Environmental liabilities are among the most financially consequential risks facing businesses today. Pollution risks are covered under various kinds of policies including Pollution Legal Liability (PLL), Comprehensive General Liability (CGL), and All Risk (All Risk) Property insurance policies. When a policyholder makes a pollution claim, insurers hire counsel to minimize payments under the policies and shield them from bad faith. As policyholder counsel, we maximize claim value and hold the insurance carriers liable for bad faith conduct.
Insurance Coverage for Environmental Liabilities
Coverage for environmental liabilities is often found in historic CGL policies going back decades. When the insurance industry saw environmental losses under CGL policies rise, they offered for sale separate pollution-only (PLL) policies. See Pennzoil-Quaker State Co. v. American Intern. Specialty Lines Ins. Co., 653 F.Supp.2d 690 (S.D. Tex. 2009) (pollution policies were developed specifically to fill coverage gaps created by the use of pollution-related exclusions in CGL policies). Many All Risk property policies also cover pollution related cleanup costs.
Pollution claims are often contentious. Insurers hide evidence and make unreasonable decisions in order to deny coverage. This leads to bad faith.
The Leading Bad Faith Case: United Technologies Corp. v. American Home Assurance Co.
The most significant judicial finding of insurer bad faith in the environmental insurance context is United Technologies Corporation v. American Home Assurance Company, decided by the District of Connecticut in two related year 2000 opinions. United Technologies Corp. v. American Home Assur. Co., 118 F.Supp.2d 181 (2000); United Technologies Corp. v. American Home Assur. Co., 118 F.Supp.2d 174 (2000). There, United Technologies Corporation (UTC) sued its All Risk property insurer for bad faith in connection with the insurer’s refusal to provide coverage for environmental contamination claims at numerous facilities nationwide. The jury returned a verdict for UTC on both common law bad faith and three violations of the Connecticut Unfair Insurance Practices Act (CUIPA), and the court subsequently awarded $16 million in punitive damages under the Connecticut Unfair Trade Practices Act (CUTPA).
The evidence showed that American Home, purposefully abandoned all accepted claims processing procedures and instead adopted a policy of referring all such cases exclusively to outside counsel — without deploying any adjuster, generating any coverage opinion, or conducting any factual investigation. The court found that American Home had taken an unequivocal “no coverage” position at a relatively early juncture, as evidenced by a late-disclosed internal memorandum, while simultaneously misleading UTC into believing that productive steps toward claims resolution were underway. The jury was entitled to conclude from this evidence that there was a purposeful effort to prevent or postpone definitive resolution of the claims — a state of perpetual “maintained a position of claims ‘limbo’—neither affirming or denying coverage within a reasonable time after proof of loss statements were completed” — which constituted bad faith.
This case prominently involved the withholding of evidence. A critical internal memorandum showed that American Home recognized as early as 1987 that environmental contamination claims posed grave financial implications and that the company had already determined it would deny such claims. The memorandum was not disclosed until after trial. The court specifically noted that American Home had “taken an unequivocal ‘no coverage’ position at a relatively early juncture.” Id. As such, American Home never intended to investigate or pay the claims. The $16 million punitive damages award was premised on American Home’s “purposeful abandonment of accepted claims-processing practices.” Id.
Indiana Insurance Co. v. Demetre — Bad Faith in Petroleum Pollution Case with Concealed Evidence (Kentucky)
In Indiana Insurance Company v. Demetre, 527 S.W.3d 12 (2017), the Kentucky Supreme Court affirmed a jury verdict awarding $925,000 in emotional distress damages and $2,500,000 in punitive damages against the insurer for bad faith arising from a liability coverage dispute involving petroleum contamination allegedly migrating from the insured’s vacant lot (a former gas station) to a neighboring property.
This case also involved the withholding of an internal memorandum. An internal note from the insurer’s assigned counsel reflected that an environmental engineer had informed the claims team that the claimants’ claims were “unlikely” to be legitimate given the stage of site investigation. Despite this, the insurer’s adjuster testified at trial that he had no knowledge of this memorandum — a denial the trial court found troubling. Additionally, during the insured’s deposition, the insurer’s adjuster claimed a document in the claims file confirmed pre-policy contamination on the claimants’ property, but when asked at trial to produce it, no such document existed in the file as produced.
Goodrich Corp. v. Commercial Union Insurance Co. — Environmental Cleanup Bad Faith (Ohio)
In Goodrich Corp. v. Commercial Union Ins. Co., Not Reported in N.E. Rptr. (2008), an Ohio appellate court affirmed that one of two insurer defendants had acted in bad faith in refusing to indemnify the insured tire manufacturer for costs incurred in connection with a government-mandated environmental cleanup action. While a co-insurer was found to have had justifiable reasons for its coverage denial, the court found that the other insurer lacked a justifiable basis for refusing the insured’s claim. As a consequence, that insurer was subjected to a greater share of a $22 million attorney fees and litigation costs award.
