Products-Completed Operations Hazard Exception to Pollution Exclusion
August 25, 2014
The insured brought an action against the insurer seeking defense and indemnity under umbrella insurance policies for claims based on soil and groundwater contamination from the insured's plant. This case is Visteon Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2014 WL 3101550.
Visteon operated as an unincorporated division of Ford Motor Company, using raw materials to manufacture auto component climate control system parts, such as radiators, condensers, hoses, compressors, fuel injection components, and evaporators. When manufacturing these parts, the aluminum from which the parts were made had to be cleaned and as part of the cleaning process, Visteon operated thirteen degreasers that primarily used TCE and TCA. Multiple historical releases of TCE occurred.
Visteon has incurred millions of dollars in damages as a result of demands to remediate the soil and groundwater and to defend and resolve property damage and bodily injury claims made by neighboring landowners. Visteon sought defense and indemnity coverage under its umbrella insurance policies issued by National Union. The insurer denied coverage based on the pollution exclusion and this lawsuit was filed by the insured.
The United States District Court noted that under Michigan law, pollution exclusions are held to be unambiguous, and thus, act to bar coverage for damages caused by TCE and other types of pollution discharges. Visteon admitted this, but claimed that the damages it has incurred as a result of the contamination fit squarely within the products-completed operations hazard exception to the pollution exclusion. The insured said the claims arose from its work and that its work was completed each time a contract for automotive parts was satisfied. The insurer countered that, to the extent that TCE releases continued to occur over the years, the operations of the insured were not completed until after Visteon ceased actively manufacturing auto parts, so the products-completed operations exception was not applicable.
The court decided that the only reasonable interpretation of the products-completed operations hazard provision in the liability policy is that this type of coverage does not extend to environmental contamination claims alleged by Visteon. The court found that were it to credit Visteon's interpretation of the provision, a policyholder could evade the pollution exclusion simply by characterizing the polluting emissions arising from its business operations as involving many individual projects that started and stopped with the commencement and completion of each operation. Such an interpretation would have the unintended effect of erasing the line between premises-operations and products-completed operations coverage, as almost any pollution claim involving offsite contamination could be characterized as a completed operations claim.
The court ruled that the offsite TCE contamination did not fall within the products-completed operations exception to the pollution exclusion and so, National Union had no duty to defend or indemnify Visteon for the damage claims. Visteon's motion for summary judgment was denied.
Editor's Note: Under the standard CGL form and under this particular umbrella liability coverage form, based on the language of the pollution exclusion, coverage can be inferred for a products-completed operations claim, in that such a claim is not specifically mentioned in the exclusionary language. However, in this instance, the U.S. District Court disagreed with the interpretation of the insured that each time it satisfied a contract, its work was completed and thus, any pollution released by that work fell under the products-completed operations exception.
When an insured seeks coverage under an exception to an exclusion, the insured bears the burden of persuasion to show that the claim falls within the exception. In this case, the insured failed and coverage was denied by the court.