(Article from Insurance Law Alert, July/August 2018)
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Federal district courts in Florida and Texas ruled that a pollution exclusion bars coverage for claims that arose from non-traditional environmental contamination.
In Colony Insurance Co. v. Great American Alliance Ins. Co., 2018 WL 3453975 (S.D. Fla. July 17, 2018), the court ruled that insurers had no duty to defend or indemnify a homeowners association in a wrongful death suit arising out of carbon monoxide inhalation. According to the underlying complaint, carbon monoxide originating from a car in the unit’s garage, seeped into the air conditioning vents and ducts, eventually reaching a second story residence. The insurers denied coverage based on an absolute pollution exclusion.
In ensuing litigation, the court granted the insurers’ summary judgment motion, holding that under Florida law, a pollution exclusion applies to carbon monoxide claims. The court rejected the homeowners association’s assertion that coverage was restored by an exception that applied to fumes originating from heating or cooling equipment. The court reasoned that a hypothetical scenario in which the carbon monoxide might have originated from the heating or cooling system did not create a potential for coverage since the underlying complaint listed a car as the only potential source of the toxic fumes. Further, the court held that the exception did not apply by virtue of the fact that the cooling or heating ducts were the conduit through which the fumes reached the residence.
A Texas federal district court also enforced an absolute pollution exclusion in a non-traditional context in Great American Insurance Co. v. Ace American Insurance Co., 2018 WL 3370620 (N.D. Tex. July 10, 2018). There, the underlying claims arose out of the dispersal of rock fines (small particles of rock generated as part of the stone-crushing process at the insured’s rock quarry) into an adjacent reservoir. The rock fines were supposed to be contained in settling ponds, but due to a pumping accident, were carried into a waterway that led to a reservoir. According to government agencies, the rock fines damaged the stream bed and required remediation by the quarry. The insurers denied coverage based on a pollution exclusion.
The court ruled that the rock fines were pollutants within the meaning of the exclusion, notwithstanding their “ordinary usefulness.” In holding the pollution exclusion applicable, the court emphasized that the rock fines constituted waste material from the crushing process, and became contaminants when “discharged and dispersed where they did not belong.” Rejecting the quarry’s assertion that rock fines are a nonhazardous material, the court stated: “If they were indeed innocuous, the State of New Jersey would not have required remediation.”