Absolute pollution exclusions are intended to exclude coverage for virtually all pollution-related claims under commercial general liability insurance policies. However, jurisdictions across the country have varied in their treatment of these exclusions, with some jurisdictions applying the exclusion only to instances of "traditional" environmental pollution while others apply a broader, literal interpretation of the exclusion. Below are a few of the most recent examples of claims in which courts have examined this issue, followed by a link to our 50-state survey on the topic.
Sewage leakage #1: On May 31, 2017, the Second Circuit Court of Appeals ruled that an insurer does not have to defend or indemnify a plumbing company for its purportedly negligent work during sewer repairs that led to toxic chemicals being released onto neighboring residential properties. In The Cincinnati Insurance Co. v. Roy's Plumbing Inc., the Second Circuit, applying New York law, found that the policy contained a broad definition of "pollutant" and that the lower court was correct in finding that the exclusion applied because the underlying suit alleged the exact type of traditional environmental pollution caused by substances of a polluting character, as was intended to be excluded.
Sewage leakage #2: On May 25, 2017, the Eleventh Circuit affirmed the Alabama federal court's decision in Evanston Insurance Co. v. J&J Cable Construction LLC, et al., holding that residential sewage released on property was not excluded by the policy's total pollution exclusion because the exclusion only applied to traditional pollution. In rendering its decision, the court considered two Supreme Court of Alabama cases, which found that the term "pollutant" applies primarily to traditional pollutants and industrial contaminants, not residential sewage.
Lead in water: On June 9, 2017, a Pennsylvania Federal Court in The Netherlands Insurance Co., et al. v. Butler Area School District, et al. found that two insurance companies have a duty to defend a school district against a proposed class action over alleged water contamination in an elementary school. The court held that the pollution exclusions in the policies were ambiguous and would not apply to bar coverage. The court stated that the policies exclude damages "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants,'" but that the Pennsylvania courts have found this language does not accurately describe the degradation over time that causes lead exposure from lead-based paint that works its way into the school's water.
Hydrocarbon explosion: On January 31, 2017, the Eight Circuit affirmed the North Dakota federal court's decision in Hiland Partners GP Holdings, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, holding that a pollution exclusion in a CGL policy barred coverage for a personal injury lawsuit arising out of overflow from hydrocarbon condensate tanks, which caused an explosion at the insured's facility. The court found that the plain language of the pollution exclusion excluded coverage for "contaminants" including the hydrocarbon condensate at issue, noting that the majority of other jurisdictions have also rejected the argument that the pollution exclusion should not apply to contaminants that are sold in the insured's regular course of business.
Water heater fumes: On April 27, 2017, the Washington Supreme Court in Xia v. Probuilders Specialty Ins. Co. RRG ruled that an insurer did owe a duty to defend a builder in a lawsuit brought by a homeowner for injuries arising out of her exposure to carbon monoxide released from an improperly installed water heater. The court found that, although the release of carbon monoxide qualified as a "polluting event" falling within the pollution exclusion, the homeowner's injuries were proximately caused by the builder's negligent installation of the water heater, which constituted a covered occurrence; therefore, the insurer acted in bad faith in denying the builder a defense.
For more key cases on this topic, please see our 50 state survey here.
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