A United States District Court ruled that Allstate cannot deny damage caused by bat guano under the policy's pollution exclusion. The case is Nicholson v. Allstate Ins. Co., 979 F. Supp. 2d 1054 (E.D. Cal. 2013).

Background

Alexandra Nicholson, a homeowner in Granite Bay, California, had issues with bats on two separate occasions. In 2006, she heard noises behind her headboard and found bats flying out of a gap where her exterior brick wall met the eaves. She paid a specialist $4,250 to remove the bats and seal the house. Nicholson had a Deluxe Plus Homeowner's Policy with Allstate, and the insurer covered $3,841 of the claim.

In 2010, the noises returned, along with a strong smell of dead animals permeating the house. Nicholson hired another specialist, who stated that the previous bat exclusion work had failed or was improperly done.

Nicholson filed a new claim with Allstate in 2010. However, Allstate not only denied the claim but also informed Nicholson that paying the 2006 claim had been a mistake. Nicholson sued for breach of contract, bad faith, and punitive damages. Allstate filed a motion for summary judgment, presenting three arguments for dismissal of the case.

Sudden and Accidental Loss

Allstate first argued that the loss was not sudden and accidental and thus not covered by the policy. The policy stated:
"We will cover sudden and accidental direct physical loss to the property described in Coverage A—Dwelling Protection and Coverage B—Other Structures Protection except as limited or excluded in this policy."

Allstate argued that the claim was due to the smell caused by bat guano, or bat excrement, which was gradually produced and not sudden. Nicholson countered that the infestation of bats was sudden as it appeared out of nowhere and without warning. In support, she cited Merriam-Webster's definition of sudden: "happening or coming unexpectedly."

The court agreed, stating that although the bat guano odor did gradually become stronger, that did not negate the fact that the initial infestation may have been sudden. Nicholson had stated in a declaration that she heard strange scratching noises one day while in her bedroom and went outside to discover bats swarming and crawling on the exterior wall.
The court found that the description of the events did not support a gradual infestation.

Faulty Workmanship Exclusion

Allstate's second argument was that the policy's faulty workmanship exclusion should serve to deny coverage. The exclusion precluded coverage for claims caused by "inadequate or defective: design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction or materials used in repair, construction, renovation or remodeling."

Allstate argued that the bat exclusion installed after the 2006 infestation was defective and did not keep bats out. However, Nicholson claimed that there was mesh screening at the top of the exterior walls, but she removed it in 2010 to allow trapped bats to escape.

The court found that this created a material question of fact on whether the 2006 installation was faulty, so applying the exclusion was not appropriate.

Pollution Exclusion

Allstate's final argument was that bat guano and decaying carcasses fell under the policy's pollution exclusion, which excluded coverage for damage caused by "vapors, fumes, acids, toxic chemicals, toxic gasses, toxic solids, waste materials or other irritants, contaminants or pollutants."

Another exclusion stated there is no coverage for damage caused by "contamination, including, but not limited to the presence of toxic, noxious or hazardous gasses, chemicals, liquids, solids or other substances at the residence premises or in the air, land or water serving the residence premises."

Allstate argued that the exclusions applied to bat guano and decaying bat carcasses. Nicholson countered that pollution exclusions are "generally understood to apply to environmental disasters and should be narrowly construed as such."
The court heavily relied on California Supreme Court precedent set in MacKinnon v. Truck Ins. Exchange, which stated that insurance pollution clauses were historically designed to protect insurers from environmental disasters such as Superfund cleanups or industrial chemical spills.

The court stated that insurance contracts must be interpreted based on the ordinary and popular understanding of a reasonable policyholder, and found that bat guano would not be seen by a reasonable homeowner as toxic environmental waste.

Further, Nicholson argued that the policy contained a separate exclusion for "insects, rodents, birds, or domestic animals," showing that the pollution exclusions were not meant to apply to animals.

Allstate pointed to Hirschhorn v. Auto-Owners Ins. Co., where the Wisconsin Supreme Court ruled that bat guano was excluded as a pollutant under a policy that specifically listed waste within the definition of a pollutant. The court found that bat guano is composed of feces and urine, which are commonly understood to be waste.

The court here does not disagree, but stated that California law requires that courts consider the context in which the terms are used. The exclusions in question are pollution-related, which typically come from leakage or seepage of pollutants and not from damage caused by animals. The court found that "an insured cannot be reasonably expected to believe that this clause precludes recovering on a claim caused by a bat infestation."

The court also distinguished this case from Hirschhorn in that in this case, the policy contained a separate exclusion that addressed damage caused by animals. The policy in Hirschhorn had no such exclusion. The court stated that this further cast doubt that the insurer intended to exclude animal waste as a pollutant.

Editor's Note

The court rejected all three of Allstate's arguments and denied its motion for summary judgment. First, the court found that although the smell from the guano may have gradually gotten worse, the initial infestation was sudden.

The court also rejected Allstate's application of the policy's faulty workmanship exclusion since there was a genuine issue of material fact on whether the original work done in 2006 was faulty.

Finally, the court rejected the idea that bat guano should be excluded as a pollutant since it was determined that within the context of the policy, the exclusions apply to environmental pollutants, and animal waste is not commonly understood to be a pollutant.

Often in such cases the ejusdem generis rule applies. The rule states that when general words follow a list of persons or things, by words of a particular and specific meaning, that general words are not to be construed at their broadest interpretation, but are to be limited to apply to persons or things of the same genearl kind or class as those specifically mentioned. When the pollution exclusion lists any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed; only items similar to those listed can be considered to be pollutants. Bat guano does not resemble items in that or Allstate's definition of pollutant.

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