In the case of Brownlee v. Liberty Mut. Fire Ins. Co., 456 Md. 579, 175 A.3d 697 (2017), a family was severely harmed from exposure to lead-based paint at their apartment in Baltimore, Maryland. Two of the family members sustained a permanent brain injury.
They filed suit against the building owner (the Salvation Army) who tendered the claim to Liberty Mutual Insurance under their commercial general liability policies. The policies that had been purchased in the state of Georgia did not include a lead-based paint exclusion, but they did include a standard pollution exclusion.
Under Georgia law, the pollution exclusion has been applied broadly to apply to lead-based paint as well as other pollutants. The parties to the litigation agreed that, under Georgia case law, the Liberty Mutual polices would not cover claims from lead-based paint poisoning. In Maryland, however, the courts have held that lead-based paint is not considered a "pollutant" within the meaning of the pollution exclusion.
The question to be decided in this case was whether it would be against Maryland public policy to apply Georgia law to the facts here and thereby exclude coverage for lead-based paint even though the courts in Maryland have declined to find lead-based paint to be a "pollutant."
Background on Maryland Case Law
In earlier case law, Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617 (1995), the Maryland Court of Appeals determined that "contaminants" and "pollutants" are susceptible to two different interpretations by a layperson. "One interpretation of the two terms could reasonably encompass lead-based paint, while another could refer to environmental contaminants or pollutants." The court noted in the Sullins decision that, "to be sure that lead pain poisoning claims were excluded from coverage, [the insurer] could have included a provision … explicitly excluding such claims."
The Sullins court ruled that the policy language was ambiguous and did not remove the insurer's duty to defend the lead-based paint poisoning action. The court went on to find that the absolute pollution exclusion defined "pollutant" as "any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalies, chemicals, and waste," and these were terms of art, "and thus the parties intended environmental hazards, and not lead-based paint, to be excluded."
Background of Georgia Case Law
In the decision of Smith v. Georgia Farm Bureau Mut. Ins. Co., 298 Ga. 716, 784 S.E.2d 422 (2016), the court held, on almost identical policy language, that the insurance company had no duty to defend against a lead-based paint poisoning claim. Interestingly, that decision cited and analyzed the Sullins decision of Maryland and reached the opposite conclusion on the applicability of the absolute pollution exclusion.
The Georgia Supreme Court read that the policy definition of "pollutant" included "matter, in any state, acting as an 'irritant' or contaminant.'" It stated that this language was clear in the policy and that focusing on extrinsic sources of interpretation is what leads to ambiguity in the pollution exclusion where none exists.
Application of Lex Loci Contractus
Liberty Mutual in the current case argued that it had no duty to defend against the lead-based poisoning claims because (1) the policies were formed in Georgia and the law governing the contracts is the law of Georgia, that being the state where the contract was formed (known as lex loci contractus), and (2) under Georgia law, the pollution exclusion bars coverage for bodily injury resulting from exposure to lead-based paint.
The court of appeals in Liberty Mutual held that the lex loci contractus should apply and that Georgia's interpretation of the pollution exclusion would be applied. The court stated, "For the lex loci contractus doctrine to be set aside, Maryland's public policy 'must be very strong and not merely a situation in which Maryland law is different from the law of another jurisdiction.'"
As stated by the court, "Application of Georgia law under the lex loci contractus doctrine further does not clearly offend Maryland's public policy because the General Assembly has not expressly dictated that lead-based paint cannot be excluded from insurance policies as pollutants, and because pollution exclusion clauses are not an evolving area of public policy. In fact, the General Assembly has explicitly expressed that insurer's 'may include in the policy a lead hazard coverage exclusion.'"
For these reasons, the court held that Georgia's interpretation of the pollution exclusion was applicable here and there was no coverage under the Liberty Mutual policy for the claims based on lead-poisoning.
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