Terrorism and the Pollution Exclusion

The Pollution Exclusion

Prior to 1970, insurance policies rarely included an exclusion for pollution-related harm. Mitchell L. Lathrop, What Is the Pollution Exclusion?, 2 Toxic Torts Prac. Guide ' 32:8 (2011). The industry had not yet formulated a standard form for this exclusion, as pollution had simply not been a major issue. Id. As claims based on toxic torts began to increase, the industry recognized that a pollution exclusion was needed. Id. In 1970, the Insurance Services Office (“ISO”) released what came to be known as the “1970-form” or “sudden and accidental” pollution exclusion. Id. This exclusion was widely adopted by the insurance industry, and read as follows:

This Policy Shall Not Apply: To bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

The “sudden and accidental” pollution exclusion was often challenged in court, as increased environmental legislation in the 1970s and 1980s raised the stakes and made the application of the pollution exclusion a vital legal issue. Id. The most frequently debated element of the exclusion was the definition of the word “sudden.” Id. While the majority of states concluded that “sudden” denoted a temporal element requiring an abrupt, time-limited discharge, others ruled that “sudden” was an ambiguous term that could mean “unexpected” in this context. Id.

The effect of the frequent litigation over the “1970-form” pollution exclusion caused the insurance industry to adopt another version of the exclusion ' one that it hoped would be viewed as unambiguous by courts. Id. This exclusion, which came to be known as the absolute pollution exclusion, was adopted in the early 1980s and made its way into most liability policies by the middle of that decade. Id. The full text of the most common iteration of the exclusion reads as follows:

Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. However, this subparagraph does not apply to:

(i) “Bodily injury” if sustained within a building and caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the building's occupants
or their guests;

(ii) “Bodily injury” or “property damage” for which you may be held liable, if you are a contractor and the owner or lessee of such premises, site or location has been added to your policy as an additional insured with respect to your ongoing operations performed for that additional insured at that premises, site or location and such premises, site or location is not and never was owned or occupied by, or rented or loaned to, any insured, other than that additional insured; or

(iii) “Bodily injury” or “property damage” arising out of heat, smoke or fumes from a
“hostile fire”;

(b) At or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for:

(i) Any insured; or

(ii) Any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the “pollutants” are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

(i) “Bodily injury” or “property damage” arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of “mobile equipment” or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the “bodily injury” or “property damage” arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured,
contractor or subcontractor;

(ii) “Bodily injury” or “property damage” sustained within a building and caused by the release of gases, fumes or vapors from materials brought into that building in connection with operations being performed by you or on your behalf by a contractor or subcontractor; or

(iii) “Bodily injury” or “property damage” arising out of heat, smoke or fumes from a “hostile fire”;

(e) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”.

(2) Any loss, cost or expense arising out of any:

(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”; or

(b) Claim or “suit” by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, “pollutants”.

This paragraph, however, does not apply to liability for damages because of “property damage” that the insured would have in the absence of a request, demand, order or statutory or regulatory requirement, or a claim or “suit” by or on behalf of a governmental authority.

The standard policy defines “Pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” Variants of the absolute pollution exclusion exist.

Despite the intention that the exclusion be ironclad and ensure that all forms of pollution be excluded from coverage, there are a variety of ambiguities concerning the exclusion that have been litigated. Id. Some of the more important issues raised in litigation include the breadth of the terms “pollutant” and “irritant,” whether the exclusion only applies to traditional cases of environmental pollution, and how to treat an intervening cause of injury such as a lack of safety equipment. Id.

The Pollution Exclusion and Terrorism

The interplay between the pollution exclusion and exposure to contaminants caused by acts of terrorism may arise in varying contexts from bio-terrorism and other sorts of malicious pollution to the destruction of massive office towers or other structures made up of materials that may be considered pollution when pulverized and disbursed through the air. The destruction of the World Trade Center Towers and the following personal injury litigation unfortunately provide a concrete example.

The Sept. 11 attacks left a smoking pile of rubble and a cloud of toxic air in lower Manhattan, and the city of New York was left with the massive task of cleaning up the destruction. Soon after the collapse of the Towers, cleanup crews arrived on the scene to begin what was one of the largest construction cleanup projects in U.S. history.

In order to protect itself and the various contractors employed to handle the cleanup, the city arranged for an owner-controlled insurance program, which included general liability coverages for bodily injuries sustained during the cleanup efforts. Larry Schiffer and Suman Chakraborty, Exploring Latest Developments in the U.S. and What They Hold for the UK and European Markets, C5 11th Annual Reinsurance Claims Conference (April 24-25, 2008). The program was relatively modest (a self-funded primary layer of $2 million per occurrence with a $4 million aggregate, and two excess layers of $50 million and $25 million, for a total of $77 million of limits), such that the city was overwhelmed when hundreds of claims were made by rescue and cleanup workers. Id. These claims alleged, among other things, that the plaintiffs had been injured by the toxic air hanging over the site, and that the city and the contractors had failed to properly protect these individuals by not providing necessary equipment, supervision and training. Id.

In late-2004, using federal funds, the city capitalized a new insurance company, the World Trade Center Captive Insurance Company (“WTC Captive”). Id. Meanwhile, more claims of respiratory injuries poured in, until they numbered in the many thousands. Id. In the interest of convenience and expediency, the lawsuits were consolidated for pre-trial discovery before one federal judge in the Southern District of New York. See The World Trade Center Disaster Site Litigation, 21 MC 100 (S.D.N.Y. AKH).

