But Is It Really a Pollutant? a National Overview of Pollution Exclusion Litigation

Commentary But is it really a pollutant? A national overview of pollution exclusion litigation

By Thomas F. Segalla, Esq., and James D. Macri, Esq. Goldberg Segalla LLP

Courts have grappled with the interpretation whether to follow a narrow or broad focus, alleged that the negligent installation and application of various iterations of the whether the various substances constitute a resulted in carbon monoxide poisoning. pollution exclusion, and exceptions to the pollutant within the meaning of the exclusion Citing the pollution exclusion, the insurer for pollution exclusion, since the 1970s. A review and whether any exception even applies. Plumbing Specialists refused to defend and of the cases digested in this current update The following overview examines how indemnify the company in the plaintiff’s case. demonstrates how courts throughout the courts have addressed these issues and Subsequent to the execution of a Damron United States continue to take a diverse more in recent cases across the country. agreement, the plaintiff sued the insurer in approach. Consider that the court in the case Understanding where the courts stand in this action, seeking a declaration based on of Headwaters Resources Inc. v. Illinois Union various jurisdictions, the rules of construction the policies and breach of contract. Damron v. Insurance Co., 770 F.3d 885, 889 (10th Cir. and how choice-of-law analyses are used Sledge, 105 Ariz. 151 (1969). 2014), noted: to interpret and apply the relevant policy In considering the application of the total Generally speaking, jurisdictions that provisions is beneficial to insurers and their pollution exclusion endorsement, the U.S. have addressed the scope to the “total legal counsel alike as they work toward District Court for the District of Arizona pollution exclusion” fall into two camps: minimizing the risk of litigation or accessing noted that Arizona courts have, on the basis courts that apply the pollution exclusion available defenses when a coverage dispute of public policy limitations, very narrowly as written because they find them clear arises. interpreted pollution exclusions that are and unmistakable; and courts that indistinguishable from the one involved in narrow the exclusion to “traditional Arizona this case. Although carbon monoxide is a environmental pollution,” often because Pollution exclusion only applies to pollutant, the court held that such exclusions they find the terms of the exclusion traditional environmental claims cover traditional environmental pollution to be ambiguous due to their broad claims and not bodily injuries suffered by the applicability. Saba v. Occidental Fire & Casualty plaintiff, which were a result of the negligent Company of North Carolina, No. 14-00377, installation of a water heater. Whether you are dealing with fly ash, diesel 2014 WL 7176776 (D. Ariz. Dec. 16, 2014). fuel, fireworks, chemicals, acrylic concrete Practice note: The court considered sealant, carbon monoxide, dry cleaning In an underlying action, the plaintiff sued the application of a renewal policy and solution, bodily fluids, smoke, asbestos, silica Plumbing Specialists, a company that had whether the plaintiff’s injuries occurred dust or lead, the courts continue to assess installed a water heater in her home, and during the policy period.

California Insurer must defend against sandblasting dust and debris negligence claim EFK Investments LLC v. Peerless Insurance Co., No. 13-5910, 2014 WL 4802920 (N.D. Cal. Sept. 26, 2014). The plaintiffs owned and managed two adjacent commercial properties in San Thomas F. Segalla (L), a founding partner of Goldberg Segalla LLP, is an internationally recognized Francisco. To prepare one property for authority on insurance, reinsurance and bad faith, and he is the editor of Couch on Insurance, 3d painting, the plaintiffs sandblasted the and the Reinsurance Professional’s Deskbook. He has been retained by major insurance carriers and policyholders in more than 35 jurisdictions internationally and has served as an expert witness property. The tenant of the neighboring in more than 100 bad-faith, coverage and extracontractual cases across the country. He can be property alleged that dust and debris reached at [email protected]. James D. Macri (R), an associate in Goldberg Segalla’s “destroyed its entire inventory of high-end global insurance services practice group, focuses his practice on insurance coverage analysis and reinsurance, including matters involving commercial general liability, professional liability and audio equipment,” damaged furnishings and property insurance policy coverage issues. He is a frequent contributor to the firm’s blog (www. disrupted business. Although testing prior to insurerereport.com), as well as its CaseWatch: Insurance, Bad Faith Focus and Reinsurance Review sandblasting did not reveal any lead in the newsletters. He can be reached at [email protected]. paint, testing of the dust after sandblasting showed trace amounts of lead

