Litigation arose out of a demand for defense and indemnity for claims arising out of polychlorinated biphenyls (“PCBs”) contamination. From 1965 to 2006, Ward Transformer Company, Inc. and Ward Transformer Sales and Service, Inc. (collectively “Ward”) built, repaired, reconditioned, and sold transformers in North Carolina. Between 1978 and 2002, PCS Phosphate Company, Inc. (“PCS”) sent transformers to Ward for repair and refurbishment. During the repairs, PCBs were released, causing environmental contamination at the Ward facility. After conducting a remedial investigation of the Ward site, in September 2005, the EPA entered into an agreement with third party contractors to remove the contamination at the Ward site.
Subsequently, PCS notified its insurer, American Home, that it had been identified as a potential responsible party for the contamination, and demanded that American Home defend and indemnify it from any resulting lawsuits. Once suit was filed against PCS, it again demanded defense and indemnification.
Federal Insurance Company (“Federal”) issued a commercial general liability policy to PCS, providing insurance coverage from April 1985 to June 1986. The policy states that Federal agreed to pay “damages the insured becomes legally obligated to pay by reason of liability imposed by law . . . because of . . . property damage caused by an occurrence” and to “defend any suit against the insured seeking such damages.” Therefore, American Home sought a declaratory judgment ruling that the Federal policy obligates Federal to defend and indemnify PCS in the recently filed lawsuits for “liability through clean up associated with the Ward site.”
In response, Federal moved for summary judgment on the pleadings arguing that the pollution exclusion clause in the Federal policy precludes any duty to defend or indemnity PCS in the underlying actions. Specifically, the Federal policy states that it does not cover “bodily injury or property damage arising out of the discharge, dispersal, release or escape of . . . smoke, vapers, soot, fumes, acids, alkalis, toxic chemicals or liquids; or . . . gases, waste materials or other irritants, contaminants or pollutants . . . into or upon land, the atmosphere or any water course or body of water.” However, this exclusion contains an exception which states that the policy provides coverage where “discharge, dispersal, release or escape [of pollutants] is sudden and accidental.” Federal’s position was that the underlying action against PCS fell within the pollution exclusion, but not into the “sudden and accidental discharge” exception.
United States District Court for the Eastern District of North Carolina concluded that the underlying actions do not allege a “sudden and accidental release” of PCBs at the Ward site. Therefore, the court held that Federal had no duty to defend or indemnify PCS and the underlying actions.
PCS Phosphate Company, Inc. v. American Home Assurance, Company
Juan C. Obregon