Pollution Exclusion Found Inapplicable
May 2010
Where a contractor used a sanitizing agent
containing a form of pesticide when cleaning air ducts in a home, the homeowners
filed suit for injuries allegedly caused from the sanitizing agent. The contractor's
commercial general liability (CGL) insurer initially defended the contractor
under a reservation of rights, but then filed a declaratory judgment suit to
declare that because of the policy's pollution exclusion, it had no duty to
defend or indemnify the contractor.
by J.
Kent Holland Jr.
ConstructionRisk.com
LLC
Summary judgment was granted for the insurer at trial but reversed on appeal
with the court holding that the sanitizing agent was not a pollutant, irritant,
or contaminant as used by the contractor. This was because the substance was
in the ductwork where it was supposed to be and where it would not generally
be expected to cause injurious or harmful effects to people. Moreover, since
using such sanitizing agents was a normal business practice that the insurer
knew or should have known about when agreeing to provide CGL insurance, the
contractor would have reasonably expected coverage for damage claim arising
out of the use the sanitizing agent.
In Hastings Mut. Ins. Co. v. Safety King, Inc.,
778 N.W.2d 275 (Mich. 2009), the air duct cleaning contractor used a sanitizing
agent called Aeris-Guard Advanced Duct and Surface Treatment. It has as its
active ingredient a substance named triclosan, which is an antimicrobial pesticide.
The family living in the home sued the contractor for injuries that are not
described in the court decision. In denying a duty to defend the contractor
against the homeowner's suit, the insurer argued that the sanitizing agent was
a "pollutant," and the pollution exclusion of the policy would, therefore, bar
coverage.
The insurer argued that because triclosan is a form of pesticide, and because
the Michigan Supreme Court had in earlier cases found that pesticides qualify
as a pollutant under the pollution exclusion, it was entitled to summary judgment
that it owed no duty to the contractor.
In opposition to the insurer's position, the contractor and homeowner argued
there was no "pollutant" involved in the underlying lawsuit, but that even if
a pollutant had been involved, it was not used in a manner that would cause
the pollution exclusion to apply in this case. The court explained:
They argue that triclosan is a ubiquitous antimicrobial agent found in a
variety of cosmetic and personal hygiene products. Triclosan targets bacteria
and dental plaque and is used in various products including, for example,
soaps, skin cleaning agents, deodorants, shaving gel, toothpaste, mouthwash,
dental cement, surgical sutures, cosmetics, and air duct treatments. They
argue that because triclosan is commonly used in products that are applied
directly to human skin and, in many cases, within the mouth, [contractor's]
use of a triclsoan-containing product did not implicate the pollution exclusion.
It simply is not a "pollutant."
In considering the arguments, the appellate court noted that the definition
of "pollutant" does not expressly include "pesticide." Thus, a pesticide would
only be a "pollutant" if it fell within the meaning of "irritant" or "contaminant,"
which the policy shows to be the defining characteristics of a "pollutant."
Neither of these two terms, however, is separately defined by the policy.
To determine their meaning, the court looked to
Webster's dictionary.
Webster's definition of "contaminant"
is "something that contaminates." The definition of "contaminate" is "to make
impure or unsuitable by contact or mixture with something unclean, bad, etc."
Based on the Webster's definitions, and
considered in the context of the pollution exclusion of the policy, the court
concluded:
An "irritant" is a substance that, because of its nature and under the particular
circumstances, is generally expected to cause injurious or harmful effects
to people, property, or the environment. And considered in context, a "contaminant"
is a substance that, because of its nature and under the particular circumstances,
is not generally supposed to be where it is located and causes injurious
or harmful effects to people, property, or the environment.
Looking at it in this context, the court held that the insurance insurer
failed to prove that triclosan was an "irritant" or "contaminant" since the
evidence "showed that triclosan was supposed to be where it was located, i.e.,
in ductwork, and that it is not generally
expected to cause injurious or harmful effects to people." (Emphasis in original.)
After reaching the above-quoted conclusion that triclosan was not a pollutant,
the court could have wrapped up its decision to reverse the trial court's summary
judgment decision that had favored the insurer. Instead, the court went further
and emphasized that, in this case, the contractor purchased its commercial general
liability (CGL) insurance from a insurer that knew or should have known that
the contractor who's business is air duct cleaning:
not only admits using deodorizing and sanitizing agents as a part of the
duct cleaning services it provides, it vigorously advertises that service
as a primary marketing incentive.
Since it was the contractor's normal business practice to use deodorizing
and sanitizing agents, "it would have reasonably expected coverage for damage
claims arising out of the use of deodorizing and sanitizing agents."
Significance of the Decision
This decision has potential significance beyond the state where it was decided
because of the ongoing argument raised by insureds over whether a commonly used,
and generally harmless substance, that is used for its intended purpose should
be deemed a "pollutant" when it causes injury or when it ends up in a location
where it was not intended to be. Even more significant, however, may be the
emphasis by the court that the CGL underwriter would be expected to know that
pollution exposures could arise due to the very nature of the contractor's normal
business operations, and that this somehow means the underwriter intended to
cover that exposure.
There may be circumstances where an insurance agent or broker might justifiably
be expected to know or inquire as to what services are provided by the contractor
and how they are provided (e.g., use of certain chemicals and potential contaminants)
to determine whether pollution liability coverage should be obtained. An insurance
company underwriter, on the other hand, might not have that same information
or be expected to dig beyond the insurance application that is submitted by
the insurance agent to find it. Even if a CGL underwriter were to recognize
that certain elements of an applicant's business might generate pollution liability,
would it not be reasonable for that underwriter to assume that the applicant
would be applying separately, sometimes even through a different agent or broker,
to some other insurer to obtain contractor's pollution liability (CPL) coverage?
Contractors frequently maintain a CPL policy separate from their GCL policy.
And those policies are often underwritten by different insurers.
Is this decision suggesting that the CGL underwriter has an affirmative duty
to inquire of the contractor and his insurance agent as to how the apparently
pollution liability risk is going to be covered, or whether the applicant is
intentionally going bare as to pollution exposure? Indeed, many contractors
make a risk management decision to assume the pollution risk without obtaining
CPL coverage. That is a business judgment. If the contractor chooses not to
obtain CPL coverage, however, it would seem that under this court's reasoning,
the court would create coverage under the general liability policy on the theory
that a reasonable contractor in that position would not have chosen to go bare
on pollution coverage and, therefore, that coverage must have been intended
to be found in the CGL policy.
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