© 2015 Thomson Reuters april 29, 2015 n volume 35 n issue 20 | 3 The plaintiffs sought defense and indemnity pollution nor occupational injury exclusions November 2005. A complaint was not filed for the ensuing lawsuit, alleging negligence barred coverage. The policies at issue dated until February 2007 and was not provided to on the part of the plaintiffs through “improper back to the 1950s. The judge found that the Continental until March 2007. Continental sealing of the property for sandblasting.” The three different types of pollution exclusions disclaimed coverage under the pollution insurer argued that the claims were excluded used could not be unambiguously applied to exclusion of both commercial general liability by the pollution and lead exclusions of the the talc asbestos exposure claims. policies as modified by a pollution buy-back policy. However, the plaintiffs contended that Discussing the standard and absolute endorsement. The endorsement provided the harm arose from the negligent act, which pollution exclusions, the court held that the an exception to the pollution exclusion if all resulted in dispersal of damaging substances exclusions could apply to both “traditional” five conditions listed could be met. Relevant regardless of whether the substances were environmental contamination claims as here were conditions 2, 3 and 4: “pollutants.” Since they were released by well as the exposure claims. In finding the 2. The “occurrence” can be identified as negligence, not “conventional environmental provisions ambiguous, the court stated commencing at a specific time and date pollution,” the plaintiffs argued the claims “the very adoption of separate asbestos during the term of this policy. were not barred. exclusions in policies beginning in 1986 is 3. The “occurrence” became known to the insured within 72 hours after its Courts have grappled with the interpretation and commencement. application of various iterations of the pollution exclusion, 4. The “occurrence” was reported in and exceptions to the pollution exclusion, since the 1970s. writing to us within 30 days after having become known to the insured. The U.S. District Court for the Northern evidence that insurers did not consider the The 11th U.S. Circuit Court of Appeals noted District of California agreed with the pollution exclusion language to be clear that the conditions above could not be met. plaintiffs, finding, under California law, that enough to exclude those claims. To argue The date of written notice was the day the the scope of a total pollution exclusion is not the pollution exclusion was unambiguous complaint was forwarded to Continental, based entirely on the nature of the irritant. and therefore excluded asbestos-related in March 2007. According to the court, Rather, the underlying circumstances must claims would render the asbestos exclusion the latest a covered occurrence could have be considered. It went on to note that the redundant and unnecessary.” occurred was on the last day of the policy, exclusion was not meant to deny coverage for The court further held that exclusions Nov. 30, 2005. Composite was required to ordinary acts of negligence. Instead, it was without the “discharge, dispersal, release, have knowledge of that occurrence within to be used by insurers to avoid claims based or escape of pollutants” language were three days and then provide notice within on environmental laws. Without evidence also ambiguous. These exclusions applied 30 days after that knowledge. Thus, the to suggest that the incident constituted to losses caused by “seepage, pollution or court held the latest date Composite could environmental pollution, the court found the contamination.” The judge also found these provide notice was 33 days after Nov. 30, insurer had a duty to defend. terms ambiguous with regard to the asbestos 2005. Since the complaint/notice was given Practice note: The court further found claims. in 2007, it was well outside of the deadline and therefore was not covered that the lead exclusion did not entirely Practice note: This decision was the exclude the claims because only a first Connecticut appellate case to Practice note: In reaching this decision, portion of the damages were caused by discuss the applicability of standard the court found this case to be an lead. For a discussion of claims under and absolute pollution exclusions in the exception to the general rule in that an environmental liability insurance context of asbestos exposure claims. the insurer was permitted to consider policy, see Lennar Mare Island LLC v. information outside of the complaint — Steadfast Insurance Co., No. 12-02182, Florida namely, the date of notice to itself. 2014 WL 2002204 (E.D. Cal. May 15, Bodily fluids considered a pollutant 2014). Insured could not satisfy requirements of pollution buy-back endorsement Chestnut Associates Inc. v. Assurance Connecticut Composite Structures Inc. v. Continental Company of America, 17 F. Supp. 3d 1203 (M.D. Fla. 2014). Various pollution exclusions are Insurance Co., 560 Fed. Appx. 861 (11th Cir. inapplicable in long-tail asbestos 2014). Chestnut Associates initiated an action liability Composite Structures Inc. sought a seeking a declaration of its rights under a precision portfolio policy from Assurance R.T. Vanderbilt Co. v. Hartford Accident & declaratory judgment stating that Company of America. Assurance refused Indemnity Co., No. X02UWYCV075016321, Continental Insurance Co. had a duty to to defend the underlying action alleging 2014 WL 1647135 (Conn. Super. Ct. Mar. 28, defend the company and indemnify it against two counts of intentional infliction of 2014). employees’ injury claims for exposure to excessive amounts of carbon monoxide. The emotional distress. The complaint alleged In a massive coverage case involving long- employees worked for Composite and were that a man employed as a pool service tail asbestos liabilities and 30 insurers, the exposed to carbon monoxide during the technician by Chestnut “sexually pleasured Connecticut Superior Court found that neither policy period of November 2004 through himself” in the underlying plaintiff’s pool.

4 | westlaw Journal n Environmental © 2015 Thomson Reuters Damage allegations included property instituted by five of the subcontractor’s subrogation pertaining to damage to damage to the swimming pool caused by the employees who were killed as a result of an “the work” and “non-work.” pool service technician’s bodily fluids. The explosion. Indiana (applying Maryland U.S. District Court for the Middle District of The U.S. District Court for the District of law) Florida found that the pollution exclusion Hawaii held that the underlying complaints applied to the extent property damage sufficiently trigger the CGL insurer’s duty to Gradual release of perchlorate is claims made against Chestnut Associates. defend, that the CGL policy was primary to ‘traditional environmental pollution’ The bodily fluids qualified as a pollutant that the federal contractor’s liability policy and contaminated the swimming pool. Chubb Custom Insurance v. Standard Fusee that the CGL insurer failed to show that the Corp., 2 N.E.3d 752 (Ind. Ct. App. 2014). Practice note: The court noted that in application of the pollution exclusion was Florida pollutants can include “natural sufficient to preclude the duty to defend. Standard Fusee manufactured road flares in bodily substances.” which an essential ingredient is perchlorate. With respect to the application of the Perchlorate was found in water samples pollution exclusion, the court initially held Georgia around its California plant. This caused that because only the duty to defend was Standard Fusee to test the water around Raw sewage leaks in rental properties at issue, the court need not decide whether its Indiana plant, where perchlorate was excluded the pollution exclusion actually applied. The found as well. Standard Fusee applied and Nationwide Mutual Insurance Co. v. court only needed to determine whether was accepted into a voluntary remediation Bader & Associates Inc., No. 13-00032, coverage was possible (for example, whether program in Indiana. 2014 WL 231980 (N.D. Ga. Jan. 22, 2014). there is a possibility of coverage). Here the court concluded that it was uncertain that Upon request for defense and indem- A group of individuals and companies fireworks were considered to be a pollutant. nification, two insurers disclaimed coverage purchased 23 homes as investment under the pollution exclusions of their properties. Eventually, tenants began Practice note: The court provides an respective CGL policies. The Indiana Court reporting that raw sewage was spilling insightful discussion of the necessity of Appeals noted that the perchlorate was onto the yards of their properties. This was that the pollutant cause the injuries released gradually over time, amounting because the septic systems were insufficient alleged in the underlying actions. to “traditional environmental pollution.” to handle the number of tenants in each Finding this, the court said the release fell property. The property owners sued the Indiana squarely within the pollution exclusions. construction companies that built the homes Builders risk insurance and waiver Practice note: In concluding, the and the real estate agencies that sold them, of subrogation court noted that it expected that alleging numerous misrepresentations Allen County Public Library v. Shambaugh & “interpretation of the scope of pollution and fraud claims regarding the capacity Son LP, 2 N.E.3d 132 (Ind. Ct. App. 2014). exclusion clauses likely will continue limitations of the properties. At issue in this appeal was whether the owner to be ardently litigated throughout the The U.S. District Court for the Northern of property was able to recoup from the state and federal courts.” It also noted District of Georgia initially found that fraud defendant contractor the costs of cleaning that it was aware that other courts may and violations of the Georgia Fair Business up diesel fuel that leaked from underground arrive at a different conclusion regarding Practices Act were not occurrences because pipes installed by the defendants. The “perchlorate contamination.” they were not accidents. However, even owners had collected $5,000 from their Iowa still, the court noted the claims would be insurer toward the cleanup under a builder’s excluded as a matter of law by the total risk policy and were seeking from the Choice of law could affect outcome pollution exclusion, among other exclusions. defendants the total sum of the cleanup. It of case Practice note: Courts will first determine was the position of the defendants that the Travelers Property Casualty Co. of America v. whether coverage is afforded before owners were relegated to the $5,000 in Flexsteel Industries, 847 N.W.2d 237 (Iowa applying any exclusions. pollution cleanup coverage under the policy. Ct. App. 2014). In interpreting the relevant American Hawaii The defendant, a chair manufacturer, was Institute of Architects contract under existing sued in an underlying action by individuals Is the duty to defend triggered? case law, the Indiana Court of Appeals held claiming to have been exposed to chemicals Charter Oak Fire Insurance Co. v. Endurance that if the contractor causes damage to the released from two of its Indiana plants. American Specialty Insurance Co., 40 F. property other than “the work” performed The insurers contended that there was no Supp. 3d 1296 (D. Haw. 2014). under the contract, the property owner coverage for these claims with the application or its insurer, through subrogation, can of the pollution exclusion. The liability insurers for a federal contractor seek recovery from the contractor for that that was hired to destroy seized fireworks damage, regardless of whether the damage The Dubuque County District Court had brought this declaratory action against the was covered by insurance. previously granted summary judgment CGL insurer for a subcontractor. The action and concluded “Iowa law applies to all the alleged that the CGL insurer owed a duty to Practice note: The court provides a policies at issue and … the pollution exclusion defend the contractor in an underlying action detailed discussion of the waiver of provisions have full force and effect.”