After defending the respiratory claims cases for more than two years, the WTC Captive brought a declaratory judgment action seeking to hold the primary carrier and the excess insurers responsible for the defense of these cases, and seeking reimbursement of the substantial legal fees paid to date. WTC Captive Ins. Co. v. Liberty Mut. Fire Ins. Co., No. 07 Civ.1209 (S.D.N.Y.) (Hellerstein, J.). After the primary insurer settled with the WTC Captive, the excess insurers were left as the remaining defendants. In 2008, the court granted partial summary judgment to the WTC Captive on the excess insurers' duty to defend, and directed the parties to determine the amount due from the excess insurers to the WTC Captive for defense costs. WTC Captive Ins. Co., Inc. v. Liberty Mut. Fire Ins. Co., 549 F. Supp. 2d 555 (S.D.N.Y. 2008).

The WTC Captive had argued that the excess insurers had a duty to defend because the allegations in the respiratory claims could conceivably trigger coverage under the excess policies. The excess insurers had cross-moved for summary judgment, arguing, among other things, that the pollution exclusion in the excess policies eliminated the duty to defend or indemnify the city or its contractors for the respiratory claims. The district court sided with the WTC Captive, concluding that the excess insurers did not satisfy their heavy burden of establishing that all claims related to the respiratory claims were within the scope of the exclusion. The court never ruled on whether the pollution exclusion applied, as it only dealt with the duty to defend and did not reach the question of whether the excess insurers would be required ultimately to pay the respiratory claims. The issue was rendered moot by a settlement between the excess insurers and the WTC Captive before an appeals court could rule. Thus, the question of whether personal injuries allegedly caused by exposure to contaminants disbursed because of a terrorist attack are excluded from coverage by the pollution exclusion in insurance policies remains unsettled.

Reasons Why 'Terrorism Pollution' Is Not Excluded

Exclusion Only Applies to Traditional Environmental Pollution Cases

For the pollution exclusion to properly exclude a terrorism-related pollution claim, the insurer must demonstrate that all of the allegations of a complaint fall entirely within the exclusion, and are subject to no other interpretation. State of N.Y. v. Blank, 27 F.3d 783, 790 (2d Cir. 1994). The New York Court of Appeals has elaborated on this heavy burden:

To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision. Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 91 N.Y.2d 169, 175, 667 N.Y.S.2d 982, 984-985 (1997); see also, City of Englewood v. Commercial Union Assurance Cos., 940 P.2d 948 (Colo. App. 1996).

In the context of “terrorism pollution,” satisfying this burden might prove difficult, simply because the exclusion was not written with terror-related pollution in mind. As such, it can be argued that the exclusion may be reasonably interpreted in a way that removes this sort of pollution from the protections of the exclusion. Under this line of reasoning, the standard pollution exclusion applies only to typical cases of environmental pollution involving the failure to abate or contain pollution, which were clearly contemplated when the exclusions were drafted. Conversely, terror-related pollution cases tend to revolve around improper cleanup techniques and are brought by those tasked with the cleanup, and therefore might be seen by courts as being focused around theories of workplace safety obligations rather than any sort of pollution rules.

This purpose-oriented analysis has been recognized in a number of jurisdictions, with New York in particular having substantial case law on the issue. The Second Circuit has found “that it is appropriate to construe that standard pollution exclusion clause in light of its general purpose, which is to exclude coverage for environmental pollution.” Stoney Run Co. v. Prudential LMI Commercial Insurance Co., 47 F.3d 34, 37 (2d Cir. 1995). The New York Court of Appeals has similarly held that the standard pollution exclusion only applies in the context of damage or injury caused by the disposal or containment of hazardous waste. Belt Painting Corp. v. TIG Ins. Co., 100 N.Y. 2d 377, 387, 763 N.Y.S.2d 790, 795 (2003); see also, Sphere Drake Ins. Co. v. Y.L. Realty Co., 990 F. Supp. 240, 243 (S.D.N.Y. 1997) (rejected the application of the pollution exclusion in the lead poisoning context, reasoning that the clauses refer “only to industrial and environmental pollution”); Kent Farms, Inc. v. Zurich Ins. Co., 998 P.2d 292 (Wash. 2000); Richardson v. Nationwide Mut. Ins. Co., 826 A.2d 310 (D.C. 2003), opinion vacated on reh'g, 832 A.2d 752 (D.C. 2003) and opinion vacated, 844 A.2d 344 (D.C. 2004) (holding the pollution exclusion is limited to factual situations involving environmental cleanups of hazardous waste sites and industrial facilities); MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 3 Cal. Rptr. 3d 228, 73 P.3d 1205 (2003), as modified on denial of reh'g, (Sept. 17, 2003) (the absolute pollution exclusion is limited to injuries arising from events commonly thought of as environmental pollution). A recent decision in the Seventh Circuit stated that even if pollutants are the source of damages, the exclusion will not apply if the method of dispersal is not one that would be characterized as an incident of environmental pollution. Scottsdale Indem. Co. v. Vill. of Crestwood, 11-2385, 2012 WL 769730 at *2 (7th Cir. Mar. 12, 2012). The court provided as an example a hypothetical where a tanker filled with a contaminant crashed on the highway, and other vehicles were damaged due to the spillage. Although the contaminant technically caused the damage, the court pointed out that it would be absurd to consider such an event an incident of pollution, noting “[t]hat the occurrence happens to be precipitated by a contaminant is incidental.” Id. at *5.

