Policyholder Pulse
We are on the cusp of another milestone in the decades-long Montrose Chemical litigation, which has already yielded many important precedents in California on coverage for so-called “long-tail” pollution liabilities. “Long-tail” claims arise under historical comprehensive general, umbrella and excess liability policies for alleged pollution that was in progress through multiple policy periods—such as underground tank leaks, seepages from waste disposal impoundments, and similar occurrences taking place over time. Whether the so-called “qualified pollution exclusion” bars coverage for such long-tail claims is a question that has divided courts for decades. Now the California Supreme Court has agreed to hear a critical appeal that puts the interpretation of the qualified pollution exclusion in play—with potentially seismic impacts.
The Equivocal State of the Qualified Pollution Exclusion in California Law
Between 1971 and 1986, comprehensive general, umbrella and excess liability policies usually contained an exclusion barring coverage for liabilities resulting from the release, discharge or escape of a range of polluting substances. This exclusion often was subject to a critical qualification: It does not bar coverage if the release, discharge or escape was “sudden and accidental.” The interpretation of that exception is critically important because commercial and industrial policyholders purchased billions of dollars worth of such coverage for “occurrences”—typically defined as “accident or continuous or repeated exposure to conditions”— that were in progress during the period of coverage. This insurance remains available to cover claims indefinitely, subject to establishing that the occurrence was taking place during the policy period. Such claims, worth millions of dollars, continue to emerge because of regulatory action and litigation against policyholders today arising from alleged conditions originating decades ago.
The nub of the coverage dispute is the interpretation of the word “sudden.” The dictionary gives it multiple meanings, which don’t overlap completely. One familiar meaning is abrupt, in a temporal sense—like a pipeline explosion or a precipitous spill. The opposite of this definition is “gradual.” Another meaning—the first listed in the dictionary—is “unexpected.” This definition does not require a temporal interpretation; its opposite is not gradual. (If you use Microsoft Word, enter the word “sudden” in the thesaurus feature, and see what comes up.)
These varied definitions have dramatic coverage implications. Policyholders argue that the “sudden and accidental” exception preserves coverage for long-tail environmental exposures arising from gradual releases that a policyholder did not expect or intend, while eliminating coverage for pollution caused by intentional dumping of pollutants. Insurers insist that the exception applies only to temporally abrupt, “boom-type” events, and thus the exclusion eliminates coverage for all gradual releases of pollutants—even those unexpected and unintended by the policyholder. And both sides point to the dictionary definitions for support.
Courts have divided on this issue for decades. And for decades, lower California courts have applied the narrow, insurer-friendly “temporal” definition of the word “sudden.” Policyholders have argued that the term is ambiguous, and that courts should consider extrinsic evidence showing that insurers informed state insurance commissioners that the pollution exclusion did not bar coverage of unexpected and unintended releases. But earlier California courts refused to consider such extrinsic evidence to vary the meaning of policy language that they considered plain.
In more recent cases, however, including one involving Montrose itself, the California Supreme Court has clarified that extrinsic evidence and drafting history may inform the industry usage of certain terms and may be considered to determine whether contract language is ambiguous. The logic of these cases collides with lower court decisions that previously adopted a “temporal” interpretation of the exclusion without considering what the insurance industry itself told regulators when it was seeking approval of the exclusion.
The Supreme Court Moves to Consider What Weight to Give Extrinsic Evidence
Montrose argued before the California Court of Appeal, Second Appellate District, that the court should apply the California Supreme Court’s more recent approach to policy interpretation to the pollution exclusion by considering what industry representations were made to regulators. Significantly, every state supreme court that has considered this evidence ruled that “sudden” should be interpreted to mean “unexpected” without any temporal restriction, preserving the possibility of coverage for gradual but unexpected and unintended releases. Perhaps understandably, the Court of Appeal was unwilling to depart from earlier precedents interpreting the pollution exclusion and continued to equate “sudden” with temporal abruptness, without considering what insurers told their regulators.
Montrose took the matter to the California Supreme Court. (Pillsbury filed a letter with the Court supporting Montrose’s petition.) On January 30, 2026, the Court agreed to hear the appeal. The Court limited the scope of its review to two issues:
- May a court conclude that contract language is not reasonably susceptible of a construction advanced by a party without first giving preliminary consideration to the extrinsic evidence proffered by the party?
- Under what circumstances, if any, does prior judicial construction of contract language render that language not reasonably susceptible to a construction advanced by a party and preclude preliminary consideration of extrinsic evidence proffered by that party to support that construction?
The California Supreme Court did not undertake to decide the meaning of the “sudden and accidental” exception directly. But it opened the door. The Court will consider Montrose’s contentions that a court should consider extrinsic evidence offered by a party to prove its interpretation of the contract language, and that prior judicial decisions don’t foreclose such consideration. If Montrose is successful, and California courts for the first time consider extrinsic evidence regarding the meaning of the qualified pollution exclusion, the eventual result could be a sea change in California law. And, given the close split among courts nationwide, if California throws its considerable weight behind the interpretation the insurers themselves put before state regulators, the eventual impact of the ruling could ripple across the country.