"Pollution" vs "Contamination" - what does your insurance cover?

In proceedings in the Supreme Court of NSW a family company, Amashaw, successfully challenged the refusal of its insurer, Marketform, to provide indemnity.
 
The losses for which Marketform had to reimburse Amashaw included the cost of making good the damage caused by the significant leak of petrol from an underground tank and line, and the associated explosion of a Sydney Water sewer main.
 
This case is a timely reminder, especially for owners and operators of all forms of industrial properties, of the importance of understanding the difference between "pollution" and "contamination" and the type of loss covered when purchasing, and claiming under, an insurance policy.

What happened?

A petrol leak from the BP Loftus service station caused significant damage, including the explosion of a Sydney Water sewer main. The repairs totalled $265,700. In addition, Amashaw incurred costs of $930,000 in the course of undertaking preventative works, which were required by the EPA.
 
Marketform denied cover, on the basis that:
 
  • The loss arose from slow contamination over a number of years from the BP Loftus Service Station rather than a "sudden and accidental escape", and related to contamination of which Marketform was never informed, even though Amashaw had multiple reports detailing the nature and extent of that contamination.
  • In any case, the repairs and preventative works were undertaken because of a legislative obligation to do so, rather than a claim for compensation.
These arguments were rejected by the Supreme Court of NSW, on the basis that:
 
  • The source of the damage, including that caused by the explosion of Sydney Water's sewer main, was not contamination gradually emanating from the service station. Rather, it was the additional failure of a valve, which led to the "…sudden and accidental escape of contaminating petroleum products…." over a couple of months.
  • Insurers cannot refuse indemnity under pollution liability policies on the basis that they have not been provided with information regarding a contamination risk which is known. The insurer issued specialised policies in relation to service stations, and must have known that service stations are well known to cause contamination. If specific information about contamination was important, the insurer should have asked for it in the proposal form.
  • The cost associated with repairs to Sydney Water's sewer main was characterised as compensatory. Even though the repairs were undertaken as a result of a statutory obligation, Sydney Water could have made a claim for the cost of those same repairs. 

What does this mean for owners and operators of industrial properties?

  • If your operations are gradually causing contamination, a standard pollution liability policy is unlikely to cover the damage caused by that contamination, nor any clean-up costs.
  • However, if there is "…a sudden specific and identifiable event…”, then this can be characterised as a pollution incident, in which case cover under a pollution liability policy is likely to be available, as was the case for Amashaw.
  • Even if your policy responds, it does not follow that all of your costs and expenses will be recoverable. If there is a pollution incident, it is likely that the EPA or Council will not only require you to take clean-up action, but also preventative works. The latter is not covered by all pollution liability policies.
  • If you need insurance which provides cover in relation to contamination, then a standard pollution liability policy will not be adequate. Contamination policies are becoming increasingly available (and affordable), particularly in relation to residual contamination which is to remain in-situ following the completion of remediation works.
Louise Cantrill

I provide solutions that matter to client success through collaboration, innovation and excellence.

Louise Cantrill Partner

Louise has specialised in liability litigation and insurance advice since 1996, combining technical excellence with a commercial approach to deliver client focused outcomes. She is highly regarded by her insurer and insured clients (including government agencies, corporates and self-insureds) across a wide range of claims litigation and technical insurance advice.

Louise is highly regarded for both her insurance advisory work with insurer, government and corporate clients, and her claims expertise in the areas of professional negligence (including medical, financial services and construction) and directors & officers.

Louise manages civil matters and appears at Coronials across a wide range of professional negligence and directors and officers claims, including catastrophic injury, multi-party, complex commercial, and high profile claims.

Louise's advisory practice focuses on policy interpretation and multi-contract transactional advice. She advises on policy interpretation and coverage, including multilayer programmes and re-insurance issues. Her insurer clients seek her out for policy wording reviews.

Louise's clients include NSW Ministry of Health, Transport for NSW, W.R. Berkley Insurance Australia, Allied World Assurance Company, Macquarie Bank, Insurance Council of Australia, Sydney Water Corporation, Westfield, PPB Advisory and McGrathNicol.

One of her career highlights was advising Transport for NSW on insurance issues arising from the 'fixing the trains' project, which was one of the most significant  corporate and operational restructures in Australia. This included transactional advice and drafting as well as policy analysis and negotiation.

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Elizabeth Wild

Knowing the law is not enough – our value is in delivering our clients a commercial and practical solution.

Elizabeth Wild Partner

Liz is a member of the Board. She is a specialist in all areas of environmental law, with a particular focus on contamination and pollution. Liz is also the Head of our Property, Environment and Planning practice and recognised by her clients, peers and legal directories as a leader in her field.

Our clients call upon Liz to help them tackle environmental issues such as negotiating the sale and purchase of contaminated sites and obtaining planning and environmental approvals for the remediation and development of contaminated land. She also advises on environmental due diligence, licensing and compliance issues and pollution law, as well as drafting and implementing environmental management systems.

One of Liz's career highlights has been acting for Jeffman Pty Limited in an action it successfully brought against the NSW Environment Protection Authority in the first ever legal challenge under the Contaminated Land Management Act 1997 (NSW).

Liz acts for large manufacturing companies, government agencies, listed property trusts and property developers.  Her clients include Sydney Trains, RMS, Orora and the Department of Defence.

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Sarah Mansfield

Solving problems is my favourite part of the job.

Sarah Mansfield Senior Associate

Sarah is a specialist environment and planning lawyer, with extensive transactional, litigation and advisory experience. Sarah advises and acts for government authorities, land owners, developers and financial institutions on matters related to contaminated land, pollution, waste, vegetation and planning and environmental approvals.

Sarah's recent advisory and transactional experience has involved complex transactions and financing agreements related to contaminated land, land remediation and rehabilitation projects and the redevelopment of industrial sites. In assisting her clients with these matters, Sarah has represented her clients in complex commercial negotiations and assisted her clients in discussions with regulators, financers and stakeholders.

Sarah is also an accomplished litigator, representing landowners, investors, local governments, developers and stakeholders in a range of disputes involving contaminated land, contentious developments and incompatible land uses. Sarah also has extensive experience representing defendants in criminal proceedings under the Protection of the Environment Operations Act 1997 and equivalent interstate legislation.

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