The distinction may be important in the context of terror-related pollution, because these cases may address the allegedly negligent failure of the insured to protect cleanup workers or third parties against contact with hazardous materials. This appears to be a factual distinction that may differentiate these cases from standard cases of environmental pollution, thereby rendering the pollution exclusion
inapplicable. In those instances, it may be argued that the injuries stem from the negligent actions of the insured, and the fact that the occurrence happens to be precipitated by a contaminant is incidental. A few courts that have made this “environmental pollution” distinction have used it to conclude that workplace safety claims are not covered by the standard pollution exclusion. See, e.g., Schumann v. State, 160 Misc.2d 802, 806, 610 N.Y.S.2d 987, 989-90 (Ct. Cl. 1994) (exclusion does not apply where “injury arises not from pollution to the atmosphere but from obliging others to work with inadequate protection in an atmosphere known to be polluted”); Calvert Ins. Co. v. S&L Realty Corp., 926 F. Supp. 44, 47 (S.D.N.Y. 1996) (exclusion does not apply where action is “based not only on an alleged pollutant, but on various allegedly negligent acts and omissions of the insured”); Nat'l Union Fire Ins. Co. v. Am. Re-Ins. Co., 351 F. Supp. 2d 201, 209 (S.D.N.Y. 2005) (applying Ohio law) (ruling that the pollution exclusion did not apply to employees exposed to metalworking fluids, reasoning that a court would be remiss to simply look at the bare words of the exclusion “and apply it to situations that do not remotely resemble traditional
environmental contamination”).

Exclusion Does Not Explicitly Include Some of the Materials Associated with Pollution

Another argument is that an insurer cannot meet the heavy burden required for the pollution exclusion to eliminate the duty to defend if the exclusion does not include all of the substances to which the victims claim to have been exposed. Westview Assocs. v. Guar. Nat'l Ins. Co., 95 N.Y.2d 334, 340, 717 N.Y.S.2d 75, 78 (2000) (“When the exclusionary clause does not include the particular loss that the insurance company alleges, then the insured is entitled to be defended and possibly indemnified”). Pollution exclusions use words such as “pollutant” and “contaminant,” and the definitions of these words tend not to be broad enough to cover every possible material that could potentially cause injury. As such, it could be argued that any materials not clearly enumerated by the policy should not be excluded from coverage by the standard pollution exclusion.

For example, the exclusion in the WTC Captive case defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, conditioned, or reclaimed.” The WTC Captive argued on appeal that many of the underlying complaints alleged injuries arising from materials that were not included in that definition, such as lead, fiberglass, and pulverized concrete, such that the pollution exclusion did not apply to those claims. Brief of Appellee at 39, WTC Captive Ins. Co., Inc. v. Liberty Mut. Fire Ins. Co. (No. 08-2787-cv), 2008 WL 8583750 (C.A.2). There is some precedent supporting this contention, notably in the area of lead poisoning. See, e.g., Westview, 95 N.Y.2d at 340, 717 N.Y.S.2d at 78 (“The insurer has not established that lead paint, in “clear and unmistakable language,” is included in the pollution exclusion clause”); Calvert, 926 F. Supp. at 46-47 (finding that because the definition of pollutant made no reference to glue or cement, the pollution exclusion did not apply); In re Hub Recycling, 106 Bankr. 372, 376 (D. N.J. 1989) ([s]ome, if not most, of the materials were not inherently dangerous in the sense of an irritant or contaminant and thus not subject to the policy's exclusion).

Reasons Why 'Terrorism Pollution' Is Excluded

Exclusions Are Unambiguous and Absolute

The standard pollution exclusion is intended to be absolute, and many courts have found that it is broad, clear and unambiguous. See, e.g., Budofsky v. Hartford Ins. Co., 147 Misc. 2d 691, 695 (N.Y. Sup. Ct. 1990); Alcolac Inc. v. Ca. Union Ins. Co., 716 F. Supp. 1546, 1549 (D. Md. 1989); W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990); W. Am. Ins. Co. v. Band & Desenberg, 925 F. Supp. 758, 761 (M.D. Fla. 1996), aff'd, 138 F.3d 1428 (11th Cir. 1998). Rather than delve into the origins of the exclusion, it is necessary to look simply at the plain and ordinary meaning of the exclusion so as to conform to the reasonable expectations of the parties. There is nothing in the plain meaning of the exclusion that limits it solely to cases of environmental pollution, and the exclusion would therefore be applicable in the terrorism-related pollution context.

The standard pollution exclusion broadly excludes from coverage all injuries “arising out of” pollution. This is a straightforward and unambiguous term that would put terror-related pollution directly under the purview of the exclusion. As long as there is a causal link between the injury and the risk to which the policy refers, the exclusion would apply. Maroney v. N.Y. Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 472 (2005); Aetna Cas. & Sur. Co. v Liberty Mut. Ins. Co., 91 A.D.2d 317, 320-321 (4th Dep't 1983) (The words “arising out of” have “broader significance than the words 'caused by', and are ordinarily understood to mean originating from, incident to, or having connection with the use of the vehicle.” (6B Appleman, Insurance Law & Practice [rev. ed.], ' 4317; see, also, 12 Couch, Cyclopedia of Insurance Law [2d ed.], ' 45:61)). That requirement is likely to be satisfied in cases of terrorism-related pollution. Although the injuries may be alleged to have been caused by a lack of proper safety equipment or other workplace safety concerns, none of the workplace safety issues or injuries would exist but for the polluted environment. As such, it can be argued that in most terrorism-related pollution cases, the injury will “arise out” of the polluted environment, and the pollution exclusion should therefore apply.

