Environmental Insurance Claims in Georgia


Increasing awareness of the existence and danger of pollution and contamination combined with the passage of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA," also known as "Superfund") has created liability for companies and individuals who have in turn submitted these matters to their insurance carriers as "claims" under their general liability policies. Since the carriers contend that the matters are not covered under the general liability policies, litigation has ensued. The purpose of this article is to address under Georgia law three of the many issues involved in this litigation–application of the so-called "sudden and accidental pollution exclusion," the "owned property exclusion" and the "notice condition."


While some variations exist, the so-called "standard" pollution exclusion provides:

This policy does not apply to: bodily injury or property damage arising out of the discharge, dispersal, or release or escape of smoke, vapors, soot, fumes, acids , alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

To say that the words of this exclusion have been scrutinized would be an understatement. These words, in particular the last 17 words, have been the subject of dozens of court opinions, hours of review and briefing and literally millions of dollars.

A. Claussen v. Aetna Casualty & Surety Company

In Georgia, the pollution exclusion was first addressed in 1987 by Judge Edenfield in the U.S. District Court for the Southern District of Georgia in Claussen v. Aetna Casualty & Surety Company. The facts of the case are relatively simple. Henry Claussen had purchased land on Picketville Road in Jacksonville, Florida. He used a portion of the property to excavate sand for a project at the Jacksonville Airport. In the course of the excavation, Claussen created a large "borrow pit," which filled with water, creating the potential for liability. Thus, Claussen negotiated with the City of Jacksonville and the City began in 1968 hauling waste and garbage to the site to fill the pit. Although Judge Edenfield concluded that the evidence was disputed as to whether Claussen had knowledge that the City had permitted the disposal of hazardous waste at the site during the years of operation, it was undisputed that for a period of years the site was used exclusively for hazardous waste disposal.

In 1977, the City covered the landfill with dirt, planted grass and abandoned the site. In 1982, the USEPA investigated and eventually placed the site on the interim priority list of 115 worst sites in the country. The USEPA advised Claussen that he was considered a PRP at the site.

Claussen submitted the PRP letter to his insurance carriers and filed a declaratory judgment action. The carriers moved for summary judgment based on the pollution exclusion, among other grounds, arguing that the dumping of waste at the Picketville site for a period of nine years could not be deemed "sudden and accidental," so the pollution exclusion barred coverage.

In August 1987, Judge Edenfield issued an order granting the summary judgment. In his order, Judge Edenfield rejected Claussen's argument that the "sudden and accidental" exception was ambiguous, concluding that "only in the minds of hypercreative lawyers could the work 'sudden' be stripped of its essential temporal attributes." In so doing Judge Edenfield observed that he hoped an unfortunate judicial trend–the trend which concluded that "sudden" was ambiguous and was not to be given a temporal connotation–could be reversed.

Shortly after entry of the August order Claussen moved for an extension of discovery and for reconsideration of the order granting the motion for summary judgment. As Judge Edenfield explained, "Plaintiff has submitted to the Court certain documents which he hopes will move the Court to reconsider its construction of the pollution-exclusion clause."

Claussen attached to his motions unauthenticated, hearsay documents from the Insurance Rating Board from the 1970's. Claussen urged the court to conclude that based on those documents, the insurance companies were estopped from enforcing the pollution exclusion. The carriers opposed the attachment of the unauthenticated, hearsay documents, arguing that the documents were not properly in evidence and that the documents were irrelevant in the face of unambiguous contract language, so the documents should be disregarded.

In December 1987, Judge Edenfield issued a second order entering a final judgment in favor of the carriers, concluding that under Georgia law, the court was not to look beyond the language of a contract to ascertain its meaning when the language was clear and unambiguous. Judge Edenfield also commented that the documents submitted were not "as devious as they appear at first glance."

The December 1987 order was entered as a final judgment and Claussen appealed to the Eleventh Circuit Court of Appeals. The Eleventh Circuit certified this question to the Georgia Supreme Court:

Whether as a matter of law, the pollution exclusion clause contained in the comprehensive general liability insurance policy precludes coverage to its insured for liability for costs for liability for the environmental contamination caused by the discharge of pollutants at the site over an extended period of time?

To put it another way, does the insurance policy in this case require the insurance company to provide a defense and coverage to the insured for liability for the discharge of pollutants that occurred over an extended period of time?

While the case was pending at the Georgia Supreme Court, an amicus group supporting Claussen's position filed more unauthenticated, hearsay documents that had not been in the record of the trial court. Aetna moved to strike these so-called "drafting and regulatory history" documents, again arguing that the documents were not properly in evidence or in the record and that the documents were irrelevant given the unambiguous language.

