Hecla Mining Co. v. New Hampshire Insurance Co.
15 Brief Times Rptr. 631, 811 P.2d 1083, 115 Oil & Gas Rep. 591 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
In a comprehensive general liability insurance policy, a pollution exclusion clause that exempts discharges that are 'sudden and accidental' is ambiguous. The phrase is to be construed against the insurer to mean 'unexpected and unintended,' thus requiring an insurer to defend its insured against a complaint alleging facts that might potentially fall within the policy's coverage.
Facts:
- From 1938 to 1953, Hecla Mining Company held a one-third ownership interest in the Resurrection Mining Company, whose mine shafts drained into the Yak Tunnel.
- From 1981 to 1985, Hecla also held a lease interest in a mill and several tailings impoundments located in the lower California Gulch.
- During these periods, mining operations resulted in the discharge of heavy metals and other contaminants from the Yak Tunnel into the California Gulch.
- Hecla Mining Company was covered by a series of comprehensive general liability (CGL) policies from Industrial Indemnity Company (1974-1982) and New Hampshire Insurance Company (1980-1985).
- The CGL policies covered property damage caused by an 'occurrence,' defined as an accident with damage 'neither expected nor intended,' but contained an exclusion for pollution damage unless the discharge was 'sudden and accidental.'
- Prior to 1983, workers removed debris from the Yak Tunnel, causing a 'surge' of impounded, contaminated water to be released.
- This surge of yellow sedimentary sludge turned a twenty-mile stretch of the Arkansas River orange.
Procedural Posture:
- The state of Colorado sued Asarco, Inc. and other mining companies in federal district court under CERCLA.
- Asarco filed a third-party complaint against Hecla Mining Company, seeking contribution for cleanup costs.
- Hecla's insurer, Industrial Indemnity Company, denied coverage and filed a declaratory judgment action against Hecla in Denver District Court, a state trial court.
- Hecla's other insurer, New Hampshire Insurance Company, intervened in the declaratory judgment action, also denying coverage.
- The trial court granted summary judgment in favor of Hecla, finding the insurers had a duty to defend.
- The insurers appealed, and the Colorado Court of Appeals (an intermediate appellate court) reversed, holding that there was no duty to defend.
- The Colorado Supreme Court granted certiorari to review the decision of the Court of Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a comprehensive general liability insurer have a duty to defend its insured against a CERCLA action when the policy excludes coverage for pollution, unless the discharge is 'sudden and accidental,' and the underlying complaint does not allege the insured expected or intended the resulting environmental damage?
Opinions:
Majority - Justice Erickson
Yes. An insurer has a duty to defend when the allegations in the underlying complaint might fall within the policy's coverage. Because the policy term 'sudden and accidental' is ambiguous and is interpreted to mean 'unexpected and unintended,' and the complaint does not allege that the insured intended the pollution, the insurers have a duty to defend. The court reasoned that 'occurrence,' defined as an accident 'neither expected nor intended,' only excludes damages the insured knew would flow 'directly and immediately' from its intentional act. The CERCLA complaint against Hecla alleges strict liability and does not claim Hecla intended to cause environmental damage, thus the event qualifies as an 'occurrence.' The court then found the term 'sudden' in the pollution exclusion is ambiguous, as it can mean both 'abrupt' and 'unexpected.' Citing the rule that ambiguous policy language is construed in favor of the insured, the court adopted the 'unexpected and unintended' definition. This interpretation avoids an internal contradiction, as the policy defines 'accident' to include 'continuous or repeated exposure,' which would conflict with a strictly temporal definition of 'sudden.' Since the duty to defend is broader than the duty to indemnify and is determined by the complaint's allegations, and the complaint does not allege facts that fall 'solely and entirely' within the exclusion, the insurers must provide a defense.
Dissenting - Justice Mullarkey
No, a determination of the duty to defend should not be based solely on the vague allegations of the complaint in this case. The majority's rigid application of the 'four corners' rule is inappropriate for complex CERCLA litigation where the complaint is a notice pleading based on strict liability and thus silent on key coverage issues like intent or the nature of the discharge. The dissent argues that the trial court should be able to look beyond the complaint to determine the duty to defend, especially when the insurer has filed a declaratory judgment action for that purpose. Forcing a defense based on a vague complaint allows the insured to evade discovery and unfairly prejudices the insurer. The proper course would be to remand and give the trial court discretion to either proceed with discovery in the declaratory judgment action or stay that action while requiring the insurers to defend under a reservation of rights, with the possibility of seeking reimbursement later if no coverage is ultimately found.
Analysis:
This decision represents a significant, pro-insured interpretation of standard CGL insurance policies in the context of environmental contamination claims. By defining 'sudden and accidental' to mean 'unexpected and unintended,' the court aligned itself with a line of cases that greatly expanded coverage for gradual, long-term pollution, a critical issue for companies facing massive CERCLA liability. This ruling reinforces the breadth of the duty to defend, making it very difficult for an insurer to deny a defense at the outset of litigation, particularly in strict liability cases where the complaint may be silent on the insured's intent. This precedent heavily influenced environmental insurance law and led insurers to draft more restrictive 'absolute' pollution exclusions in future policies.
Unlock the full brief for Hecla Mining Co. v. New Hampshire Insurance Co.