Two recent court decisions have attempted to shed light on an insurer's responsibilities to its insureds under the pollution damage exclusion of the comprehensive general liability (CGL) policy.

The CGL policy is meant to compensate policyholders for claims brought against them for bodily injury or property damage. Insurers began to exclude damage caused by environmental pollution in 1970.Courts continue to interpret insurance company pollution exclusions, with varying results across the country on both state and federal levels.

On Monday, the United State Court of Appeals for the Fourth Circuit in New Jersey ruled that CGL policies do not cover a company's costs for the cleanup of pollution resulting from its dumping of hazardous materials at a waste- disposal site.

The federal court, in Liberty Mutual Insurance Co. vs. Triangle Industries Inc., refused to follow lower court decisions in New Jersey that restricted the application of the pollution exclusion to situations where harm was expected from the polluting discharge.

"The Fourth Circuit's opinion shows that New Jersey law interpreting the pollution exclusion is far from determined," according to Thomas W. Brunner, whose Washington law firm, Wiley, Rein & Fielding, filed a friend-of-the court brief in that case.

A New York state appellate court tackled another aspect of the pollution exclusion morass late last month. In the case of Continental Casualty Co. vs. Rapid-American Corp., the court ruled that the exclusionary language was never meant to address asbestos claims.

With an eye to setting legal precedent in New York, Judge Richard W. Wallach wrote for a unanimous Appellate Division of the Supreme Court that the exclusion "does not absolve the carrier of its duty to defend" and policyholders against asbestos suits. The appellate ruling addressed the insurers' defense obligations only, whereas the lower court ruled on the duty to indemnity as well.

Robert L. Carter, an attorney at the Washington office of Anderson, Kill, Olick & Oshinsky, said the Continental decision is the first ruling on the appellate level that the exclusion applies "only to environmental pollution caused by industrial activities and does not apply to the asbestos personal injury claims."

From early October 1990 until November 1990, Rapid-American had notified its insurer of 14 asbestos-related bodily injury actions. The insurer was then asked to defend and indemnify Rapid-American. Supreme Court Judge Carol Huff declared in July 1991 that the pollution exclusion barred coverage for the asbestos claims.

The appellate court found that Continental is not only obligated to defend Rapid-American against third-party claims in the underlying asbestos actions; it also must pay Rapid-American's legal fees in the appellate case because it was the insurer that appealed, said Mr. Carter.

The attorney doesn't think this part of the ruling will have a chilling effect on an insurer's right to appeal.

But "a policyholder is not going to be walked over," he emphasized. "If an insurance company denies coverage, the policyholder is going to fight."

One such battle was fought in San Diego recently.

A California appellate court ruled on Feb. 27 that insurers must provide their policyholders with coverage for damages occurring over the entire course of environmental contamination from hazardous waste disposal.