Coverage for Environmental Compliance Costs

With the financial crisis occupying the Obama administration, the anticipated barrage of new environmental laws, policies, and regulations has yet to materialize. When the switch is turned on, however, the costs to policyholders are likely to be substantial, and just as likely, policyholders will test whether some of those costs can be passed on to their carriers. Some of these projected costs will relate to requirements for new equipment or for upgrades to existing equipment to reduce greenhouse gas emissions, while others may flow from increased enforcement following eight years of relative laxity by federal regulators. Now, therefore, is an appropriate time to examine the current state of the law with respect to the distinction between remedial costs, which are generally considered recoverable in the absence of an effective pollution exclusion, and costs for preventative measures, which are generally not recoverable. This article explores recent case law that suggests the possibility of a brighter line between remedial and preventative costs in the air pollution context and reviews a recent successful coverage defense involving air pollution in which the distinction between remedial costs and preventative measures was litigated.