Clear as Mud?

Over the past 15 years, the standard ISO absolute pollution exclusion — also referred to as the total pollution exclusion — has been litigated in the traditional environmental arena across the country. As a result, claim professionals know how to apply the language of the absolute pollution exclusion to the facts of any new claim presented in each jurisdiction. Or do they?

While it is true that coverage disputes concerning the absolute pollution exclusion have largely litigated themselves out, the claims that are litigated today likely involve non-traditional or indoor cases of pollution. Courts around the country show more hesitation in applying the strict terms of the absolute pollution exclusion to indoor or non-traditional discharges of pollution.

The standard ISO pollution exclusion clause after 1985 provides that the insurance policy does not apply to bodily injury or property damage arising out of the discharge of pollutants. Pre-1986 pollution exclusions contained an exception for discharges that were sudden and accidental. There are various versions of the absolute pollution exclusion, but the hallmark of all versions is that there is no longer a sudden-and-accidental exception to the exclusion.

One of the seminal cases applying the absolute pollution exclusion in accordance with its terms to a case that does not involve traditional environmental pollution is Certain Underwriters at Lloyd's London v. C.A. Turner Constr. Co., 112 F.3d 184 (5th Cir. 1997). The court applied the exclusion to workplace contamination and stated that the exclusion is not limited to only those releases that cause environmental harm. Similarly, an Ohio federal court applied the pollution exclusion to a release of smoke and fumes from the use of certain furnaces that allegedly caused cancer and respiratory problems for employees [Park-Ohio Indus., Inc. v. Home Indem. Co., 785 F. Supp. 670 (N.D. Ohio 1991)]. The court stated that the pollution exclusion specifically precludes coverage where pollution causes damage. Another court applied the pollution exclusion to bar coverage where contamination of food products occurred from xylene fumes from a sealant that was applied to the floor [Cincinnati Ins. Co. v. Becker Warehouse, Inc., 635 N.W.2d 112 (Neb. 2001)].

But other courts have refused to apply the plain terms of the absolute pollution exclusion to cases of non-traditional environmental damage. For example, in MacKinnon v. Truck Insurance Exchange, the California Supreme Court held that the pollution exclusion did not apply to bodily injury resulting from exposure to pesticides sprayed inside an apartment building. Within the past year, there have been several courts holding that bodily injury and property damage from non-traditional pollution sources are not excluded by the standard absolute pollution exclusion. In National Grange Mutual Insurance Co. v. Caraker, a state district court held that the pollution exclusion would not bar claims for property damage resulting from asbestos dust released when the insured removed and sanded kitchen tile. The court noted that the exclusion should be limited to “classic environmental pollution.” In State Auto Mutual Insurance Co. v. Greenrose, the Kentucky Court of Appeals held that the absolute pollution exclusion did not bar coverage for bodily injury to an insured who slipped on the basement stairs, pulled loose a pipe to break his fall, and spilled diesel fuel from the pipe into the basement. The court found that the exclusion was unambiguous on its face but ambiguous under the particular facts of this case. Similarly, the Maryland Court of Appeals held that the pollution exclusion did not exclude coverage for bodily injury caused by exposure to manganese fumes in the workplace [Clendenin Bros., Inc. v. U.S. Fire Ins. Co., 889 A.2d 387 (Md. 2006)].

Courts that do not apply the exclusion to non-traditional pollution cases tend to reason that the general purpose of the pollution exclusion is to bar coverage for environmental pollution, and it should not apply in situations involving workplace exposure to contaminants or incidental contact with a pollutant. In some cases, these courts find the pollution exclusion ambiguous as it applies to the facts of the particular claim. In other cases, they simply find that there was no discharge of a pollutant or that the exclusion was not intended to apply to the type of discharge at issue.

While there are still courts that will uphold the plain language of the absolute pollution exclusion in non-traditional and indoor pollution cases, claim handlers and insurers should consider the value of the claim at issue, the cost of litigating such a claim, and the fact that the courts remain relatively inconsistent in the way that they address these claims and determine coverage. Unlike traditional environmental claims, carriers should be more likely to compromise and resolve claims if at all possible.

Laura Hanson is a partner with Meagher & Geer in Minneapolis. Her practice focuses on commercial insurance coverage litigation. She can be reached at 612-338-0661.