## Facts

- American Motorists Insurance Company issued ARTRA Group, Inc. (and predecessors) nine comprehensive general liability policies from 1976 to April 1, 1985, plus an umbrella policy for part of that period.
- The policies were countersigned in Illinois and contained a pollution exclusion for injury or damage arising from the discharge of pollutants, except when the discharge was “sudden and accidental.”
- ARTRA previously operated a paint-manufacturing facility in Baltimore, Maryland, and sold the site to Sherwin-Williams in 1980.
- Maryland environmental authorities required investigation and remediation of hazardous waste contamination at the site.
- Sherwin-Williams sued ARTRA in federal court seeking recovery of investigation and cleanup costs, alleging numerous releases during regular operations, including discharges through drainage systems and from improper filling and abandonment of underground tanks.
- ARTRA demanded defense and indemnity under the policies; American Motorists denied coverage based on the pollution exclusions.

## Issues

1. Whether, when Maryland’s *lex loci contractus* points to Illinois, Maryland may consider Illinois choice-of-law rules and apply Maryland substantive law if Illinois would do so (limited renvoi).
2. Whether, under the applicable law, allegations of long-term, routine environmental contamination trigger any potential coverage under the “sudden and accidental” exception, creating a duty to defend or indemnify.

## Decision

- The Court of Appeals of Maryland reversed the intermediate appellate court and reinstated summary judgment for American Motorists.
- The court adopted a limited renvoi approach: when the contract state’s conflicts rules would apply Maryland law, Maryland applies Maryland substantive law.
- Applying Maryland law, the court held the pollution exclusion barred coverage because the allegations described gradual, routine discharges, not “sudden and accidental” events.
- Because there was no potentiality of coverage on the face of the underlying complaint, the insurer had no duty to defend and therefore no duty to indemnify.

## Legal Principles

- Maryland’s *lex loci contractus* rule may incorporate the “whole law” of the contract state, including its conflict-of-laws principles, permitting limited renvoi when the contract state would apply Maryland law.
- For pollution exclusions, “sudden and accidental” is unambiguous under Maryland law and requires both abruptness (temporal immediacy) and unexpectedness.
- Allegations of pollution arising from long-standing routine business operations fall within the pollution exclusion and outside the “sudden and accidental” exception.
- An insurer’s duty to defend arises only if the underlying complaint alleges facts creating a potentiality of coverage; if none exists, no defense or indemnity is owed.

## Conclusion

Maryland applied limited renvoi to use Maryland substantive law despite Illinois being the place of contracting, then held that allegations of routine, gradual contamination could not satisfy the “sudden and accidental” exception, eliminating any potential coverage and any duty to defend or indemnify.


American Motorists Ins. Co. v. ARTRA Grp., Inc., 338 Md. 560, 659 A.2d 1295 (Md. 1995)