The homeowners sued Encompass, alleging that it had breached the policy in bad faith.

Encompass moved for summary judgment.

For their part, the homeowners argued that the policy was ambiguous as to whether heating oil constituted a pollutant for the purposes of the pollution exclusion.

The Encompass Policy

The Encompass policy provided:

LOSSES WE DO NOT COVER

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

. . .

2. Real Property, We do not insure for loss:

. . .

d. Caused by the following:

. . .

7. Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Tangible Personal Property—Covered Peril.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalls [sic], chemicals and waste whether man-made or natural. Waste includes materials to be recycled, reconditioned or reclaimed.

. . .

Under exclusions 2.a., 2.b., 2.c., and 2.d., any ensuing loss from a covered peril to covered property not excluded or excepted in this policy is covered. 

The court granted the insurer's motion.

In its decision, the court acknowledged that the Encompass policy did not specifically define heating oil or petroleum products as pollutants, but the court was not persuaded by the homeowners' argument that the policy, therefore, was ambiguous.

The court reasoned that the policy provided that the pollution exclusion applied to "contaminants" and, the court said, a contaminant was "something that contaminates." The court added that the record contained "extensive evidence" that heating oil was a contaminant. Among other things, it pointed out that:

- The homeowners had engaged the services of an environmental services firm, rather than an ordinary construction contractor, to remediate the oil spill;

- The firm performed testing to identify the portions of the basement and of the underlying and surrounding soil that were impacted by using a photoionization detector ("PID");

- Based on that testing, the firm found it necessary to remove 13.8 tons of impacted concrete and soil to meet the Pennsylvania Department of Environmental Protection's standards for #2 fuel oil in soils;

- Testing of the soils and other materials removed from the homeowners' home revealed that they were contaminated by substances recognized as pollutants: ethyl benzene, isopropyl benzene, naphthalene, toluene, 1,2,4 trimethylbenzene, and 1,3,5 trimethylbenzene; and

- The firm "repeatedly washed remaining portions of the structure with a hydrogen peroxide solution where PID readings indicated the presence of the oil."

The court rejected the homeowners' argument that even if the pollution exclusion applied, they were entitled to coverage under the policy provision regarding "ensuing loss." The court reasoned that the ensuing loss provision provided coverage only to "ensuing loss from a covered peril" – and contamination by a leak of heating oil was "not a covered peril." The court added that to accept the homeowners' argument that, although the heating oil itself was subject to the exclusion, the ensuing damage to their home and to the underlying soils from being contaminated by the oil was covered, "would render the policy exclusions virtually meaningless."

The court said that, for example, "if the oil or its vapors caused a fire or an explosion, the loss from the fire or explosion would be covered, even though the oil contamination itself was not." It concluded that the loss the homeowners suffered "was not a secondary loss, but was the contamination of their property by the leaking heating oil" and the ensuing loss provision provided "no basis" on which the homeowners could turn the excluded loss into a covered one.

The case is Barg v. Encompass Home & Auto Ins. Co., No. 16-6049 (E.D.Pa. Jan. 19. 2018). Attorneys involved include: For IRL S. BARG, JANET C. WALKOW, Plaintiffs: MARTIN A. DURKIN, LEAD ATTORNEY, DURKIN LAW OFFICES P.C., PHILADELPHIA, PA. For ENCOMPASS HOME & AUTO INSURANCE COMPANY, Defendant: JENNIE PHILIP, LEAD ATTORNEY, JAMES H. COLE, MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN, PHILADELPHIA, PA.