The problem with pollution exclusions
by Stephen M. Phillips
Too often, roofing contractors are unaware of the effects clauses in insurance policies can have. The consequences can be costly—consider the following cases.
The details
During the mid-1990s, Mike's Roofing was retained by a property manager to perform roof system repairs for a shopping center in Kittery, Maine. Because the shopping center's existing roof system was EPDM, the roofing crew used splice adhesive to repair and seal the roof system's seams.
Lisa Varano was working in one of the stores over which the roofing crew was making repairs. Shortly after roofing work began, Varano detected an odor of glue or adhesive. She went outside the store and saw roofing employees working on the roof. As the day went on, the odor grew stronger, and Varano called the property management company to report the problem.
By the next day, Varano had a sore throat and chest discomfort. Two and three weeks after the initial incident, Varano was admitted to an emergency room because she was experiencing chest pains and had difficulty breathing. Varano was diagnosed with occupational asthma induced by exposure to isocyanates. When asked to smell a can of splice adhesive upon her return to work, Varano identified the odor as what she had smelled in the building.
Varano sued Mike's Roofing on numerous grounds, including a product-liability claim for failure to warn of the danger posed by exposure to splice adhesive; negligence in failing to warn her; and negligence in failing to turn off the heating, ventilating and air-conditioning system. Varano alleged there was a release of hazardous fumes from the splice adhesive that had entered the store in which she was working and caused her injury.
In response to Varano's suit, Mike's Roofing called upon its commercial general liability (CGL) insurance carrier, Nautilus Insurance Co., to defend the claim. However, Nautilus believed it was not obligated to defend or indemnify Mike's Roofing in connection with Varano's claim because of the pollution exclusion in the CGL policy issued to Mike's Roofing.
The exclusion
Similar to other CGL policies issued during the 1990s, Mike's Roofing's policy contained a broad pollution exclusion—sometimes referred to as a "total" or "absolute" pollution exclusion—that excluded coverage for bodily injury or property damage claims "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." The policy also contained the following broad definition of pollutants: "'Pollutants' means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."
Before the suit between Varano and Mike's Roofing was decided, the dispute concerning whether Nautilus had a duty to defend and indemnify Mike's Roofing against the Varano claim was the subject of a declaratory judgment action. (A declaratory judgment is a separate suit between the insured and insurance carrier to determine whether there is insurance coverage applicable to the claim against the insured.)
Nautilus argued there was no coverage because of the total pollution exclusion. The insurance company claimed the release of toluene disocyanate, an alleged pollutant from the splice adhesive Varano claimed caused her occupational asthma, clearly was within the pollution exclusion's scope. Therefore, according to the insurance carrier, there was no insurance coverage for the damages.
The ruling
The federal district court for Maine, in which the declaratory judgment suit was brought, disagreed with the insurance company's argument. Nautilus appealed the district court's decision to the 1st Circuit Court of Appeals. In an August 1999 decision, a three-judge panel of the 1st Circuit Court of Appeals, applying Maine law, ruled against Nautilus.
Agreeing with the district court, the court of appeals considered the pollution exclusion clause ambiguous as applied to Varano's claims "because an ordinarily intelligent insured could reasonably interpret the pollution exclusion clause as applying only to environmental pollution. Put another way, we agree that an ordinary person in [Mike's Roofing's] situation would not understand that the policy did not cover personal injury claims like those asserted by Varano."
In this case and numerous similar cases, courts have been asked to decide whether the now-standard pollution exclusion with its broad definition of pollutants is all-encompassing or reasonably could be interpreted to be limited to traditional environmental pollution claims.
When courts consider an exclusion to be ambiguous, the exclusion is given a more narrow construction and interpreted against an insurer and in favor of coverage. But courts have been split in their decisions on whether the pollution exclusion is ambiguous. For instance, New York and Georgia courts have considered pollution exclusions to be ambiguous, but Pennsylvania and Florida courts have found the same provisions to be clear and unambiguous.
