Pollution Exclusions in CGL Policy Bars Coverage for Carbon Monoxide Poisoning
February 2007
The pollution exclusion of a commercial general
liability (CGL) policy was enforced to exclude coverage for injuries allegedly
caused from carbon monoxide that was emitted from a propane-powered grinder
that was being used to grind terrazzo floors while another contractor's worker
was working in the same area installing drywall.
by J.
Kent Holland Jr.
ConstructionRisk.com
LLC
The worker filed suit in state court against the owner of the grinder, alleging
the company was negligent in failing to provide proper ventilation when operating
its grinders and that it failed in its duty to properly monitor the work environment
for carbon monoxide gas.
The insurance companies filed a separate declaratory judgment action in federal
court, contending that the absolute pollution exclusion bars coverage. The court
granted summary judgment in favor of the insurance companies, and this was affirmed
by the federal circuit court on appeal, holding carbon monoxide is an "irritant"
that was "dispersed" throughout the work site by the insured contractor. Moreover,
the court held that this was a pollutant "brought on" to the premises by the
contractor and therefore excluded from coverage.
The Insurance Policies
In Continental Casualty Co. v. Advance Terrazzo,
462 F.3d 1002 (8th Cir. 2006), two insurance policies were at issue. The first,
by Transportation Insurance was issued to the floor contractor, Advance Terrazzo,
as the primary CGL policy. It is this contractor that was operating the grinder
at the job site. In addition to this policy, Advance Terrazzo had an umbrella
policy from Continental Casualty. Both policies contained absolute pollution
exclusions—that applied to exclude coverage whether the pollution was gradual
or sudden and accidental.
The language of the absolute pollution exclusion stated that coverage was
excluded for:
- (1) "Bodily injury" or "property damage" arising out of the actual,
alleged or threatened discharge, dispersal, seepage, migration, release
or escape of pollutants:… (d) 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…. ( ) If
the pollutants are brought on or to the premises, site or location in connection
with such operations by such insured, contractor or subcontractor….
"Pollutant" is defined under the policy as "any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids,
alkalis, chemicals and waste."
The federal district court granted the insurance companies’ motion for summary
judgment, finding that the absolute pollution exclusion barred coverage for
the worker’s claims for injuries arising out of the carbon monoxide that was
exhausted from the grinder. Advance Terrazzo, on appeal, argued that the absolute
pollution exclusion is ambiguous when applied to routine business hazards such
as the release of carbon monoxide from the grinders.
Other Jurisdictions
Courts in other states have found the clause to be susceptible to more than
one reasonable interpretation, and therefore ambiguous when it comes to applying
it to a situation like this one, where the pollutant is such a common one that
it may not readily be considered by some people to be a pollutant within the
meaning of the policy exclusion. Courts in Minnesota, however, whose law is
applicable here, have previously found the exclusion to be unambiguous when
applied to pollutants occurring in the normal course of business activities.
This includes indoor pollution.
In particular, the Minnesota Court of Appeals, in the case of Auto-Owners Insurance Co. v. Hanson, 588 N.W.2d
777 (Minn. App. 1999), applied the absolution pollution exclusion in a situation
where an individual was injured from ingestion and absorption of lead in paint
chips at a rental property. As additional precedent for applying the exclusion
to the facts of this matter, the court cited League
of Minn. Cities Insurance v. City of Coon Rapids, 446 N.W.2d 419 (Minn.
App. 1989), which held that the pollution exclusion applied to bar coverage
for lung injuries suffered by individuals inside an ice rink that resulted from
nitrogen dioxide, a toxic by-product of a Zamboni ice-cleaning machine. In that
case, the court held that "merely bringing a Zamboni machine on the premises
merits exclusion under [the policy]."
The Ruling
In the Advance Terrazzo case, the federal
circuit court found no discernable distinction between the release of nitrogen
dioxide from a Zamboni and the release of carbon monoxide from a terrazzo grinder.
The court rejected Advance Terrazzo’s argument that it did not bring the pollutant
(carbon monoxide) onto the premises but instead merely brought on the machine
which contained LP gas which is not a pollutant. The court declined to make
a distinction between bringing on the machine with LP gas and the carbon monoxide
that was directly emitted by using the machine. As explained by the court, because
the contractor brought on to the premises the machine that produced the carbon
monoxide, "it falls squarely into the policy language triggering the absolute
pollution exclusion."
Comment
This case once again demonstrates that courts in different states
have widely different views of the pollution exclusion. Whether the
exclusion will be applied to virtually identical facts will often depend
on the jurisdiction. Rather than taking a chance of having no coverage
for injuries such as those alleged in this case, contractors that are
performing services that have any significant chance of creating a pollutant
in the course of their operations should consider purchasing a contractor’s
pollution liability (CPL) policy to cover that risk.
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