(Article from Insurance Law Alert, March 2025)
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Holding
The Alaska Supreme Court ruled that a pollution exclusion in a property policy did not bar coverage for carbon-monoxide-related claims. Est. of Wheeler v. Garrison Prop. & Cas. Ins. Co., 2025 Alas. LEXIS 32 (Alaska Feb. 28, 2025).
Background
A coverage dispute arose after a tenant died of carbon monoxide poisoning. The tenant’s family sued the homeowners who, in turn, notified their property insurer. The insurer denied coverage on the grounds that carbon monoxide was a “pollutant” within the meaning of a pollution exclusion in the policy. The homeowners signed a confession of judgment and assigned their right to proceed against their insurer to the tenant’s family. In ensuing coverage litigation, both sides moved for summary judgment regarding application of the pollution exclusion.
A district court ruled in the insurer’s favor, finding that the exclusion was unambiguous and, applied literally, encompassed the emission of carbon monoxide from an improperly installed water heater in the home. On appeal, the Ninth Circuit certified a question to the Alaska Supreme Court as to how the pollution exclusion should be interpreted under Alaska law: “Does the pollution exclusion in [the] homeowners insurance policy bar coverage for injury arising out of exposure to carbon monoxide emitted by an improperly installed home appliance?” The Alaska Supreme Court accepted certification.
Decision
The Alaska Supreme Court answered “no,” holding that the pollution exclusion did not apply.
As a preliminary matter, the court ruled that the question of law was not governed by Whittier Props., Inc. v. Alaska Nat’l Ins. Co., 185 P.3d 84 (Alaska 2008), a decision relied upon by the district court. In Whittier, the court held that a pollution exclusion barred coverage for losses arising out of a gasoline leak from a gas station into surrounding soil and water. The Alaska Supreme Court explained that Whittier involved a different substance, a different factual context, and a third-party liability policy rather than a first-party property policy. Additionally, while the Whittier court ruled that the absence of the term “gasoline” in the exclusion did not create ambiguity, the Alaska Supreme Court in the instant case clarified that Whittier does not stand for the general proposition that “a literal reading of the pollution exclusion is definitive in all cases, even where other provisions create uncertainty.”
The court then noted that, under Alaska law, consideration of an insured’s reasonable expectations does not depend on a finding of ambiguity. However, “since most insureds develop an expectation that every loss will be covered,” the reasonable expectations doctrine is limited by the policy language itself, relevant extrinsic evidence, and applicable case law.
Applying this framework, the court held that both parties’ arguments were reasonable.
More specifically, the court deemed reasonable the insurer’s contention that the exclusion, which applied to injuries arising out of the “discharge, dispersal, release, escape, seepage or migration of ‘pollutants,’” was broad enough to encompass the emission of carbon monoxide from an appliance, particularly given that the definition of “pollutant” included “fumes.” Nonetheless, the court reasoned that two other policy exclusions “had a significant effect on how a reasonable insured would interpret the pollution exclusion.” Those exclusions barred coverage for claims arising out of lead-based products and asbestos. The court concluded that those exclusions, which expressly referenced other “common household ‘pollutants,’” supported the policyholder’s narrower interpretation that the pollution exclusion did not bar coverage for the carbon monoxide claim at issue.
Comments
Courts across jurisdictions have reached differing conclusions as to whether a pollution exclusion encompasses claims arising from carbon monoxide exposure. As the Alaska Supreme Court noted, some courts have ruled that the exclusion is inapplicable to carbon monoxide claims and limited its application to “traditional environmental pollution,” while other courts have applied a literal reading of the exclusion to find no coverage for such claims.