Given the context of the exclusion, it seems clear that the intent was to exclude from open perils coverage, (then referred to as all risks) events that did not depend upon accidental happening, but instead would occur, given time and the proper circumstances: physical property will wear out; it will become mildewed or rotten if subject to enough humidity over time; things mechanical will break down, etc. Webster's Unabridged Dictionary supports this view under its explanation of a synonym for “contaminate,” i.e., “attaint.” Webster's explains that “attaint” is now commonly used as a synonym for “taint,” although attaint “suggests the idea of infection or of inevitable corruption following from an original sullying contact.” Thus, contamination contains within it a sense of a process of deterioration, not loss from an immediate, abrupt event.

Losses like these have always been distinguished from the sudden and accidental damage that property may suffer. Set fire to a sofa and it clearly becomes marred, but just as clearly that is not what the homeowners marring exclusion refers to. Drop paint on the wall-to-wall carpet, and while admittedly the carpet has been contaminated (made impure by the introduction of a foreign substance), such loss has traditionally been considered outside the scope of the contamination exclusion.

Expanding the Exclusion

In 1984, ISO introduced a revised homeowners non-fortuitous loss exclusion. The clause was broken up from a single paragraph that listed excluded non-fortuitous occurrences into individually numbered provisions. Included in this change was the expansion of the contamination clause to include the release, discharge, or dispersal of pollutants. Unlike commercial property form CP 10 30 10 00, the homeowners form kept the pollution exclusion under the same subparagraph as the exclusions of wear and tear, etc. Thus, the homeowners pollution exclusion must be read within the context of the other provisions of subparagraph “f.” of exclusion 2 (applicable to the dwelling and other structures).

The 1984 version reads: We insure against risks of direct loss to property described in Coverages A and B only if that loss is a physical loss to property; however, we do not insure loss: …

“Pollutant” is defined in the exclusion as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.

The location of the pollution exclusion under subparagraph “f” indicates that it was still aimed at non-fortuitous and non-sudden occurrences. However, the scope of the exclusion was arguably expanded by changing “contamination” (implying a process of deterioration) to the current wording. A “release” or “discharge” can occur abruptly, and almost any substance that soils property might be considered a “contaminant.” For instance, paint spilled on a wood floor could be considered a release of a contaminant or pollutant if the exclusion is read without considering its position under subparagraph “f.”

The American Association of Insurance Services (AAIS) form 3 (ed. 7-88) does not contain an exclusion of coverage for loss to covered property resulting from pollution. However, the form does contain an exclusion for “contamination” which is found in “wear and tear” exclusion. This is exclusion 10. of the exclusions that apply to property coverages, and reads “We do not pay for loss which results from wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, wet or dry rot, corrosion, mold, contamination [italics added] or smog. We do pay for an ensuing loss unless the ensuing loss itself is excluded.”

Falling, as it does, under the “wear and tear” exclusion, “contamination” is viewed by the AAIS policy drafters as a gradual type of loss. For example, if insured homeowners had their home sprayed for bugs by an exterminator and some chemical reaction caused damage to the siding, flooring, or carpeting, the treatment of contamination as wear and tear would make the sudden and accidental loss caused by the exterminator difficult to deny under the AAIS policy.

However, the AAIS form (ed. 7-88) contains a liability exclusion not found in the 1984 ISO form. Bodily injury or property damage caused by “the discharge, dispersal, release or the escape of pollutants into or upon land, water, or air” is not covered. The exception to the exclusion is that it does not apply to “bodily injury or property damage that arises from the heat, smoke or fumes of hostile fire on the insured premises. Hostile fire is a fire that becomes uncontrollable or breaks out from where it was intended to be.”

Say, for example, in a scenario similar to the exterminator case above, the insured, as a favor, sprays pesticide onto a neighbor's property. However, the airborne vapor causes another neighbor to suffer an asthma attack. Since it may be argued that the pesticide has been “released” into the air, the insured will not have liability coverage under this form should the suffering neighbor sue. But if the insured offered to paint the neighbor's siding, and the paint damaged the siding, there would presumably be coverage since the pollutant (the paint) was not released onto or into land, water, or air.

