CGL Pollution Exclusion Bars Coverage for Injury from Carbon Monoxide Released
from Heater
December 2009
The pollution exclusion of a commercial general
liability (CGL) policy was held to unambiguously apply to exclude liability
coverage for injuries caused by carbon monoxide "seeping, discharging, releasing,
and dispersing" into an apartment.
by J.
Kent Holland Jr.
ConstructionRisk.com
LLC
The coverage question arose when a tenant of the apartment filed suit against
the landlord, alleging that as a result of carbon monoxide accumulating in her
apartment from a stopped-up heater vent, she gave birth to child with a number
of problems, including seizures. The CGL insurer declined to defend the property
owner in the suit by the tenant, contending that it owed no duty to defend or
indemnify due to its policy's absolute pollution exclusion.
The insurer filed a declaratory judgment action to determine its duties to
the property owner. The trial court granted summary judgment to the insurer,
finding there was no duty to either defend or indemnify. This was affirmed on
appeal in Nautilus Ins. Co. v. Country Oaks Apartments,
566 F.3d 452 (5th Cir. 2009), which held the emission of carbon monoxide from
a furnace into an apartment unambiguously satisfies the pollution exclusion's
requirement of the "discharge, dispersal, seepage, migration, release, or escape"
of a pollutant. The court noted that:
It is irrelevant that a reasonable insured might not expect this result,
or that, given sufficient imagination, we can think of ways—not presented
here—in which enforcement of this exclusion would lead to absurd results.
The Language of the Exclusion
The CGL policy included an exclusion stating that coverage does not apply
to:
f. Pollution. (1) "Bodily injury" or "property damage" which would not have
occurred in whole or in part but for the actual, alleged, or threatened
discharge, dispersal, seepage, migration, or threatened discharge, dispersal,
seepage, release, or escape of "pollutants" at any time.
The term "pollutant" was defined by the policy as follows:
any solid, liquid, gaseous or thermal irritant or contaminant, including
smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes
material to be recycled, reconditioned or reclaimed.
This exclusion was added to the policy as an endorsement to replace the original
pollution exclusion of the CGL policy, which stated that the exclusion did not
apply to bodily injury "if sustained within a building and caused by smoke,
fumes, vapor or soot from equipment used to heat that building…."
Is Carbon Monoxide a "Pollutant"?
Although the property owner admitted that carbon monoxide is a gas, it argued
that it is not an "irritant or contaminant" because it does not
generally irritate or contaminate but is
instead a naturally occurring substance in the environment encountered by individuals
at various concentrations on a daily basis. In rejecting the owner's argument,
the court cited previous caselaw in which it had explicitly rejected the argument
that a substance must generally or
usually act as an irritant or contaminant
before it can be considered to constitute a "pollutant" under the pollution
exclusion. Even a normally occurring substance such as saltwater can be a "contaminant,"
explained the court, "when it is introduced, accidentally, onto property that
is not meant to receive it."
The court quoted Webster's Dictionary
for the ordinary meaning of the word "irritant," which is defined as "an agent
by which irritation is produced (a chemical)." In this case, the plaintiff's
complaint in the underlying litigation alleged that she encountered a strong
enough concentration of carbon monoxide to cause severe and permanent injuries
to her baby in utero. The court concluded
that "[t]hese allegations clearly involve a 'pollutant' as defined by the policy."
This is particularly true, said the court, in view of the substitution of the
absolute pollution exclusion in place of the original policy exclusion that
allowed coverage for injuries sustained from fumes from heating systems.
Did the Carbon Monoxide Disperse Discharge, Seep, or Release?
Another argument made by the property owner as to why the pollution exclusion
was inapplicable to the situation was that the plaintiff's complaint did not
allege the injuries resulted from the "discharge, dispersal, seepage, migration,
release, or escape" of carbon monoxide. Again citing a previous Fifth Circuit
Court decision (Zaiontz v. Trinity Univ. Ins. Co.,
2002) with reference to Webster's Dictionary,
the court quoted as follows: "To 'discharge' a pollutant means to emit it."
(Citation omitted). "To 'release' a pollutant means to set it free from confinement."
The only way carbon monoxide could have accumulated in the apartment was
for it to be "emitted" from the furnace, said the court, and "[t]he normal emission
of carbon monoxide from an apartment furnace falls within the plain meaning
of the terms 'discharge,' disperse,' 'seep,' and 'release.'" A gradual release
is deemed sufficient by the court to meet these requirements. The court rejected
the property owner's argument that a "more robust event" than the normal emission
of carbon monoxide from a home appliance is required to trigger the pollution
exclusion.
Did the Pollution Exclusion Apply to "Contained Pollutants?"
The property owner argued that the pollution exclusion does not apply to
"contained pollutants." The court rejected
this argument concluding that "the mere fact that the carbon monoxide accumulated
in the contained space of an apartment, as opposed to the environment generally,
does not change the analysis of whether a discharge, dispersal or release of
a pollutant occurred." The court quoted from its earlier pollution coverage
dispute case of Noble Energy, Inv. v. Bituminous Cas.
Cos., 529 F.3d 642, 649 (5th Cir. 2008), as follows:
Substances need not be released into the surrounding environment to qualify
as pollutants for purposes of a pollution exclusion clause. Thus, a pollution
exclusion clause applies whenever a pollutant causes harm, by a physical
mechanism enumerated in the policy, irrespective of where the injury took
place or whether the pollutant was released into the environment.
Was Summary Judgment Correctly Granted?
One last argument of the property owner was that even if summary judgment
was properly granted by the lower court to relieve the insurance insurer of
any duty to defend the property owner against the underlying personal injury
lawsuit, the court was wrong to grant summary judgment on the question of whether
the CGL insurer would have an indemnity obligation under its policy. In rejecting
that argument, the appellate court explained:
Generally speaking, the duty to indemnify is decided only after the underlying
liability case is concluded. However, where an exclusion that precludes
the duty to defend would also preclude indemnity, courts are permitted to
decide the duty to indemnify in advance of the underlying liability lawsuit's
end.
Conclusion
For all the reasons explained above, the Fifth Circuit Court of Appeals held
that the district court properly granted summary judgment to the insurance company
both as to the duty to defend and the duty to indemnify.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.