A recent decision from the Sixth Circuit reveals how exclusions in your D&O policy might negatively impact your compliance activities. In the case of Barber v. Arch Insurance Company, 2021 U.S. App. LEXIS 20368 (6th Cir. July 7, 2021) (“Barber”), the court determined a coal company’s D&O policy would not supply coverage, because the company’s underlying claim arose from its voluntary testing and monitoring of coal dust samples and the self-reporting thereof. Barber involved a federal investigation into Armstrong Coal Company, Inc.’s routine and voluntary self-reporting of coal dust samples to the Federal Mine Safety and Health Administration (MSHA), as required under the Federal Mine Safety and Health Act. The investigation into Armstrong’s Parkway Mine, located in Muhlenberg County, Kentucky, began in 2014 with a citation and, after a petition to contest the assessment of civil penalties and subpoena for documents, it culminated in 2018 with the indictment of various current and former Armstrong employees for their alleged manipulation of dust sampling methods and submission of fraudulent coal dust samples.

Armstrong’s D&O carrier, Arch Insurance Company, denied coverage for the individual defendants’ defense, based on, among other things, the pollution exclusion contained in its policy, and the Barber Court agreed. The Sixth Circuit affirmed the lower court decision that, as written, the pollution exclusion explicitly applied, i.e., negated coverage, to losses or claims arising out of the “direction, request or voluntary decision to test for [or] monitor . . . Pollutants,” activities exactly at issue here, that is, Armstrong’s voluntary coal dust sampling and self-reporting in compliance with applicable regulations. The Court acknowledged that other courts have found coverage for coal dust exposures notwithstanding the existence of a pollution exclusion. See, e.g., Certain Underwriters At Lloyd’s v. Abundance Coal, Inc., 352 S.W.3d 594 (Ky. Ct. App. 2011); Motorists Mut. Inc. Co. v. RSJ, Inc., 926 S.W.679 (Ky. Ct. App. 1996). The Court, however, noted the absence of the pollution exclusion language in those cases of the words “test” and “monitor.” The Court found these absences to be significant, and held that “[t]he scope of this pollution exclusion is broader than usual because it includes claims arising from Armstrong’s regulation of contaminants and irritants,” i.e., coal dust.

The Barber case is important for policy holders because it underscores the importance of how related policy terms, in this example, a pollution exclusion, impact the availability of coverage. The Barber pollution exclusion negated coverage for the testing or monitoring of a pollutant. Many other pollution exclusions only bar coverage when a pollutant is discharged. When evaluating your D&O policy options in conjunction with your organization’s operations, including any self-reporting duties, the language of your pollution exclusion in your D&O policy may lead to dramatic differences in how your claim is resolved.

To discuss these implications, please contact Henderson Brothers.

Please note that the information contained in this posting is designed to provide general awareness in regard to the subject matter covered. It is not provided as legal, medical, or tax advice, nor is it intended to address all concerns in your workplace or for public health. No representation is made as to the sufficiency for your specific company’s needs. This post should be reviewed by your legal counsel or tax consultant before use.