Both the ISO 1984 forms and the AAIS 1988 forms have been replaced with the 1991 and 1995 editions, respectively. Since then, those forms have been replaced with the 2000 and the 2006 editions respectively. These are relatively new forms and the 1991 and 1995 forms are still in use so it's important to check the form number when reviewing an exclusion.

The ISO 1991 Homeowners Pollution Exclusion

The contamination and pollution exclusion was revised again in the ISO 1991 homeowners program. As in the 1984 and earlier policies, the pollution exclusion appears in a listing of excluded non-fortuitous events, but its wording is broadened, further expanding the losses to which the exclusion may be applied.

The exclusion reads: We do not insure loss:

The change from a “contamination” exclusion as known in earlier versions to a comprehensive “pollution” exclusion is complete with this revision. The word “pollution” is now the important concept, with the word contamination appearing only within the definition of pollutant. The difference between these two versions of the exclusion may be significant. At first glance, the 1984 form appears to have a broader exclusion, but its application to abrupt and accidental pollution or contamination losses is more open to an interpretation favorable to insureds than the current exclusion. Either version of the ISO exclusion raises the question of whether the losses for which coverage is being denied are the type for which special homeowners forms were designed.

A limitation on coverage under the 1991 policy is the requirement that one of the named perils under coverage C must cause the pollution loss in order for coverage to apply. Although this provision may appear to create an exception to the exclusion that was not present in the 1984 version, when the 1984 language is viewed as covering abrupt, accidental pollution and contamination losses, the addition of the named perils provision takes on the nature of a coverage limitation. Now, only certain types of abrupt and accidental pollution losses are covered. For example, if vandals “reconnected” a heating oil tank so as to spew the contents into the insured's house, there would be coverage (vandalism is a coverage C peril). On the other hand, if a leaking delivery pipe from fuel tank to oil furnace allowed the contents to damage the insured's basement floor over a period of time, there would be no coverage.

The ISO 2000 Homeowners Pollution Exclusion

The 2000 exclusion is virtually the same as the 1991 exclusion except for a few wording changes. Included with the exclusion for mechanical breakdown, latent defect, or inherent vice, now any quality in property that causes it to destroy or damage itself is also excluded. Wet rot has been removed from the exclusion for smog, rust or other corrosion or dry rot. Wet rot has been moved to a separate exclusion that includes mold and fungus.

The AAIS 1995 Homeowners Pollution Exclusion

The American Association of Insurance Services (AAIS) coverage form 3 Ed. 2.0 (the 1995 open perils form) has changed the property pollution exclusion so that it is identical to that found in the 1991 ISO form. Under exclusions applying to coverages A and B, exclusion 10. states “Pollution—'We' do not pay for loss caused by the release, discharge, dispersal, seepage, migration, or escape of 'pollutants', unless the release, discharge, dispersal, seepage, migration, or escape is caused by a peril insured against described under Coverage C.” Interestingly, “contamination” has been retained in the “wear and tear” exclusion, even though “contaminant” is part of the definition of a pollutant.

Although the definition for a “pollutant” is similar to that found in the ISO form, there is a significant difference. In the AAIS form, “pollutant” means:

An insured, therefore, cannot claim that his or her home has suffered EMF (electro-magnetic field) pollution, with the result that it is no longer able to be lived in. Nor can the insured claim property damage when the home is near to a noisy airport.

The current AAIS form deletes the exclusion for liability coverage for bodily injury or property damage resulting from pollution. The exclusion, when applicable, is now available as endorsement ML-435. This endorsement has not been revised in the 2006 policy revisions.

The AAIS 2006 Homeowners Pollution Exclusion

The 2006 AAIS pollution exclusion diverges from the ISO exclusion. Included with the cause of the release of the pollutant are the disposal, emission, escape, leaching, leakage, and spillage of the pollutants. This is new language and broadens the excluded causes of loss. As in the older form, if the discharge etc. is caused by a peril insured against in coverage C, then coverage is provided.

