In its recent decision in Star Ins. Co. v. Bear Prods., Inc., 2013 U.S. Dist. LEXIS 148559 (E.D. Okl. Oct. 16, 2013) [enhanced version available to lexis.com subscribers], the United States District Court for the Eastern District of Oklahoma had occasion to consider the coverage afforded under a pollution buy-back endorsement.
Star Insurance Company insured Bear Products under a primary general liability policy as well as an umbrella liability policy. Bear was named as a defendant in a class action lawsuit alleging personal injury and property damage resulting from exposure to “produced fluid waste,”described as waste fluids and solids generated as a result of oil and gas drilling operations. Specifically, produced fluid waste is described to include “saltwater, sand, acid, oil-based drilling fluids, water-based drilling fluids, completion flowback fluid, frack flowback fluid, workover flowback fluid, rainwater gathered on drilling and productions sites, drilling cuttings, pit water, including frack, mud, circulation and reserve pits, and numerous other fluids and solid wastes generated during the exploration and completion of oil and gas wells.” Bear Products was identified as having transported produced fluid waste to a disposal pit located in the vicinity of the plaintiff class.
This insurance applies to "bodily injury", "property damage", and "environmental damage" only if:
The court agreed that produced fluid waste was a pollutant for the purpose of the policies’ respective pollution exclusions. Bear Products nevertheless contended that at the very least, coverage was available under the primary policy’s pollution buy-back endorsement. The court disagreed. Looking to the allegations of the complaint, the court observed that the conditions necessary to trigger the pollution coverage under the buy-back were not satisfied. Notably, the waste was alleged to have been generated and disposed of prior to the policy period, the pollution condition lasted more than 72 hours, and the pollution condition was not accidentally generated. Bear Products argued that if strictly enforced, the buy-back would be rendered illusory, since the majority of pollution incidents for which it could be liable would not satisfy these conditions precedent to coverage. The court rejected this argument, explaining:
Brian Margolies, Partner, Traub Lieberman Straus & Shrewsberry LLP
Read more at the Traub Lieberman Insurance Law Blog, Edited by Brian Margolies.
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