Liberty Mutual is facing a $4 million lawsuit from The Arnold Engineering Co. over denied insurance coverage for environmental cleanup, putting pollution exclusions in the hot seat for commercial insurers.
On August 12, 2025, The Arnold Engineering Co. filed a complaint in the United States District Court for the District of Massachusetts, alleging that Liberty Mutual Insurance Company refused to cover remediation costs tied to a former manufacturing site in Marengo, Illinois. Arnold claims these costs, which are expected to exceed $4 million, stem from a consent order with the Illinois Environmental Protection Agency (IEPA) and the State of Illinois.
According to the complaint, Arnold operated its permanent “alnico” magnet manufacturing business at the Marengo site from approximately 1946 through December 2024, under various owners and lease arrangements. In February 2008, the IEPA issued a violation notice to Arnold for alleged chlorinated solvent groundwater contamination at and migrating from the site. In June 2013, the Illinois attorney general, at the IEPA’s request, filed suit against Arnold and 300 West LLC, the site’s owner at the time. Arnold was also named as a defendant in at least two lawsuits brought by Illinois residents living near the site.
The complaint states that, following a series of injunction orders, Arnold and 300 West LLC entered into a consent order with the State of Illinois on June 1, 2016, to address the claims in the IEPA suit. Arnold’s entry into the consent order was not an admission of liability. Under the consent order, Arnold and 300 West LLC were released from liability for the claims in exchange for agreeing to be jointly and severally liable for completing remediation projects and paying approximately $100,000 to the IEPA and the attorney general’s office. The consent order required actions such as providing bottled water to certain private well owners, conducting environmental sampling, funding municipal water hookups, paying IEPA oversight costs, and executing a remediation plan. The total costs associated with compliance are estimated in the complaint to exceed $4 million.
Arnold claims it is entitled to coverage under a series of commercial general liability (CGL) policies issued by Liberty Mutual to Arnold’s corporate predecessors and related entities from 1976 through 1988, as well as to SPS Technologies, Inc. for the period beginning October 1, 1986, and ending October 1, 1987. The complaint states that these policies require Liberty Mutual to pay on behalf of the insured all sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence. Arnold maintains it is an insured under these policies.
According to the complaint, Liberty Mutual denied coverage based on pollution exclusions in the policies. The insurer cited language excluding coverage for bodily injury or property damage arising out of the discharge, dispersal, release, or escape of pollutants, unless the discharge was “sudden and accidental.” Arnold argues in the complaint that these exclusions do not apply in this case, pointing to permitted activities, the policies’ personal injury coverage, and the insurer’s burden to prove the pollution was expected or intended.
The complaint details that Arnold notified Liberty Mutual of its claim in July 2019. Liberty Mutual responded with reservation of rights letters, agreed to defend Arnold under certain policy years, but refused to indemnify Arnold for the remediation costs arising from the IEPA suit or the consent order. Arnold sought reconsideration multiple times, including in October 2020 and December 2024, but Liberty Mutual maintained its denial.
Arnold is now asking the court for a declaratory judgment that Liberty Mutual is obligated to cover the remediation costs and for damages for breach of contract. The company claims Liberty Mutual’s refusal has left it responsible for millions in remediation expenses.
It’s important to note that these are Arnold’s claims as set out in its complaint. The court has not yet ruled on the merits, and Liberty Mutual’s formal response is pending.
For insurance professionals, this case highlights the continuing impact of legacy CGL policies and ongoing debates over pollution exclusions. With millions of dollars and decades-old policy language at stake, the industry will be watching closely as the case unfolds.
