Insurers, Policyholders Battle over Waste Sites

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By Barnaby J. Feder No wonder insurance companies and their policyholders are waging a coast-to-coast conflict over who has to pay to clean up hazardous waste sites. By some estimates, more than $500 billion is at stake.

``I don't know a hotter area of litigation,'' said Robert Saylor, a partner at Covington Burling in Washington who has argued a number of major cases for policyholders. ``The volume of dollars on the table is so staggeringly high that no one can figure out how to compromise.''

Because the interpretation of insurance contracts is based on state law, neither side sees any prospect of a federal standard emerging.

``The Supreme Court is not going to touch this with a 10-foot pole,'' said Eugene Anderson, a partner at the New York firm of Anderson Kill Olick & Oshinsky, which represents many policyholders. ``They were asked to take similar cases relating to asbestos damage several times and refused.''

Insurers argue that the typical property policy was never intended to cover the kinds of damage resulting from long-term waste disposal by businesses. Nor, they argue, do such policies cover the cost of cleaning up damage to such public resources as groundwater.

If insurers have to foot most of the bill, bankruptcies would become common and the ability of many survivors to sell or renew policies would be crippled, according to a study presented last year to the House Subcommittee on Policy Research and Insurance by Tillinghast, a subsidiary of the consulting firm Towers Perrin.

But many companies and municipalities that will initially foot the cleanup bills are in equally dire financial straits.

Most battles turn on one or more of five issues. The initial problem in many cases has come to be known as the ``suit issue.'' The typical property insurance policy requires the insurance company to defend a policyholder in any lawsuit involving property damage. But does an action by a federal or state agency seeking a cleanup of a hazardous waste site constitute a lawsuit?

Most courts have ruled that insurance companies have to defend policyholders in administrative proceedings that are ``adversarial.''

But some courts have dissented. Last year, for example, the Maine Supreme Court ruled that the owners of a small store were on their own in opposing an order by the Maine Department of Environmental Protection to clean up soil contaminated by leaking underground gasoline tanks.

A second common battleground is the meaning of the comprehensive ``damages clause,'' which summarizes an insurer's general liability. Insurers argue that such clauses do not cover any of the costs of cleanups ordered by government agencies, at least where there is no showing that the site is government-owned. …