groundwater contamination and owned property exclusion and commercial general liability policy

An allied issue, which actually is receiving increased attention under the owned-property exclusion ("OPX") in the homeowner's or CGL policy, is who is liable for the cleanup expenses to polluted groundwater, or water deep below the owner's property. As one immediately recognizes, this is an issue that goes right to the heart of what an owner of property actually "owns." Depending on how a court construes the scope of a person's ownership, the owner will or will not be liable for cleanup to groundwater under his/her property.

Three Rules

As Griffis says, "[g]roundwater law is a complex patchwork of state-by-state regulation." As a society becomes more settled, or as water becomes more scarce, there is an increased focus on the issue of who owns the water under the land. Three approaches to groundwater ownership have developed. First, the oldest and least rigorous rule is called the English rule or the absolute ownership rule. It grants to property owners the unrestricted right to remove water beneath their properties, even if this results in depleting the water table beneath adjacent property or causing subsidence in the adjacent land. The common law rule was that ownership of property extended ab infernis ad cielos--"from hell to heaven." You owned that parcel of land and the air rights, the ground rights and any other rights all the way through to the heart of the earth. This creates a nice imaginative picture of ownership, but it tends to work against the owner in an insurance dispute. This liberal understanding of water ownership would work against the property owner if s/he tries to get compensation for groundwater contamination, because the same power to draw water even from the neighbors would mean that if pollution seeps over to the neigbors it is pollution carried by their water.

The American Rule

Most states, however, follow a version of what is known as the American rule, which grants to a landowner the right to reasonable use of water beneath his/her property. Details vary from state to state, but the general point is that an owner's right to groundwater of neighboring properties is limited by the rights of the adjacent owners. So the American rule stresses that a property owner's interest in underlying groundwater is limited by uses that do not injure the neighbor's property. The implication of this is that any attempt to limit a neighbor's use of the groundwater, either through drawing on it excessively or polluting it, is an action beyond the ownership rights of the other owner. Whereas under the English rule an argument could be made that the taking of water from under a neighbor's property was legitimate and, therefore, was an act of ownership, under the American rule such a practice would probably not trigger the owned-property exclusion.

The Most Stringent Rule

The strictest groundwater laws, existing in most Western states as well as Florida and New Jersey, provide much more authority for the state in determining water use than did the common law. Thus, under a "state-sufference" regime, the finding that groundwater is non-owned property is the least surprising. If, therefore, a state has explicitly reserved to itself or its citizens a property interest in all the groundwater of the state, [See, e.g., Cal. Water Code s 102 (West 1971) ("All water within the State is the property of the people of the State ...."); Wis. Stat. Ann. s 144.01(19) (West 1989) (stating that " 'waters of the state' includes ... groundwater")], contamination of groundwater is by definition contamination of non-owned property. Thus, if the state is under this type of law, the owned property exclusion can almost never be used by an insurance company to deny coverage to an insured for groundwater pollution. As Abraham says, "As a consequence, in many states the vast majority of the cost of cleanup on a policyholder's property may not be subject to the exclusion (p.461)."

Conclusion

Thus, the OPX exclusion under a CGL or homeowner's policy implicates several other issues, mostly relating to what we understand by property ownership. By being aware of these issues, you can be more useful to clients, especially in the complex, messy, but potentially lucrative world of environmental contamination and cleanup.