Materials Fall Under Definition of 'Pollutant' or 'Contaminant'

As stated above, the pollution exclusion uses terms such as “pollutant” and “contaminant,” and defines pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, conditioned, or reclaimed.” Pollutant and contaminant are broad terms, and materials need not be specifically enumerated in the exclusion to be included under their umbrella. In fact, courts have found various materials not listed in the standard pollution exclusion to be covered by the exclusion. See, e.g., Gotham Ins. Co. v. GLNX, Inc., 92 Civ. 6415, 1993 U.S. Dist. LEXIS 10891, at *7-8 (S.D.N.Y. Aug. 6, 1993) (benzene); Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517 (Tx. 1995) (toxic cloud over city); Mt. Hawley Ins. Co. v. Wright Materials, Inc., No. 3-03-CV-2729-BD, 2005 U.S. Dist. LEXIS 25315 (N.D. Tx. Oct. 27, 2005) (construction workers exposed to cement dust, ready-mix concrete and silica dust); Guilford Indus. v. Liberty Mut. Ins. Co., 688 F. Supp. 792 (D. Me. 1988), aff'd, 879 F.2d 853 (1st Cir. 1989) (oil); Am. Heritage Realty Partnership v. La Voy, 209 A.D.2d 749 (N.Y. App. Div. 3d Dep't 1994) (asbestos); Henry Modell & Co. v. Gen. Ins. Co. of Trieste & Venice, 193 A.D.2d 412 (N.Y. App. Div. 1st Dep't 1993) (dust, dirt and debris from construction project).

There are a number of anecdotal elements that suggest that the particulates resulting from the collapse of a building are captured in the definition of the word “pollutant.” For example, in the WTC Captive case, the courts used some form or variation of the words “pollutant” and “contaminant” when describing the conditions that the victims were exposed to. See, e.g., In re World Trade Center Disaster Site Litig., 456 F. Supp. 2d at 523 (“Thousands of workers ' risked their lives from shifting debris, fires, smoke, and acrid and polluted air. '”); McNally v. Port Auth. of NY and NJ, 414 F.3d 352, 358-59 (2d Cir. 2005) (stating that respiratory plaintiffs' were exposed to “toxins and other contaminants”). The courts' inability to describe the situation without using those terms shows that these particulates can adequately be described as pollutants under the plain meaning of the term.

Additionally, various federal, state and local environmental agencies were called upon to monitor the effects of these materials on the atmosphere. This suggests that these materials were clearly considered potential environmental pollutants by the relevant authorities. More importantly for the purposes of this article, the presence of environmental agencies serves as support for the notion that a reasonable person would consider the materials produced by terrorism-related pollution to be environmental pollutants, and therefore would assume that they are included in the standard pollution exclusion.

Future of the Issue

In some respects, the impact of this issue has been mitigated by events that occurred in the aftermath of Sept. 11. The insurance industry reacted to the disaster on two distinct fronts, working on new contract language to avoid coverage in the future while lobbying the U.S. government to shoulder some of the burden associated with insuring injury and damage caused by terrorist acts. Jeff Woodward, The ISO Terrorism Exclusions: Background and Analysis, IRMI (February 2002), www.irmi.com/expert/articles/2002/woodward02.aspx. In late-2001, the ISO drafted its first version of a “terrorism exclusion,” designed to exclude injury or damage caused directly or indirectly by terrorism. Id. By February 2002, 45 states, plus the District of Columbia, Puerto Rico and Guam, had approved the terrorism exclusion. Id.

While the industry worked on implementing terrorism exclusions in new policies and policies to be renewed, Congress was holding hearings on the feasibility and desirability of a federal backstop program under which the federal government would provide coverage for damage related to terrorism. Richard Allyn, The Fall and Rise of Terrorism Insurance Coverage Since September 11, 2001, 29 Wm. Mitchell L. Rev. 821 (2002-2003). In November 2002, President Bush signed the Terrorism Risk Insurance Act (“TRIA”) into law. Id. TRIA nullified all existing terrorism exclusions, and required all property and casualty insurers to offer their customers terrorism insurance. Id. If a terrorist act causes damage in excess of $5 million, TRIA is triggered. Id. After the insurer pays a deductible, the insurer is only responsible for 10% of the remaining loss, while the government pays the rest. Id. The program has a yearly cap of $100 billion. Id. TRIA also makes a federal cause of action the exclusive remedy for any claim arising out of an act of terrorism, with a single district court assigned jurisdiction over all actions. Id. TRIA was intended to be a temporary measure, put in place to give the insurance industry time to formulate a plan of action for dealing with insurance events such as the World Trade Center attacks. Id. It has been extended twice since it was set to expire in December 2005, and is currently extended until Dec. 31, 2014. Erin Killian, Congress Votes to Extend Terrorism Insurance Program, Washington Business Journal (Dec. 19, 2007), www.bizjournals.com/washington/stories/2007/12/17/daily22.html.

These developments make it unlikely that the legal questions surrounding the interplay of terrorism and the pollution exclusion will be much of an issue going forward. Nevertheless, not all of the cases brought in the aftermath of Sept. 11 have settled, and it is possible that a court may have to reach this issue at some point. It remains to be seen whether the exclusion will be interpreted narrowly or broadly to encompass pollution caused by terrorist acts.

A version of this article was presented at Perrin Conferences' “Emerging Risks on Dual Frontiers: Perspectives on Potential Liabilities in the New Decade,” on April 12, 2012 in London.

The unfortunate events of Sept. 11, 2001 gave rise to myriad insurance and tort litigations of all types and descriptions. Included was one of the largest series of mass tort cases in U.S. history arising from the cleanup after Sept. 11. While recently settled in major part, remnants and offshoots of those cases remain pending before the federal courts in New York.

One of the many insurance issues that were born of that disaster concerned the interplay between the absolute pollution exclusion, which is contained in many of the commercial general liability and excess insurance policies issued to defendants in the underlying personal injury actions, and the disbursement of contaminants into the air caused by the destruction of two massive buildings. On the one hand, defendants sought to have their commercial insurance policies defend and, if necessary, indemnify them for the personal injury claims brought by rescue, recovery and cleanup workers. On the other hand, insurers with policies containing the pollution exclusion often disclaimed or reserved rights based on that exclusion and other policy provisions.

