Pollution Exclusion Bars Coverage for Criminal Claims Based on Alleged Violation of Air Use Permit
September 27, 2013 |A federal district court in Michigan has ruled that an insurance policy’s pollution exclusion barred coverage for criminal charges that were based on an alleged violation of a state-issued air use permit.
The Case
Curtis Metal Finishing Company allegedly operated two zinc-phosphate plating lines at its steel treating facility with a “scrubber” that was offline, in violation of an air use permit that had been issued by the Michigan Department of Environmental Quality. Curtis received a violation notice from the Michigan Department of Natural Resources and Environment (“MDNRE”). Anticipating criminal proceedings, the company and one of its officers sought coverage from Arch Insurance Company under the Private Company Management Liability and Crime Insurance policy that Arch had issued.
Arch denied coverage, citing the policy’s pollution exclusion.
A county prosecutor initiated a criminal action against Curtis and its officer. Represented by their own defense counsel, they reached a plea agreement.
Arch filed a declaratory judgment action, and the parties moved for summary judgment.
The Court’s Decision
The court granted Arch’s motion for summary judgment.
In its decision, the court explained that the purpose of the air use permit was to prevent the release of potentially hazardous fumes from the two lines at the facility. The court noted that the criminal charges arose out of a direction or request from MDNRE, via the air use permit, to abate potentially hazardous pollutants. Accordingly, it ruled, the policy’s pollution exclusion applied to bar coverage for the criminal charges brought against the defendants.
Moreover, the court continued, it was “immaterial” whether any pollutants actually had leaked because the defendants had “clearly violated” their air use permit, which directed the defendants to abate pollutants. The policy’s pollution exclusion “expressly applie[d] to such criminal charges,” the court decided.
Therefore, it concluded, Arch had properly denied coverage for the defendants’ claims under the policy, and the insurer was entitled to summary declaratory judgment that the policy did not apply to the underlying criminal matters.
The case is Arch Ins. Co. v. Commercial Steel Treating Corp., No. 11-cv-15535 (E.D. Mich. Aug. 27, 2013).
