Unreliable Expert Testimony Not Admissible to Prove “Sudden and Accidental” Discharge – Summary Judgment for Insurer

An Illinois federal court, applying Illinois law, granted summary judgment in favor of an insurer finding that a pollution exclusion applied to bar coverage for groundwater contamination claims.  The insured sought to prove through expert testimony that the discharges that resulted in the contamination were “sudden and accidental,” but the court held that the expert’s opinions were inadmissible because there was no proof that the opinions were the result of a reliable methodology.

Varlen Corp. (“Varlen”) allegedly caused groundwater contamination at sites in Illinois and California. Operations at the sites included refueling trains and using chlorinates solvents to refurbish them and chrome plating “tanks” or “baths.”  The Illinois Environmental Protection Agency threatened Varlen with an enforcement action for alleged contamination in 2006.  Varlen claims it took several remedial steps as a result, including installing a recovery system and remediating the soil and groundwater.  The California Department of Toxic Substances Control (“CDTSC”) began enforcement proceedings against Varlen in 1999 and ordered it to take corrective action.  The CDTSC eventually sued Varlen in 2007, which resulted in a $5.1 million consent decree.

Varlen sued Liberty Mutual Insurance Co. (“Liberty Mutual”) seeking a coverage determination under general liability insurance policies Liberty Mutual issued to Varlen.  The Liberty Mutual policies contained a pollution exclusion.  However, per the policies, the pollution exclusion “does not apply if such discharge dispersal, release or escape is sudden and accidental.”  Varlen moved for summary judgment arguing that its expert’s testimony demonstrated that an exception to the pollution exclusion applied.  Liberty Mutual filed a summary judgment motion based on the policies’ pollution exclusion and a motion to exclude the testimony of Varlen’s expert.

Varlen submitted its expert report which stated that Varlen’s alleged groundwater contamination was “sudden and accidental.”  The court held that, while the expert’s report satisfied the requirements of Federal Rule of Civil Procedure 26(a)(2), Varlen had not shown that the opinions were reliable enough to be admissible.  Federal Rule of Evidence 702 allows opinion testimony by an expert “who is qualified … by knowledge, skill, experience, training, or education” to testify.  According to the court, Rule 702 requires the court to ask the following questions before admitting expert testimony: (1) “is the expert … qualified by knowledge, skill, experience, training, or education”; (2) “does the proposed expert testimony … assist the trier of fact in determining a relevant fact at issue in the case”; (3) is “the expert’s testimony … based on sufficient facts or data and reliable principles and methods”; and (4) “has the expert reliably applied the principles and methods to the facts of the case.”  The court held that the expert testimony was inadmissible because, even though Varlen’s expert established the proper basis for his opinions, he did not demonstrate that they resulted from a reliable methodology.  Thus, because Varlen relied exclusively on the expert’s testimony to create a fact issue on whether the discharges at the sites were sudden and accidental, Varlen did not satisfy its burden in proving that an exception to the pollution exclusion applied.  The court granted Liberty Mutual’s motion for summary judgment. Varlen Corp. v. Liberty Mutual Ins. Co., Case No. 13-cv-05463 (N.D.  Ill. Sept. 25, 2017).