This article considers whether alleged personal injuries based on exposure to contaminants disbursed because of a terrorist attack are excluded from coverage by the pollution exclusion commonly found in most insurance policies. The article first looks at pollution exclusions generally, and then addresses how a pollution exclusion might relate to personal injury actions arising from acts of terrorism. The article presents both sides of this issue, providing support for and against the proposition that the pollution exclusion precludes coverage for personal injury claims arising from terrorism-related pollution.

The Pollution Exclusion

Prior to 1970, insurance policies rarely included an exclusion for pollution-related harm. Mitchell L. Lathrop, What Is the Pollution Exclusion?, 2 Toxic Torts Prac. Guide ' 32:8 (2011). The industry had not yet formulated a standard form for this exclusion, as pollution had simply not been a major issue. Id. As claims based on toxic torts began to increase, the industry recognized that a pollution exclusion was needed. Id. In 1970, the Insurance Services Office (“ISO”) released what came to be known as the “1970-form” or “sudden and accidental” pollution exclusion. Id. This exclusion was widely adopted by the insurance industry, and read as follows:

This Policy Shall Not Apply: To bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

The “sudden and accidental” pollution exclusion was often challenged in court, as increased environmental legislation in the 1970s and 1980s raised the stakes and made the application of the pollution exclusion a vital legal issue. Id. The most frequently debated element of the exclusion was the definition of the word “sudden.” Id. While the majority of states concluded that “sudden” denoted a temporal element requiring an abrupt, time-limited discharge, others ruled that “sudden” was an ambiguous term that could mean “unexpected” in this context. Id.

The effect of the frequent litigation over the “1970-form” pollution exclusion caused the insurance industry to adopt another version of the exclusion ' one that it hoped would be viewed as unambiguous by courts. Id. This exclusion, which came to be known as the absolute pollution exclusion, was adopted in the early 1980s and made its way into most liability policies by the middle of that decade. Id. The full text of the most common iteration of the exclusion reads as follows:

Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. However, this subparagraph does not apply to:

(i) “Bodily injury” if sustained within a building and caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the building's occupants
or their guests;

(ii) “Bodily injury” or “property damage” for which you may be held liable, if you are a contractor and the owner or lessee of such premises, site or location has been added to your policy as an additional insured with respect to your ongoing operations performed for that additional insured at that premises, site or location and such premises, site or location is not and never was owned or occupied by, or rented or loaned to, any insured, other than that additional insured; or

(iii) “Bodily injury” or “property damage” arising out of heat, smoke or fumes from a
“hostile fire”;

(b) At or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for:

(i) Any insured; or

(ii) Any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the “pollutants” are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

(i) “Bodily injury” or “property damage” arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of “mobile equipment” or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the “bodily injury” or “property damage” arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured,
contractor or subcontractor;

(ii) “Bodily injury” or “property damage” sustained within a building and caused by the release of gases, fumes or vapors from materials brought into that building in connection with operations being performed by you or on your behalf by a contractor or subcontractor; or

(iii) “Bodily injury” or “property damage” arising out of heat, smoke or fumes from a “hostile fire”;

(e) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”.

(2) Any loss, cost or expense arising out of any:

(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”; or

(b) Claim or “suit” by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, “pollutants”.

This paragraph, however, does not apply to liability for damages because of “property damage” that the insured would have in the absence of a request, demand, order or statutory or regulatory requirement, or a claim or “suit” by or on behalf of a governmental authority.

The standard policy defines “Pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” Variants of the absolute pollution exclusion exist.

Despite the intention that the exclusion be ironclad and ensure that all forms of pollution be excluded from coverage, there are a variety of ambiguities concerning the exclusion that have been litigated. Id. Some of the more important issues raised in litigation include the breadth of the terms “pollutant” and “irritant,” whether the exclusion only applies to traditional cases of environmental pollution, and how to treat an intervening cause of injury such as a lack of safety equipment. Id.

The Pollution Exclusion and Terrorism

The interplay between the pollution exclusion and exposure to contaminants caused by acts of terrorism may arise in varying contexts from bio-terrorism and other sorts of malicious pollution to the destruction of massive office towers or other structures made up of materials that may be considered pollution when pulverized and disbursed through the air. The destruction of the World Trade Center Towers and the following personal injury litigation unfortunately provide a concrete example.

The Sept. 11 attacks left a smoking pile of rubble and a cloud of toxic air in lower Manhattan, and the city of New York was left with the massive task of cleaning up the destruction. Soon after the collapse of the Towers, cleanup crews arrived on the scene to begin what was one of the largest construction cleanup projects in U.S. history.

In order to protect itself and the various contractors employed to handle the cleanup, the city arranged for an owner-controlled insurance program, which included general liability coverages for bodily injuries sustained during the cleanup efforts. Larry Schiffer and Suman Chakraborty, Exploring Latest Developments in the U.S. and What They Hold for the UK and European Markets, C5 11th Annual Reinsurance Claims Conference (April 24-25, 2008). The program was relatively modest (a self-funded primary layer of $2 million per occurrence with a $4 million aggregate, and two excess layers of $50 million and $25 million, for a total of $77 million of limits), such that the city was overwhelmed when hundreds of claims were made by rescue and cleanup workers. Id. These claims alleged, among other things, that the plaintiffs had been injured by the toxic air hanging over the site, and that the city and the contractors had failed to properly protect these individuals by not providing necessary equipment, supervision and training. Id.

In late-2004, using federal funds, the city capitalized a new insurance company, the World Trade Center Captive Insurance Company (“WTC Captive”). Id. Meanwhile, more claims of respiratory injuries poured in, until they numbered in the many thousands. Id. In the interest of convenience and expediency, the lawsuits were consolidated for pre-trial discovery before one federal judge in the Southern District of New York. See The World Trade Center Disaster Site Litigation, 21 MC 100 (S.D.N.Y. AKH).

