Policy Provision Requiring Insurer’s Consent to Incur Clean-Up Costs Not Void Against Public Policy

Applying New York law, the United States District Court for the Southern District of New York has held that a policy provision that requires an insured to seek approval from the insurer prior to incurring environmental clean-up costs is not void as against public policy. SI Venture Holdings, LLC v. Catlin Spec. Ins., 2015 WL 4191453 (S.D.N.Y. July 10, 2015).

A real estate development company incurred $250,000 in costs to address a petroleum contamination problem at one of its properties. After incurring these costs, the company sought coverage under its insurance policy, which contained a consent provision stating that the insurer would reimburse only those clean-up costs incurred with the insurer’s prior written consent after the pollution condition is tendered to the insurer. The insurer denied coverage for the pre-tender clean-up costs. The company argued that the consent provision is void as against public policy because it impedes compliance with environmental regulations by slowing down a policyholder’s ability to address contamination problems.

The court sided with the insurer, holding that the consent provision is not void as against public policy. The court noted that numerous New York courts have enforced similar consent provisions, and thus a contrary ruling by this court would “revolutionize” New York insurance law. In addition, the court stated that accepting the real estate company’s position would unfairly eliminate an insurer’s ability to make even reasonable objections to any clean-up costs incurred by an insured.

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