In June 1989, the Georgia Supreme Court issued its 4-3 decision, concluding that the term "sudden" was capable of two connotations–"unexpected" and "abrupt"–so the connotation most favorable to the insured must be adopted. In its opinion, the Georgia Supreme Court acknowledged the presence of the "drafting and regulatory history" documents submitted by Claussen and the amicus group supporting his position. The Georgia Supreme Court commented:

Further, the interpretation of the policy advanced by Claussen is not contrary to the interpretation Aetna gave the clause when it was adopted. Documents presented by the Insurance Rating Board . . . to the Insurance Commissioner when the "pollution exclusion" was first adopted suggests that the clause was intended to exclude only intentional polluters. The Insurance Rating Board represented "the impact of the [pollution exclusion clause] on the vast majority of risks would be not [sic] change.

This issue–the impact of the "drafting and regulatory history" documents–is debated around the country. Only recently has the insurance industry begun to engage the issue directly, submitting documents to support the other side of the story. In Morton International, Inc. v. General Accident Insurance Co. of America, the New Jersey Supreme Court considered the documents tendered by both sides and concluded that the insurance industry should be estopped from enforcing the exclusion except to the extent of barring coverage for intentional polluters.

However, in Georgia's neighboring state of Florida, there was a different outcome. Initially, when the Florida Supreme Court addressed the application of the pollution exclusion for the first time in Dimmitt Chevrolet, Inc. v. Southeastern Fidelity Insurance Corporation, it concluded that the exclusion was ambiguous, so it must be construed in favor of the insured. The carrier filed a motion for the court to reconsider its 4-3 decision. The carrier argued "the other side of the story" and presented the supporting documents. In July 1993, the court took the unusual step of withdrawing its original 4-3 opinion and substituting another 4-3 opinion reaching the opposite conclusion. While the majority opinion stated that it did not reach the "history" issue because it concluded that the exclusion was unambiguous, the concurring opinion filed by the "swing vote" justice was clear:

I have now become convinced that I relied too much on what was said to be the drafting history of the pollution exclusion clause and perhaps subconsciously upon the social premise that I would rather have insurance companies cover those losses rather than parties such as Dimmitt who did not actually cause the pollution damage. In so doing, I departed from the basic rule of interpretation that language should be given its plain and ordinary meaning. Try as I will, I cannot wrench the words "sudden and accidental" to mean "gradual and accidental," which must be done in order to provide coverage in this case.

The question remains open as to what impact, if any, a presentation by the carriers of "the other side of the story" on the drafting and regulatory history argument would have on the Georgia Supreme Court and its conclusion that the exception to the exclusion is ambiguous. Presumably, the issue will eventually find its way to the court.

B. Post Claussen Interpretation Of The Pollution Exclusion

It is clear, however, that the Georgia Supreme Court's Claussen decision did not silence litigation on the pollution exclusion in Georgia. At least three U.S. District Court judges have issued orders further interpreting the application of the exclusion.

In Seaboard Industries Inc. v. Aetna, the parties stipulated that the plaintiffs had placed sludge from their oil refining process in trucks and had taken it to the Picketville site where it was emptied "onto or into the ground." Aetna moved for summary judgment on the policies which contained the pollution exclusion, arguing that the plaintiff expected and intended to discharge, disperse or release pollutants when they dumped the oil sludge into the site.

Judge Freeman looked to the Georgia Supreme Court's analysis in Claussen, wherein the Court concluded that "the pollution exclusion clause focuses on whether the 'discharge, dispersal or release' of the pollutants is unexpected and unintended," as opposed to whether the resulting property damage was unexpected and unintended. Thus, regardless of the plaintiffs' protestations that they had no intent or expectation that the discharge would cause damage, the court concluded that the exclusion barred coverage.

Likewise, Judge Forrester in Damar, Inc. v. United States Fire Insurance Company and Judge Camp in Virginia Properties, Inc. v. The Home Insurance Company each also have granted summary judgment to carriers in suits where they concluded that the undisputed evidence showed that the plaintiffs expected and intended the dumping, whether or not the plaintiffs expected or intended the resulting damage.

Thus, in the scenario outlined earlier, chances would be good that if the evidence demonstrated that Company A expected and intended that the waste was to be discharged into the site, the judge would grant a summary judgment to the carriers. No doubt, however, interpretation of the application of the "sudden and accidental" pollution exclusion under Georgia law will continue for some time.


The "owned property" exclusion in general liability policies varies, but typically is similar to:

This insurance does not apply…to property damage to (1) property owned or occupied by or rented to the insured, (2) property used by the insured, or (3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control.

Practitioners in Georgia had long speculated that this exclusion might have great significance in Georgia due to the uncommon view of ownership of land in Georgia. Georgia law provides that a property owner owns everything that is above and below his real estate. The speculation was that claims for contamination limited to the policyholder's own property, even including the groundwater below that property, would be barred by the exclusion.

