Tenth Circuit Upholds Owner-Property Exclusion In Connection With Cleanup Efforts

On August 25, the U.S. Court of Appeals for the Tenth Circuit, in an unpublished opinion, affirmed the lower court’s ruling that the cost to remediate environmental contamination at a ski resort was subject to a contractual exclusion in the facility’s commercial general liability insurance policy. The case is Taos Ski Valley, Inc., v. Nova Casualty Company.

The exclusion is known as the “Owner-Property Exclusion” in the policy. The ski resort operates its facility on federal land pursuant to a special use permit issued by the Department of Agriculture. In October 2013, hydrocarbon contamination resulted as the result of spills and releases from an oil and water separator located at the facility. The diesel and petroleum levels exceeded New Mexico regulatory limitations, and the state and federal authorities were immediately contacted and a successful remedial cleanup was effected on the resort’s property. Indeed, these agencies commended the ski resort for its prompt and efficient cleanup.

However, in October 2014, the ski resort’s claim with it insurer for indemnification was rejected. The ski resort argued that the exclusionary impact of this contractual provision should not apply to a project largely intended to abate third party concerns (i.e., the state and feral authorities). However, the Court of Appeals rejected this argument, finding that the provisions of this exclusion were clearly stated that while the resort acted commendably, “that commendable behavior does not give it a free pass to avoid the effects of a plainly worded policy exclusion.”