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.
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 case law 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.
For all the reasons explained herein, 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.
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