Pollution Coverage Under a Commercial Auto Policy
Many businesses insure their vehicles under a standard ISO business auto policy (BAP). Section II of the policy, auto liability coverage, contains a broad pollution exclusion that eliminates coverage for most pollution-related claims. It excludes claims resulting from pollutants released while transported on, loaded onto or unloaded from, a covered auto. Yet, the exclusion contains exceptions that give back coverage for certain pollution-related incidents.
Pollution Exclusion Exceptions
In the business auto policy, cleanup costs are referred to as covered pollution cost or expense. This term (which is defined in the policy) includes the cost of testing, monitoring, cleanup, and other activities you are required to perform by law or because of a government claim or lawsuit. Cleanup costs are covered only if they are incurred as a result of an accident that also causes bodily injury or property damage that is covered by the policy. Your insurer will not pay cleanup costs you incur in the absence of covered bodily injury or property damage.
1. Fuels, Lubricants, Exhaust Gases etc.
The first exception applies to gasoline, engine oil, brake fluid, exhaust fumes and similar substances that are released from a covered auto due to an accident. To be covered, these substances must be needed for, or result from, the normal functioning of the vehicle or its parts. In addition, they must be released from the part of the auto that is designed to contain them.
For example, gasoline is needed to power the engine. If a covered auto is involved in an accident, gasoline could leak from the fuel system (where it is typically stored) and cause third-party bodily injury or property damage. Likewise, brake fluid is needed to operate the braking system. If a covered auto is damaged in an accident, brake fluid could leak from the brake fluid reservoir (its usual storage place) and cause a third party to sustain bodily injury or property damage.
Here is an example of an incident that would likely fall within the "fuels and lubricants" exception.
Premier Plumbing owns three trucks that are used by the company's employees to travel to job sites. The trucks are insured under a commercial auto policy that has a $1,000,000 per accident limit.
Premier Plumbing has been hired by Don's Dairy to replace some old pipes. On a cold winter morning, Paul, a Premier employee, drives a company truck to the dairy. As he pulls into the parking lot he underestimates his speed and skids on a sheet of ice. The truck plows through a wooden fence and enters a shallow pond on the dairy's property. Paul isn't injured but the fence and the truck are damaged. The impact has punctured the truck's gas tank, and gasoline seeps into the pond.
Don's Dairy files a property damage claim against Premier Plumbing. The dairy demands the Premier pay the cost of repairing the fence ($3,000) and cleaning up the pond ($10,000). Premier submits the claim to its auto insurer, which agrees to pay Don's Dairy $13,000. The damage to the fence is covered as it was caused by an accident that resulted from the use of a covered auto. The cleanup costs are covered because the accident that caused the pollution also caused covered property damage.
2. Upset or Overturn
The second exception applies to accidents that occur away from your premises and pollutants released due to the upset, overturn or damage to the pollutants themselves or their container. The pollutants cannot be located in or on a covered auto. Here is an example of a loss that would likely be covered by this exception.
Pamela is an employee of Premier Plumbing. One day, Pamela is on the freeway driving a company truck to a plumbing job. She is attempting to pass a tanker truck but cuts in front of it too closely. The tanker truck driver swerves to avoid hitting Pamela's truck and slams into the center divider. Nobody is hurt but the tanker truck is damaged. Over 2000 gallons of sodium hydroxide spill all over the road. Sodium hydroxide is caustic so the state highway authority summons a hazardous materials cleanup crew to mop up the mess.
The freeway is closed for hours.
Several months later, Premier Plumbing receives two demands. One is from the tanker truck owner, which seeks $25,000 to repair the damage to the truck. The second demand is from the state environmental authority, which orders Premier to pay $500,000, the cost of cleaning up the sodium hydroxide.
Pamela's accident took place away from premises owned by Premier Plumbing. The accident occurred while Pamela was driving is an auto covered under the plumbing company's auto policy. The pollutants (sodium hydroxide) were not in or on a covered auto. The pollutants were released as a result of an accident that caused property damage covered by the policy. Thus, Premier's insurer should pay both the $25,000 to repair the tanker truck and the $500,000 in cleanup costs.
Pollutants Need Not Be In a Vehicle
The upset/overturn exception applies to pollutants situated away from your premises but not in or on a covered auto. The pollutants may be situated in the claimant's vehicle or somewhere else. For example, suppose that Pamela is parking a company truck at a customer's premises when she accidentally backs into the customer's gasoline storage tank. The tank ruptures and a spill results. Premier's auto policy should cover both the property damage to the tank and the cost to clean up the gasoline.