Tucson Airport Authority v. Certain Underwriters at Lloyd’s, London — Misrepresentation in Environmental Coverage Dispute (Arizona)
In Tucson Airport Authority v. Certain Underwriters at Lloyd’s, London, 186 Ariz. 45 (1996), the Arizona Court of Appeals held that the insured had stated a viable bad faith claim against its liability insurers for the carriers bad faith failure to treat the insured fairly.
Renergy, Inc. v. Mt. Hawley Ins. Co. — Egregious Conduct Uncovered in Discovery (New York)
The most notable recent PLL bad faith case is Renergy, Inc. v. Mt. Hawley Ins. Co., 2026 WL 1192415 (S.D.N.Y. 2026). In that case, Renergy sought coverage for corrective action costs in the amount of $1,562,443.88, but Mount Hawley agreed to pay only $246,718.25. As litigation progressed more egregious conduct was uncovered. Renergy sought to amend its complaint to set forth in more detail, but Mount Hawley’s objected, alleging that NY did not permit a bad faith claim in the first-party context. The Court disagreed and granted Renergy’s leave to amend.
Important Take Aways
We are facing an ever-increasing number of pollution insurance claims that are not being paid. One of the first things to examine is whether or not these claims have been denied in bad faith. Sometimes the conduct is evident from the start, but more often than not, the bad faith conduct only becomes evident in litigation. We can learn the following from pollution cases that address bad faith:
Insurers don’t voluntarily produce bad faith information
Bad faith conduct usually develops over time and is often well hidden. It is refreshing that the Court in Renergy recognized that insurers don’t identify their own bad faith conduct prior to the filing of a lawsuit. Likewise, United Technologies turned on “a late-disclosed internal memorandum.” Oftentimes, bad faith conduct is only discovered after months of discovery, and numerous motions to compel. Insurers don’t just hand over evidence of their bad faith conduct, and they certainly don’t offer to provide it voluntarily in litigation.
Insurers often have a predetermined claim denial outcome
Some assume that insurers investigate each and every claim that they are presented with. Case law shows that this is not true. In the environmental context, some insurers have made the determination that environmental claims are not covered, and they may have made this determination long before the claim at issue was even submitted. This is bad faith. But, as emphasized above, they will not produce this information voluntarily.
Don’t be discouraged by seemingly lofty legal burdens
Legal challenges with bad faith claims are not insignificant. Bad faith claims are highly jurisdiction dependent. Some jurisdictions have made the simple concept of common law bad faith, that an insurance carrier may not engage in conduct that prioritizes its own financial interests over its contractual obligations to the policyholder, overly complex. Likewise, many states have enacted statutes that independently regulate insurer claims-handling conduct and provide policyholders with a statutory basis for bad faith claims, but the burdens and potential recoveries vary from state to state. It is important to fully understand the law and the jurisdiction that applies prior to initiating a lawsuit.
Recoveries are not the only reason to focus on bad faith
We often ask what can be recovered in a bad faith claim. Depending on the jurisdiction, this could be attorney’s fees to pursue of the coverage lawsuit to multiplied damages. But, this is not the main reason to bring a bad faith claim. Perhaps the most important reason to pursue a bad faith claim is that it provides context for the court and the jury. Breach of contract cases are not that interesting. Insurer conduct cases are interesting. People and judges pay attention to wrongful conduct. To win, insurance cases should be centered around insurer conduct.
Egregious bad faith conduct is more common than one might think
In a recent trial I listened to a judge explain the law on the burden of proof for our client’s bad faith / punitive damages claim. His explanation was that the insurance companies conduct must be egregious — really bad stuff. He had the black letter law dead on correct. We won on the bad faith / punitive damages claim, but it got me thinking about whether egregious insurer conduct is the norm rather than the exception.
Personal Observations
My personal observations in dealing with corporate insurance claims over the past 30 years is that egregious conduct on behalf of insurers is quite common. Although United Technologies was decided over 25 years ago, what it described as bad faith, namely the common practice of putting a claim in a “claims ‘limbo” state by “neither affirming or denying coverage within a reasonable time,” appears to be the norm. I can barely remember a claim where the insurer either affirmed or denied coverage. On rare occasions, insurers issue a claims denial letter. We don’t see any affirmation of coverage letters. Instead, insurers write endless reservation of rights letters that neither admit nor deny coverage. This was bad faith in United Technologies and just because the bad faith practice has been widely adopted does not mean that it is now magically transformed from bad faith to good faith. We need to get back to our roots and bring some common sense back into the claims adjustment process. The practice of sending endless reservation of rights letters written by insurer counsel is not serving society or policyholders.
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