{ Banner Image }
Search this blog

Subscribe for updates

Recent Posts

Blog editor

Blog Contributors

Reducing Future Air Emissions Can Be Covered by an Environmental Insurance Policy

An issue that insurers and industry have grappled with is whether a company can obtain environmental insurance coverage for costs to address violations of the Clean Air Act, when the costs at issue are aimed at curbing future air emissions, rather than remediating emissions that have already occurred.  Last week, one federal judge in Louisiana answered that question in the affirmative in La Gen Louisiana Gen. LLC, et al. v. Illinois Union Ins. Co., Dkt. No. 3:10-cv-00516 (M.D. La., Aug. 5, 2015). 

Louisiana Generating, LLC (“LA Gen”) was the defendant in a lawsuit filed by EPA and the Louisiana Department of Environmental Quality under the Clean Air Act and state law which alleged that it had made major modifications to its coal-fired electric generation units without proper permits, resulting in an excess amount of regulated pollutants being emitted into the air.  The EPA lawsuit ultimately resolved by the entry of a consent decree that required LA Gen to install certain emission controls onto its generating units, surrender emission allowances, and implement environmental projects in the local area, at a cost in excess of $30 million. 

LA Gen filed a claim for insurance coverage for defense of the underlying EPA lawsuit and sought indemnification for the costs associated with implementing the terms of the consent decree.  LA Gen’s insurer rejected the claims on the basis that the pollution liability insurance policy did not provide coverage for the EPA lawsuit because LA Gen did not incur any “remediation costs” that resulted from a “pollution condition.”  The insurer argued that LA Gen’s costs were exclusively related to preventing future pollution from occurring rather than remediating the air pollution that had already occurred.  

In a prior ruling, affirmed by the Fifth Circuit, Judge James J. Brady of the United States District Court for the Middle District of Louisiana disagreed with the insurer’s position, and held that LA Gen’s insurer had a duty to defend under the policy.  Judge Brady held the term “[r]emediation costs” was “defined very broadly in the policy to include expenses incurred to redress pollution in compliance with environmental laws, including, inter alia, costs associated with investigating, mitigating, or abating pollution.”  Because the policy might provide coverage for the underlying damages claimed by the EPA lawsuit, including remediation and mitigation of the harm caused by the excess air emissions, Judge Brady held that the duty to defend (which is broader than the duty to indemnify) was triggered.  See La Gen Louisiana Gen. LLC v. Illinois Union Ins. Co., 719 F.3d 328 (5th Cir. 2013). La Gen ultimately recovered over $11 million under the policy for its attorneys’ fees, defense costs, and interest. 

This left open the question of whether there was indemnification coverage for the costs incurred in implementing the consent decree, including installing control equipment, surrendering emission allowances, and performing environmental mitigation projects. At summary judgment, the insurer again argued that all three of these measures did not constitute mitigation or abatement of air pollution, because they would prevent future emissions from occurring rather than addressing the past air emissions from LA Gen’s facilities.  The insurer argued that the terms “mitigate” and “abate” have special meaning in the environmental context, and are understood by industry as limited to CERCLA cleanups, rather than addressing violations of permitting and compliance statutes like the Clean Air Act.  The insurer also argued that installing emission control equipment to prevent future air pollution was in reality a compliance measure that was not covered by the policy. 

Judge Brady again disagreed and sided with La Gen, applying the plain meaning of the words “mitigate,” “abate,” and “remediation costs,” rather than an industry-specific meaning that the insurer had argued.  Under the plain dictionary meaning of these words, the measures La Gen was required to take under the consent decree were all covered remediation costs under the policy. Further, in part because the policy defined “pollution condition” to “include language suggestive of air pollution, such as ‘gaseous’ or ‘fumes,’”  Judge Brady held that the term “‘[r]emediation’ may imply a past wrong, but to say that it requires addressing that exact wrong here - the emissions - by removing the emissions is incorrect. These emissions have effects on the environment, and by reducing future emissions, the past emissions can be ‘remediated’ as the environment naturally eliminates the chemicals and, due to the lower emissions, there are fewer new chemicals to take their place.”

The practicality of Judge Brady’s decision seems obvious, particularly in the context of air pollution.  Unlike groundwater or soil contamination, which generally remains at or near the location where pollutants were released into the environment, air emissions disperse into the atmosphere, and therefore there is no practical way to “remediate” past air pollution in the traditional sense of digging up soil, installing a pump and treat system to capture contaminated groundwater, or dredging contaminated sediments from a waterway.  As Judge Brady recognized, in the context of the Clean Air Act, the term “remediation” must have a broader meaning, which includes preventing or reducing future emissions from occurring.