Ordinance and Law Coverage and Pollution

When ISO filed the 1994 amendatory endorsements that modified coverages of the 1991 edition, one of the changes made was to provide up to 10% of the coverage A limit of liability for increased costs due to the enforcement of any law or ordinance requiring or regulating construction, demolition, renovation, or repair of a covered building or structure damaged by a peril insured against. The 2000 ISO homeowners policy revises the ordinance or law exclusion. The revisions exclude not only regulations of construction, demolition, remodeling etc., but excludes any requirement of the insured to test for, clean up, monitor, remove, contain, treat, neutralize or in any way respond to or assess the effects of pollutants. The definition of pollutants is then presented again.

Similarly, in 1995 when AAIS filed Edition 2.0 of the homeowners forms, up to 25% of the limit applying to the damaged property was made available (with another 10% of the applicable limit available) for increased costs resulting from enforcement of any ordinance or law. AAIS also changed the coverage in their 2006 form. Now only 10% of the applicable limit is available for coverage with no additional amount available. The coverage may also be applied to removal of debris when the loss stems from a peril insured against and a code, ordinance etc. requires the structure's construction, repair, replacement, or demolition.

However, both of these provisions preclude coverage for any ordinance or law that requires any insured “or others” to test for, monitor, clean up, contain, detoxify, or respond to or assess the effects of pollutants. Therefore, if a covered dwelling is damaged to the extent that it must be demolished, and the dwelling is thought to contain asbestos, then any increased costs strictly for the containment of asbestos are not covered, although the remainder of the demolition cost is.

Endorsement HO 05 80, discussed below in more detail, provides limited ordinance and law coverage, but only when the covered loss involves escape of liquid fuel from a “system,” which is a defined term. Then there is coverage for testing, monitoring, or assessing the effects of the escape on or away from covered real property, as required by law or in response to a demand by a governmental authority. This amount is included within the limit of insurance.

What Are “Pollutants?”

The judicial thinking on “pollutants” appears to be rather unevenly divided between those courts that hold that “pollutants” are unambiguously defined in the forms (the majority viewpoint), and those courts that hold that the only excluded “pollutants” should be those that pollute the environment (the minority view). Representing the first school of thought is M. Drew Brown et al v. American Motorists Insurance Company, 930 F.Supp. 207, E.D. Pa.1996. In this case, the insured applied a chemical waterproofing sealant to the brick exterior of the family home. The fumes from the sealant caused such intense physical discomfort that it became necessary to vacate the home. The insureds claimed damage to the home, personal belongings, and additional living expenses. When the claim was denied based on the policy's pollution exclusion, the Browns filed suit.

An argument advanced for coverage by the plaintiffs was that the fumes were not “pollutants” under the exclusion because they came from an over-the-counter product, used in an everyday activity. However, the court held that whether fumes from a household product would be commonly understood to be pollutants was not the issue. The term “pollutant” is defined in the policy, said the court, to include “solid, liquid and gaseous irritants and contaminants, including [italics added] fumes and vapors.” Since this definition was clear and unambiguous, the court would not substitute a common definition.

The plaintiffs further argued that the policy phrase “discharge, dispersal, seepage, migration, release or escape” was ambiguous in that it was not intended to apply to the ordinary, everyday activities of the homeowner, but to intentional acts of environment polluters, such as “discharge” of chemicals into a stream. The court dismissed this argument as well, holding that since no ambiguity existed it would not speculate on the intent of the policy language.

Similarly, in the case of United States Fire Insurance Co. v. Ace Baking Company, 476 N.W.2d 280 Wis. App.1991, a fragrance additive stored in the same warehouse as baked goods was found to be a pollutant when it affected the taste and smell of the baked goods, even though the parties agreed that the additive is harmless when put to its intended use. The court appeared to agree with the reasoning put forth by the plaintiffs in the case above, stating that “it is a rare substance indeed that is always a pollutant; the most noxious of materials have their appropriate, non-polluting uses. Thus for example, oil will 'pollute' water and thus foul an automobile's radiator, but be essential for the engine's lubrication. Conversely, water can 'pollute' oil and thus foul the engine, but be essential for the automobile's radiator.” But, added the court, “here, although linalool [the fragrance additive] is a valued ingredient for some uses, it fouled Ace Baking's products. Accordingly, it was a 'pollutant' in relation to those products and coverage for the resulting damages is excluded from the…policy.”