© 2015 Thomson Reuters april 29, 2015 n volume 35 n issue 20 | 5 The Iowa Court of Appeals, however, contaminated by the blowout, including contamination of an adjacent property. concluded that the choice-of-law provisions portions of neighboring properties. Pioneer The neighboring property owner had an require the application of Indiana law, sought coverage under an umbrella policy for environmental investigation of its property not Iowa law, to the interpretation of the the costs of plugging the well, remediating which revealed elevated levels of petroleum pollution exclusion clauses. The summary the properties, and defending against and and chlorinated solvents, including judgment rulings were vacated, and the settling related lawsuits. A representative perchloroethylene. The Massachusetts court remanded the case. of the insured admitted that the blowout Department of Environmental Protection Practice note: This case provides an constituted an occurrence. However, the was notified and eventually issued a notice analysis of choice-of-law provisions insurer argued that certain exclusions barred of responsibility and request for an relevant to the interpretation of coverage. immediate response action plan to Oxford. insurance contracts. Notably, the policy had an oil industry Arrowood denied defense and indemnity on limitation endorsement and a blended three occasions for these DEP actions. The Kentucky pollution endorsement. The OIL neighboring property owner also initiated Total pollution exclusion unambiguous endorsement excluded coverage for costs an action against Oxford alleging, among on its face and as applied “in connection with controlling or bringing other things, trespass because of the under control any oil, gas, or water well “hazardous materials” that entered onto Travelers Property Casualty Company of which becomes out of control.” The blended the property and private nuisance because America v. Begley Co., No. 13-199, 2014 WL pollution endorsement contained a buy- of the negligent actions that resulted in the 4678754 (E.D.KY. Sept. 18, 2014). back clause that covered damages caused migration of hazardous material. Arrowood In assessing the facts of the case, the directly by pollution, provided Pioneer met agreed to defend Oxford in the suit under a court had to grapple with a choice-of-law certain conditions. However, it excluded reservation of rights. analysis as to which law applied to various coverage for damages that occurred on There was no dispute that PCE was a dry cleaning business sites operated by properties “owned, rented, or occupied” by pollutant or that property damages caused the defendant/insured. The defendant/ the insured. At trial, the U.S. District Court by its release were excluded from coverage. insured had received notification by the for the Western District of Louisiana found Kentucky Division of Waste Management the “own, rent, occupy” language to preclude However, Oxford argued that a personal to investigate and clean up various sites. coverage for remediation costs on the leased injury provision, which required defense and With respect to policies of two of the property. indemnification for “wrongful entry into or insurers, the U.S. District Court for the Eastern eviction of a person from a room, dwelling On appeal, Pioneer argued that it did not or premises which the person occupies,” District of Kentucky held that Kentucky “own, rent, or occupy” the surface property, law applied; whereas to another insurer, it applied to the lawsuit. The U.S. District but rather, it only had a mineral lease to Court for the District of Massachusetts was unable to determine which state law subsurface minerals. The 5th U.S. Circuit applied. noted that “wrongful entry” and “trespass” Court of Appeals rejected this argument, are equivalent under Massachusetts law. In interpreting Kentucky law, the court held finding that Pioneer had the right to occupy Finding that the parties only intended that the total pollution exclusion precludes the land for exploration and production the provision to apply to intentional torts, coverage and bars recovery for the insured’s purposes. Under the broad exclusion, the the court held that the complaint did not claims. It noted that the exclusion is court found these rights sufficient to say trigger coverage because it alleged a claim unambiguous on its face and unambiguous Pioneer “owned, rented, or occupied” the of “negligent trespass.” The court went on as to its application in this case. property on which it had the mineral lease. to hold that, in cases involving negligent The court went on to hold that the costs Practice note: A choice-of-law analysis release of pollutants, an insured cannot of controlling and plugging the well were is critical and, for judicial economy, use personal injury coverage in Part Two of likewise excluded by the OIL endorsement. should be resolved at the early stage of a policy to circumvent a pollution exclusion litigation. Practice note: In reaching its decision, contained in Part One. the court discussed an argument Practice note: In reaching this Louisiana relating to an alleged “inherent conflict” conclusion, the court stated that “an Insured ‘owned, rented, or occupied’ between the blended pollution exclusion insured would have to do a pretzel-twist the property leased under a mineral and a property damage exclusion. logically to believe on the one hand that lease Oxford was not entitled to coverage Massachusetts Pioneer Exploration v. Steadfast Insurance under the ‘bodily injury’ and ‘property Negligent release of pollutants does Co., 767 F.3d 503 (5th Cir. 2014). damage’ sections of the policy because not constitute ‘wrongful entry’ coverage is barred by the pollution Pioneer operated a gas well on land Arrowood Indemnity Co. v. Oxford Cleaners exclusion, yet on the other hand believe leased under a mineral lease. The well and Tailors LLC, No. 13-12298, 2014 WL he should receive coverage for the same was located near the boundary line of the 4104169 (D. Mass. Aug.15, 2014). risk under the personal injury liability property. After a blowout occurred, Pioneer coverage afforded by the policy.” acted immediately to limit the damages Oxford owned and operated a dry caused. However, 12 acres of property were cleaning business that allegedly caused

