Where a property insurance "open peril" policy for a condominium association contained a pollution exclusion, no coverage was afforded for damages arising out of a contractor's work as an asbestos remediation contractor.
In Villa Los Alamos Homeowners Ass'n v. State Farm Ins. Co., 198 Cal. App. 4th 522 (2011), the Association hired the contractor to scrape acoustical ceilings and stairways that contained some asbestos. In the process of performing the work, asbestos fibers were released into the air, the common area hallways, stairwells, and some individual units—and even some areas outside of the building. A comprehensive abatement of the building to clean up the mess was required. No recovery could be obtained from the contractor since its general liability policy contained a specific asbestos exclusion, and the firm itself was insolvent.
When the Association's property insurers declined coverage, the Association filed suit, alleging that, because the policy did not specifically state that damage caused by asbestos was not covered, the policy was ambiguous despite a broad and clearly stated total pollution exclusion that would appear to exclude any and all pollution claims regardless of the type of pollution. The Association also argued that the release of asbestos was only a one-time event caused by negligence of a contractor and was not the type of "release" to which the pollution exclusion was intended to apply.
The Court's Holding
The court upheld a trial court decision in favor of the insurance company, finding that damages were excluded from coverage under the policy. In granting summary judgment for State Farm, the trial court stated that it is a "fact of common knowledge" that asbestos is a pollutant. State and federal laws that define asbestos as a "toxic pollutant" were also deemed instructive as to whether asbestos was a pollutant within the meaning of the policy. The question then was whether the manner in which it was released, and by whom, would affect whether it would be deemed a "pollutant" within the meaning of the "pollution exclusion" of the insurance policy. In this regard, the court concluded that "it is irrelevant whether it was negligent or intentional or a one-time incident." What was most important to the court was the scope of the release and the fact that it was released in the environment—particularly becoming airborne and making it to the street, driveways, gardens, and sidewalk.
What the Association was trying to argue was that a single release of asbestos via the negligent work of a contractor is similar in nature to the "natural application" of pesticides, which the California courts have previously held to be a covered event despite the pollution exclusion of the policy. Cases have considered whether an insured party could reasonably have understood and expected a particular type of event to be excluded from coverage under the pollution exclusion. In this instance, however, the court found that the Association and contractor were both aware that the ceiling material contained asbestos. And, whereas an association might purchase and apply its own pesticides to kill bugs, "it is highly unlikely that a home owner, on his or her own, could remove acoustical 'popcorn' ceilings containing asbestos without violating a myriad of laws…."
The court considered the heavy regulation of work on asbestos-containing materials to demonstrate that the Association could not expect the work on asbestos in this instance to be merely an "ordinary act of negligence" for which the Association should reasonably expect coverage despite the pollution exclusion.
Another argument the Association vainly tried was that the pollution exclusion applies only to industrial activity and incidents and lacks plausibility in a "residential" context. Without suggesting that such a distinction would make any difference, the court pointed out that the argument was completely misplaced here because "[i]n essence, a commercial contracting process was badly botched in a large residential compound."
It did not matter to the court whether the dispersal of the asbestos was widespread or local, or whether it was recurring or just a "one-time" release. The court completely rejected the Association argument that the "[r]elease of asbestos in a single condominium building is not [a] 'dispersal' such that a reasonable layperson insured would understand it to be 'environmental pollution' subject to the exclusion." One-time events, said the court, can create a "pollution event" that is subject to the pollution exclusion of the policy. Examples of such events, provided by the court, include a worker who sustains injury from contact with wastewaters containing chemicals that occurs from repairing a sewer line. Even a one-time event that causes an "impurity, something objectionable and unwanted" can constitute an "environmental pollution" subject to the pollution exclusion of the policy, explained the court.
One final argument that the Association tried was that the insurance company should have included an industry-standard asbestos exclusion on the policy, which it has available and has used with other policies, and that failure to use that endorsement in this case created an ambiguity and left open a question of whether the policy intended to cover asbestos. The court was not impressed and concluded, "Notwithstanding that an asbestos endorsement was available but not incorporated into the policy, the scope of the pollution exclusion remains the same."
For all these reasons, the court held that the release of asbestos in this case constituted environmental pollution within the meaning of the pollution exclusion. Judgment in favor of the insurance company was, therefore, affirmed.
In its decision, the court cited a number of cases that demonstrate how broad the standard pollution exclusion is and the kinds of damages that fall within the pollution exclusion even when the pollution event is not some huge environmental disaster. As explained by the court:
[Cases] have upheld applicability of the exclusion in a variety of settings involving CGL policies. (Garamendi v. Golden Eagle Ins. Co. (2005) 127 Cal. App. 4th 480, 486, 25 Cal. Rptr. 3d 642 (Golden Eagle): the widespread dissemination of silica dust as a by-product of industrial sandblasting operation would commonly be thought of as environmental pollution and thus came within the exclusion, the court also noting that there need not be wholesale environmental degradation to constitute pollution; Ortega Rock Quarry v. Golden Eagle Ins. Corp. (2006) 141 Cal. App. 4th 969, 980–981, 990, 46 Cal. Rptr. 3d 517 (Ortega): pollution exclusion precluded coverage for rock quarry operator's activities of placing dirt and rocks in creek bed; dirt and rocks were pollutants subject to the exclusion; American Cas. Co. of Reading, Pa. v. Miller (2008) 159 Cal. App. 4th 501, 515, 71 Cal. Rptr. 3d 571 Miller): layperson reasonably would understand release of methylene chloride into public sewer is a form of environmental degradation; coverage precluded even if triggering event was a negligent one-time release; Cold Creek Compost, Inc. v. State Farm Fire & Cas. Co. (2007) 156 Cal. App. 4th 1469, 1471, 68 Cal. Rptr. 3d 216: pollution exclusion barred coverage for offensive and injurious odors coming from a compost facility and spreading over a mile away.)
Instead of attempting to spend a lot of money on attorney fees and court cases trying to shoehorn environmental pollution damages into policy coverage, it seems like it would have been a more prudent and cost-effective risk management solution for the condominium association to simply require its contractor to secure and maintain a contractors pollution liability (CPL) policy that included coverage for asbestos releases and to name the Association as an additional insured under the policy. Indeed, this is a good way to prequalify firms before contracting with them. One has to wonder about a contractor that knowingly performs work on asbestos-containing materials without first obtaining a CPL policy.
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