Pollution Coverage Under a Commercial Auto Policy

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Image courtesy of [Robert Bension] / Getty Images.

Virtually all commercial auto policies contain a pollution exclusion like the one found in the standard ISO policy. This exclusion applies to auto liability coverage. It eliminates coverage for most pollution-related claims. These include claims arising out of the release of pollutants being transported, loaded onto or unloaded from, a covered auto.

Coverage Provided by Exceptions

Fortunately, the pollution exclusion contains some exceptions that give back coverage for certain types of incidents.

The exceptions cover bodily injury or property damage arising from the pollutants themselves. They also cover costs of cleaning up pollutants.

In a commercial auto policy, cleanup costs are typically referred to as covered pollution cost or expense. Cleanup costs include the cost of testing, monitoring, cleanup and other activities you are required to perform by law or because of a  government claim or lawsuit. Cleanup costs are covered only if they are incurred as a result of an accident that also causes bodily injury or property damage that is covered by the policy. In other words, your insurer will not pay cleanup costs you incur in the absence of a covered claim for bodily injury or property damage.

What's Covered?

The commercial auto policy covers some pollution-related claims by way of exceptions to the pollution exclusion.

Fuels, Lubricants, Exhaust Gases etc.

The first exception applies to gasoline, brake fluid, exhaust fumes and similar substances that are released from a covered auto.

To be covered, these substances must be needed for, or result from, the normal functioning of the vehicle or its parts.

For example, gasoline is needed to power the engine, and brake fluid is needed to operate the braking system. Exhaust fumes are a normal by-product of a vehicle's engine. For these pollutants to be covered, they must be released from the part of the auto that is designed to contain them.

This means that brake fluid must leak from the brake fluid reservoir, and gasoline must leak from the engine or fuel system. Likewise, exhaust gases must escapes from a covered auto's exhaust system. Here is an example of an incident that would likely fall within this exception.

Example

Wanda's Window Cleaning owns three trucks that are used by the company's employees to travel to job sites. The trucks are insured under a commercial auto policy that has a $1,000,000 per accident limit.

One day, Wendy, an employee of Wanda's, uses a company truck to drive to a customer's location. The customer recently installed a "living" parking lot that consists of small paving stones interspersed with plants. Wendy is entering the parking lot when she accidentally drives over a rock. The rock  punctures the truck's gas tank. Unaware of the damage, Wendy parks the truck and gets to work.

Wendy returns to the truck a few hours later and is horrified to see that gasoline has spilled all over the customer's parking lot. The gasoline has stained many of the paving stones and killed numerous plants. Several weeks later, Wanda's Window Cleaning receives a demand from the customer for $10,000, the cost to repair the damage to the parking lot.

Wanda submits the claim to her auto insurer, which agrees to pay the $10,000.

Upset or Overturn

The second exception covers accidents that occur away from your premises and involve pollutants released due to the upset or overturn of the pollutants themselves or their container. To be covered, the pollutants must not be in or on the covered auto. Here is an example of a loss that would likely be covered by this exception.

Example

Walter is an employee of Wanda's Window Cleaning. One day Walter is on the freeway driving a company truck to a window cleaning job. He is attempting to pass a gasoline tanker truck but cuts in front of it too closely. The tanker truck driver swerves to avoid hitting Walter's truck and slams into the center divider. Nobody is hurt but the tanker truck is damaged. Over 2000 gallons of gasoline spill all over the road.

The freeway is closed for several hours while a hazardous materials cleanup crew hired by state authorities mop up the mess.

Several months later, Wanda's Window cleaning receives two demands. One is from the tanker truck owner, which seeks $25,000 to repair the damage to the truck. The second demand is from the state environmental authority, which orders Wanda's to pay $500,000, the cost of cleaning up the gasoline.

Walter's accident took place away from premises owned by Wanda's Window Cleaning. The truck Walter was driving is a covered auto under the cleaning company's auto policy. The pollutants (gasoline) were not contained in an auto covered under Wanda's auto policy. The pollutants were released as a result of an accident that caused property damage covered by the policy. The tanker truck was damaged as a result of the maintenance or use of a covered auto. Thus, Wanda's insurer should pay both the $25,000 to repair the tanker truck and the $500,000 to clean up the gasoline.

Finally, it is important to note that the upset/overturn exception applies to pollutants located outside a vehicle. For example, suppose that Walter is parking a company truck at a customer's premises when he accidentally backs into the customer's gasoline storage tank. The tank ruptures and a spill results. Wanda's auto policy would cover both the property damage to the tank and the cost to clean up the gasoline.