6 | westlaw Journal n Environmental © 2015 Thomson Reuters Michigan TCE. From 2000 to 2002, during the policy The defendant insured provides construction Smoke from fire does not constitute period, TCE was still used but not in vapor cleanup services, including cleaning and pollution degreaser form. The plant closed in 2007. sealing concrete floors. It was sued in an Eventually, claims arose for groundwater underlying action for injuries sustained by Hobson v. Indian Harbor Insurance Co., contamination extending well beyond a woman alleging that she was exposed to No. 316714, 2015 WL 1069242 (Mich. Ct. Visteon’s property. Visteon’s expert noted a sealant and sustained various injuries. At App. Mar. 10, 2015). this contamination was released while TCE issue on this appeal was the application The plaintiffs/tenants sought to recover for was in use at the plant, and the prior releases of the “absolute pollution exclusion.” The injuries, including smoke inhalation, which were the cause of continued releases of U.S. District Court for the Eastern District occurred during a fire in their apartment dissolved TCE. of Missouri held that the sealant was not complex. The fire, according to the complaint, was caused by the negligence of Understanding where the courts stand in various jurisdictions the landlord’s employees. The landlord was insured under a CGL policy containing a total is beneficial to insurers and their legal counsel alike as they pollution exclusion that defined a pollutant work toward minimizing the risk of litigation or accessing as including smoke. The insurers denied available defenses when a coverage dispute arises. coverage on the basis of that exclusion.

The Michigan Court of Appeals, affirming the The policy at issue contained an absolute a pollutant and, therefore, the pollution trial court’s opinion, found that the pollution pollution exclusion. However, an exception exclusion did not apply. exclusion did not apply. The plaintiffs argued was contained in the complete operations The 8th Circuit reversed and held that the that the exclusion “clearly contemplates hazard clause. The exception stated, in sealant was a pollutant. In reaching its pollution as a substance that was confined” relevant part, that the exclusion did not apply decision, the court considered whether an and then released. This, the plaintiffs said, to damages “occurring away from premises ordinary person of average understanding is distinct from a fire. The court rejected you own or rent and arising out of your work could consider the sealant fully unambiguously the insurers’ argument, which attempted to except work that has not yet been completed within the policy definition of a pollutant. T he separate the smoke from the fire. or abandoned.” court, however, refused to grant summary The insurers, according to the court, “would Visteon argued that its “work” was judgment to the insurer because whether or have [the court] hold that any ‘pollutant’ “completed” each time a contract to not the complaint in the underlying action involved in the causal chain negates their supply goods was performed. This was, in did not allege that there was a “discharge, liability. To so hold would ignore the part, because the definition of “complete” dispersal, seepage, migration, release or context in which the pollution exclusion was included, among other things, “when all escape” of the sealant, there is an issue of written and to extend it far beyond its plain of the work called for in your contract has whether the pollution exclusion is applicable. meaning.” The court concluded there were been completed.” The 7th Circuit disagreed. The case was remanded. no allegations of discharge or dispersal — The court found that this interpretation instead, the plaintiffs were “allegedly injured would erase “the line between completed Practice note: The dissent provides an when the fire and smoke engulfed them. and ongoing operations.” interesting analysis of when a product It did not pollute them.” constitutes a pollutant and would Although the definition was “murky,” have held that the sealant was not a Practice note: For further discussion of adoption of Visteon’s definition would pollutant. the exclusion, see the Michigan Court swallow the entire exclusion because there of Appeals decision in Township of would be no distinction between products Nebraska Maple Forest v. Clearwater Drilling LLC, made under contracts and those made with Policy language excludes all possible No. 314798, 2014 WL 2355126 (Mich. the hope of being sold. Instead, the court manners of lead paint exposure Ct. App. 2014), in which the court found noted that this portion of the definition could that a solution of bentonite and water have referred to the point in time when the State Farm Fire & Casualty Co. v. Dantzler, was not a pollutant. relationship with a buyer ended. 289 Neb. 1 (Neb. 2014). Products-complete operations Practice note: The court applied an State Farm sought declaratory judgment exception did not apply interpretation of the word “complete” against the insured landlord, Jerry Dantzler, that was not addressed by the parties to his tenant and the tenant’s child, stating that Visteon Corp. v. National Union Fire find the exclusion applicable despite a the pollution exclusion barred coverage for Insurance Co., 777 F.3d 415 (7th Cir. 2015). “murky” definition. lead-based paint exposure. The tenant sued Visteon, a Ford Motors Corp. subsidiary, Dantzler, alleging that his child was exposed sued for breach of contract after National Missouri to high levels of lead because of lead paint Union refused to defend against and Pollution exclusion may be inapplicable contamination in the rental property. State indemnify claims arising from the release of Farm retained counsel for Dantzler subject United Fire & Casualty Co. v. Titan Contractors trichloroethylene from Visteon’s plant. For to a reservation of rights. State Farm argued Service, 751 F.3d 880 (8th Cir. 2014). a period of about 40 years, ending in 2000, that the policy’s pollution exclusion barred Visteon used vapor degreasers that included coverage.

