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Aetna Insurance Co. v. Aaron12/4/1996
a portion of the remedy relates solely to damage to the [insured's property] itself and not to prevent off-site contamination, the 'Owned Property Exclusion' clearly applies, and such damage is not within the coverage provided.
Nor may an insured avoid his own responsibilities and obligations by seeking coverage under the liability portion of a policy. Thus, in Patz, Judge Posner readily agreed that an insurer is not obligated to reimburse its insured "for voluntarily undertaking to reduce potential liability. . ." Patz, 15 F.3d at 705. To use his illustration, "The owner of an automobile cannot charge the expense of a fancy new braking system to his liability insurer on the ground that the system will make it less likely that he will injure someone in an accident." Id.
Under the facts of this case as they have been presented to us, however, the repairs to the Glass Enclosure were not voluntarily undertaken by Aaron. Rather, they were virtually foisted upon him. Nor was the insured attempting to avoid his responsibilities to maintain his property. To the contrary, we have found no suggestion that Aaron deliberately allowed his property to deteriorate, thereby jeopardizing the safety of third-party property, merely to come within the terms of the liability portion of his Policy. Indeed, neither Aaron nor the Council had even the slightest idea, for many years, that Aaron's property was the source of the leaks.
Nor did the repairs benefit Aaron. In this regard, it is noteworthy that the Glass Enclosure was apparently perfectly adequate from Aaron's perspective; its condition did not affect his use of it. See Bankers Trust Co., 518 F. Supp. 371. Instead, the repairs were allegedly accomplished only to abate harm to property of third parties. The case of Nationwide Mut. Fire Ins. Co. v. Banks, 114 N.C. App. 760, 443 S.E.2d 93 (1994), is pertinent. At issue there was an accumulation of debris on the insured's property that was damaging a stream. The court found the owned property exclusion inapplicable, so that the insurer was liable to its insured for the response costs. It focused on the lack of actual injury to the insured's property from the debris, stating: "There is no indication that the debris in any way harms the land itself." Id. at 764, 443 S.E.2d at 96. Similarly, whatever may be wrong with the Glass Enclosure, it evidently has not interfered with Aaron's use or enjoyment of it.
V.
Some commentators have expressed concern that, by interpreting the owned property exclusion as inapplicable to remedial measures taken on an insured's property, the courts have created a significant risk of adverse selection and moral hazard, which arguably will disrupt the insurers' abilities to account for expected payouts and potentially threaten the availability of general liability insurance policies. See Kenneth S. Abraham, Environmental Liability and the Limits of Insurance, 88 Colum. L. Rev. 942 (1988). Abraham points out:
Insurers incorporate the owned property exclusion to avoid the dangers of adverse selection and moral hazard. When insurers can rely on the exclusion, they may be able to insure against cleanup expenses and damage to owned property through other types of policies or through separate endorsements to the basic policy. When courts void the owned-property exclusion, they run the risk of creating adverse selection and moral hazard problems sufficiently severe that general liability insurance becomes much more expensive or much less available.
Id. at 967-68. See also George L. Priest, The Current Insurance Crisis and Modern Tort Law, 96 Yale L.J. 1521 (1987) (arguing that expanded third party coverage and restrictions on
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