Courts Disagree on Whether Pollution Exclusion Encompasses Non-Traditional Noxious Odor Claims
03.28.16
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(Article from Insurance Law Alert, March 2016)
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In Shaw v. Liberty Mutual Fire Insurance Co., 2016 WL 561409 (M.D. Fla. Feb. 12, 2016), the court ruled that Texas law does not limit a pollution exclusion to claims arising out of traditional environmental pollution. The coverage dispute arose out of an insurer’s denial of coverage for carbon monoxide-related injuries based on a pollution exclusion. The court granted the insurer’s summary judgment motion, finding that the pollution exclusion unambiguously barred coverage. In so ruling, the court expressly rejected the policyholder’s argument that the exclusion should not apply because the underlying injuries were caused by ventilation, plumbing, and detection system failures, rather than a “pollutant.” The court explained: “The Shaws’ injuries arose out of the migration of carbon monoxide, a pollutant, from the parking garage to their room, on account of improperly maintained systems, and the failure to use appropriate detection equipment. Thus, the pollution exclusion applies, even if the other failures . . . contributed to their injuries.”
In contrast, a court applying Arizona law ruled that claims arising out of exposure to hydrogen sulfide (a foul odor produced by a sewage leak) were not barred by a pollution exclusion. Nat’l Fire Ins. Co. of Hartford v. James River Ins., 2016 WL 613964 (D. Ariz. Feb. 16, 2016). The court ruled that Arizona law limits application of the pollution exclusion to traditional environmental pollution. Although the Arizona Supreme Court has not definitively ruled on the issue, the court reasoned that under appellate court precedent, an absolute pollution exclusion does not bar coverage for all injuries arising from exposure to toxic substances. Rather, application of the exclusion must be determined “in light of the historical purpose of the pollution exclusionary clause.” The court therefore concluded that, even assuming that hydrogen sulfide gas was a “contaminant” or “irritant,” the exclusion was inapplicable because faulty plumbing pipe installation does not constitute traditional pollution. Notably, the pollution exclusion at issue in James River was broader than standard form language, containing an additional “blanket exclusion” that barred coverage for all “[p]ollution/environmental impairment/contamination.” However, the court rejected this provision as overbroad, stating that those terms “must be tethered to some limiting principle” to prevent the exclusion from eviscerating coverage.