© 2015 Thomson Reuters april 29, 2015 n volume 35 n issue 20 | 7 State Farm presented an expert affidavit It further found that under the plain meaning insurer cannot point to an exception to prove setting forth common manners of lead paint of the provision’s language, carbon monoxide that the exclusion also applies to indoor exposure but did not opine specifically on fell within the meaning of “contaminant” pollution. Instead, the insurer must plainly how the child was exposed. The insured and, therefore, claims were excluded. state that the exclusion is not limited to contended that State Farm did not prove Practice note: This court reaffirmed that traditional environmental pollution. that the alleged injuries were the result of a the majority of courts find the broad Practice note: The court also found “discharge, dispersal, spill, release or escape language of an absolute pollution an “indoor air quality exclusion” to be of pollutants.” The Nebraska Supreme Court exclusion unambiguous. ambiguous. rejected the contention that only certain manners of exposure constitute a “discharge, Nevada New York dispersal, spill, release or escape.” Instead, it found that language to “encompass all Absolute pollution exclusion only Court overturns denial of summary possible movements by which harmful applies to traditional environmental judgment, finds exclusion exposure to lead-based paint occurs.” As pollution unambiguous such, the court held that the manner of Century Surety Co. v. Casino West Inc., 329 Broome County v. Travelers Indemnity Co., exposure to lead paint is not a material fact P.3d 614 (Nev. 2014). 125 A.D.3d 1241 (N.Y. App. Div., 3d Dep’t 2015). to prevent summary judgment. In responding to certified questions from Broome County sought coverage for property Practice note: The court specifically the 9th Circuit, the Nevada Supreme Court damage claims related to silica dust that noted that lead-based paint cannot interpreted the scope of an absolute pollution migrated up an elevator shaft of a building cause injury unless it is has separated exclusion as a matter of first impression. during construction of a parking garage. from the painted surface. Thus, implicit After four people died from carbon monoxide Travelers disclaimed coverage under the in a claim of lead paint exposure is an poisoning while sleeping in the Casino West pollution exclusion. On appeal, the New allegation of “discharge, dispersal, spill, Motel, Century denied coverage in part York Supreme Court, Appellate Division, 3rd release or escape.” under the pollution exclusion. The carbon Department found the pollution exclusion Exclusion unambiguously excludes monoxide leaked from the pool heater applicable and overturned the trial court’s carbon monoxide exposure directly below the room. Casino West argued denial of summary judgment. that the exclusion only applied to “traditional Broome County relied on a case from New Church Mutual Insurance Co. v. Clay Center environmental pollution.” York’s highest court, stating that the terms Christian Church, 746 F.3d 375 (8th Cir. 2014). However, Century argued that it applied to “discharge, dispersal, seepage, migration, Church Mutual instituted a declaratory both indoor and outdoor pollutants, and release, or escape” in a third-party policy did judgment action seeking a determination it specifically highlighted the presence of not apply to ordinary paint fumes that drifted that the pollution exclusions of a multi-peril an exception for “bodily injury” if it was short distances. However, the appeals court policy and an umbrella policy precluded sustained within a building and caused by stated that that case was inapplicable, coverage. The insured, a church, assigned its “smoke, fumes … from equipment used to finding that application of that concept claims to its pastor and his wife. The pastor heat the building.” in the context of a first-party policy would died and his wife suffered injuries as a result The court found the provision ambiguous, render the exclusion insignificant. This was of exposure to carbon monoxide that leaked since both interpretations were reasonable. especially true because the policy’s definition from the heating system in the church’s Although it was reasonable to classify of “pollutants” included “unhealthy or parsonage. carbon monoxide as a pollutant, it was also hazardous building materials” such as The policies defined contained identical reasonable to follow the more limited reading asbestos and lead paint. exclusions disclaiming coverage for of the exclusion as argued by Casino West. Practice note: This court’s decision pollutants — “any solid, liquid, gaseous or On its face, the court noted, the exclusion indicates that the distinction between thermal irritant or contaminant, including was broad enough to cover soap, shampoo first-party and third-party policies may smoke, vapor, soot, fumes acid, alkalis, and bleach as contaminants or irritants. As be relevant in applying a pollution chemicals and waste.” The pastor’s estate a result, it could cover any accident caused exclusion. and his wife contended that the terms by those items, including a slip and fall on a Exclusions applied because use “irritant” and “contaminant” rendered the puddle of bleach or a rash caused by soap. of pollutant was intended as part of provision ambiguous. Thus, a reasonable policyholder could read operations The 8th Circuit disagreed. Although it noted the exclusion to cover only “traditional” Travelers Indemnity Co. v. Northrop that there has been no definitive ruling by environmental pollution. In light of both Grumman Corp., 3 F. Supp. 3d 117 (S.D.N.Y. the Nebraska Supreme Court, the 8th Circuit reasonable interpretations, the court found 2014). found that the court and the majority of others it must interpret the policy in favor of Casino find the broad exclusion unambiguous. It West’s reading. In so holding, the court Starting in the 1930s, Northrop’s facility in went on to predict that the Nebraska high noted, considering the significant amount of Bethpage, N.Y., was used for manufacturing court would reject the contention that the authority from other jurisdictions finding the and testing airplanes, weapons and terms “irritant” and “pollutant” created an absolute pollution exclusion to only apply satellites. As part of its operations, it used ambiguity. Instead, it found the terms clear. to traditional environmental pollution, an vapor degreasers containing TCE and

