Expert Commentary

Epoxy Fumes Are Unambiguously Excluded from Coverage as "Pollutants" under the CGL Total Pollution Exclusion

The pollution exclusion in a commercial general liability (CGL) insurance policy issued by Firemen's Fund Insurance excluded coverage for damages arising out of a claim asserted by a warehouse employee alleging she developed respiratory problems as a result of inhaling fumes from epoxy sealant.


Environmental
November 2007

Firemen's insured the subcontractor that installed concrete flooring (with an epoxy and urethane protective sealant) at a warehouse. In a declaratory judgment action against the insurance company, the subcontractor and additional insured prime contractor asked the court to rule that the pollution exclusion was ambiguous and could not be enforced to exclude coverage for the injuries in this case.

The court reached two significant determinations in holding that the exclusion barred coverage. First, the court found that epoxy/urethane fumes are pollutants as defined by the CGL policy. Second, the terms "discharge," "dispersal," "seepage," "migration," "release," and "escape" are not ambiguous in the context of this case.

In the case of Firemen's Ins. Co. of Washington, D.C. v. Kline & Son Cement Repair, Inc., 474 F. Supp. 779, the U.S. District Court for the Eastern District of Virginia applied Virginia law in analyzing the merits of the insurance coverage dispute. The policy contained the total pollution exclusion, stating that insurance does not apply to:

"Bodily injury" or "property damage" which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" at any time.

"Pollutants" are defined by the policy as:

any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.

The first question for the court was whether the language of this exclusion was ambiguous as applied to the facts of the case. Although the court acknowledged the rule that contract language is deemed ambiguous when it can be understood in more than one way, or when it may refer to two or more things at the same time, the court stated that policy language is not necessarily ambiguous merely because parties disagree as to the meaning of the terms used.

Is the Epoxy Sealant a "Pollutant" within the Definition?

The insureds argued that the definition of "pollutant" in the policy was ambiguous and therefore unenforceable as applied to the personal injury allegations. In pertinent part, the definition section of the policy defines a "pollutant" as:

any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.

Whether a substance is a "pollutant" is a fact-specific inquiry.

Since the federal district court was applying the law of Virginia, the state where the policy was issued, it carefully considered a recent Virginia Supreme Court precedent in the case of City of Chesapeake v. States Self-Insurers Risk Retention Group, Inc., 271 Va. 574, 628 S.E.2d 539, 540 (2006). In that case, the court analyzed a policy with a similar absolute pollution exclusion containing an identical definition of the term "pollutant." Based on the exclusion and the definition of "pollutant," the court in Chesapeake barred coverage for damages allegedly caused by the release of trihalomethanes (THMs) into a city's water supply. Relying on a federal environmental statute and accompanying regulations designed to regulate drinking water, the court concluded that because the federal statute defined THMs as contaminants, and because the insurance policy defined "pollutants" to include "contaminants," THMs were pollutants as that term was defined in the policy.

In the current case, Firemen's Insurance asserted that the Chesapeake holding must be applied because epoxy/urethane floor sealant is a "pollutant" because it contains toxic substances that are classified as "hazardous air pollutants" under the Clean Air Act. But the U.S. District Court disagreed with the argument because violations of the Clean Air Act were not an issue in this case. The court concluded that "any reference to a particular federal environmental statute is therefore rendered unnecessary and inappropriate." This does not necessarily lead to the conclusion, however, that fumes cannot be a "pollutant" within the meaning of the policy.

The court cited another recent Virginia decision that confronted the issue of whether heating oil is a "pollutant" under an identical definition to that confronted by the Supreme Court of Virginia in Chesapeake, as well as that at issue in this case. No statue directly applied to the issue of whether heating oil was designated as a pollutant. In that case, the court concluded it was required to "consider the language of the policy, giving words that are not expressly defined their usual, ordinary, and popular meaning, to determine if the plain language of the policy provides the answer" to the question of whether heating oil is a pollutant within the meaning of the policy language at issue in that case. The court ultimately concluded that the ordinary meaning of the word "contaminant" encompassed fuel oil leaking out of fuel lines into the soil and that a plain reading of the entire pollution exclusion clause supported the court's conclusion that heating oil was to be considered a pollutant pursuant to relevant policy language.

Using a similar analysis, the court in this instant case considered the question of whether the epoxy/urethane sealant was a "pollutant" as that term is defined in the pollution exclusion clause of the subject policy. Citing a scientific report, the court stated that the epoxy sealant at issue was not innocuous. Its harmful effects are well known. According to the Report, the sealant is an irritant.

It may cause moderate irritation to the respiratory system, its vapor may irritate the nose and throat, and persons using the product should guard against inhaling its harmful fumes and vapors.

"In addition," said the court:

when canisters of a liquid or other compound are brought onto premises, opened, and the material, upon exposure to the air or after application to the surface, causes noxious fumes to emanate and make a person nauseous, dizzy, or otherwise feel ill, the fumes are clearly pollutants.

