An Occurrence Can Include The Unintended Physical
Damage Caused By Intentional Development Activity
Pollution Exclusion is Effective and Does not Make Policy Illusory
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Barry Zalma, Esq., CFE
Insurance claims expert, consultant at Barry Zalma, Inc. and author/Publisher at ClaimSchool, Inc.
Posted on June 1, 2022 by Barry Zalma
In Employers Mutual Casualty Company v. Tiger Creek Development, Inc., David Erickson, and Cherry Pease, No. 4:21-CV-65 (CDL), United States District Court, M.D. Georgia, Columbus Division (May 25, 2022) the USDC was asked to determine whether Tiger Creek Development, Inc. and David Erickson’s liability insurance policy covers a claim arising from their construction project that allegedly caused sediment deposits to pollute Cherry Pease’s pond.
In the underlying state court lawsuit, Pease alleged that Tiger Creek and Erickson’s work on adjacent property caused runoff that polluted and increased sediment deposits in her pond and damaged her property. Employers Mutual Insurance Company sought summary judgment on its declaratory judgment claim that it has no duty to defend or indemnify Tiger Creek or Erickson for the claims asserted by Pease in the underlying state court action
FACTUAL BACKGROUND
Tiger Creek began developing property adjacent to Pease’s property in 2018. Tiger Creek’s work required it to remove trees and vegetation from its property. After Tiger Creek began development, Pease noticed an increase in dirt, clay, and excess water flowing into the creek and pond on her property. Pease also noticed discoloration in her pond, sand deposits at the mouth of her pond and along her creek’s banks, and erosion. Pease believed that the problems with her creek and pond stemmed from runoff caused by Tiger Creek’s development activities on the neighboring property.
Pease alleged Tiger Creek’s clearing of trees and vegetation allowed sediment to wash downhill onto her property. In December 2018, Pease notified Tiger Creek and Tiger Creek’s owner, Erickson, about her concerns. Pease met with a Tiger Creek representative in 2019 and 2020 to discuss her concerns. Erickson attended the 2020 meeting and offered to remove the sand from Pease’s pond but Pease did not accept his offer. Tiger Creek and Erickson notified their insurer of Pease’s claim on June 25, 2020, and Employers Mutual sent Tiger Creek a reservation of rights letter. Pease filed the underlying action in the Superior Court of Muscogee County, Georgia on November 5, 2020.
Employers Mutual’s insurance policy provides coverage in the event of property damage caused by a covered occurrence.
Under the policy, an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy also states that the insurance does not apply to “pollution, ” which is defined as property damage arising from the “actual, alleged or threatened” discharge of pollutants. “Pollutants” are defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.”
DISCUSSION
Employers Mutual maintains that no coverage exists here under its policy for three independent reasons: 1) there was no covered occurrence, 2) even if there was a covered occurrence, the pollution exclusion excludes coverage, and 3) Erickson and Tiger Creek provided late notice of Pease’s claim.
Was There an Occurrence?
Employers Mutual argued there was no occurrence because Tiger Creek’s alleged contamination of Pease’s pond was not an accident. The policy does not define “accident, ” but Georgia law provides that an “accident” in the insurance context is “an unexpected happening rather than one occurring through intention or design.” Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., Inc., 707 S.E.2d 369, 371 (Ga. 2011) (quoting City of Atlanta v. St. Paul Fire & Marine Ins. Co., 498 S.E.2d 782, 784 (Ga.Ct.App. 1998)).
The USDC concluded that an occurrence, as defined by the insurance policy, can include the unintended physical damage caused by intentional development activity. Although cited by neither party, the Georgia Supreme Court’s decision in American Empire Surplus Lines Insurance Co. v. Hathaway Development Co., 707 S.E.2d 369 (Ga. 2011) was found to be instructive to the USDC. In Hathaway, the court found that a subcontractor’s negligent installation of pipes, which resulted in damage to neighboring property, was an “accident” and thus an “occurrence” under the applicable insurance policy. The Georgia Supreme Court rejected the argument that the subcontractor’s acts could not be occurrences because they were performed intentionally, reasoning that a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.
Thus, the USDC concluded that the sediment runoff constitutes an “occurrence” under the policy, however, that did not resolve the issues presented to the court.
Does the Pollution Exclusion Apply?
Employers Mutual argued that, even if the runoff is an occurrence, the policy’s pollution exclusion excludes coverage. No one disputed that the sediment runoff would be “pollution” under the policy’s definition.
The USDC also noted that the exclusion does not render the insurance coverage under the policy illusory. All policy exclusions restrict coverage. That is their purpose. But limiting the circumstances for which coverage is provided does not make the coverage illusory. Employers Mutual’s policy certainly covers other occurrences that could arise from its insureds’ land development activities other than depositing sediment runoff into a neighboring pond.
Further, the insureds here could not have reasonably expected that their policy would have covered sediment runoff when the policy contains a clear exclusion to the contrary. As a result the USDC concluded that Employers Mutual is entitled to a declaratory judgment that the claims asserted by Pease in the underlying action against Tiger Creek and Erickson are excluded from coverage under the policy.
CONCLUSION
Employers Mutual’s motion for summary judgment was granted, and a declaratory judgment issued in favor of Employers Mutual that it has no duty to provide coverage for the claims asserted in the underlying state court action involving the Defendants.
ZALMA OPINION
Contrary to the hope of people who are insured no policy covers every possible risk of loss. The policy will include some exclusions, like the pollution exclusion in the Employers Mutual policy, because the purpose of exclusions in an insurance policy is to limit the coverage available. In this case since both parties agreed to the obvious, that Ms. Pease’s pond was polluted by the acts of the insureds. Since the exclusion was clear and unambiguous there could be no coverage for the damages claimed and the defendants must defend themselves without the assistance of their insurer.
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(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Jury’s Findings Interpreting Insurance Contract Affirmed
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
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Exclusion Establishes that There is No Duty to Defend Off Site Injuries
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
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Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...