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Abstract

Did liability insurance companies conspire to introduce an ambiguous pollution exclusion in their standard-form policies at the advent of the federal environmental regulatory framework in the early 1970s? The drafting and regulatory approval history of the pollution-exclusion clause, as well as court decisions that analyze the circumstances and history of the exclusion's development, indicate that the answer is yes. The controversy regarding the scope of the pollution exclusion has spawned hundreds of insurance coverage cases. Recently, several state appellate courts, upon a determination of ambiguity in the language of the policy, have reviewed the drafting and the regulatory history of the exclusion and uncovered compelling evidence that the insurance companies conspired to knowingly create the ambiguity. Insurance companies introduced the pollution exclusion which denied coverage for liability from unexpected and unintended pollution without a commensurate reduction in the premium. This paper begins with a brief review of the drafting and regulatory approval history of the pollution exclusion and the case law that has applied and interpreted it. The paper then addresses the argument that the insurance industry should be estopped from denying coverage for unexpected and unintended gradually occurring pollution based on its prior misrepresentations to state regulators. The paper then specifically addresses whether the insurance industry intentionally deceived both the regulators and the public alike as to the extent and scope of the exclusion. The paper concludes that the evidence strongly suggests that there was a conspiracy designed to mislead state regulators and policyholders regarding the changes wrought by the insertion of the pollution-exclusion clause into comprehensive general liability policies.

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