Acuity v. Chartis Specialty Insurance Co., No. 2013AP1303, 2015 WL Hobson v. Indian Harbor Insurance Co., No. 316714, 2015 WL 1186150 (Wis. Mar. 17, 2015). 1069242 (Mich. Ct. App. Mar. 10, 2015). Advanced Waste Services Inc. v. United Milwaukee Scrap LLC, Howard Industries Inc. v. Ace American Insurance Co., No. 2:13- No. 2014AP1169, 2015 WL 868120 (Wis. Ct. App. Mar. 3, 2015). 0677, 2014 WL 978445 (S.D. Ohio Mar. 12, 2014). Allen County Public Library v. Shambaugh & Son LP, 2 N.E.3d 132 Lennar Mare Island LLC v. Steadfast Insurance Co., No. 12-02182, (Ind. Ct. App. 2014). 2014 WL 2002204 (E.D. Cal. May 15, 2014). Arrowood Indemnity Co. v. Oxford Cleaners and Tailors LLC, Nationwide Mutual Insurance Co. v. Bader & Associates Inc., No. 13-12298, 2014 WL 4104169 (D. Mass. Aug. 15, 2014). No. 13-00032, 2014 WL 231980 (N.D. Ga. Jan. 22, 2014). Broome County v. Travelers Indemnity Co., 125 A.D.3d 1241 Pioneer Exploration v. Steadfast Insurance Co., 767 F.3d 503 (N.Y. App. Div., 3d Dep’t 2015). (5th Cir. 2014). Burlington Insurance Co. v. JC Instride Inc., 30 F. Supp. 3d 587 Preisler v. General Casualty Insurance Co., 857 N.W.2d 136 (S.D. Tex. 2014). (Wis. 2014). Century Surety Co. v. Casino West Inc., 329 P.3d 614 (Nev. 2014). R.T. Vanderbilt Co. v. Hartford Accident & Indemnity Co., No. X02UWYCV075016321, 2014 WL 1647135 (Conn. Super. Ct. Charter Oak Fire Insurance Co. v. Endurance American Specialty Mar. 28, 2014). Insurance Co. 40 F. Supp. 3d 1296 (D. Haw. 2014). Saba v. Occidental Fire & Casualty Company of North Carolina, Chestnut Associates Inc. v. Assurance Company of America, No. 14-00377, 2014 WL 7176776 (D. Ariz. Dec. 16, 2014). 17 F. Supp. 3d 1203 (M.D. Fla. 2014). State Farm Fire & Casualty Co. v. Dantzler, 289 Neb. 1 (Neb. 2014). Chubb Custom Insurance v. Standard Fusee Corp., 2 N.E.3d 752 (Ind. Ct. App. 2014). Township of Maple Forest v. Clearwater Drilling LLC, No. 314798, 2014 WL 2355126 (Mich. Ct. App. 2014). Church Mutual Insurance Co. v. Clay Center Christian Church, 746 F.3d 375 (8th Cir. 2014). Travelers Indemnity Co. v. Northrop Grumman Corp., 3 F. Supp. 3d 117 (S.D.N.Y. 2014). Composite Structures Inc. v. Continental Insurance Co., 560 Fed. Appx. 861 (11th Cir. 2014). Travelers Property Casualty Company of America v. Begley Co., No. 13-199, 2014 WL 4678754 (E.D. Ky. Sept. 18, 2014). EFK Investments LLC v. Peerless Insurance Co., No. 13-5910, 2014 WL 4802920 (N.D. Cal. Sept. 26, 2014) Travelers Property Casualty Company of America v. Flexsteel Industries, 847 N.W.2d 237 (Iowa Ct. App. 2014). Federal Insurance Co. v. Northfield Insurance Co., No. H-14-262, 2014 WL 4718984 (S.D. Tex. Sept. 22, 2014). Two Farms Inc. v. Greenwich Insurance Co., 993 F. Supp. 2d 353 (S.D.N.Y. 2014). Federal Insurance Co. v. Southern Lithoplate Inc., 7 F. Supp. 3d 579 (E.D.N.C. 2014). United Fire & Casualty Co. v. Titan Contractors Service, 751 F.3d 880 (8th Cir. 2014). General Refractories Co. v. First State Insurance Co., No. 04-3509, 2015 WL 918797 (E.D. Pa. Mar. 3, 2015). Visteon Corp. v. National Union Fire Insurance Co., 777 F.3d 415 (7th Cir. 2015). Headwaters Resources Inc. v. Illinois Union Insurance Co., 770 F.3d 885 (10th Cir. 2014). Wilson Mutual Insurance Co. v. Falk, 857 N.W.2d 156 (Wis. 2014).

other contaminants. In the 1970s, the more than $40 million to date to remediate that the use of TCE and other contaminants contaminants were found to have leached the site. Travelers denied coverage for the was part of Northrop’s business operations, into the groundwater, extending nearly costs. found that the exclusions barred coverage. 2,000 acres. A number of Travelers policies were Northrop was intentionally using TCE. Thus, Eventually, in the 1980s, the site was implicated by this dispute. Most policies the court found that it could not be classified designated as a hazardous-waste site. In contained a pollution exclusion that excluded as “sudden or accidental” or “unexpected or the 1990s, Northrop entered into a consent coverage for the “discharge, dispersal … unintended.” order with the New York State Department of any pollutants … unless such discharge Practice note: For further discussion of of Environmental Conservation to remediate is sudden or accidental.” Later policies pollution claims in New York, see the the site. Travelers had no record of excluded coverage for discharges that were Southern District of New York’s decision notification of either of those events. I n 2012, “expected or intended from the standpoint in Two Farms Inc. v. Greenwich Insurance Northrop notified Travelers that it had spent of any insured.” The U.S. District Court for Co., 993 F. Supp. 2d 353 (S.D.N.Y. 2014). the Southern District of New York, noting

