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Current Environmental Insurance Coverage Issues

Karen M. Zulauf, Natural Resources & Environmental Litigation II (1996)

Lawsuits by third parties or governmental agencies for environmental contamination can result in multi-million dollar losses to a company. Faced with such an assault, most companies look to the Comprehensive General Liability (“CGL”) insurance policies that they bought and paid for many years prior to learning of their environmental contamination problems. Unfortunately, rather than the support which your company believed it would have at this time, your insurance company's response will be, what is know in the industry, as a lengthy reservation of rights letter or a denial of claims.

A reservation of rights letter is a lengthy letter written generally by a claims adjuster listing all the reasons why your insurance company does not have to provide coverage for the environmental claim that your company has made, but not an outright denial for coverage. Insurance companies generally have standard reservation of rights that are set forth in letters to insureds making environmental claims. Receipt of a reservation of rights letter does not end your insurance company's obligation to provide you coverage. It is only the first of many controversies that will exist between your company and your insurance company.

This paper attempts to present a sampling of the case law interpreting the duties of an insurance company to its insureds, the types of reservation of rights