## Facts

- Hecla Mining Company operated mining properties in Colorado, including facilities affecting the California Gulch area near Leadville.
- The State of Colorado filed a federal CERCLA action alleging heavy metals and other contaminants were discharged from the Yak Tunnel into California Gulch, causing environmental damage.
- Hecla sought defense and indemnity under comprehensive general liability (CGL) policies issued by New Hampshire Insurance Company and Industrial Indemnity Company.
- The policies covered damages because of property damage caused by an “occurrence,” defined to include accidents and continuous or repeated exposure resulting in damage neither expected nor intended from the insured’s standpoint.
- The policies contained a pollution exclusion for injury or damage arising from the discharge of pollutants, with an exception when the discharge was “sudden and accidental.”
- The insurers refused to defend, asserting (1) no covered “occurrence” and (2) the pollution exclusion barred coverage because the releases were not “sudden and accidental.”
- Hecla filed a Colorado state coverage action seeking a declaration that the insurers owed a duty to defend and indemnify.
- The trial court ruled for Hecla on the duty to defend; the court of appeals reversed; the Colorado Supreme Court granted review.

## Issues

1. Whether the insurers had a duty to defend the environmental actions when the complaints alleged property damage that might fall within the policies’ “occurrence” coverage.
2. Whether the pollution exclusion, and its “sudden and accidental” exception, unambiguously eliminated any potential for coverage at the defense stage.
3. Which party bore the burden to show the pollution exclusion (and the exception) applied in a way that negated the duty to defend.

## Decision

- The Colorado Supreme Court reversed the court of appeals and directed reinstatement of the trial court’s judgment.
- The insurers owed Hecla a duty to defend because the underlying allegations potentially or arguably fell within policy coverage.
- The insurers could not avoid defending by characterizing the alleged harms as foreseeable consequences of long-term operations where the policies defined “occurrence” to include continuous or repeated exposure causing damage neither expected nor intended by the insured.
- The pollution exclusion did not eliminate the duty to defend because “sudden and accidental” was ambiguous and therefore construed against the insurers at least for purposes of determining potential coverage.
- The duty to defend was not defeated by the insurers’ prediction that indemnity might ultimately be unavailable after factual development.

## Legal Principles

- An insurer’s duty to defend is broader than its duty to indemnify and arises when the complaint alleges any facts that might fall within coverage; potential or arguable coverage is sufficient.
- The insurer bears the burden to establish that an exclusion applies, and exclusions must be stated in clear, specific language and are construed against the insurer.
- To deny a defense based on an exclusion, the insurer must show the allegations are solely and entirely within the exclusion and subject to no other reasonable interpretation.
- “Occurrence” provisions covering “continuous or repeated exposure” may include gradual environmental contamination if resulting damage was neither expected nor intended from the insured’s standpoint.
- The pollution exclusion phrase “sudden and accidental” is ambiguous; it can reasonably mean unexpected and unintended rather than only temporally abrupt, and ambiguity is resolved in favor of coverage at the defense stage.

## Conclusion

The court required the insurers to defend Hecla in environmental enforcement litigation because the complaints left open a reasonable possibility of an “occurrence” and because the pollution exclusion’s “sudden and accidental” exception was ambiguous, preventing the insurers from showing the claims fell entirely outside coverage.


Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083 (Colo. 1991)