In 2009, a Rough Notes columnist encouraged readers to ask, “When did the product become a pollutant?” Today, a recent court ruling gives a strange boost to the broad application of pollution exclusions.
Putting producers between their carriers and their clients
By Joseph S. Harrington, CPCU, with a nod to the late Don Malecki
“When did the product become a pollutant?”
That’s a question Don Malecki told readers of Rough Notes to ask back in 2009.[i] Don passed away in 2014 after a distinguished career as a highly regarded insurance commentator, but the question survives and is still a concern for agents and brokers.
Don’s question referred to insurers denying bodily injury claims arising from exposure to any substance that could be considered a “contaminant,” and thus subject to “absolute” pollution exclusions found in commercial general liability (CGL) policies.
In the opinion of Malecki and others, pollution exclusions were designed to protect CGL insurers from exposure to open-ended liability for the release of toxic substances into the natural environment.
He and others were surprised, then, to see liability insurers denying claims arising from the effects of substances used as intended in commercial operations, substances such as cleaning solutions, lubricants, fuels, and floor polishes.
Don was equally surprised to see courts agreeing with the insurers, hence his question: “When did the product become a pollutant?”
It’s not enough to concede?
A recent ruling in a U.S. district court gives a strange boost to the broad application of pollution exclusions.
The case, decided in March 2019 in the southern district of Florida, involved an office worker who claimed that she was overcome by fumes from an oil-based paint that circulated through the air conditioning system of the building where she worked.
The insurer for the building owner agreed to defend its insured and the building’s property manager under a reservation of rights letter. The insurer then filed for a summary judgment in federal court, upholding its argument that the claim was excluded by the pollution exclusion in the CGL policy under consideration.
The case was essentially over at that point, as the building owner, the property manager, and the claimant did not contest the appeal for summary judgment; in fact, they all conceded that the pollution exclusion applied.[ii]
On their own, however, those concessions were not a sufficient basis to grant the summary judgment, according to the judge, who went on to rule on the merits of the insurer’s pleading.
As have numerous courts of late, the court found that coverage was barred by an exclusion for bodily injury or property damage caused by “pollutants,” defined to include “any solid, liquid, gaseous, or thermal irritant or contaminant,” and expressly including fumes.
One more precedent was added where, perhaps, it was never needed.
Are your clients protected?
For agents and brokers, the application of pollution exclusions to the effects of commercial operations goes to the heart of general liability coverage.
Consider that, in this latest Florida case, virtually everyone involved conceded that a building owner and manager were not entitled to coverage for liability that originated with fumes from paint applied by a painting contractor. If an injury arising from normal maintenance activities by a subcontractor can’t be covered, what can?
Nearly 30 years ago, another federal court held that “without some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results.” [iii] Quoting an earlier case, that court noted that “there is virtually no substance or chemical in existence that would not irritate or damage some person or property.”[iv]
In 2009, a Michigan appeals court rejected an attempt to deny coverage, based on a pollution exclusion, to a contractor that had applied a sanitizing agent to some ductwork, which led to a bodily injury claim.[v] A trial court upheld the insurer’s position, but the appeals court overturned that, making two significant points:
- The substance at issue “was supposed to be where it was located, i.e., in ductwork, and [was] not generally expected to cause injurious or harmful effects to people;” and
- “Because it was [the insured’s] normal business practice to use deodorizing and sanitizing agents, it would have reasonably expected coverage for damage claims.”
For agents and brokers, the Michigan ruling may seem to reflect the nature of the CGL coverage they promote and provide to their clients.
But as long as carriers and courts are found to uphold broad applications of pollution exclusions, you’ll have to caution some of your clients that they face a “pollution” exposure—and a potential gap in coverage—just by carrying on business as usual.
[i] Donald S. Malecki, “Pollution Exclusion Minefield: Determining whether a product is potentially a pollutant or contains pollutants is getting more difficult,” Rough Notes, January 2009; accessed at https://www.roughnotes.com/rnmagazine/2009/january09/01p034.htm
[ii] AIX Specialty Ins. Co. v. Williams-Panton, 2019 WL 1107420, 2019 U.S. Dist. LEXIS 35026 (S.D. Fla. March 4, 2019), reviewed in IRMI Insurance Case Finder at www.irmionline.com;
See also Steven A. Meyerowitz, “Pollution Exclusion Bars Insurance Coverage for Oil-Based Paint Fumes,” Daily Business Review at Law.com, March 9, 2019; accessed at https://www.law.com/dailybusinessreview/2019/03/07/