The case was brought by another insurer (Acuity) that
provided the same contractor with a commercial general liability
(CGL) policy that did cover damage from the explosion. Based on
the decision, the CGL insurer could not require the CPL insurer
to share in the costs of defense and indemnification.
See Acuity v. Chartis Specialty Ins.
Co., 353 Wis. 2d 554, 846 N.W.2d 34 (Wis. App. 2014).
The Insurance Dispute
Four consolidated lawsuits were brought by several plaintiffs
against a contractor, Dorner, Inc., following an explosion that
occurred when Dorner employees hit an underground natural gas
line. The ruptured line caused an explosion and fire that
destroyed a church, damaged nearby houses, and injured two
employees of an electric utility company.
The contractor had a CPL policy issued by Chartis Specialty
Insurance and a CGL policy issued by Acuity. Acuity provided
defense and indemnification to the contractor, settling the
lawsuits for about $1.5 million, plus defense costs of almost
$300,000. However, from the outset, Acuity contended that
Chartis was required to share in the defense and indemnification
costs under its CPL policy. Chartis denied that its policy was
triggered, prompting Acuity's suit in circuit court against
Chartis for breach of the policy.
The county circuit court decision, which was reversed on
appeal, had found that Chartis had breached its policy and owed
Acuity 50 percent of the defense and indemnification costs. The
court looked to the language of CPL policy, which covered
damages due to "Pollution Conditions." The policy defined
pollution conditions in part as "the discharge, dispersal,
release or escape of any solid, liquid, gaseous or thermal
irritant or contaminant." The circuit court theorized that the
leak of the "gaseous combustible fuel" met the definition of a
contaminant under the pollution policy. Accordingly, the circuit
court found that Chartis breached the policy and ordered it to
provide Acuity with half of the defense and indemnification
costs.
The Wisconsin Court of Appeals disagreed, finding that the
CPL insurer was not under a duty to defend. Under Wisconsin law,
an insurer's duty to defend is triggered when the allegations in
a lawsuit, if proven, would "give rise to the possibility of
recovery" under the policy. A duty to defend "is necessarily
broader than the duty to indemnify because the duty to defend is
triggered by arguable, as opposed to actual, coverage." Assuming
the facts in the complaint are correct, the insurer's coverage
under the policy must at least be "fairly debatable" for the
insurer to have a duty to defend the insured.
The appeals court found that, even assuming all the facts in
the complaint were correct, the insurer had no duty to defend
under the CPL policy. The appeals court explained that the
lawsuits against the contractor alleged property damage and
injury due to the explosion and resulting fire,
not from contact to the escaped natural gas itself.
Without any damage or injury due to direct contact with a
"contaminant or irritant," there was no "Pollution Condition"
under the policy. The court concluded that, since coverage under
the policy was not "fairly debatable," Chartis was under no duty
to defend under the CPL policy.
Conclusion
This case highlights the distinction between damages and
injuries that are caused by a covered pollution condition that
would be covered under a CPL policy versus those that are caused
by a nonpollution event (such as explosion) even when that event
might itself cause the release of a contaminant (in this case,
gas). The point is that the complaint did not allege that the
gas caused the injuries. It alleged that the explosion caused
the injuries. The court found that it was undeniable that the
natural gas did not cause or contribute to the damages or
injuries alleged in the complaint. Consequently, there could be
no possible trigger of pollution coverage under the CPL policy,
and this meant there could be no duty under the CPL policy to
defend the claims.