Everyone is Talking about Gasoline These Days, Including Insurers

July 8, 2008

In a case of first impression in Alaska, that state’s Supreme Court recently addressed the issue of whether gasoline is a pollutant. An insured gas station owner brought a lawsuit against its insurer, Alaska National Insurance Company, for failure to defend it under a CGL policy against an action by the neighbors due to the leaking of over 50,000 gallons of gasoline. The State of Alaska also filed suit against the gas station owner for the clean-up.

Alaska National refused to defend its insured based on the well-known, and often litigated, “absolute pollution exclusion” in the various CGL policies at issue. The owner argued on appeal that gas is not a pollutant, and in the alternative that the pollution exclusion is ambiguous. While the Alaska Supreme Court acknowledged it had never before addressed the issue of gas as a pollutant, it noted that many other courts had previously tackled the issue. The Court sided with the majority of jurisdictions in holding that even though gasoline is a product for purposes of insurance while stored in the underground storage tanks, once the gas escapes and reaches locations where it is no longer a useful product it becomes a pollutant in terms of the pollution exclusion.

The insured’s ambiguity argument also failed. It claimed that because gas is not specifically listed as a pollutant in the insurance policy that there existed an ambiguity. The Court again adopted the majority rule that public policy disfavors requiring an exhaustive list of pollutants in a policy’s exclusion. The application of the “reasonable expectations doctrine” did not assist the owner in obtaining coverage since it was not reasonable to expect such a leak would be covered.

In an opening paragraph of its analysis the Alaska Supreme Court noted, “[o]ne of the most contested and highly litigated issues in the field of liability insurance is the scope of pollution exclusion clauses.” This case demonstrates the danger in relying on CGL policies to provide coverage for pollution, which is a term defined very broadly in the insurance realm. Businesses need to determine the requirement for specialized insurance coverage that will provide protection against pollution claims when developing their insurance program.

Whittier Properties, Inc. v. Alaska Nat. Ins. Co., 185 P.3d 84 (2008).

McGuireWoods’ Insurance Coverage Counseling & Litigation Group provides legal representation to policyholders in coverage litigation, including bad faith actions.