Expert Commentary

Broad Pollution Exclusion Is Ambiguous: Lead Covered by Policy

A federal court in New York found the language of the standard pollution exclusion of a commercial property insurance policy to be overly broad and ambiguous so as not to exclude coverage for lead dust resulting from a contractor's efforts to remove lead paint from a building.


Environmental
May 2005

In Herald Square Loft Corp. v Merrimack Mutual Fire Ins., 344 F Supp 2d 915, (SD NY 2004), the question for the court was whether the pollution exclusion applied to lead poisoning that got into a building by lead paint dust blowing in through the windows when contractors sanded them. The property owner claimed more than $100,000 in cleanup expenses to clean up the lead paint dust contamination, replace window air-conditioning units and other equipment contaminated with the lead dust, and relocate some of the residents during the cleanup.

The court agreed that lead contaminants are a "pollutant" and that the lead contaminants were "released or dispersed" into the building. The court concluded, however, that the exclusion would not be applied in this case for the following reasons:

  1. Overbroad language of the exclusion did not exclude coverage with the required specificity.
  2. Applying the exclusion would not be consistent with "common sense and the reasonable expectations of the parties."
  3. New York cases hold that lead paint is not an excluded contaminant.
  4. The insurance company's notice of reduction in coverage adding a lead paint exclusion states an intent to reduce coverage and therefore suggests lead was covered prior to the addition of this new exclusion which was issued after the facts giving rise to the claim in this instance.
  5. The insurance industry has left the relevant language in pollution exclusion clauses unchanged notwithstanding the numerous cases that question or reject its applicability to lead paint.

Exclusion Language

The policy in question contained an exclusion from coverage damage or loss arising out of the:

discharge, dispersal, seepage, migration, release or escape of "pollutants" unless the discharge, seepage, migration, release or escape is itself caused by any of the "specified causes of loss." But if the discharge, dispersal, seepage migration, release or escape of "pollutants" results in a "specified cause of loss," we will pay for the loss or damage caused by that 'specified cause of loss.'

The term "pollutants" was defined in the policy to be:

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, re-conditioned or reclaimed.

The "specified causes of loss" for which pollution coverage was granted include:

fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; and water damage.

Reasonable Expectations

According to the court: "The parties could not have reasonably expected the pollution exclusion … to bar coverage for damages from repairs to the Building." The question, says the court, "is not whether leaded dust is a 'pollutant' for purposes of a pollution exclusion clause; it is whether a 'reasonable policyholder' would consider leaded dust removed from exterior windows and fire escapes during routine repairs to be environmental pollution." The court stated that the insurance company's interpretation of the exclusion clause is that the same language excludes coverage for damages from a large scale toxic environmental pollution as from repairs done to window sills. Without any explanation, the court concludes: "This could not have been the expectation of the parties when the … policy was issued."

When the court says it "could not have been the expectation of the parties" to apply the exclusion equally to large scale pollution and dust arising from "repairs," it relies on previous New York cases finding the exclusion ambiguous with regard to coverage for dust and pollution from repair work. But the court fails to acknowledge that many insurance companies have intended and assumed that the exclusion would apply to all pollution regardless of size. What the court does, however, is state that because the insurance companies have left the relevant standard language of the pollution exclusion unchanged notwithstanding the numerous cases that question or request its applicability to lead paint, it must be concluded that "pollution exclusion clauses are inapplicable to losses resulting from lead paint unless such losses are specifically excluded."

The fact that the insurance company here eventually issued a "reduction in coverage" for a subsequent policy term seemed to the court to prove that the company considered damages from lead paint to be covered by the original policy language. Otherwise, reasons the court, why issue the exclusion? The court notes, however, that even if that was not the insurance company's intent, just the fact that the insurance company issued the separate lead paint exclusion prevents it from now arguing that the original exclusion was "clear and unequivocal" in excluding lead pollution.

Comment and Opinion

One of the first things the court stated in its decision was this: "The language of the pollution exclusion clause of the 2002 policy is so broad that it cannot literally mean what it says." Really?! Does the court imply that the language should be taken figuratively? Are we to start looking for metaphors in the policy? Policy language is not the stuff of fiction and imagination. It is to be read and applied literally—accepting its plain meaning as its real meaning.

In view of the creative ways that insureds, their attorneys, and the courts have boldly found pollution coverage where insurance companies thought they had excluded it, perhaps a more foolproof way to successfully limit coverage would be to add a separate sublimit for pollution related to lead, asbestos, mold, and any number of other issues in which courts seem to favor finding coverage—even in the face of insurance company efforts to write pollution exclusions that are "absolute" or "total." If the words of the policy state that the most an insured will get for asbestos, lead, and mold is a specified, small dollar amount, it might be easier to make this stick in court.

The court used the fact that the insurance industry had not revised the standard form pollution exclusion following so many losses in the courts against the insurance carrier in this case. According to the court, this failure to revise the language must mean that the industry is satisfied with the coverage interpretations of the courts. How ironic, however, that any such revision to the standard form exclusions would logically be used by this same court against the insurers. Since this court found that adding a lead exclusion to the policy in question was evidence of the carrier's intent to cover lead under the original exclusion, wouldn't the court reach a similar conclusion if the standard exclusion itself was revised? By this court's reasoning, the insurers are damned if they do (revise the language), and damned if they don't.

There are times when an insurer may decide to revise its policy language—not because it wants to add a new exclusion, but because it decides to make the existing exclusion clearer. This might not be because the exclusion really needs clarification for the most people (i.e., the "reasonable man"), but because some courts have said it needs clarification. In light of court interpretations of exclusionary language that insurers thought was abundantly clear, insurers need the liberty to amend their forms, and even issue additional exclusions, without having courts then use this against them by either creating an adverse inference concerning the insurers' intent on the original language, or by concluding that the insurer cannot subsequently argue that the original language as "clear and unequivocal."


Note: The opinions expressed in this article are the personal opinions of the author and are not to be attributed to any company, firm or entity with whom the author is associated and do not necessarily reflect those of any such company or firm.


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.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More



User ID: Subscriber Status:Free