminder that insurance coverage litigators must not take for granted the admissibility of their experts’ opinions

by John H. Kazanjian, Edward M. Grauman, and Shengzhi Wang

A policyholder recently lost an environmental coverage lawsuit after a federal district court excluded its expert’s opinion on whether the contamination at issue fell with a commercial general liability policy’s pollution exclusion. Varlen Corp. v. Liberty Mut. Ins. Co., No. 13-cv-05463, 2017 WL 4278787 (N.D. Ill. Sept. 25, 2017). The expert opinion was excluded for failing to meet the standards under the Federal Rule of Evidence (FRE) 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).

The policyholder in Varlen operated two sites at which state governments had taken enforcement actions based on alleged contamination. It sued its insurer for coverage under several commercial general liability (CGL) policies. The CGL policies contained pollution exclusion clauses with “sudden and accidental” release exceptions. The policyholder proffered an expert geologist who opined that the releases were sudden and accidental, thereby entitling the policyholder to coverage. The policyholder’s entire case for sudden and accidental releases relied on the expert’s opinion. The insurer challenged the expert’s opinion and moved to exclude it under FRE 702 and Daubert. The insurer also moved for summary judgment under the pollution exclusion clauses in the policies.

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