Airport Handed a Win in Decades-Old Pollution Coverage Dispute

Why It Matters

The ruling clarifies that legacy CGL policies may lack aggregate caps for property damage, raising insurers' exposure and setting a precedent for future environmental liability disputes.

Key Takeaways

• Ninth Circuit rules AIG's policies lack property damage aggregate cap
• Chino Airport cleanup costs could exceed original $9 million limits
• Decision may trigger unlimited liability exposure for insurers
• Highlights ambiguity in historic CGL policy language
• Could reshape environmental liability underwriting across the industry

Pulse Analysis

The Chino Airport in San Bernardino County has been a dumping ground for military waste since the 1940s, when contractors melted down World II aircraft and produced napalm for Vietnam. Decades later, California regulators forced the county to remediate a polluted groundwater plume, prompting officials to tap three umbrella commercial general liability policies bought from Insurance Company of the State of Pennsylvania (ICSOP), an AIG subsidiary, between 1966 and 1975. Each policy listed a $9 million per‑occurrence limit, but the insurer argued an annual aggregate cap applied to all claims, including property damage.

The U.S. Court of Appeals for the Ninth Circuit rejected that argument, finding the policy language “nearly incoherent” and, under California’s ambiguity‑against‑the‑drafter rule, concluding there was no aggregate limit for property‑damage losses. Internal ICSOP memos corroborated the county’s interpretation, and the judges noted that many mid‑century CGL forms simply omitted aggregate caps, a gap that later environmental and asbestos suits exploited. By overturning the district court’s ruling, the panel restored the county’s right to pursue full cleanup costs, which could far exceed the original $9 million payouts.

The decision reverberates beyond Chino, signaling that insurers may face unlimited liability for legacy environmental claims hidden in old CGL contracts. Underwriters are now re‑examining historic policies for similar ambiguities, and some are tightening language or adding explicit environmental exclusions in new agreements. Premiums for commercial general liability coverage could rise as carriers price the heightened tail‑risk, while insureds may seek retroactive endorsements or separate environmental insurance. Ultimately, the case underscores the need for clear, modern policy wording to prevent costly “cascade of liability” scenarios.