In support of its conclusion that the pollution exclusion was ambiguous, the three-judge panel in the Mike's Roofing case pointed to the terms used in the pollution exclusion and definition of pollution. The court said terms used in the exclusion clause, such as "discharge," "dispersal," "release" and "escape," are terms of art in environmental law and generally are used to refer to damage or injury resulting from environmental pollution. This means the terms have a particular meaning with respect to environmental pollution.
"Given this language, it is entirely reasonable that an ordinarily intelligent insured would understand this provision to exclude coverage only for injuries caused by traditional environmental pollution," the court said.
The court also found ambiguity in the definition of pollutant. Because the terms "irritant" and "contaminant" virtually are boundless, there is no substance or chemical in existence that would not irritate some person or property, the court reasoned.
The 1st Circuit Court's decision is consistent with several other court decisions that also have ruled the pollution exclusion extends only to hazards traditionally associated with environmental pollution. However, there are at least two other U.S. Circuit Court of Appeals decisions addressing analogous claims against roofing contractors and applying the same legal principles that have come to opposite conclusions. These cases, which applied New Jersey and Florida laws, resulted in findings that roofing contractors had no insurance coverage for claims made against them because of the pollution exclusion's broad language.
Another case
In another case, a Florida roofing contractor, Technical Coating Applicators (TCA), was retained by the Okaloosa County School District to perform roof system repairs on a school. TCA applied spray polyurethane foam and several layers of elastomeric coating to the roof system.
Several months after TCA completed its repair work, school employees and students began reporting respiratory problems. Ultimately, about 30 employees and students filed suit against TCA alleging TCA negligently applied the foam and elastomeric coatings and exposed the employees and students to vapors emitted by these products.
TCA, whose CGL policy contained the standard broad pollution exclusion, asked its insurance carrier to defend the suit. The insurance company refused to defend the suit on the grounds that the vapors emitted from the roofing products applied by TCA, which were the alleged source of the claims, fell within the definition of a pollutant. TCA then filed a lawsuit against the insurance company.
At the district court level, TCA was successful. However, on appeal, the 11th Circuit Court of Appeals found in favor of the insurance company. The appeals court based its decision on a Florida Supreme Court ruling in Deni Associates of Florida vs. State Farm Fire & Casualty Insurance Co. that had been published after the district court had made its decision.
The Florida Supreme Court did not make any distinction whether the products had been used in a typical manner; the court recognized products such as paint and glue typically do not inflict injury but their abilities to produce irritating effects place these products within the broad definition of pollutant in the pollution exclusion. Because TCA's claim against its insurance company was to be decided based on Florida law, the 11th Circuit Court of Appeals in the Deni case came to the opposite conclusion of the 1st Circuit Court of Appeals in the Mike's Roofing case.
In states that consider the pollution exclusion to be absolute and unambiguous, using roofing materials in a typical, proper manner has no effect on the applicability of the pollution exclusion.
Safeguard your company
Unfortunately, the number of personal injury claims brought against roofing contractors based on fume inhalation and vapors emitted from roofing products during typical roofing operations is rising. To help combat this, consider adding endorsements to your CGL insurance policy.
For example, CNA Insurance Cos., Chicago, offers an endorsement, "Roofing Contractors Limited Pollution Coverage-Worksite," that provides coverage for claims arising from typical roof system construction at work sites.
The endorsement provides coverage for bodily injury or property damage claims that arise from "pollution incidents" during roofing construction "at or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations." A pollution incident is the emission, discharge, release or escape of pollutants.
Given the universality and expansive language of the pollution exclusion in CGL policies and the disparate treatment by courts based on state law, roofing contractors can ill afford to ignore the risks of potential third-party claims because of alleged exposures to roofing product emissions.
Stephen M. Phillips is a partner with the law firm Hendrick, Phillips, Schemm & Salzman, Atlanta.
|