© 2015 Thomson Reuters april 29, 2015 n volume 35 n issue 20 | 9 North Carolina Ohio Thus, coverage up to the $50,000 limit was afforded to Howard Industries. Central business activity exception Insured’s awkward reading of pollution inapplicable to prototypical pollution cleanup provision applies Practice note: Applying the doctrine of contra proferentem, the court found that claim Howard Industries Inc. v. Ace American the only reasonable interpretation of Federal Insurance Co. v. Southern Lithoplate Insurance Co., No. 2:13-0677, 2014 WL those presented was awkward. Inc., 7 F. Supp. 3d 579 (E.D.N.C. 2014). 978445 (S.D. Ohio Mar. 12, 2014). Southern Lithoplate produces lithographic At summary judgment, Ace American and Pennsylvania plates and other products for the graphics Howard Industries disputed the scope of ‘Arising out of asbestos’ was and photography industries. The company coverage for a building that was destroyed ambiguous, did not preclude coverage was sued in two separate lawsuits alleging by fire and owned by chemical manufacturer groundwater contamination caused by its Howard. There was no dispute that at least General Refractories Co. v. First State generation, storage, transport and disposal some of the damage was covered; however, in Insurance Co., No. 04-3509, 2015 WL of various hazardous waste products, part, the parties disagreed on the application 918797 (E.D. Pa. Mar. 3, 2015). including TCE. Multiple insurers disclaimed of a pollution cleanup provision. That General Refractories manufactured and sold coverage under the absolute pollution provision did not cover damages from the products that, at times, contained asbestos. exclusion contained within their respective release, discharge or dispersal of pollutants After being named in various asbestos-related policies. The U.S. District Court for the unless the release, discharge or dispersal was suits, General Refractories sued its insurance Eastern District of North Carolina found caused by fire or other catastrophes. That carriers for a declaration of coverage under that the allegations in both suits were the exception extended coverage to “expenses the excess policies and breach of contract. All “precise type of pollution excluded by the actually incurred by the insured to cleanup insurers, except Travelers, settled with General policies” — each claim for damages arose and remove debris defined as a pollutant Refractories. The Travelers policy contained from the negligent release of TCE and other and other pollutants from land or water on an exclusion that eliminates coverage for hazardous wastes. covered premises.” damages “arising out of asbestos.” Travelers argued that the provision was broad In a massive coverage case involving long-tail and covered all forms of asbestos, not just asbestos liabilities and 30 insurers, the Connecticut one form in particular. The argument stated that damages from raw asbestos caused by Superior Court found that neither pollution nor mining, milling or manufacturing were the occupational injury exclusions barred coverage. same as those caused by finished products containing asbestos. General Refractories, However, Southern Lithoplate argued that the The U.S. District Court for the Southern however, presented other policies from that exclusion was not applicable on the basis of District of Ohio was forced to determine era and expert testimony showing that there North Carolina’s judicially created “business whether the term “land and water” modified is a distinction between exclusions stating activities exception.” Under this exception, “debris defined as a pollutant and other “arising out of asbestos” and those stating an insurer cannot deny coverage arising out pollutants” or just “and other pollutants.” “arising out of asbestos-containing products.” of the insured’s “central business activities” Ace argued that the provision only covered Whereas the latter were for finished products, if it renders the policy “virtually useless.” pollutants removed from land and water. the former only covered the raw mineral that However, the court disagreed with Southern However, as Howard Industries pointed was mined, milled, processed and produced. Lithoplate’s broad application of this out, the policy excluded coverage for all Despite the fact that General Refractories exception. Instead, it noted that the exception restoration costs of land and water. Howard did not mine, mill, produce or manufacture only applies in narrow situations in which an Industries, instead, argued that the policy raw-mineral asbestos, the U.S. District Court ambiguity exists between application of the should be read as covering expenses actually for the Eastern District of Pennsylvania found pollution exclusion to the particular facts incurred by the insured to clean up and the exclusion ambiguous. It noted that alleged and the insurer’s primary business remove debris defined as a pollutant, and the “common usage” of the word asbestos activity itself. The court found the exception other pollutants from land and water, on the revealed a latent ambiguity: It could mean the could not “possibly apply to the claims covered premises. raw, unprocessed mineral, it could include the alleged in the underlying complaint.” The The court acknowledged that Howard fibers and dust as well or it could include all claims against Southern Lithoplate were Industries’ “proposed construction creates a products that include asbestos. Finding that “prototypical environmental claims.” somewhat awkward reading of the cleanup the interpretation of General Refractories was Practice note: This case illustrates that provision.” However, since it was drafted by objectively reasonable, the court found the courts regularly apply absolute pollution Ace, through an agent, and the agent could exclusion inapplicable to finished products. exclusions to typical environmental have clarified the language, the ambiguous Practice note: The court noted that pollution claims, and an insured’s language must be construed against Ace. Pennsylvania law required exclusions to be argument around such application will Although Ace’s proposed reading created a “strictly and narrowly” construed, favoring probably be unsuccessful. contradiction, Howard Industries’ reading, coverage. As such, it found Travelers’ albeit awkward, was not unreasonable. broad interpretation inapplicable.

