## Facts

- Aluminum Company of America and an affiliate operated industrial facilities that generated wastes later associated with contamination of groundwater, surface water, and soil at 35 sites in 11 states.
- Over several decades, the companies purchased multiple layers of insurance from many insurers, including comprehensive general liability (CGL) policies and “differences in conditions” (DIC) first-party property policies.
- After governmental cleanup demands and related liabilities arose, the insureds tendered claims; many insurers denied coverage.
- The insureds filed a declaratory judgment action seeking coverage for environmental cleanup and related losses.
- The trial court applied Pennsylvania law, selected three “test sites,” and tried common issues including insurable interest in groundwater, misrepresentation/nondisclosure, CGL pollution exclusions, DIC suit-limitation clauses, fortuity, and allocation across policy years.
- The trial court largely ruled for insurers on the CGL pollution exclusion, applied suit-limitation clauses to bar parts of certain DIC claims, applied a non-fortuity rationale to deny some DIC coverage, and adopted a pro rata allocation approach.
- The trial court certified an interlocutory appeal; the state high court accepted direct review.

## Issues

1. Whether the insureds had an insurable interest in groundwater sufficient to support property coverage under Pennsylvania law.
2. Whether alleged misrepresentations or nondisclosures about pre-existing contamination voided certain DIC policies.
3. Whether the CGL pollution exclusion’s “sudden and accidental” exception preserved coverage for gradual pollution under Pennsylvania law, and whether estoppel barred insurers from invoking the exclusion.
4. How contractual suit-limitation clauses in DIC policies accrue and apply to environmental damage claims.
5. Whether the fortuity requirement defeats coverage for long-term environmental damage where the insured allegedly knew of ongoing contamination.
6. How to allocate continuous environmental losses across multiple triggered policy years and layers of coverage under Pennsylvania law.

## Decision

- Affirmed in part, reversed in part, and remanded.
- Held the insureds had a sufficient insurable interest in groundwater based on a substantial economic stake, not legal title.
- Upheld rejection of the insurers’ misrepresentation defense because materiality was not proven on the record presented.
- Held the CGL pollution exclusion generally barred coverage for gradual pollution because “sudden” requires temporal abruptness; rejected estoppel for lack of reliance by the insureds.
- Reversed in part on DIC suit-limitation rulings and remanded to apply Pennsylvania accrual principles tied to the inception of the loss (physical damage), not later regulatory action.
- Reversed in part on fortuity, instructing that fortuity turns on the insured’s expectations and foreseeability at the time of contracting, not merely later knowledge that damage continued.
- Accepted pro rata allocation for progressive environmental injury in principle but modified the trial court’s approach and remanded for allocation consistent with Pennsylvania standards.

## Legal Principles

- An insurable interest under Pennsylvania law may rest on a real, substantial economic interest in the preservation of the property or resource, even without title.
- To void coverage for misrepresentation or nondisclosure, insurers must prove materiality—i.e., that the truth would have substantially influenced issuance of the policy or the premium—based on the underwriting record and parties’ contemporaneous understanding of coverage.
- Under Pennsylvania law, the CGL pollution exclusion’s “sudden and accidental” exception requires temporally abrupt releases; it does not restore coverage for gradual, long-term discharges.
- Estoppel against invoking a policy exclusion requires proof of the insured’s reliance on the alleged misstatement.
- For first-party policies with contractual suit-limitation clauses, Pennsylvania law generally measures the limitation period from the inception of the loss, tied to physical damage, subject to applicable accrual rules.
- Fortuity is assessed with reference to the insured’s state of mind and foreseeability at the time the policy was bound; continuing or later-discovered contamination does not automatically defeat fortuity for earlier coverage periods.
- Continuous environmental injury spanning multiple years is generally allocated pro rata across triggered policy years based on time on the risk (and related measures of when damage occurred), rather than imposing “all sums” on a single year.

## Conclusion

Applying Pennsylvania law, the court largely sustained insurers’ reliance on the CGL pollution exclusion for gradual contamination and upheld key defenses, but corrected the trial court’s treatment of fortuity, recalculated how DIC suit-limitation periods accrue, and refined pro rata allocation for long-tail environmental losses before remanding for further proceedings.


Aluminum Co. of Am. v. Aetna Cas. & Sur. Co., 998 P.2d 856 (Wash. 2000)