The Meaning of Champion Dyeing and Finishing: EIL Insurance Must Be Available in the Year That the Precise Risk Manifested Itself

Abstract

Champion Dyeing & Finishing Co., Inc. v. Centennial Insurance Company and North River Insurance Company, decided in November 2002, represents a decisive victory for policy holders in environmental coverage litigation involving the availability of EIL insurance after 1985 or 1986. EIL coverage was generally unavailable after 1985 and until 1995, particularly for old leaking underground storage tanks (UST's). The availability issue arises in environmental coverage cases where the court adopts a prorata rather than joint and several theory of allocating responsibility for cleanup costs, and when in such cases there are periods of no insurance, because, for example of the insertion of the absolute pollution exclusion in commercial general liability (CGL) policies. In those circumstances, the courts apply the “willing self-insurer” rule and allocate responsibility to the insured who willingly decided to retain the risk. Until Champion Dyeing, there was little guidance about how to determine availability in the context of site-specific environmental pollution. The case was part of a 1998 declaratory judgment action by a small manufacturing company seeking reimbursement for cleanup costs attributable to pollution from two fuel oil storage tanks found leaking in November 1997. Reversing the trial court's decision, the New Jersey appellate court found that defendants failed to prove insurance available to the insured in 1997 and that therefore the duty to indemnify should have been apportioned solely among the insurers. In doing so, it stressed the necessity of demonstrating that insurance could have been purchased covering the precise risk that manifested, not simply that EIL insurance covering undefined risks was available. Its rationale was based on a recognition of the two essential differences between EIL and CGL insurance: claims made trigger of coverage and coverage of specific pollution conditions rather than generalized occurrences. In addition, testimony at trial failed to demonstrate the availability in 1997 of insurance providing coverage for the risk at issue because the testimony at the insurer's expert lacked foundation. This decision indicates that, in order to prove or disprove availability, the parties must first hire a competent environmental insurance expert and then must ask and answer three questions: What policies were being issued in the market that applied to the particular type of risk during the relevant time period, and especially in the year that the risk manifested? Would the insured have been able to purchase one of these policies or endorsements for its particular risk? Would the policy terms have provided coverage for the specific manifested risk in question? After applying these three questions to a number of hypotheticals with typical fact patterns, it is evident how impossible it is to prove coverage available for UST risks such as in the Champion case and how extremely difficult it will be to do so for non-UST, generally-site specific risks.