US District Court for District of Massachusetts holds that exception to exclusion does not create coverage barred by a different exclusion

On February 19, 2019, an employee of Performance Trans, Inc. ("PTI") drove a tanker truck off the road in New York.  The truck overturned and spilled 4,300 gallons of gasoline and diesel fuel.

PTI undertook an emergency response action to clean up the spill.  It sought coverage for its costs in doing so from its insurer, General Star Indemnity Company.  General Star disclaimed coverage on the basis of a total pollution exclusion.

Utica Mutual Insurance Company provided malpractice insurance to PTI's insurance broker.  It agreed to reimburse PTI for the cleanup costs in exchange for an assignment of PTI's rights against General Star.  The case proceeded to a declaratory judgment action.

The General Star policy included a Special Hazards and Fluids Limitation endorsement, which excluded coverage for "the unloading of drilling fluids from any auto, mobile equipment, machinery or equipment, whether unloading is the result of movement of property by a mechanical device, an accident, a spill or otherwise."  The exclusion contained an exception for unloading of the fluids caused by the upset or overturn of an auto.

Utica and PTI argued that the exception to the exclusion indicated that General Star agreed to provide coverage for unloading caused by the upset or overturn of an auto.

In Performance Trans., Inc. v. General Star Indemnity Co., __ F.Supp. 3d __, 2019 WL 6307227 (D. Mass.), the United States District Court for the District of Massachusetts disagreed.  "An exception to an exclusion does not affirmatively create coverage."  Rather, an exception merely prevents the exclusion itself from applying in specified circumstances.  (In a footnote the court noted that by their plain meaning the total pollution exclusion of the policy and the Special Hazards and Fuel Limitation endorsement can coexist, so that the exception to the latter exclusion is not superfluous or illusory.)