Exception to Special Hazards Exclusion Does Not Affirmatively Create Coverage for Pollution

The U.S. District Court of Massachusetts, applying Massachusetts law, granted summary judgement in favor of an insurer and held that a Total Pollution Exclusion barred coverage.  The insured argued that the policy was ambiguous due to an exception to a Special Hazards and Fluids Limitation exclusion, and thus, the policy must be interpreted in favor of coverage.  The District Court disagreed, ruling that an exception to an exclusion does not create an affirmative duty to insure – it only limits the scope of that exclusion. 

Performance Trans., Inc. (“PTI”) sought coverage from its insurer, General Star Indemnity Company (“General Star”), for an accident involving one of PTI’s tanker trucks that overturned and spilled over 4,000 gallons of gasoline and diesel fuel into a reservoir.

The applicable policy included one endorsement that excluded coverage for certain enumerated special hazards but made an exception (and thus allowing coverage) if the events arise from (among other things) an overturned auto. Another endorsement excluded coverage for losses arising from pollution. General Star argued there was no coverage for the accident due to the policy’s Total Pollution Exclusion. 

PTI argued that the tension between the two endorsements meant that the policy was ambiguous.  PTI contended that General Star’s reading “would improperly render the Special Hazards and Fluids Limitation Endorsement superfluous.” The District Court disagreed, holding that “[i]f the Total Pollution Exclusion bars coverage for the Accident, the Special Hazards and Fluids Limitation Endorsement cannot create ambiguity.” The District Court also took a dim view of PTI’s implicit argument that the exception to the special hazards exclusion created an affirmative duty to indemnify, saying that “an exception to an exclusion does not affirmatively create coverage.” Performance Trans., Inc. v. General Star Indem. Co., Case No. 4:19-cv-40086-TSH (D. Mass. Nov. 25, 2019).