10 | westlaw Journal n Environmental © 2015 Thomson Reuters Texas The caustic chemicals disintegrated his The10th Circuit affirmed the granting of Exclusion precludes indemnity clothing, severely burned large portions of summary judgment by the U.S. District his skin and caused parts of his skin to fall for insured’s own indemnification Court for the District of Utah, holding that off. In his complaint, Malone alleged that agreement this exclusion in the policy applied to the the general contractor was negligent by insured’s release of fly ash mixture into the Federal Insurance Co. v. Northfield failing to inform him of the caustic chemicals, environment. The court, in reaching its Insurance Co., No. H-14-262, 2014 WL failing to provide adequate safety equipment decision, interpreted the “total pollution 4718984 (S.D. Tex. Sept. 22, 2014). and failing to train employees to respond to exclusion” and held that it was clear and In an action between insurers, one insurer caustic burn injuries. The general contractor unambiguous. requested defense under its policy, which sought a declaration that the other was The court also held that the insurers satisfied contained a total pollution exclusion. The required to reimburse a portion of defense costs their duties of good-faith performance in the insurer agreed to defend under a reservation and fees. The underlying insured executed an investigation of the facts and comparing the of rights. agreement with ExxonMobil through which facts to the policy. the insured agreed to defend and indemnify In the insurer’s declaratory judgment action, Practice note: The court traces the Exxon for all liabilities connected to a it sought a judgment stating there was no history of the application of the pollution certain property. The indemnification clause duty to defend or indemnify the general exclusion, including those courts that specifically included language referring to contractor or owner. With regard to the have provided a broad interpretation environmental liabilities. general contractor, the insurer argued that and those that have provided a various the pollution exclusion barred coverage. The After environmental claims arose over the interpretation. property, the insured did not defend Exxon court found that the complaint did not allege any of the enumerated release mechanisms: in those suits. Exxon then filed a breach- Wisconsin of-contract action against the insured. The “discharge, dispersal, seepage.” Contractor’s pollution liability policy insured had policies with two insurers. The allegations stated that Malone entered covers natural gas explosion Federal defended the insured in the breach- the tank and waded through the mud, where of-contract action, but Northfield did not. he came in contact with the large quantities of Acuity v. Chartis Specialty Insurance Co., No. 2013AP1303, 2015 WL 1186150 (Wis. The U.S. District Court for the Southern caustic chemicals. According to the insurer, Mar. 17, 2015). District of Texas found that Northfield was the pollutants were “dispersed” in the mud relieved from its obligation to defend the and “dispersed” onto Malone’s clothing. The Two insurers disputed whether a contractor’s U.S. District Court for the Southern District insured under the pollution exclusion. All pollution liability, or CPL, policy applied to of Texas disagreed and instead stated the claims in the underlying actions against property damage and bodily injury claims allegations could not be read in that way. Exxon alleged environmental damage. The caused by a natural gas line explosion. Rather, the allegations made no reference court found that the “contractual liability A contractor was hired to construct a road to whether the caustic components of or in ExxonMobil claims against [the insured] is a that required excavation. During excavation, the mud were dispersed or emitted. Nor form of ‘liability or damages’ and that liability the contractor hit a natural gas line, causing did Malone allege how the caustic materials ‘arises out of’ harm from pollutants.” Thus, a leak. The gas leak caused an explosion. wound up in the tank. the court found that the exclusion relieved At the time of the explosion, the contractor Northfield of any obligation to defend the Practice note: Relying on the dictionary was covered by a CGL policy and the CPL insured in the breach-of-contract action. definition of “disperse,” the court stated policy. The CGL insurer defended and that the insurer failed to meet its burden Practice note: The court went on to indemnified the contractor. In this action, and show that the caustic materials find that a buyback provision was not the CGL carrier sought to recover half of the “broke up and scattered” onto Malone’s triggered because the work was not payments made. clothing or person prior to his injuries. performed by the insured or on the The CPL policy covered injury and property insured’s behalf. Utah damage claims that were caused by “pollution Exclusion not triggered when there conditions.” A definition of “pollution Total pollution exclusion bars coverage were no allegations of “dispersal” condition” did not define the words “irritant” Headwaters Resources Inc. v. Illinois Union or “contaminant.” Overturning the appellate Burlington Insurance Co. v. JC Instride Inc., Insurance Co., 770 F.3d 885 (10th Cir. 2014). court, the Wisconsin Supreme Court found 30 F. Supp. 3d 587 (S.D. Tex. 2014). In this action, the plaintiff/insured sought that the gas leak was a contaminant because Benjamin Malone was employed to clean reimbursement for its litigation costs arising it rendered the surrounding air unclean. a “mud tank” used in oil and gas drilling from a case instituted by homeowners who Those impurities caused the danger and operations. The general contractor on the alleged that fly ash used in construction of a resulting explosion. The court went on to site told Malone that the tank contained nearby golf course devalued their homes and reject the CPL carrier’s argument that it water-based mud but did not inform him created health risks. The defendant/insurers was the explosion, not the “contaminating that it contained “large quantities of caustic advised the plaintiff/insured that the defense nature” of the natural gas that caused the chemicals.” On this basis, Malone entered the costs related to pollution were outside the injuries and damages. tank without the proper safety equipment. scope of coverage and denied the claim.

© 2015 Thomson Reuters april 29, 2015 n volume 35 n issue 20 | 11 Practice note: The court also discussed the PCBs were not released until after the Septage was applied to the Preislers’ farm an argument regarding concurrent wastewater left its possession. fields for several years. Eventually, they coverage and stated “depending on the The Wisconsin Court of Appeals disagreed noted that their cattle were dying at an language of the policies and the facts of and affirmed summary judgment in favor abnormally high rate. Testing revealed that the case, it is entirely possible for both a of Illinois National. The court found, under the well from which the cows’ water came commercial general liability policy with the plain language of the policy, that there was contaminated with an elevated level a pollution exclusion and a contractor’s was no requirement that the insured itself of nitrates. The Preislers sued the septic pollution liability policy to cover the disperse the pollutant. Instead, the court company and its insurer. insured’s liability.” noted, the phrase “at any time” evidenced The Wisconsin Supreme Court found that a Third party’s dispersal of pollutant was that the parties considered scenarios in which reasonable insured would understand that excluded by first-party policy a pollutant might be, either intentionally or the pollution exclusion clearly excluded Advanced Waste Services Inc. v. United unintentionally, dispersed without any action coverage for the water-well contamination. Milwaukee Scrap LLC, No. 2014AP1169, of the insured. It also concluded that the The exclusion specifically included waste 2015 WL 868120 (Wis. Ct. App. Mar. 3, 2015). exclusion was not ambiguous. within the definition of “pollutant,” and septage is a “waste product.” Since septage United Milwaukee, as a third-party plaintiff, Practice note: This court found that absolute pollution exclusions are seeped into the water well and caused excess sued Illinois National, its insurer, after levels of nitrates, it was considered to be a Illinois National refused to defend it in a intended to cover all releases, escapes and dispersals of pollutants, and so contaminant under the policy. Thus, the well suit through which Advanced Waste alleged contamination was excluded. that United Milwaukee supplied wastewater forth, even those done or caused by contaminated with PCBs. Illinois National other parties. Practice note: For further discussion contended that it had no duty to defend Septage contamination excluded by by the Wisconsin Supreme Court, see because of a “total pollution exclusion.” policy for septic pumping services Wilson Mutual Insurance Co. v. Falk, 857 United Milwaukee countered by arguing that N.W.2d 156 (Wis. 2014). The opinion Preisler v. General Casualty Insurance Co., was decided the same day as Preisler the exclusion did not apply because it was 857 N.W.2d 136 (Wis. 2014). not the entity that dispersed the pollutant, and involves claims regarding a water or in the alternative, the exclusion was Dairy farmers Tina and Frederick Preisler well contaminated with cow manure. WJ ambiguous. According to United Milwaukee, sued a septic pumping services company that transported, stored and disposed of septage.

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