The definition of "pollutant" in the policy that includes "any ... irritant or contaminant, including ... fumes," must, says the court, be understood to include fumes from epoxy sealant. The court concluded the following:

The ordinary meaning of the word "irritant" encompasses toxic fumes emanating from a chemical that has been applied to a floor, where that chemical is specifically labeled by its manufacturer as causing "irritation to the respiratory system" when inhaled, is inundated with various "hazardous substances," some of which pose grave health risks to persons coming into contact with the fumes of the chemical, and which suggests that its applicators take precautionary measures when using the product. The sealant fumes in this instance certainly fall within the definition of gaseous substances, vapors, and fumes, and the substances composing the sealant are plainly chemicals.

For these reasons, the court found the term "pollutant" unambiguously includes the fumes released from the epoxy/urethane sealant applied to the warehouse floor.

Are "Discharge," "Dispersal," "Seepage," "Migration," "Release," and "Escape" Ambiguous?

Having determined that the epoxy sealant is a "pollutant" as that term is defined in the policy, the court went on to quote policy language providing that the exclusion would only apply to claims for:

"[b]odily injury" ... which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of [the epoxy/urethane fumes] at any time.

As explained by the court:

Jurisdictions are split as to the meaning of the terms "discharge, dispersal, seepage, migration, release or escape." "These method of travel requirements have been both narrowly and broadly construed by various jurisdictions, usually depending upon whether that jurisdiction views pollution as limited to traditional industrial environmental pollution or not." [citation omitted]. Numerous courts have held that a pollution exclusion bars coverage for all injuries caused by the release of pollutants, even where the pollutant is dispersed into a confined or indoor area. In contrast, other courts have held that the exclusion does not apply if the facts show that the discharge, dispersal, release or escape was a localized toxic accident occurring within the vicinity of the pollutant's intended use.

The court also pointed out that there are two contrary philosophies in the courts concerning the interpretation of "total" or "absolute" pollution exclusions. "The first school of thought holds that the exclusion does not apply where the pollution in question is not environmental or industrial in nature, whereas the other concludes that the exclusion is indeed absolute and applies to any set of facts that come within the literal meaning of its terms." Having acknowledged the contrasting views, the court here stated that it must reluctantly conclude that Virginia insurance and contract law would lead to the conclusion that "the Total Pollution Exclusion clause at issue here is unambiguous as applied to the pertinent factual allegations."

In this case, the insureds argued that the words "discharge, dispersal, seepage, migration, release or escape" are environmental terms of art that should apply only to discharges of pollutants into the environment. In rejecting this argument, the court stated that the policy nowhere references the words "environment," "environmental," "industrial," or any other limiting language that would suggest the pollution exclusion is not equally applicable to both "traditional" and indoor pollution scenarios.

As further explained by the court:

The Pollution Exclusion clause does not say the discharges or dispersals of pollutants must be "into the environment" or "into the atmosphere," or in any way indicate that environmental "incidents" are the only conditions that bar coverage under the clause. On the contrary, considering the exclusion language in its entirety, it broadly applies to "the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ... any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste ... at any … time."

Because the words "discharge," "dispersal," "seepage," "migration," "release," or "escape" are not defined in the policy, they must, according to the court, be given their usual, common, and ordinary meaning. What each of the terms has in common is the element of movement. As quoted from another decision cited by the court, "The listing of similar terms such as 'discharge' and 'dispersal,' preceded by the phrase 'actual, alleged, or threatened,' indicates an intent to comprehend all such types and degrees of movement."

Reading the language this way, the court concluded that the pollution exclusion clause applied to the situation in the instant case where a pollutant, epoxy floor sealant, was applied to the surface of the warehouse floor, and it dispersed into the air above and around the warehouse floor, eventually reaching a worker's office where she later inhaled the toxic fumes.

Traditional versus Nontraditional Pollution

The insureds also argued that only "traditional" or "outdoor" pollution scenarios were intended to be excluded from coverage. But in quickly rejecting this argument, the court concluded that nothing in the language of the policy or the pollution exclusion clause suggested such a limited reading of the exclusion. If that were the intent of the drafters of the policy, the court stated they could have used words of limitation to exempt indoor (i.e., nonindustrial) air pollution from its application, but they did not do so.

The broadness of the exclusionary language, coupled with the parties' failure to specify that the exclusion be limited to only "traditional" or "industrial" pollution, therefore mandates the conclusion that the Pollution Exclusion clause is sweeping, excepting both environmental and indoor pollution occurrences from coverage.

Conclusion

For these reasons, the court found that the pollution exclusion clause applied unambiguously to the allegations, and that Firemen's Insurance owed no duty to defend or indemnify its insureds for personal injury claims that might be filed by the injured employee of the warehouse.


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