From High Within the Ivory Tower, the Tenth Circuit Decides That a Third-Party Liability Policy Doesn’t Cover Third-Party Environmental Liabilities

Posted on October 9, 2017 by Thomas Hnasko

In an unpublished decision in Taos Ski Valley, Inc. v. Nova Casualty Co., the Tenth Circuit decided the so-called “owned or occupied property” exclusion in a third-party comprehensive general liability (“CGL”) policy barred coverage for the third-party damage claims asserted by the New Mexico Environment Department against Taos Ski Valley (“TSV”) because the petroleum-product contamination, through the expedient efforts of TSV, was successfully confined to the boundaries of property occupied by TSV and did not impact groundwater, a third-party resource owned by the State of New Mexico.  In so doing, the Court reasoned language added to the owned or occupied property exclusion, which barred coverage for damage to the insured’s property “for any reason,” was sufficient to disclaim coverage.

The Tenth Circuit was not persuaded by the reasoning of Judge Pozner and others that, under a CGL policy, the location of the damage is immaterial; rather, it matters only that the damage caused an immediate third-party liability instead of damage only to the insured’s first-party property interests.  Moreover, the Court was not persuaded by the argument that environmental practitioners can now advise their clients to defer environmental clean-ups until property owned by the public (as a third party), i.e., the groundwater aquifer, is damaged.  The Court summarily concluded that, in such an event, the policy would foreclose coverage on another basis, because the damage to the groundwater would be expected and intended by the insured.  Certainly any environmental practitioner knows this is pure folly.  Simply instructing an environmental consultant to schedule the groundwater sampling on Thursday, as opposed to Tuesday, might well do the trick to ensure publicly-owned water resources, as opposed to just soil, suffer environmental harm and trigger coverage under the CGL policy.  More importantly, it is unfortunate the Court actually believes the New Mexico Supreme Court, as a matter of state law, would sanction a result encouraging the pollution of our resources, instead of prompt environmental clean-ups, in order to secure insurance coverage.  Claims of environmental contamination, after all, constitute damage to the public, as a third party, whether damage occurs within or outside of the boundaries of property owned or occupied by the insured.