In contrast, the theme running through the cases that have held for the insured is that a substance used for its intended beneficial purpose which inadvertently causes a loss is not a “pollutant.” So, for example, an EPA-approved mosquito control spray used by a city was determined to not be a pollutant (Westchester Fire Insurance Co. v. City of Pittsburgh, 791 F. Supp. 836 D. Kan., 1992); and styrene monomer resin used by a floor resurfacer in a chicken processing plant resulting in contamination of processed chickens was also held to be a raw material used in the insured's business and not a pollutant (West American Ins. v. Tufco Flooring, 409 S.E.2d 698, N.C. App., 1991). More recently however Cincinnati Ins. Co. v. Becker Warehouse, Inc. 262 Neb. 746, 635 N.W.2d 112 Neb. ,2001. disagreed with West American and stated that xylene, the floor sealant in question in the case was indeed a pollutant. In this case fumes from the floor sealant migrated into a warehouse where food was stored and the food was contaminated. The court stated that the Clean Air Act lists xylene as a hazardous air pollutant, and because the substance was in a different state, fumes instead of liquid, does not render xylene a nonpollutant.

In the case of Sullins et al v. Allstate Insurance Company, 667 A.2d 617 Md. (1995), the court ruled in favor of the insured in a case of alleged lead poisoning, finding that since lead paint was a product used both legally and intentionally, its status as a pollutant or contaminant was very much open to legal interpretation. Although, stated the court, the “conflicting interpretations of policy language in judicial opinions is not determinative of, [it is] a factor to be considered in determining the existence of ambiguity…”

These cases show that courts are divided along two lines of reasoning. Those adopting the view put forth in the Ace Baking case would find that even a natural and non-toxic substance such as water can be a pollutant, depending on whether it renders the property it acts upon impure and not fit for use. This approach focuses on the special properties of the property that is adversely affected, not on the nature of the damaging agent. Yet the pollution exclusion was first promulgated to avoid the insurer's exposure to long-tail, high-cost losses that can undermine an insurer's financial stability. Thus, some courts are showing a reluctance to exclude coverage when the loss is caused by a product being put to its intended use, the loss appears to be short-term in nature, and the insured did not simply ignore the contaminating side effects of operations.

Homeowners Cases—Contamination and Pollution Exclusions

Of the cases making their way into the courts, for the most judgment for the insurer and against the insured has been the norm. Many of the cases involve fuel oil leakage or spillage. For example in Rybacki v. Allstate Ins. Co. Not Reported in N.E.2d, 2004 WL 894406 Ohio App. 9 Dist., 2004, the insureds underground heating oil tank ruptured and oil went into the sewer system. The insureds filed a claim which Allstate denied based on the pollution exclusion. When the claim was denied the insureds filed suit. The court upheld the denial. The homeowners appealed the decision based on Andersen v. Highland House Co., 93 Ohio St.3d 547, 757 N.E.2d 329 Ohio (2001). The Rybacki's argued that in Anderson the court stated that the language of the exclusions must clearly and unambiguously exclude coverage of the pollutant in question; otherwise the insureds would not have anticipated a denial of coverage. The Rybacki's stated that the policy didn't exclude heating oil specifically, so there should be coverage. The court disagreed with the Anderson ruling and stated that the emission of carbon monoxide as in the Anderson case was different than the emission of pollution into the earth, and the court found for Allstate.

One case in which the contamination exclusion was held to be inapplicable is Noyes v. Quincy Mutual Fire Insurance Co., 389 N.E.2d 1046 Mass. App. Ct. (1979). A Massachusetts appeals court ruled that it was bound by the trial court's finding that a loss was not excluded under the contamination exclusion because the insurer had not appealed this point. The homeowners suffered property damage when the gasoline line of a motor vehicle parked in their driveway broke and spilled gasoline. The insureds complained to the Division of Insurance when the claim was denied, and counsel for the Division gave his opinion that the loss should be covered and later filed an affidavit against the insurer's motion for summary judgment. The opinion and affidavit by the attorney for the Division of Insurance was found persuasive by the trial court.

