Owned property exclusion and griffis and hakim

The Hakim case presents a common fact pattern in environmental clean-up cases: contamination has leaked from an owner's property and enters into the groundwater or otherwise seeps into neighboring properties. Of course there will be cleanup and, of course, someone is going to have to pay the bill. But the question, from the perspective of insurance law is how the owned-property exclusion in a homeowner's or CGL policy affects the liability for cleanup expenses. A related issue is the issue of who owns water under the ground that may become contaminated by leakage from an owner's property. This essay briefly treats the former while the next essay addresses the latter. Griffis' article in 80 Va L Rev 1351 (1994) provides the basis for my treatment.

Scenarios

First, we recall the exclusion. A typical version of the OPX, as it is called, reads as follows: "This insurance does not apply to . . . 'property damage' to . . . property you own, rent, or occupy . . . ." Griffis points to four possible factual scenarios that courts might have to consider. (1) Both owned and non-owned property are damaged and there is no threat of further damage to non-owned property. (2) Both owned and non-owned property are damaged and an imminent threat of further damage exists to both properties. (3) No actual damage has occurred to non-owned property, but an imminent threat exists. (4) No damage or imminent threat to non-owned property but damage to owned property.

Alternatives (1) and (4) have been the easiest for the courts to adjudicate. The exclusion does not apply to the non-owned property--i.e., the insurer beares the cost of cleanup, while the exclusion applies to the owner's property, and the owner must pay for it. With respect to (4), no court has held that an insurer must pay for the damage to the owned property. This is consistent with the plain meaning of the exclusion.

Harder Options

Harder for the courts have been (2) and (3). Griffis says that most courts confronted with (2) have allowed policyholders to recover the costs incurred to prevent further damage to non-owned property that has already sustained some actual damage. This would mean that the insurer would be liable for the cleanup costs on the owner's property that would prevent further damage to non-owner's property. An influential statement of the rule, called the "imminent and immediate rule" is "Abatement remedies designed to prevent imminent and immediate damage to third parties cannot be denied on the basis of the owned property exclusion." Broadwell v. Fidelity, 528 A2d 76 (1987). The difficulty of applying this rule is that the court must make a distinction between waste that poses an imminent and immediate threat to non-owned property and waste that does not. As we saw in the Hakim case, the court relies on the expectations of a reasonable policyholder (p. 459) to allow coverage in a case with facts such as this second alternative. Of course, the danger is, if the court is too liberal in protecting the policyholder, that the owner might recover some kind of windfall. By cleaning up the owner's pollution, one not only removes a hazard but may have the indirect effect of increasing property values.

Courts are also divided on (3), with a strong minority showing a willingness to require insurers to repay costs incurred for purely preventative work even in clear absense of any damage to non-owned property. Courts that have held that this type of damage is not subject to the OPX have usually argued that a threat of damage to the environment is an issue of significant public importance, and that the incentive to cleanup one's own property ought not to await damage to non-owned property so that insurance coverage will be triggered. However, the difficulty here is that the landowner might get a windfall, not only in the cleanup that may migrate but with those other pesky environmental problems whose remediation may cause the value of land to increase.

I guess I need another essay to discuss briefly the groundwater issue.