POLLUTION CLEANUP COSTS INCURRED DURING POLICY PERIOD BY SUBSIDIARY ACQUIRED THEREAFTER HELD NOT COVERED

POLLUTION CLEANUP COSTS INCURRED DURING POLICY PERIOD BY SUBSIDIARY ACQUIRED THEREAFTER HELD NOT COVERED 270_C055

POLLUTION CLEANUP COSTS INCURRED DURING POLICY PERIOD BY SUBSIDIARY ACQUIRED THEREAFTER HELD NOT COVERED

The dispute in this case centered around the application of the named insured language of general liability insurance renewed over a ten-year period. The pertinent language stated that:

" 'Named insured' means the persons or organizations designated in (the declarations page) and also any subsidiary company (including subsidiaries thereof) or entity of such named insured now existing or which such named insured may acquire, organize or control during the policy period...."

Ten years after the aforementioned decade, the insured, a major manufacturer, acquired a subsidiary company. Shortly thereafter, the subsidiary received state and federal notices that certain of its operations during the decade contaminated surrounding ground water. The parent company inherited cleanup costs that could exceed $2 million. Its insurer, providing general liability insurance continuously during and after the ten-year contamination period, declined coverage on the basis of the "named insured" definition. In the course of litigation, the insured manufacturer appealed judgment in favor of the insurance company.

The insured argued that coverage should exist because "....it has incurred a liability from property damage during a policy period." As owner of the subsidiary property, it said that strict liability was imposed on it under the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA), not on a subsidiary subject to limiting policy language.

The insurer maintained that the successive insurance policies confined the liability coverage to property owned or acquired during the terms of the policies.

Citing several precedents, the appeal court concluded that the subsidiary was not a "named insured" under the policies prior to its acquisition (before which the pollution activities were conducted) and that, therefore, the cleanup costs were not covered.

The judgment of the trial court was affirmed in favor of the insurer and against the insured.

(TEXTRON, INC., Plaintiff-Appellant v. AETNA CASUALTY AND SURETY CO. ET AL., Defendants-Appellees. Supreme Court of RI No. 92-650. March 11, 1994. CCH 1994 Fire and Casualty Cases, Paragraph 4745.)