After defending the respiratory claims cases for more than two years, the WTC Captive brought a declaratory judgment action seeking to hold the primary carrier and the excess insurers responsible for the defense of these cases, and seeking reimbursement of the substantial legal fees paid to date. WTC Captive Ins. Co. v. Liberty Mut. Fire Ins. Co., No. 07 Civ.1209 (S.D.N.Y.) (Hellerstein, J.). After the primary insurer settled with the WTC Captive, the excess insurers were left as the remaining defendants. In 2008, the court granted partial summary judgment to the WTC Captive on the excess insurers' duty to defend, and directed the parties to determine the amount due from the excess insurers to the WTC Captive for defense costs. WTC Captive Ins. Co., Inc. v. Liberty Mut. Fire Ins. Co. , 549 F. Supp. 2d 555 (S.D.N.Y. 2008).

The WTC Captive had argued that the excess insurers had a duty to defend because the allegations in the respiratory claims could conceivably trigger coverage under the excess policies. The excess insurers had cross-moved for summary judgment, arguing, among other things, that the pollution exclusion in the excess policies eliminated the duty to defend or indemnify the city or its contractors for the respiratory claims. The district court sided with the WTC Captive, concluding that the excess insurers did not satisfy their heavy burden of establishing that all claims related to the respiratory claims were within the scope of the exclusion. The court never ruled on whether the pollution exclusion applied, as it only dealt with the duty to defend and did not reach the question of whether the excess insurers would be required ultimately to pay the respiratory claims. The issue was rendered moot by a settlement between the excess insurers and the WTC Captive before an appeals court could rule. Thus, the question of whether personal injuries allegedly caused by exposure to contaminants disbursed because of a terrorist attack are excluded from coverage by the pollution exclusion in insurance policies remains unsettled.

Reasons Why 'Terrorism Pollution' Is Not Excluded

Exclusion Only Applies to Traditional Environmental Pollution Cases

For the pollution exclusion to properly exclude a terrorism-related pollution claim, the insurer must demonstrate that all of the allegations of a complaint fall entirely within the exclusion, and are subject to no other interpretation. State of N.Y. v. Blank , 27 F.3d 783, 790 (2d Cir. 1994). The New York Court of Appeals has elaborated on this heavy burden:

To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision. Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co. , 91 N.Y.2d 169, 175, 667 N.Y.S.2d 982, 984-985 (1997); see also, City of Englewood v. Commercial Union Assurance Cos. , 940 P.2d 948 (Colo. App. 1996).

In the context of “terrorism pollution,” satisfying this burden might prove difficult, simply because the exclusion was not written with terror-related pollution in mind. As such, it can be argued that the exclusion may be reasonably interpreted in a way that removes this sort of pollution from the protections of the exclusion. Under this line of reasoning, the standard pollution exclusion applies only to typical cases of environmental pollution involving the failure to abate or contain pollution, which were clearly contemplated when the exclusions were drafted. Conversely, terror-related pollution cases tend to revolve around improper cleanup techniques and are brought by those tasked with the cleanup, and therefore might be seen by courts as being focused around theories of workplace safety obligations rather than any sort of pollution rules.

This purpose-oriented analysis has been recognized in a number of jurisdictions, with New York in particular having substantial case law on the issue. The Second Circuit has found “that it is appropriate to construe that standard pollution exclusion clause in light of its general purpose, which is to exclude coverage for environmental pollution.” Stoney Run Co. v. Prudential LMI Commercial Insurance Co. , 47 F.3d 34, 37 (2d Cir. 1995). The New York Court of Appeals has similarly held that the standard pollution exclusion only applies in the context of damage or injury caused by the disposal or containment of hazardous waste. Belt Painting Corp. v. TIG Ins. Co. , 100 N.Y. 2d 377, 387, 763 N.Y.S.2d 790, 795 (2003); see also, Sphere Drake Ins. Co. v. Y.L. Realty Co. , 990 F. Supp. 240, 243 (S.D.N.Y. 1997) (rejected the application of the pollution exclusion in the lead poisoning context, reasoning that the clauses refer “only to industrial and environmental pollution”); Kent Farms, Inc. v. Zurich Ins. Co. , 998 P.2d 292 (Wash. 2000); Richardson v. Nationwide Mut. Ins. Co. , 826 A.2d 310 (D.C. 2003), opinion vacated on reh'g , 832 A.2d 752 (D.C. 2003) and opinion vacated , 844 A.2d 344 (D.C. 2004) (holding the pollution exclusion is limited to factual situations involving environmental cleanups of hazardous waste sites and industrial facilities); MacKinnon v. Truck Ins. Exch. , 31 Cal. 4th 635, 3 Cal. Rptr. 3d 228, 73 P.3d 1205 (2003), as modified on denial of reh'g , (Sept. 17, 2003) (the absolute pollution exclusion is limited to injuries arising from events commonly thought of as environmental pollution). A recent decision in the Seventh Circuit stated that even if pollutants are the source of damages, the exclusion will not apply if the method of dispersal is not one that would be characterized as an incident of environmental pollution. Scottsdale Indem. Co. v. Vill. of Crestwood, 11-2385, 2012 WL 769730 at *2 (7th Cir. Mar. 12, 2012). The court provided as an example a hypothetical where a tanker filled with a contaminant crashed on the highway, and other vehicles were damaged due to the spillage. Although the contaminant technically caused the damage, the court pointed out that it would be absurd to consider such an event an incident of pollution, noting “[t]hat the occurrence happens to be precipitated by a contaminant is incidental.” Id. at *5.

