Written By David O’Neill, Director of Investigations, PolicyFind


The New Mexico Supreme Court has ruled that the term “sudden” in the “sudden and accidental” exception to general liability policy pollution exclusion is ambiguous and as such does not limit covered occurrences only to abrupt releases of pollutants.

In United Nuclear Corp. v. Allstate Ins. Co., No. 32, 939 (N.M. August 23, 2012), New Mexico’s high court determined that general liability insurance policies issued to an uranium mining company in the 1970’s and early 1980’s could be applied to address claims for the cost of cleaning pollution at several uranium mines it operated in that state during those years.  One of the claims involved a 1979 spill of 94 million gallons of tailings pond liquids into a nearby river, a record release of radioactive pollutants. 

United Nuclear had insured its mining operations with commercial general liability and umbrella liability insurance policies from a number of carriers, including the polices issued by two predecessor corporations of  Allstate Insurance Company (Allstate). The language of these policies  provided that Allstate would defend and indemnify United Nuclear for “damages on account of … Property Damage … caused by or arising out of each Occurrence….”  The majority of the policies defined an “occurrence” as “an accident, event or happening including continuous or repeated exposure to conditions which results, during the policy period, in … Property Damage … neither expected nor intended from the standpoint of the Insured…. “   One of the policies in question (the 1980–81 Policy), had a slightly different version of the exclusion, providing that coverage did not apply if the discharge was “both sudden and accidental.”

In October 2008, the district court had found “the word ‘sudden’ and the word ‘accidental’ … [to be] clear and unambiguous…. The word ‘sudden’ means quick, abrupt or otherwise a temporarily short period of time…. The word ‘accidental’ means unintended, unexpected or by chance.”

United Nuclear appealed the district court’s determination to the Court of Appeals. In its opinion, a divided appellate court upheld the district court’s grant of summary judgment to Allstate on the meaning of “sudden” as used in the policies’ pollution exclusion clause. As the district court had done, the Court of Appeals relied heavily on the reasoning and holding of the Tenth Circuit U.S. Court of Appeals decision in Mesa Oil, Inc. v. Insurance Co. of North America, 123 F.3d 1333, 1339–41 (10th Cir.1997).

In Mesa Oil, Inc., the Tenth Circuit had noted that New Mexico courts had yet to take a position regarding the interpretation of the sudden and accidental pollution exclusion but projected that New Mexico courts would conclude that a New Mexico court would likely honor the plain meaning of the word “sudden” and conclude that the term encompasses a temporal component, and thus that pollution must occur quickly or abruptly before the exemption will apply.  Accordingly, the Mesa Oil court concluded that under New Mexico law, Mesa Oil’s policies did not cover its pollution events.

The New Mexico Supreme Court’s United Nuclear Corp. v. Allstate Ins. Co. opinion overturns the appellate court’s decision, finding that the lower courts had erred in their adoption of a temporal meaning of the term “sudden.”  The Supreme Court reasoned that since the Allstate policies lacked a definition of the term “sudden” and there has been no consensus concerning its meaning among other state courts, it could take notice of dictionary definitions and look to the insurance industry’s drafting history of the qualified pollution exclusion.  Reviewing these, the Court found that the insured had a reasonable expectation that the term “sudden” in the policies’ pollution exclusion may mean unexpected rather than abrupt.  It held as a matter of law that the term “sudden,” in the policies’ pollution exclusion, means “unexpected,” rather than indicating a temporal limitation on the occurrence.

The United Nuclear decision brings New Mexico jurisprudence more in line with that of its neighboring state, Colorado.  The Colorado Supreme Court had construed a similar qualified pollution exclusion in its 1999 opinion in Public Serv. Co. of Colo. v Wallis & Cos as meaning “unprepared for, unintended and unexpected,” rather than “abrupt.”  This decision has made it possible for responsible parties in Colorado environmental actions to successfully rely on coverage from general liability policies issued to them prior to 1986 to address long-tail claims.  Similarly, New Mexico PRPs will now be able to look to their pre-1986 coverage for defense and indemnity in such matters.