The vast majority of courts construe insurance policy exclusions narrowly, placing the burden on the insurer to demonstrate that the exclusion applies and that there is no other reasonable interpretation of the relevant policy language. In the case of prior or pending litigation exclusions, the policyholder-insurer dispute is typically over whether a later filed claim arises out of the same subject matter or alleged activities as a prior or pending litigation.

Faced with this issue in the environmental insurance context, a New Jersey appeals court, applying New York law (based on the policy's choice of law provision), recently upheld a trial court ruling finding that the prior or pending litigation exclusion barred coverage. The policyholder had sought coverage with respect to a New Jersey Department of Environmental Protection (NJDEP) lawsuit alleging liability for natural resource damages resulting from historic metals operations at a site in Montvale, New Jersey. The Appellate Division agreed with the trial court that the NJDEP lawsuit arose out of the same pollutants and pollution-causing activities that had been the subject of a prior administrative consent order that required the policyholder to perform certain remedial activities at the site. See Handy & Harman v. Beazley USA Services, No. A-2068-20 (N.J Super Ct. App. Div. March 2, 2023).