Pollution / Conrail (PA App.)

“Operations Clause” precluded coverage for contamination pre-dating Conrail’s ownership.

A Pennsylvania appeals court, applying Pennsylvania law, affirmed the lower court’s ruling that interpreted an “Operations Clause” to require insurance coverage only for environmental contamination that was caused by or grew out of the insured’s operations.  Thus, while the insured paid millions in remediation and other expenses due to contamination at sites it owned, because the contamination began prior to the insured’s ownership, the appellate court’s decision severely limited the insured’s coverage.

In 2004, Consolidated Rail Corporation (“Conrail”) file an action against 55 of its insurance carriers in an effort to obtain indemnification for at least $80 million for contamination remediation, clean-up costs, and other expenses related to toxic spills and releases at various sites including several rail yards and car shops that Conrail used to own in Indiana, Pennsylvania, and Massachusetts, as well as a site owned by another company.  At the time of the appeal, only Stonewall Insurance Company (“Stonewall”), Continental Insurance Company (“Continental”), and Lloyd Italico & L’Ancora (“Lloyd”) (collectively the “Insurers”) remained.

The appeal stemmed from the lower court’s 2013 and 2014 decisions.  In 2013, the lower court determined that the “Operations Clause” found in the Stonewall and Continental insurance general liability policies required the insurers to reimburse Conrail only for the damages arising out of an “occurrence” (i.e., environmental contamination) that was caused by or grew out of Conrail’s operations at the sites.  Per the lower court’s ruling, the policies provided coverage to Conrail only if Conrail could prove it had actually discharged some of the pollutants during the policy terms for which it had liability.  Thus, any site that had contamination prior to when Conrail took over would not be covered.  In 2014, the lower court entered summary judgment in favor of Lloyd, finding that Lloyd did not authorize Conrail’s $1 million policy, and therefore, dismissed as moot any pending motions between Conrail and Lloyd.

On appeal, Conrail argued that the insurance policies were ambiguous and could be reasonably read to provide coverage for Conrail’s liabilities for preexisting contamination, regardless of whether Conrail actively contributed to that contamination.  Conrail disagreed with the lower court’s definition of an “occurrence.”  According to Conrail, because the policy defined “occurrence” to include “continuous repeated exposure to conditions,” it should be interpreted to trigger coverage for remediation costs attributable to contamination that began before Conrail assumed ownership of the sites in question.  After a lengthy recitation of the lower court’s analysis, the appellate court found no error and conducted no further review.  “[W]here the environmental harm caused by several potentially responsible parties is not clearly divisible, joint and several liability may be imposed, and, as a result, Conrail may end up paying for contamination that was caused by others, prior to 1976.  However, just because Conrail may be found liable to pay for the clean-up of pollution that was not caused by its own operations, that does not necessarily mean its general liability insurers must reimburse it for such costs under the [p]olicies.”  Thus, the appellate court upheld the trial court’s ruling that the language in Conrail’s policies made it “clear that the insurers would reimburse Conrail only for the damages (clean-up costs) arising out of an occurrence (environmental contamination) that was caused by or grew out of Conrail’s operations.”  As a result of the ruling, Conrail had no coverage for two sites it formerly owned in Indiana and Pennsylvania, and the amount of coverage for other sites was greatly limited.

Second, Conrail argued that Continental should be held liable to indemnify Conrail for the remediation at a Pennsylvania site because the contaminated groundwater constituted damage to third-party property.  According to Conrail, under Pennsylvania law, the ground water belongs to the Commonwealth, not just to Conrail, so the contaminated groundwater was not Conrail’s “owned property” within the meaning of the “Own Property Exclusion.”  The appellate court disagreed with Conrail that Continental should indemnify and found that there was nothing in the record to indicate that groundwater pollution occurred during any of the policy years at issue in the case.

Lastly, Conrail argued that the lower court erred in granting summary judgment to Lloyd, because a genuine issue of material fact existed as to whether Mr. Joseph Ambriano, the person that allegedly signed the Lloyd policy, had authority to bind Lloyd to the terms of the Lloyd policy.  According to Conrail, Mr. Ambriano underwrote the policy through an implied principal-agent relationship.  The appellate court agreed with Conrail that there was a factual issue regarding the principal-agent relationship between Mr. Ambriano and Lloyd that must be decided by the fact-finder.  Thus, the appellate court reversed the trial court’s ruling on this claim and remanded for further proceedings.  Consolidated Rail Corp. v. Ace Property & Cas. Ins. Co., No. J-A17045-16 (Super. Ct. Pa. Feb. 26, 2018).