The distinction may be important in the context of terror-related pollution, because these cases may address the allegedly negligent failure of the insured to protect cleanup workers or third parties against contact with hazardous materials. This appears to be a factual distinction that may differentiate these cases from standard cases of environmental pollution, thereby rendering the pollution exclusion
inapplicable. In those instances, it may be argued that the injuries stem from the negligent actions of the insured, and the fact that the occurrence happens to be precipitated by a contaminant is incidental. A few courts that have made this “environmental pollution” distinction have used it to conclude that workplace safety claims are not covered by the standard pollution exclusion. See, e.g., Schumann v. State , 160 Misc.2d 802, 806, 610 N.Y.S.2d 987, 989-90 (Ct. Cl. 1994) (exclusion does not apply where “injury arises not from pollution to the atmosphere but from obliging others to work with inadequate protection in an atmosphere known to be polluted”); Calvert Ins. Co. v. S&L Realty Corp., 926 F. Supp. 44, 47 (S.D.N.Y. 1996) (exclusion does not apply where action is “based not only on an alleged pollutant, but on various allegedly negligent acts and omissions of the insured”); Nat'l Union Fire Ins. Co. v. Am. Re-Ins. Co. , 351 F. Supp. 2d 201, 209 (S.D.N.Y. 2005) (applying Ohio law) (ruling that the pollution exclusion did not apply to employees exposed to metalworking fluids, reasoning that a court would be remiss to simply look at the bare words of the exclusion “and apply it to situations that do not remotely resemble traditional
environmental contamination”).

Exclusion Does Not Explicitly Include Some of the Materials Associated with Pollution

Another argument is that an insurer cannot meet the heavy burden required for the pollution exclusion to eliminate the duty to defend if the exclusion does not include all of the substances to which the victims claim to have been exposed. Westview Assocs. v. Guar. Nat'l Ins. Co. , 95 N.Y.2d 334, 340, 717 N.Y.S.2d 75, 78 (2000) (“When the exclusionary clause does not include the particular loss that the insurance company alleges, then the insured is entitled to be defended and possibly indemnified”). Pollution exclusions use words such as “pollutant” and “contaminant,” and the definitions of these words tend not to be broad enough to cover every possible material that could potentially cause injury. As such, it could be argued that any materials not clearly enumerated by the policy should not be excluded from coverage by the standard pollution exclusion.

For example, the exclusion in the WTC Captive case defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, conditioned, or reclaimed.” The WTC Captive argued on appeal that many of the underlying complaints alleged injuries arising from materials that were not included in that definition, such as lead, fiberglass, and pulverized concrete, such that the pollution exclusion did not apply to those claims. Brief of Appellee at 39, WTC Captive Ins. Co., Inc. v. Liberty Mut. Fire Ins. Co. (No. 08-2787-cv), 2008 WL 8583750 (C.A.2). There is some precedent supporting this contention, notably in the area of lead poisoning. See, e.g., Westview, 95 N.Y.2d at 340, 717 N.Y.S.2d at 78 (“The insurer has not established that lead paint, in “clear and unmistakable language,” is included in the pollution exclusion clause”); Calvert, 926 F. Supp. at 46-47 (finding that because the definition of pollutant made no reference to glue or cement, the pollution exclusion did not apply); In re Hub Recycling, 106 Bankr. 372, 376 (D. N.J. 1989) ([s]ome, if not most, of the materials were not inherently dangerous in the sense of an irritant or contaminant and thus not subject to the policy's exclusion).

Reasons Why 'Terrorism Pollution' Is Excluded

Exclusions Are Unambiguous and Absolute

The standard pollution exclusion is intended to be absolute, and many courts have found that it is broad, clear and unambiguous. See, e.g., Budofsky v. Hartford Ins. Co. , 147 Misc. 2d 691, 695 (N.Y. Sup. Ct. 1990); Alcolac Inc. v. Ca. Union Ins. Co. , 716 F. Supp. 1546, 1549 (D. Md. 1989); W. World Ins. Co. v. Stack Oil, Inc. , 922 F.2d 118, 121 (2d Cir. 1990); W. Am. Ins. Co. v. Band & Desenberg , 925 F. Supp. 758, 761 (M.D. Fla. 1996), aff'd , 138 F.3d 1428 (11th Cir. 1998). Rather than delve into the origins of the exclusion, it is necessary to look simply at the plain and ordinary meaning of the exclusion so as to conform to the reasonable expectations of the parties. There is nothing in the plain meaning of the exclusion that limits it solely to cases of environmental pollution, and the exclusion would therefore be applicable in the terrorism-related pollution context.

The standard pollution exclusion broadly excludes from coverage all injuries “arising out of” pollution. This is a straightforward and unambiguous term that would put terror-related pollution directly under the purview of the exclusion. As long as there is a causal link between the injury and the risk to which the policy refers, the exclusion would apply. Maroney v. N.Y. Cent. Mut. Fire Ins. Co. , 5 N.Y.3d 467, 472 (2005); Aetna Cas. & Sur. Co. v Liberty Mut. Ins. Co., 91 A.D.2d 317, 320-321 (4th Dep't 1983) (The words “arising out of” have “broader significance than the words 'caused by', and are ordinarily understood to mean originating from, incident to, or having connection with the use of the vehicle.” (6B Appleman, Insurance Law & Practice [rev. ed.], ' 4317; see, also, 12 Couch, Cyclopedia of Insurance Law [2d ed.], ' 45:61)). That requirement is likely to be satisfied in cases of terrorism-related pollution. Although the injuries may be alleged to have been caused by a lack of proper safety equipment or other workplace safety concerns, none of the workplace safety issues or injuries would exist but for the polluted environment. As such, it can be argued that in most terrorism-related pollution cases, the injury will “arise out” of the polluted environment, and the pollution exclusion should therefore apply.