In 1998, the Georgia Supreme Court ended the speculation. In Boardman Petroleum, Inc. v. Federated Mutual Insurance Company, the Georgia Supreme Court answered a certified question from the Eleventh Circuit Court of Appeals. The pertinent question was:

Does an "owned or rented" coverage exclusion in general liability policies such as the ones at issue bar coverage of all or a portion of an insured's claims for indemnification for the cost of a state-ordered contamination clean-up when that clean-up involves soil and groundwater contamination which has not yet damaged surrounding soil and/or groundwater?

The Supreme Court concluded that the plain language of the owned or rented property exclusion barred coverage for indemnification for the cost of a state ordered contamination clean-up.

The facts of Boardman are relatively simple. From 1955 to 1986 Boardman Petroleum, Inc. ("Boardman") leased and operated a retail gasoline station in Augusta, Georgia. Boardman used underground storage tank systems to store and dispense petroleum products. In 1986, the tanks were removed from the site when the station was closed. The tanks did not appear to be compromised at that time. However, in May 1988, an environmental consultant employed by the owner of the property in connection with a prospective sale, discovered the gasoline had leaked from the underground storage tanks resulting in petroleum contamination at the site. As required by Georgia law, Boardman informed the Georgia Department of Natural Resources. The DNR required Boardman to take remedial measures to remove the contamination. The contamination was limited to the service station site but did include the groundwater under the site.

Between 1977 and 1985, Boardman was insured under general liability policies issued for petroleum products distributors issued by Federated Mutual Insurance Company ("Federated"). The court described the "Petro Pack" insurance packages as covering the station for property damage and bodily injury to third parties, as well as specifically excluding coverage for underground contamination of property "owned or occupied by or rented to the insured." Boardman had also purchased first party coverage from Federated as part as a "special multi-peril" option to the Petro Pack policy.

When presented with the claim, Federated denied coverage and brought a declaratory judgment action. During the pendency of that lawsuit, the DNR certified that the necessary remedial action had been completed, that no further corrective action would be required for free product removal and that no additional groundwater monitoring was necessary at the site.

The U.S. District Court considered cross summary judgment motions on a number of issues including trigger and the owned property exclusion. The Eleventh Circuit certified both the trigger and owned property issues to the Georgia Supreme Court but the Georgia Supreme Court declined to consider the trigger issue.

The Georgia Supreme Court was influenced by the fact that Boardman had purchased first party property insurance. They noted that the policy specifically covers pollution clean-up expenses under certain circumstances. In the opinion of the Georgia Supreme Court, the first party policy covered expenses which were specifically excluded in the third party policy. As the court stated:

If the exclusion is not applied to property rented by Boardman, the exclusion is rendered totally meaningless and would eliminate the need for first party coverage altogether. And, by purchasing the optional first party insurance, Boardman's expectations were such that the third-party policy would not cover pollution clean-up costs to his own property. Otherwise, why would the policyholder elect to pay a premium for unnecessary redundant coverage?

The court rejected the only decision relied upon by the U.S. District Court, Claussen v. Aetna Casualty & Surety Company. (This decision postdates the Georgia Court's Claussen) decision). The court distinguished the Claussen decision for several reasons. First, the judge in the Claussen decision interpreted the exclusion under Florida law because the property at issue was in Florida. The Supreme Court noted that a Florida property owner does not own the groundwater beneath his property unlike a Georgia property owner. Further, the court was influenced by its understanding that the evidence was that the hazardous substances had polluted not only the groundwater under Claussen's land but also water and land surrounding Claussen's property. The fact that the trial court had determined that there was an imminent threat of offsite contamination distinguished the Claussen facts. The court noted that the evidence in the present case established neither contamination of offsite property nor imminent threat of such contamination.

Many practitioners again have speculated that this point in the Boardman decision may result in the denial of many summary judgment motions based on the owned property exclusion because of the ability to create a question of fact. Boardman attempted to create such a question of fact by arguing that it was not attempting to collect for damage to its own property, but merely was seeking indemnification for liability it incurred as a result of the clean-up. The court found that there was no evidence to establish an imminent threat of harm to third party property. Critically, the court also stated that the definition of property damage does not encompass threatened future harm. The court stated:

Thus, where there is no evidence of a reasonable present threat of harm to third-party property, coverage is barred. Any other construction is contrary to the policy language and would render the owned or rented exclusion meaningless because in almost every case the policyholder could simply contend that contamination on its own property presents a threat of future harm to off-site property.

So, as expected by many practitioners, the owned property exclusion provides a strong basis for declination of environmental claims limited to property owned, occupied or rented by the policyholder, including the groundwater below that property. What remains to be seen is further development of what constitutes sufficient evidence to create a question of fact as to whether there is involvement of property of a third party and whether there is "an immediate or imminent threat of offsite contamination."


Georgia case law is still in its infancy as to many of the issues raised in environmental coverage matters. We still await word on basic issues such as trigger and allocation. We can expect to see further development of these issues arising from application of both the pollution exclusion and the owned property exclusion.

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