Exception to Pollution Exclusion Applies to Oil Spill Cleanup
In Clean Harbors Environmental Services, Inc. v. Boston Basement Technologies, Inc., 75 Mass.App.Ct. 709 (2009), Basement Technologies, while installing a waterproofing system in the home of Richard Silva, broke a heating oil line and caused approximately 150 gallons of heating oil to leak into Silva's basement. The oil collected in a sump pump, which then pumped the oil outside into Silva's yard.
Basement Technologies hired Clean Harbors to clean up the oil spill and Clean Harbors sent Basement Technologies the bill. The Massachusetts Department of Environmental Services (DEP) then issued a notice of responsibility to Basement Technologies, pursuant to the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, G.L. c. 21E. The notice identified Basement Technologies as a potentially responsible party under the statute, and thereby strictly liable for the costs of remedial response actions incurred at the property. Basement Technologies was instructed to take certain immediate response actions, as well as to submit certain notices and filings for DEP approval, and to hire a licensed site professional “to manage, supervise or actually perform the necessary response actions at this site.”
Basement Technologies sought payment of Clean Harbors' invoices under its CGL policy with Admiral. Admiral denied coverage and Clean Harbors' invoices were not paid. Clean Harbors then brought an action against Basement Technologies in district court. Basement Technologies filed a third-party complaint against Silva, who asserted a counterclaim in negligence against Basement Technologies for damages and cleanup costs associated with the oil spill. Basement Technologies also filed a third-party complaint against Admiral, seeking defense and indemnification. Admiral agreed to defend Basement Technologies against Silva's counterclaim under a reservation of rights, based on the potential for nonremediation property damage. Admiral denied coverage for Clean Harbors' claims.
Clean Harbors and Basement Technologies settled, and Basement Technologies sought reimbursement from Admiral for the settlement costs. Admiral moved for summary judgment based on the pollution exclusion clause in the policy. The district court allowed the motion, reasoning that Clean Harbors' services constituted environmental response costs, which were excluded under the policy. Basement Technologies appealed to the Appellate Division of the District Court Department, which affirmed the judgment in Admiral's favor. Basement Technologies again appealed.
Thus the issue before the Appeals Court of Massachusetts was whether coverage for common law property damage caused by the oil spill, pursuant to the exception to the pollution exclusion for statutory response costs, extended to the cost of Clean Harbors' services. Admiral maintained that the exception to the pollution exclusion should be interpreted to mean that any costs associated with removing the spilled oil and contaminated soil were not covered, because those costs were part of the response actions imposed upon Basement Technologies pursuant to G.L. c. 21E. Basement Technologies argued that the exception covered whatever damages were recoverable against it at common law, including cleanup costs to restore the property to its precontamination value.
The appeals court held that the policy covered Basement Technologies' liability in negligence for damage it caused to Silva's property, including restoration costs where such costs constituted an alternative to, or reduction in, damages for diminution in value. The court explained that coverage was pursuant to the common law property damage exception to the policy's pollution exclusion for statutory response costs. Further, that coverage should be only to the extent that the cleanup costs were an appropriate and reasonable recovery at common law, as the exception provided coverage for damages for which the insured would be liable if the statutory requirement imposing response obligations was not present or did not exist.
The court also held that a genuine issue of material fact as to whether costs were recoverable under common law precluded summary judgment. Thus, the judgment was reversed, and the matter remanded to the district court for further proceedings.
Editor's Note: This decision limits the scope of the pollution exclusion in Massachusetts and reinforces how broad the distinction has become between claims for cleanup costs and damages attributable to other, more traditional forms of property damage (such as diminution in the value of the plaintiff's property due to the presence of pollutants).