As noted above, another court considering the contamination exclusion found for the insurance company and upheld the denial of coverage in Auten v. Employers National Ins. Co., 722 S.W.2d 468 Tex. App.-Dallas, (1986). The homeowners insureds had suffered property loss when an exterminator applied the wrong pesticide in the home. The trial court concluded that the exclusion did not apply, as the cause of the loss was the exterminator negligence (a non-excluded peril), rather than the contamination of the insured's property. The Texas appeals court disagreed, finding that the plain meaning of contamination is a condition of impairment or impurity resulting from mixture or contact with a foreign substance, and that the policy clearly excluded contamination. The court declined to limit the contamination exclusion only to contamination resulting from otherwise excluded causes. “Indeed, to read the policy in the manner requested could lead to creating coverage simply by looking so far down the chain of causation as may be necessary to find a cause which is not excluded,” was the decision.

But a case holding for coverage on the basis of negligence (not excluded) and discharge of pollutants (excluded) is Farrell and Reinhold v. Royal Insurance Company of North America, 989 F.Supp.159, D. Conn.,1997. In this case, unbeknownst to the insureds, their property contained one active and two inactive underground fuel tanks. Fuel oil was pumped by the delivery company into the wrong tank, with the result that oil seeped into the foundation and soil around the house. Applying a “train of events” test, the court held for coverage for the foundation, the soil remediation (an action taken, said the court, both for debris removal and as a reasonable repair), but not for removal of one of the abandoned tanks as required by local ordinance. Here, said the court, the exclusion for ordinance or law coverage was prefaced by the concurrent causation language, and therefore the “train of events” test would not apply.

But note that under the 1991 exclusion, an insured would have a hard time even making the concurrent causation argument made in Auten or the “train of events” in Farrell. The policy only excepts from the scope of the exclusion contamination or pollution that is a result of a coverage C peril. Negligence is not a coverage C peril.

As with the exclusion in the property coverage section, the question in liability cases (where there is an exclusion of coverage, as in the 1988 AAIS form) is whether the exclusion is intended to apply to intentional, long-term  industrial pollution, or whether the insured's use of lawful products short-term is also precluded. A case in point is Thompson v. Temple, 580 So.2d 1133 La.App. 4 Cir., (1991). The Louisiana appeals court held in the insured's favor when the insurer denied a claim for bodily injury caused by carbon monoxide that had leaked from a bathroom heater. The claim was made by a tenant of the insured. The court decided that pollution exclusions “are intended to exclude coverage for active industrial polluters…[and] it seems that the intent of the insurance industry in adding pollution exclusion clauses to their policies was to exclude coverage for entities which knowingly pollute the environment over a substantial period of time. That situation is totally different from a leaking gas heater within a home. It is unlikely that the insurance industry intended such an exclusion clause to apply to this situation. We find that, on the basis of the intent of the parties, a pollution exclusion clause in a homeowners' insurance policy does not operate to exclude injuries caused by a leaking gas heater.”

But in the case of Economy Preferred Insurance Company v. Grandadam, Twardowski et al, 656 N.E.2d 787, Ill.App. 3 Dist., 1995, the opposite conclusion was reached. Here, the minor son of the Twardowski's brought a container of mercury into the Grandadam's house. In the course of playing, the contents were scattered about the interior of the residence. Although the Grandadams alleged negligence as well as pollution resulting in bodily injury and property damage, the court held that the occurrence (the pollution) causing the injury was excluded. The court looked at Thompson, above, but said that in that case injury occurred when fumes leaked from a common household item, but in this case the pollutant was actively brought into the house.

It should be noted that the current (ISO 2000 and AAIS 2006) homeowners forms do not contain exclusions for bodily injury or property damage resulting from pollution. AAIS, however, has endorsement ML-435, which excludes coverage for bodily injury or property damage resulting from pollution, with the exception for bodily injury or property damage from heat, smoke, or fumes from a hostile fire on the insured premises. The endorsement is available for use at an insurer's discretion.