Materials Fall Under Definition of 'Pollutant' or 'Contaminant'

As stated above, the pollution exclusion uses terms such as “pollutant” and “contaminant,” and defines pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, conditioned, or reclaimed.” Pollutant and contaminant are broad terms, and materials need not be specifically enumerated in the exclusion to be included under their umbrella. In fact, courts have found various materials not listed in the standard pollution exclusion to be covered by the exclusion. See, e.g., Gotham Ins. Co. v. GLNX, Inc., 92 Civ. 6415, 1993 U.S. Dist. LEXIS 10891, at *7-8 (S.D.N.Y. Aug. 6, 1993) (benzene); Nat'l Union Fire Ins. Co. v. CBI Indus., Inc. , 907 S.W.2d 517 (Tx. 1995) (toxic cloud over city); Mt. Hawley Ins. Co. v. Wright Materials, Inc., No. 3-03-CV-2729-BD, 2005 U.S. Dist. LEXIS 25315 (N.D. Tx. Oct. 27, 2005) (construction workers exposed to cement dust, ready-mix concrete and silica dust); Guilford Indus. v. Liberty Mut. Ins. Co. , 688 F. Supp. 792 (D. Me. 1988), aff'd , 879 F.2d 853 (1st Cir. 1989) (oil); Am. Heritage Realty Partnership v. La Voy , 209 A.D.2d 749 (N.Y. App. Div. 3d Dep't 1994) (asbestos); Henry Modell & Co. v. Gen. Ins. Co. of Trieste & Venice , 193 A.D.2d 412 (N.Y. App. Div. 1st Dep't 1993) (dust, dirt and debris from construction project).

There are a number of anecdotal elements that suggest that the particulates resulting from the collapse of a building are captured in the definition of the word “pollutant.” For example, in the WTC Captive case, the courts used some form or variation of the words “pollutant” and “contaminant” when describing the conditions that the victims were exposed to. See, e.g., In re World Trade Center Disaster Site Litig., 456 F. Supp. 2d at 523 (“Thousands of workers ' risked their lives from shifting debris, fires, smoke, and acrid and polluted air. '”); McNally v. Port Auth. of NY and NJ , 414 F.3d 352, 358-59 (2d Cir. 2005) (stating that respiratory plaintiffs' were exposed to “toxins and other contaminants”). The courts' inability to describe the situation without using those terms shows that these particulates can adequately be described as pollutants under the plain meaning of the term.

Additionally, various federal, state and local environmental agencies were called upon to monitor the effects of these materials on the atmosphere. This suggests that these materials were clearly considered potential environmental pollutants by the relevant authorities. More importantly for the purposes of this article, the presence of environmental agencies serves as support for the notion that a reasonable person would consider the materials produced by terrorism-related pollution to be environmental pollutants, and therefore would assume that they are included in the standard pollution exclusion.

Future of the Issue

In some respects, the impact of this issue has been mitigated by events that occurred in the aftermath of Sept. 11. The insurance industry reacted to the disaster on two distinct fronts, working on new contract language to avoid coverage in the future while lobbying the U.S. government to shoulder some of the burden associated with insuring injury and damage caused by terrorist acts. Jeff Woodward, The ISO Terrorism Exclusions: Background and Analysis, IRMI (February 2002), www.irmi.com/expert/articles/2002/woodward02.aspx. In late-2001, the ISO drafted its first version of a “terrorism exclusion,” designed to exclude injury or damage caused directly or indirectly by terrorism. Id. By February 2002, 45 states, plus the District of Columbia, Puerto Rico and Guam, had approved the terrorism exclusion. Id.

While the industry worked on implementing terrorism exclusions in new policies and policies to be renewed, Congress was holding hearings on the feasibility and desirability of a federal backstop program under which the federal government would provide coverage for damage related to terrorism. Richard Allyn, The Fall and Rise of Terrorism Insurance Coverage Since September 11, 2001, 29 Wm. Mitchell L. Rev. 821 (2002-2003). In November 2002, President Bush signed the Terrorism Risk Insurance Act (“TRIA”) into law. Id. TRIA nullified all existing terrorism exclusions, and required all property and casualty insurers to offer their customers terrorism insurance. Id. If a terrorist act causes damage in excess of $5 million, TRIA is triggered. Id. After the insurer pays a deductible, the insurer is only responsible for 10% of the remaining loss, while the government pays the rest. Id. The program has a yearly cap of $100 billion. Id. TRIA also makes a federal cause of action the exclusive remedy for any claim arising out of an act of terrorism, with a single district court assigned jurisdiction over all actions. Id. TRIA was intended to be a temporary measure, put in place to give the insurance industry time to formulate a plan of action for dealing with insurance events such as the World Trade Center attacks. Id. It has been extended twice since it was set to expire in December 2005, and is currently extended until Dec. 31, 2014. Erin Killian, Congress Votes to Extend Terrorism Insurance Program, Washington Business Journal (Dec. 19, 2007), www.bizjournals.com/washington/stories/2007/12/17/daily22.html.

These developments make it unlikely that the legal questions surrounding the interplay of terrorism and the pollution exclusion will be much of an issue going forward. Nevertheless, not all of the cases brought in the aftermath of Sept. 11 have settled, and it is possible that a court may have to reach this issue at some point. It remains to be seen whether the exclusion will be interpreted narrowly or broadly to encompass pollution caused by terrorist acts.

A version of this article was presented at Perrin Conferences' “Emerging Risks on Dual Frontiers: Perspectives on Potential Liabilities in the New Decade,” on April 12, 2012 in London.