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The plaintiff sued the defendant seeking indemnity under a pollution liability policy, for $3.4 million in costs the plaintiff incurred in managing asbestos contaminated soil. The key issue was whether the 'loss' incurred by the plaintiff 'arose from' the pollution conditions as defined in the policy.
In issue
- Whether the costs incurred by the plaintiff in managing soil contaminated with asbestos was a 'loss' arising from 'pollution conditions' under the policy of insurance.
The background
The plaintiff, Seymour Whyte Constructions Pty Limited entered into a 'Contractor's Pollution Legal Liability Policy' (the Policy) issued by the defendant, Liberty Mutual Insurance Company t/as Liberty Special Markets, for the period 1 December 2016 to 1 December 2017. The Policy provided cover to the insured for loss 'arising from pollution conditions caused by Covered Operations performed by the insured...'. In February 2017, the plaintiff was contracted by VicRoads to perform upgrades to part of the Chandler Highway in Melbourne. The contract between the plaintiff and VicRoads specified that the plaintiff would be liable for the costs of managing contaminated soil.
In the process of carrying out the work, the plaintiff had excavated large quantities of soil north of the Yarra River and stored the soil on premises previously known as the Alphington Paper Mill (the Alphington site) between 14 and 17 August 2017. The Alphington site was partly owned by developers, Glenville, and partly owned by VicRoads. On 14 August 2017, Glenville alerted VicRoads to the suspected presence of asbestos in the soil stored at the Alphington site. This triggered WorkSafe Victoria to carry out investigations into the presence of asbestos at both the Alphington site and the broader Chandler Highway construction site.
On 17 August 2017, WorkSafe Victoria issued two improvement notices to the plaintiff, pursuant to section 111 of the Occupational Health and Safety Act 2004 (Vic) (the Act). The notices directed the plaintiff to take measures to remedy contraventions of the Act, relating to the management and removal of asbestos contaminated soil at the Chandler Highway construction site.
The plaintiff engaged an occupational hygienist to carry out testing of the Alphington site and the Chandler Highway construction site, and to develop an asbestos management plan and also arranged for a licensed contractor to remove the contaminated soil. The plaintiff alleged that it incurred significant costs in dealing with the asbestos contaminated soil, some of which it successfully recovered from the Major Project Authority (who inherited the project from VicRoads). The plaintiff sought to claim the remaining $3,456,057 from the defendant under the policy. The defendant denied liability.
The decision at trial
The first issue to be determined was whether the transportation of the asbestos contaminated soil constituted 'pollution conditions' as defined by the policy. The policy defined 'pollutions conditions' as including 'the emission, discharge, dispersal, migration release or escape' of pollutants. The Court accepted the plaintiff's argument that the transportation of asbestos contaminated soil from one location to another created 'pollution conditions', by releasing asbestos fibres into the air.
However, the primary issue was whether the plaintiff's loss 'arose from' the pollution conditions, to trigger the application of the policy.
The Court considered the specific language used in the construction of the policy and noted that the policy operated to indemnify the insured from loss arising from 'pollution conditions' that the insured itself was responsible for creating and did not extend to provide coverage for costs associated with managing the unexpected discovery of existing pollution.
The Court found that the improvement notices issued by WorkSafe Victoria spurred the plaintiff to take steps to safeguard its employees from the future risks posed by exposure to asbestos, as required under section 21 of the Act. The Court highlighted that the Act conferred legal obligations that the plaintiff should have complied with prior to the plaintiff encountering the asbestos contaminated soil. Accordingly, the Court held that the loss incurred by the plaintiff arose from the measures it took in relation to the notices issued by WorkSafe Victoria, and its pre-existing OHS obligations, and that the loss did not arise from the past pollution event, being the management of the contaminated soil.
However, the plaintiff did succeed in claiming the costs of seeking legal advice in relation to understanding what the notices issued by WorkSafe Victoria required of it. The Court determined that these costs directly related to the 'pollution conditions' that triggered the issuing of the notices. However, the Court clearly distinguished the costs incurred in understanding the requirements of the notice from costs incurred in complying with the notices.
Implications for you
This decision provides useful guidance to underwriters as to how a pollution liability policy clause can be drafted to ensure that it operates as intended by the insurer, that is, to provide coverage for accidental polluting events caused by an insured's actions.
It also serves as a reminder to insureds that they may not be indemnified under a pollution liability insurance policy for costs in managing pollution conditions, if those costs would have been incurred irrespective of whether the pollution conditions existed or not.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