Limited Pollution Coverage— ISO Endorsement HO 05 80

In 1996 ISO filed endorsement HO 05 80 (number varies according to jurisdiction; use caution), which provides limited coverage for property remediation for escaped liquid fuel, and limited liability coverage for bodily injury or property damage resulting from the escape of fuel from a fuel system, or from the absorption, ingestion, or inhalation of lead which is in or on an insured location. The form was updated in 2000 with mostly clarification changes but a few additions and deletions. HO 05 80 10 00

The pollution exclusion is removed from Form HO 00 05 and the language that removed the pollution exclusion on form HO 00 03 when the special personal property endorsement is attached has been removed. In the new form how payment is made is explained when coverage exists under the new form and coverage also exists under a government fund. The carrier will pay only the proportion of the loss that the limit of liability under the endorsement applies to the total amount payable for the loss. Newly added to the loss assessment coverage is a statement that the limit for assessment does not increase the aggregate limit of liability in the schedule.

The endorsement represents some broadening of coverage: for example, “covered real property” which is afforded remediation coverage includes land which is within the described residence premises, owned by an insured, and on which a covered structure is located. Reasonable expenses to take temporary measures to stop the further escape of the fuel, clean up, remove, or treat loss or damage to covered real property, or test, monitor, or assess the effects of the escape as required by law are covered. There is limited coverage for trees, shrubs, plants, and lawns. Additional living expense coverage applies. Further, the endorsement does not stipulate that the escape must be caused by one of the coverage C perils; rather, the fuel may simply “escape.”

There are downsides to this endorsement, however. First, the endorsement limits coverage for escaped liquid fuel to that which escapes from a fuel system, which is defined as “one or more containers, tanks or vessels which have a total combined storage capacity of 100 or more U.S. gallons of liquid fuel” and located on covered real property or an insured location. Leakage from any other apparatus is only covered if the apparatus is connected to such a container or tank. The base limit of coverage, which may be increased, is $10,000. Second, the endorsement provides an aggregate limit of liability for escaped fuel or for lead ingestion, whereas the unendorsed homeowners contains no limit other than that indicated for coverage E and F on the declarations. The aggregate limit on the endorsement is generally much lower ($50,000 is a common amount) than the coverage E amount.

Insurers appear to be attaching this endorsement, or a variation thereof, to homeowners policies without regard for the property being insured. The percentage of dwellings with fuel storage tanks, or with lead paint exposures (perhaps once common with inner city rental property; less so today) is much less than would seem to warrant blanket use of the endorsement, with no resulting credit for decreased liability coverage.   

ISO Endorsement HO 05 72

This endorsement was created in 1998 and has been revised in 2001. It is another property remediation for escaped liquid fuel endorsement. The form is virtually identical to the 05 80 except for coverage for lead liability. All references to lead liability are removed in this form.

AAIS Liquid Fuel Remediation Coverage

Instead of a separate endorsement, AAIS has built liquid fuel remediation coverage into the 2006 policy.     

Similar to the ISO endorsement, coverage is provided for the discharge, dispersal, emission, etc. of liquid fuel from the fuel system of a heating or air conditioning system, water heater, or domestic appliance located on the described location. No coverage for lead is provided. Note that the fuel system does not have to hold 100 or more gallons the way the ISO form does; fuel can escape from an appliance and be covered, for example an insured's kerosene heater or propane tank for the barbecue grill. The cost of temporary measures to stop further leakage, to stop the spread of said leakage into a larger area, or the cost to clean up fuel from property covered under A, B, or C except for trees, plants, lawns, shrubs or farmland is covered. The cost of testing is covered if required by a governmental authority or court of law and the cause of the leak is a covered cause of loss.

Exclusions include underground or surface water, trees, plants, shrubs grown for business, replacement of any leaked/spilled fuel, damages from reduction in property value because of said spill, and the cost to repair the fuel system itself. The most paid for the total of all discharges, spills, etc. is $10,000 regardless of the number of claims made or discharges, spills, etc. The limit may be increased and must be shown on the declarations.

Conclusion

Pollution, how it's defined and how courts view the policy exclusions are still large issues for the insurance industry. Many of the cases referred to in this article have been disagreed with by other cases, but the net result is that the courts are still divided on the definition of pollution and the application of the exclusion in homeowners policies. The definitions of pollution and the exclusions have changed over time; but the issue remains unresolved.