A policy with a limited pollution endorsement provided coverage for the hauling of contaminated dirt over a five-day period, even though the policy required "pollution incidents" to commence and end within 72 consecutive hours, ruled a U.S. District Court judge in the District of Oregon. The case is Konell Construction and Demolition Corp. v. Valiant Insurance Co., (May 15, 2006). Full disclosure: when I was with another firm several years ago I worked on this case on behalf of the insurer, which is a subsidiary of Zurich, and wrote some of the summary judgment briefing.
The decision, by Judge Michael Mosman, provides a textbook clear explanation of the concept of competing reasonable interpretations of a term in an insurance policy. The insurer argued that the phrase "72 consecutive hours " barred coverage, because it was undisputed the contaminated dirt was dumped over a five-day period (although there was a break for the weekend). The insured, however, argued that each truckload constituted a separate pollution incident, and each discrete incident of course took place within a 72-hour period. Judge Mosman found both these interpretations to be objectively reasonable, even though, as he put it, "[i]in a popularity contest, Valiant’s interpretation might win most of the time. But this court’s task, under governing law, is not to choose the better of two interpretations." In the event two reasonable interpretations exist, ambiguity results and the decision goes against the insurer who drafted the policy. The court granted summary judgment for Konell.
Judge Mosman had earlier granted summary judgment to Valiant on other grounds — that the notice requirement of the limited pollution endorsement was like that of a "claims made" policy, and coverage was precluded because Konell failed to report the incident within the required time. The Ninth Circuit reversed, saying the insurer had to provide proof of prejudice to prevail on that argument.