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In re Rehabilitation of Home Insurance Company

Supreme Court of New Hampshire

April 23, 2013

In the Matter of Rehabilitation of The Home Insurance Company,

The appellants, Sheldon Holson and Melvin Holson (the Holsons), appeal an order of the trial court that affirmed a ruling by the referee that The Home Insurance Company (Home) had no duty to defend them against a 1991 claim brought by K.V.L. Corporation (KVL). They argue that the trial court erred in construing the coverage terms of their policy and in construing Connecticut case law. We affirm.

We briefly set forth the relevant facts giving rise to this appeal. The Holsons operated a business which made photograph albums on property located in Connecticut. In 1989, they sold the property to KVL. After the purchase, KVL discovered that the property was environmentally contaminated and, in 1991, it sued the Holsons. After the Holsons' primary insurers denied their request for representation, they sought representation from Home, their excess liability carrier. Home also denied their request. After a trial, a partial judgment was entered against the Holsons and they subsequently filed a proof of claim against Home.

The question before us is whether Home had a duty to defend the Holsons against the KVL complaint. The parties rely upon the allegations contained in the amended complaint filed by KVL in support of their respective arguments. The parties do not dispute that the Home policies held by the Holsons include the following pollution exclusion language:

It is agreed that the insurance does not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply, if such discharge, dispersal, release or escape is sudden and accidental.

The parties also agree that Connecticut law controls the resolution of whether Home had a duty to defend the Holsons in the KVL lawsuit.

Under Connecticut law, an insurer's duty to defend is broader than its duty to indemnify. Schilberg v. Continental Casualty Co., 819 A.2d 773, 783 (Conn. 2003). "If an allegation of the complaint falls even possibly within the coverage, then the insurance company must defend the insured." Id. at 784 (brackets and quotations omitted). If recovery is based upon a theory of liability not covered by the policy, however, the insurer is not required to defend. Id. at 782. In Connecticut, the burden of establishing the applicability of the exception to the pollution coverage exclusion provision is placed upon the insured whether seeking indemnification or representation from the insurer. Id. at 782-83.

The Connecticut Supreme Court was asked to construe similar pollution exclusion language in Buell Industries, Inc. v. Greater New York Mutual Insurance Co., 791 A.2d 489 (Conn. 2002). Although, as the appellants point out, Buell was a coverage case as opposed to the duty to defend case currently before us, it is a distinction without a difference given the Connecticut court's subsequent holding in Schilberg. In Buell, the court was asked to construe the terms "sudden and accidental." The court acknowledged that there was no clear trend among the courts of other states regarding the meaning of the exclusion. Id. at 496-97. The court concluded "that the word sudden was included in these policies so that only a temporally abrupt release of pollutants would be covered as an exception to the general pollution exclusion." Id. at 498.

The amended complaint in this case alleges that: (1) contamination exists in "areas surrounding several large underground concrete 'vaults' which are adjacent and connected to the building on the Wilton Site through a network of underground piping"; (2) a consultant opined that the contamination was the result of disposal practices while the Holsons operated their commercial concern; and (3) the contamination was the result of "release, " "disposal, " or "leakage." Although the Holsons argue that these allegations do not rule out the possibility that the contamination may have been the result of a sudden event, that is not the test under Connecticut law. As the Schilberg court held:

The relevant inquiry, therefore, is not whether the substance of the [complaint's] allegations rules out the possibility of a sudden and accidental discharge, . . ., but, rather, whether the [insured] has demonstrated that a reasonable interpretation of the substance of the . . . allegations potentially would bring the claims within the purview of the sudden and accidental discharge exception in the policies. An insured does not satisfy its burden of proving the applicability of the sudden and accidental discharge exception, however, by the assertion of conclusory statements or reliance "on mere speculation or conjecture as to the true nature of the facts . . . . In determining whether the underlying complaint can be read as even potentially bringing the claim within the sudden and accidental [discharge] exception to the exclusion of pollution coverage, a court should not attempt to impose the duty to defend on an insurer through a strained, implausible reading of the complaint that is linguistically conceivable but tortured and unreasonable . . . ."

Schilberg, 819 A.2d at 784-85 (citations and quotation omitted).

Having reviewed the record in this case, we conclude that the Holsons failed to meet their burden as required under Connecticut law.

Affirmed.

DALIANIS, C.J, and HICKS AND LYNN, JJ., ...


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